generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. We routinely remit escheat payments to states and believe we are in compliance with applicable escheat laws.
Summarized basic and diluted earnings per common share were calculated as follows:
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” These forward-looking statements, include, without limitation, those relating to the impact of ongoing challenging macroeconomic conditions on our business, operations, financial performance and prospects, the future business prospects and financial performance of our Company as a whole and of our segments, our growth strategies, our expectations, plans and strategy relating to our capital structure and capital allocation, including any share repurchases under our share repurchase program, and other statements that are not historical facts.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially and adversely depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Operations” below. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Quarterly Report on Form 10-Q and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. WeExcept as required by law, we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. Factors that could cause or contribute to these differences include, but are not limited to:
•the general strength of the economy and other economic conditions affecting consumer preferences and spending:spending, including the availability of credit to our target consumers and to other consumers, impacts from continued inflation, central bank monetary policy initiatives to address inflation concerns, and a possible recession or slowdown in economic growth;
•factors affecting the disposable income available to our current and potential customers;
•changes in the unemployment rate;
uncertainties concerning the outcome, impact, effects•capital market conditions, including changes in interest rates and resultsavailability of the exploration offunding sources for us;
•changes in our strategic and financial alternatives;credit ratings;
•difficulties encountered in improving the financial and operational performance of our business segments;
•risks associated with pricing, value proposition and other changes and strategies being deployed in our chief executive officer and chief financial officer transitions, including businesses;
•our ability to continue to effectively operate and execute our strategies during the interim periodstrategic initiatives, including mitigating risks associated with any potential mergers and difficultiesacquisitions, or delays in identifying and/or attracting a permanent chief financial officer with the required level of experiencerefranchising opportunities;
•our ability to identify potential acquisition candidates, complete acquisitions and expertise;successfully integrate acquired companies;
•failure to manage our storeoperating labor and other store expenses;non-labor operating expenses, including merchandise losses;
our ability to develop and successfully execute strategic initiatives;
•disruptions caused by the operation of our store information management system;systems or disruptions in the systems of our host retailers;
•risks related to our virtual lease-to-own business, including our ability to continue to develop and successfully implement the necessary technologies;
•our ability to achieve the benefits expected from our integrated virtual and staffed retail partner offering and to successfully grow this business segment;
•exposure to potential operating margin degradation due to the higher cost of merchandise and higher merchandise losses in our Acima segment compared to our Rent-A-Center segment;
•our transition to more-readily scalable "cloud-based"“cloud-based” solutions;
•our ability to develop and successfully implement digital or E-commerce capabilities;capabilities, including mobile applications;
•our ability to protect our proprietary intellectual property;
•our ability or that of our host retailers to protect the integrity and security of customer, employee, supplier and host retailer information, which may be adversely affected by hacking, computer viruses, or similar disruptions;
•impairment of our goodwill or other intangible assets;
•disruptions in our supply chain;
•limitations of, or disruptions in, our distribution network;
•rapid inflation or deflation in the prices of our products;products and other related costs;
•allegations of product safety and quality control issues, including recalls;
•our ability to execute, andas well as the effectiveness of, a store consolidation,consolidations, including our ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation;
•our available cash flow;flow and our ability to generate sufficient cash flow to continue paying dividends;
•increased competition from traditional competitors, virtual lease-to-own competitors, online retailers, Buy-Now-Pay-Later and other fintech companies and other competitors, including subprime lenders;
•our ability to identify and successfully market products and services that appeal to our current and future targeted customer demographic;segments and to accurately estimate the size of the total addressable market;
•consumer preferences and perceptions of our brands;
uncertainties regarding the ability to open new locations;
•our ability to acquireeffectively provide consumers with additional stores or customer accounts on favorable terms;products and services beyond lease-to-own, including through third-party partnerships;
our ability to control costs and increase profitability;
•our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;
•our ability to enter into new rental or lease purchase agreements and collect on our existing rental or lease purchase agreements;
•impacts from the passageenforcement of legislationexisting laws and regulations and the enactment of new laws and regulations adversely affecting our business, including in connection with the Rent-to-Own industry;regulatory matters described in Note 11 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and any legislative or other regulatory enforcement efforts that seek to re-characterize store-based or virtual lease-to-own transactions as credit sales and to apply consumer credit laws and regulations to our business;
•our compliance with applicable statutes or regulations governing our transactions;businesses;
•changes in interest rates;tariff policies;
RENT-A-CENTER, INC. AND SUBSIDIARIES
•adverse changes in the economic conditions of the industries, countries or markets that we serve;
•information technology and data security costs;
•the impact of any breaches in data security or other disturbances to our information technology and other networks and our ability to protect the integrity and security of individually identifiable data of our customers and employees;networks;
changes in our stock price, the number of shares of common stock that we may or may not repurchase, and our dividend policy and any changes thereto, if any;
•changes in estimates relating to self-insurance liabilities and income tax and litigation reserves;reserves, including in connection with the regulatory and litigation matters described in Note 11 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q;
•changes in our effective tax rate;
•fluctuations in foreign currency exchange rates;
•our ability to maintain an effective system of internal controls;
the resolution of our litigation;•litigation or administrative proceedings to which we are or may be a party to from time to time; and
•the other risks detailed from time to time in our reports tofurnished or filed with the United States Securities and Exchange Commission.Commission (the “SEC”).
Additional important factors that could cause our actual results to differ materially from our expectations are discussed under the section “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2023 and elsewhere in this Quarterly Report on Form 10-Q. You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
Our Business
We are one ofa leading lease-to-own provider with operations in the largest rent-to-own operators in North America, focused on improving the quality of lifeUnited States, Puerto Rico and Mexico. We provide a critical service for our customersunderserved consumers by providing them with access to, and the opportunity to obtain ownership of, high-quality, name brand durable products such as consumer electronics, appliances, computers, (including tablets), smartphones, and furniture (including accessories), under a flexible rental purchase agreementslease-purchase agreement with no long-term debt obligation. Our Acima segment
offers lease-to-own solutions through retailers in stores and online enabling such retailers to grow sales by expanding their customer base utilizing our differentiated offering and allowing customers to access our flexible lease-to-own solutions at thousands of retailers and to lease a wide range of durable products. Through our Rent-A-Center segment, we provide a fully integrated customer experience through our e-commerce platform and brick and mortar presence in local communities around the country. We were incorporated in the State of Delaware in 1986.1986, and our common stock is traded on the Nasdaq Global Select Market under the ticker symbol “UPBD.”
Executive Summary
Our Growth Strategy
We areOur strategy is focused on achieving our mission to provide cash-elevate financial opportunity for all and credit-constrained consumersgrowing our business through emphasis on the following key initiatives:
•Grow penetration with affordablecurrent Acima merchants and flexible accessbuild on our strength with small to durable goods that promote a higher quality of living. On April 10, 2017,medium size businesses while also adding new national and regional merchants to our platform and expanding our direct-to-consumer channels;
•At Rent-A-Center, accelerate the shift to e-commerce, improve the fully integrated omni-channel customer experience and expand product categories, which we announced aexpect will increase brand awareness and customer loyalty;
•Leverage data analytics capabilities to attract new customers, approve more customers and comprehensive strategy to restore growth, improve profitability and maximize value. These initiatives are designed to strengthen the Core U.S. segment; optimize and grow the Acceptance Now segment; and leverage technology investments to expand distribution channelsmitigate risk across business segments;
•Upgrade and integrate retailtechnology platforms to allow for a more simplified and online offerings:seamless consumer experience, merchant and third-party waterfall integration and consumer transaction process and coworker efficiency;
Strengthen•Execute on market opportunities and enhance our competitive position across both traditional and virtual lease-to-own solutions, and implement complementary products and services that supplement our current offerings and provide our customers more financial alternatives; and
•Develop centers of excellence that will be leveraged across the Core
Enhance value proposition and facilitate ownership
Optimize product mix
Stabilize and upgrade the workforce
Improve account management
Drive efficiencies in-store
Optimize footprint
Optimize and Grow Acceptance Now
Enhance value proposition and facilitate ownership
Optimize partner relationships
Centralize account management
Grow Acceptance Now unstaffed solutions
Enhance decision engine
Embrace Technology and Channel Expansion
Leverage technology investments
Build digital capabilitiesorganization to support omni-channel platformour various business segments, utilizing best practices to drive efficiency and growth.
Expand Acceptance NowAs we pursue our strategy, we have taken, and may in the future take, advantage of joint venture, partnership, or merger and acquisition opportunities from time to new channels, customerstime that advance our key initiatives and productselevate the financial mobility of underserved consumers.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Recent Developments
Effects of Hurricanes. In August and September 2017, Hurricanes Harvey, Irma and Maria caused significant damage in the continental United States and surrounding territories, primarily including Texas, Florida, and Puerto Rico. We incurred charges during the third quarter of 2017 as a result of the damage and displacement caused by these storms, including inventory losses, store repairs, employee assistance, and fixed asset write-offs. Storm related costs are included in other charges for the respective segment as discussed in Note 5 to the unaudited condensed consolidated financial statements. We continue to assess the full impact of damage caused by these storms and expect additional charges related to the 2017 hurricanes to be recorded in the fourth quarter of 2017.
Strategic Alternatives Announcement; Suspension of Quarterly Dividend.We On March 22, 2024, we announced on October 30, 2017 that our Boardboard of Directors, in consultation with its financial and legal advisors, has initiated a process to explore a full range of strategic and financial alternatives focused on maximizing stockholder value. We do not intend to discuss or disclose developments with respect to this process unless and until our board hasdirectors approved a definitive course of action or the process is otherwise concluded. We also announced the suspension of our quarterly cash dividend untilof $0.37 per share for the process has concluded.
Steven L. Pepper Resignation. We also announcedsecond quarter of 2024. The dividend was paid on October 30, 2017 that Steven L. Pepper resigned from his positionApril 22, 2024 to our common stockholders of record as director and Chairman of the Boardclose of business on April 3, 2024.
Business and Operational Trends
Macroeconomic Conditions. In recent years, we have experienced significant change in our business and operational trends driven by macroeconomic conditions, which have directly impacted our customers as well as our operations, including significant changes in the U.S. consumer price index, changes in demand for certain consumer retail categories, changes in consumer payment behaviors, a condensed labor market, which has also contributed to wage inflation, rapid increases in interest rates, and global supply chain disruptions resulting in reduced product availability and rising product costs.
While the lease-to-own industry has historically remained a resilient business model throughout various economic cycles, the full extent to which our risk management strategy and these macroeconomic trends (including consumer spending and payment behavior) may impact our business in future periods is uncertain. The continuation of negative and volatile macroeconomic trends may have a material adverse impact on our financial statements, including our results of operations, operating cash flows, liquidity and capital resources.
See “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023, for additional discussion of impacts to our business and additional risks associated with macroeconomic conditions.
Rent-A-Center with his resignation taking effect on October 31, 2017. Mr. Pepper informed us that he is resigningE-commerce revenue. In recent years, e-commerce revenues have continued to increase as a resultpercentage of his disagreementtotal rentals and fees revenue in our Rent-A-Center segment. For the three months ended March 31, 2024, e-commerce revenues represented approximately 26% of total lease-to-own revenues compared to approximately 25% for the three months ended March 31, 2023. Due to recent trends in consumer shopping behaviors and expectations, we believe e-commerce solutions are an important part of our lease-to-own offering. However, we are unable to quantify the extent to which e-commerce revenues are incremental compared to what our overall revenues would have been in the absence of those e-
commerce transactions. In addition, the profitability of e-commerce transactions can be impacted by different merchandise loss factors compared to traditional store-based transactions in the Rent-A-Center segment. Therefore, we are unable to determine with certainty whether the continuation of this trend toward increased e-commerce transactions will have a significant impact to our board’s decisionfinancial statements in future periods or be favorable or unfavorable to initiate a process through which we will explore various strategic andour financial alternatives.results.
Results of Operations
The following discussion focuses on our results of operations and issues related to our liquidity and capital resources. You should read this discussion in conjunction with the condensed consolidated financial statements and notes thereto for the three months ended March 31, 2024 included elsewhere in Part I, Item I of this Quarterly Report on Form 10-Q.
Overview
DuringKey Metrics
Gross Merchandise Volume (“GMV”): The Company defines Gross Merchandise Volume as the first nine monthsretail value in U.S. dollars of 2017, we experienced a decline in revenues, gross profit and operating profit driven primarily by declines in same store revenue, reductions in our store base for the Core U.S. and Acceptance Now segments, impacts related to the recent hurricanes, and an increase in other charges. Other charges were primarily comprised of Acceptance Now store closures, reductions in our field support center, incremental legal and advisory fees, damages causedmerchandise acquired by the recent hurricanes, and debt refinancing costs, partially offset by litigation settlements.
The Acceptance Now segment revenues decreased by approximately $2.2 million or 0.3% primarily dueCompany that is leased to store closures for Conn's and hhgregg, and impacts from the recent hurricanes. Gross profit decreased by 2.8% primarily due to lower gross margins on merchandise sales driven by our continued focus to encourage ownership and reduce returned product. Operating profit declined 42.7% primarily due to other charges related to store closures and sales deleverage. Excluding these other charges, operating profit decreased by 17.9%.
Revenues in our Core U.S. segment decreased approximately $206.1 million for the nine months ended September 30, 2017, primarily due tocustomers through a decrease in same store revenuetransaction that occurs within a defined period, net of 9.4%, rationalization of our Core U.S. store base in the prior year, and impacts from the recent hurricanes. Gross profitestimated cancellations as a percentage of revenue decreased 1.9% due to the decrease in store revenue and pricing actions taken to right size the segment's inventory mix and changes from the new value proposition. Labor and other store expenses decreased approximately $40.2 million and $61.4 million, respectively, but were negatively affected by sales deleverage.
Gross profit for the Mexico segment as a percentage of revenue increased by 0.2% for the nine months ended September 30, 2017, driven by higher gross margin merchandise sales due to pricing initiatives.
Cash flow from operations was $135.4 million for the nine months ended September 30, 2017. We used our free cash flow to pay down debt by $86.6 million during the first nine months of the year, endingmeasurement date.
Lease Portfolio Value: Represents the periodaggregate dollar value of the expected monthly rental income associated with $76.2 millioncurrent active lease agreements from our Rent-A-Center stores and e-commerce platform at the end of cash and cash equivalents.any given period.
RENT-A-CENTER, INC. AND SUBSIDIARIES
The following table is a reference for the discussion that follows.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Nine Months Ended | | | | |
| September 30, | | Change | | September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
Revenues | | | | | | | | | | | | | | | |
Store | | | | | | | | | | | | | | | |
Rentals and fees | $ | 552,194 |
| | $ | 595,179 |
| | $ | (42,985 | ) | | (7.2 | )% | | $ | 1,723,019 |
| | $ | 1,915,184 |
| | $ | (192,165 | ) | | (10.0 | )% |
Merchandise sales | 67,566 |
| | 73,219 |
| | (5,653 | ) | | (7.7 | )% | | 266,061 |
| | 281,703 |
| | (15,642 | ) | | (5.6 | )% |
Installment sales | 17,276 |
| | 17,626 |
| | (350 | ) | | (2.0 | )% | | 51,690 |
| | 53,718 |
| | (2,028 | ) | | (3.8 | )% |
Other | 2,257 |
| | 2,633 |
| | (376 | ) | | (14.3 | )% | | 7,428 |
| | 10,001 |
| | (2,573 | ) | | (25.7 | )% |
Total store revenue | 639,293 |
| | 688,657 |
| | (49,364 | ) | | (7.2 | )% | | 2,048,198 |
| | 2,260,606 |
| | (212,408 | ) | | (9.4 | )% |
Franchise | | | | | | | | | | | | | | | |
Merchandise sales | 2,676 |
| | 3,113 |
| | (437 | ) | | (14.0 | )% | | 9,211 |
| | 12,083 |
| | (2,872 | ) | | (23.8 | )% |
Royalty income and fees | 1,996 |
| | 2,107 |
| | (111 | ) | | (5.3 | )% | | 6,177 |
| | 6,459 |
| | (282 | ) | | (4.4 | )% |
Total revenues | 643,965 |
| | 693,877 |
| | (49,912 | ) | | (7.2 | )% | | 2,063,586 |
| | 2,279,148 |
| | (215,562 | ) | | (9.5 | )% |
Cost of revenues | | | | | | | | | | | | | | | |
Store | | | | | | | | | | | | | | | |
Cost of rentals and fees | 153,202 |
| | 159,454 |
| | (6,252 | ) | | (3.9 | )% | | 474,511 |
| | 504,834 |
| | (30,323 | ) | | (6.0 | )% |
Cost of merchandise sold | 70,551 |
| | 68,684 |
| | 1,867 |
| | 2.7 | % | | 256,730 |
| | 253,473 |
| | 3,257 |
| | 1.3 | % |
Cost of installment sales | 5,207 |
| | 5,553 |
| | (346 | ) | | (6.2 | )% | | 16,099 |
| | 17,240 |
| | (1,141 | ) | | (6.6 | )% |
Total cost of store revenues | 228,960 |
| | 233,691 |
| | (4,731 | ) | | (2.0 | )% | | 747,340 |
| | 775,547 |
| | (28,207 | ) | | (3.6 | )% |
Franchise cost of merchandise sold | 2,540 |
| | 2,960 |
| | (420 | ) | | (14.2 | )% | | 8,585 |
| | 11,273 |
| | (2,688 | ) | | (23.8 | )% |
Total cost of revenues | 231,500 |
| | 236,651 |
| | (5,151 | ) | | (2.2 | )% | | 755,925 |
| | 786,820 |
| | (30,895 | ) | | (3.9 | )% |
Gross profit | 412,465 |
| | 457,226 |
| | (44,761 | ) | | (9.8 | )% | | 1,307,661 |
| | 1,492,328 |
| | (184,667 | ) | | (12.4 | )% |
Operating expenses | | | | | | | | | | | | | | | |
Store expenses | | | | | | | | | | | | | | | |
Labor | 179,643 |
| | 186,289 |
| | (6,646 | ) | | (3.6 | )% | | 551,197 |
| | 595,668 |
| | (44,471 | ) | | (7.5 | )% |
Other store expenses | 171,995 |
| | 195,096 |
| | (23,101 | ) | | (11.8 | )% | | 546,485 |
| | 599,759 |
| | (53,274 | ) | | (8.9 | )% |
General and administrative expenses | 43,768 |
| | 38,187 |
| | 5,581 |
| | 14.6 | % | | 130,637 |
| | 121,383 |
| | 9,254 |
| | 7.6 | % |
Depreciation, amortization and impairment of intangibles | 18,679 |
| | 19,998 |
| | (1,319 | ) | | (6.6 | )% | | 55,928 |
| | 60,598 |
| | (4,670 | ) | | (7.7 | )% |
Other charges | 6,825 |
| | 956 |
| | 5,869 |
| | 613.9 | % | | 31,580 |
| | 22,240 |
| | 9,340 |
| | 42.0 | % |
Total operating expenses | 420,910 |
| | 440,526 |
| | (19,616 | ) | | (4.5 | )% | | 1,315,827 |
| | 1,399,648 |
| | (83,821 | ) | | (6.0 | )% |
Operating (loss) profit | (8,445 | ) | | 16,700 |
| | (25,145 | ) | | (150.6 | )% | | (8,166 | ) | | 92,680 |
| | (100,846 | ) | | (108.8 | )% |
Debt refinancing charges | — |
| | — |
| | — |
| | — | % | | 1,936 |
| | — |
| | 1,936 |
| | 100.0 | % |
Interest, net | 11,276 |
| | 11,569 |
| | (293 | ) | | (2.5 | )% | | 33,854 |
| | 35,078 |
| | (1,224 | ) | | (3.5 | )% |
(Loss) earnings before income taxes | (19,721 | ) | | 5,131 |
| | (24,852 | ) | | (484.4 | )% | | (43,956 | ) | | 57,602 |
| | (101,558 | ) | | (176.3 | )% |
Income tax (benefit) expense | (7,122 | ) | | (1,050 | ) | | (6,072 | ) | | (578.3 | )% | | (15,785 | ) | | 16,414 |
| | (32,199 | ) | | (196.2 | )% |
Net (loss) earnings | $ | (12,599 | ) | | $ | 6,181 |
| | $ | (18,780 | ) | | (303.8 | )% | | $ | (28,171 | ) | | $ | 41,188 |
| | $ | (69,359 | ) | | (168.4 | )% |
Three Months Ended September 30, 2017, compared to Three Months Ended September 30, 2016
Same Store Revenue. Total store revenue decreased by $49.4 million, or 7.2%, to $639.3 million for the three months ended September 30, 2017, from $688.7 million for the three months ended September 30, 2016. This was primarily due to decreases of approximately $39.0 million and $10.1 million in the Core U.S. and Acceptance Now segments, respectively, as discussed further in the segment performance section below.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Sales:Same store revenue is reported on a constant currency basis andsales generally represents revenue earned in 2,663 locationsstores that were operated by us for 13 months or more excludingand are reported on a constant currency basis as a percentage of total revenue earned in stores of the segment during the indicated period. The Company excludes from the same store sales base any store that receives a certain level of customer accounts from anotherclosed stores or acquisitions. The receiving store (acquisition or merger). Receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth30th full month following the account transfer. In addition,
Lease Charge-Offs (“LCOs”) (previously referred to as "skip / stolen losses"): Represents charge-offs of the net book value of unrecoverable on-rent merchandise with lease-to-own customers who are past due. This is typically expressed as a percentage of revenues for the applicable period. For the Rent-A-Center segment, LCOs exclude Get It Now and Home Choice locations.
Overview
The following briefly summarizes certain of our financial information for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.
During the first three months of 2024, consolidated revenues and gross profit increased by approximately $79.9 million and $22.8 million, respectively, primarily due to an increase in the severityAcima segment revenues described below. Operating profit increased by approximately $96.9 million, primarily due to a decrease in Other gains and charges of the hurricane impacts, we instituted a change$100.8 million in addition to the same store sales store selection criteria to exclude storesincrease in geographically impacted regions for 18 months. Same storegross profit noted above, partially offset by an increase in non-labor operating expenses of $17.1 million, and general and administrative expenses of $7.4 million.
The Acima segment revenues decreased by $13.3 million, or 3.1%, to $417.8increased approximately $77.5 million for the three months ended September 30, 2017, as comparedMarch 31, 2024, due to $431.1increases in rentals and fees revenues and merchandise sales of $59.4 million and $18.2 million, respectively, resulting from higher GMV. Growth in 2016. The decreaseGMV was primarily due to an increase in merchant locations, merchant productivity which resulted in more leases per merchant, expanding direct-to-consumer offerings, and improved conversion rates. Operating profit decreased approximately $2.0 million for the three months ended March 31, 2024, primarily due to an increase non-labor operating expenses of approximately $17.7 million, partially offset by an increase in gross profit of $14.2 million. See "Segment Performance" below for further discussion of Acima segment operating results for the three months ended March 31, 2024.
Revenues in our Rent-A-Center segment increased approximately $0.7 million for the three months ended March 31, 2024 due to an increase in same store sales of 0.8% driven by an increase in rentals and fees revenues of $3.5 million partially offset by a decrease in merchandise sales of $1.5 million. Operating profit increased approximately $5.8 million for the three months ended March 31, 2024, primarily due to an increase in gross profit of approximately $5.9 million resulting primarily from a decrease in cost of revenues of $5.2 million. See "Segment Performance" below for further discussion of Rent-A-Center segment operating results for the three months ended March 31, 2024.
The Mexico segment revenues increased by 18.0% for the three months ended March 31, 2024, contributing to an increase in gross profit of 18.8%, or $2.3 million, primarily due to a 5.6% increase in same store sales driven by an increase in rentals and fees revenues of $2.9 million. Operating profit increased $0.7 million for the three months ended March 31, 2024, primarily due to an increase in gross profit described above, partially offset by an increase in operating labor costs of approximately $1.0 million. See "Segment Performance" below for further discussion of Mexico segment operating results for the three months ended March 31, 2024.
Revenues for the Franchising segment decreased $1.5 million for the three months ended March 31, 2024, primarily due to a decrease in merchandise sales of $2.0 million, partially offset by an increase in royalty income and fees of $0.3 million. See "Segment Performance" below for further discussion of Mexico segment operating results for the three months ended March 31, 2024.
Cash flow from operations was $45.4 million for the three months ended March 31, 2024. As of March 31, 2024, we held $84.8 million of cash and cash equivalents and had outstanding indebtedness of $1.3 billion.
The following table is a reference for the discussion that follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| March 31, | | Change | | | | |
(dollar amounts in thousands) | 2024 | | 2023 | | $ | | % | | | | | | | | |
Revenues | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Rentals and fees | $ | 872,539 | | | $ | 806,717 | | | $ | 65,822 | | | 8.2 | % | | | | | | | | |
Merchandise sales | 179,699 | | | 162,989 | | | 16,710 | | | 10.3 | % | | | | | | | | |
Installment sales | 14,692 | | | 15,847 | | | (1,155) | | | (7.3) | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Franchise merchandise sales | 20,859 | | | 22,827 | | | (1,968) | | | (8.6) | % | | | | | | | | |
Royalty income and fees | 6,563 | | | 6,236 | | | 327 | | | 5.2 | % | | | | | | | | |
Other | 1,615 | | | 1,445 | | | 170 | | | 11.8 | % | | | | | | | | |
Total revenues | 1,095,967 | | | 1,016,061 | | | 79,906 | | | 7.9 | % | | | | | | | | |
Cost of revenues | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Cost of rentals and fees | 327,148 | | | 297,146 | | | 30,002 | | | 10.1 | % | | | | | | | | |
Cost of merchandise sold | 213,569 | | | 184,260 | | | 29,309 | | | 15.9 | % | | | | | | | | |
Cost of installment sales | 5,288 | | | 5,619 | | | (331) | | | (5.9) | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Franchise cost of merchandise sold | 20,894 | | | 22,772 | | | (1,878) | | | (8.2) | % | | | | | | | | |
Total cost of revenues | 566,899 | | | 509,797 | | | 57,102 | | | 11.2 | % | | | | | | | | |
Gross profit | 529,068 | | | 506,264 | | | 22,804 | | | 4.5 | % | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Operating labor | 158,136 | | | 156,489 | | | 1,647 | | | 1.1 | % | | | | | | | | |
Non-labor operating expenses | 213,802 | | | 196,711 | | | 17,091 | | | 8.7 | % | | | | | | | | |
General and administrative expenses | 55,099 | | | 47,726 | | | 7,373 | | | 15.4 | % | | | | | | | | |
Depreciation and amortization | 13,473 | | | 12,881 | | | 592 | | | 4.6 | % | | | | | | | | |
Other gains and charges | 26,796 | | | 127,570 | | | (100,774) | | | (79.0) | % | | | | | | | | |
Total operating expenses | 467,306 | | | 541,377 | | | (74,071) | | | (13.7) | % | | | | | | | | |
Operating profit (loss) | 61,762 | | | (35,113) | | | 96,875 | | | 275.9 | % | | | | | | | | |
Interest, net | 29,188 | | | 27,680 | | | 1,508 | | | 5.4 | % | | | | | | | | |
Earnings (loss) before income taxes | 32,574 | | | (62,793) | | | 95,367 | | | 151.9 | % | | | | | | | | |
Income tax expense (benefit) | 4,887 | | | (110,123) | | | 115,010 | | | 104.4 | % | | | | | | | | |
Net earnings | $ | 27,687 | | | $ | 47,330 | | | $ | (19,643) | | | (41.5) | % | | | | | | | | |
Three Months Ended March 31, 2024, compared to Three Months Ended March 31, 2023
Revenue. Total revenues increased by $79.9 million, or 7.9%, to $1,096.0 million for the three months ended March 31, 2024, from $1,016.1 million for the three months ended March 31, 2023. This increase was primarily attributabledue to a declinean increase of approximately $77.5 million in the Core U.S.Acima segment, as discussed further in the segment performance section “Segment Performance” below.
Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the three months ended September 30, 2017, decreasedMarch 31, 2024 increased by $6.3$30.0 million, or 3.9%10.1%, to $153.2$327.1 million as compared to $159.5$297.1 million in 2016. This decrease in cost of rentals and feesfor the three months ended March 31, 2023. The increase was primarily attributable to decreasesan increase of $4.5 million and $1.7approximately $33.5 million in the Core U.S. and Acceptance Now segments, respectively, as a result of lowerAcima segment driven by an increase in rentals and fees revenue.revenues, partially offset by a decrease of $4.2 million in the Rent-A-Center segment. Cost of rentals and fees expressed as a percentage of rentals and fees
revenue increased to 27.7%was 37.5% for the three months ended September 30, 2017March 31, 2024, as compared to 26.8% in 2016.36.8% for the three months ended March 31, 2023.
Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold increased by $1.9$29.3 million, or 2.7%15.9%, to $70.6$213.6 million for the three months ended September 30, 2017,March 31, 2024, from $68.7$184.3 million in 2016,for the three months ended March 31, 2023, primarily attributable to an increase of $2.5$29.8 million in the Acceptance Now segment.Acima segment, driven primarily by higher merchandise sales. The gross margin percent of merchandise sales decreased to (4.4)(18.8)% for the three months ended September 30, 2017,March 31, 2024, from 6.2% in 2016.(13.1)% for the three months ended March 31, 2023.
Gross Profit. Gross profit decreasedincreased by $44.8$22.8 million, or 9.8%4.5%, to $412.5$529.1 million for the three months ended September 30, 2017,March 31, 2024, from $457.2$506.3 million in 2016,for the three months ended March 31, 2023, primarily due primarily to decreasesincreases of $33.3$14.2 million and $10.9$5.9 million in the Core U.S.Acima and Acceptance NowRent-A-Center segments, respectively.respectively, as discussed further in the section “Segment Performance” below. Gross profit as a percentage of total revenue decreased to 64.1%48.3% for the three months ended September 30, 2017,March 31, 2024, as compared to 65.9% in 2016, primarily as a result of implementing targeted pricing actions49.8% for the three months ended March 31, 2023.
Operating Labor. Operating labor includes all salaries and changes from the new value proposition, as discussed further in the segment performance section below.
Store Labor. Storewages paid to operational employees and district managers, together with payroll taxes and benefits. Operating labor decreasedincreased by $6.6$1.6 million, or 3.6%1.1%, to $179.6$158.1 million for the three months ended September 30, 2017,March 31, 2024, as compared to $186.3$156.5 million in 2016,for the three months ended March 31, 2023, primarily attributabledue to decreasesan increase of $3.7 million and $2.4$1.0 million in the Core U.S. and Acceptance Now segments, respectively, as a result of a lower Core U.S. store base, and closure of Acceptance Now locations in the first half of 2017. StoreMexico segment. Operating labor expressed as a percentage of total store revenue excluding franchise merchandise sales and royalty income and fees was 28.1%14.8% for the three months ended September 30, 2017,March 31, 2024, as compared to 27.1% in 2016.15.9% for the three months ended March 31, 2023.
Other StoreNon-Labor Operating Expenses. Other store Non-labor operating expenses decreasedinclude LCO's, occupancy, delivery, advertising, selling, insurance, travel and other operating expenses. Non-labor operating expenses increased by $23.1$17.1 million, or 11.8%8.7%, to $172.0$213.8 million for the three months ended September 30, 2017,March 31, 2024, as compared to $195.1$196.7 million for the three months ended March 31, 2023, due to an increase of $17.7 million in 2016,the Acima Segment primarily attributable to a decreasean increase of $27.4$11.3 million in the Core U.S. segment as a result of lower customer stolen merchandise losses, lower store count and lower advertising expenses, partially offset by a $4.2 million increase in the Acceptance Now segment primarily due to higher customer stolen merchandise losses. Other storeNon-labor operating expenses expressed as a percentage of total store revenue were 26.9%excluding franchise merchandise sales and royalty income and fees was 20.0% for the three months ended September 30, 2017,March 31, 2024, compared to 28.3% in 2016.19.9% for the three months ended March 31, 2023.
General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses increased by $5.6$7.4 million, or 14.6%15.4%, to $43.8$55.1 million for the three months ended September 30, 2017,March 31, 2024, as compared to $38.2$47.7 million for the three months ended March 31, 2023, primarily due to increases in 2016, driven primarily by project related expenses, insurance expenses and other legal and professional fees.overhead labor. General and administrative expenses expressed as a percentage of total revenue were 6.8%5.0% and 4.7% for the three months ended September 30, 2017, compared to 5.5% in 2016.March 31, 2024 and 2023, respectively.
Other Gains and Charges. Other gains and charges increaseddecreased by $5.8$100.8 million, or 613.9%79.0%, to $6.8$26.8 million for the three months ended September 30, 2017,March 31, 2024, as compared to $1.0 million in 2016. Other charges for the three months ended September 30, 2017 and 2016 primarily included charges related to the closure of Core U.S. and Acceptance Now locations, reductions in our field support center, damage caused by hurricanes, and incremental legal and advisory fees, partially offset by a litigation claims settlement.
Operating (Loss) Profit. Operating results decreased by $25.1 million, or 150.6%, to a loss of $8.4$127.6 million for the three months ended September 30, 2017,March 31, 2023. The decrease in other gains and charges was driven primarily by stock compensation expense recognized for the three months ended March 31, 2023, related to restricted stock issued in connection with the Acima Holdings acquisition, including $74.8 million attributable to the acceleration of vesting provisions for former employee and Acima founder, Aaron Allred, upon his transition from Executive Vice President of Acima to an advisory role in early 2023, resulting in a decrease in stock compensation expense of $104.6 million for the three months ended March 31, 2024, as compared to a profit of $16.7the prior year period. This decrease was partially offset by $4.6 million in 2016,accelerated software depreciation for the three months ended March 31, 2024.
Operating Profit (Loss). Operating profit increased by $96.9 million, or 275.9%, to $61.8 million for the three months ended March 31, 2024, as compared to $(35.1) million for the three months ended March 31, 2023, primarily due to decreases of $2.2 millionthe decrease in other gains and $19.2 millioncharges and increase in the Core U.S.gross profit, partially offset by increases in non-labor operating expenses and Acceptance Now segments, respectively,general and administrative expenses as discussed further in the segment performance sections below.described above. Operating resultsprofit expressed as a percentage of total revenue was (1.3)5.6% for the three months ended March 31, 2024, compared to (3.5)% for the three months ended September 30, 2017, comparedMarch 31, 2023.
Income Tax Expense (Benefit). Income tax expense increased by $115.0 million to 2.4% in 2016, primarily due to the decrease in gross profit for the Core U.S. and Acceptance Now segments, and increases in general & administrative expenses and other charges as discussed above. Excluding other charges, operating profit was $(1.6)$4.9 million or (0.3)% of revenue for the three months ended September 30, 2017,March 31, 2024, as compared to $17.7$(110.1) million or 2.5% of revenue for the comparable period of 2016.
Income Tax. Income tax benefit for the three months ended September 30, 2017 was $7.1 million, as comparedMarch 31, 2023, primarily due to $1.1 millionthe increase in 2016. The effective tax rate was 36.1%earnings before income taxes for the three months ended September 30, 2017,March 31, 2024 compared to (20.5)%the same period in 2016, primarily due to the decrease in operating profit described above. Excluding other charges, the2023, and a lower effective tax rate was 2.9% for the three months ended September 30, 2016.
March 31, 2024, primarily attributable to a lower tax impact of stock compensation expense related to stock consideration issued to the former owners of Acima Holdings compared to the prior year period, as well as a favorable adjustment related to foreign deferred tax assets.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Segment Performance
Nine Months Ended September 30, 2017,Acima segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | |
| March 31, | | Change | | | | | |
(dollar amounts in thousands) | 2024 | | 2023 | | $ | | % | | | | | | | | | |
Revenues | $ | 561,346 | | | $ | 483,847 | | | $ | 77,499 | | | 16.0 | % | | | | | | | | | |
Gross profit | 169,302 | | | 155,144 | | | 14,158 | | | 9.1 | % | | | | | | | | | |
Operating profit | 51,911 | | | 53,870 | | | (1,959) | | | (3.6) | % | | | | | | | | | |
Gross merchandise volume(1) | 417,557 | | | 348,175 | | | 69,382 | | | 19.9 | % | | | | | | | | | |
(1) See Key Metrics described above for additional information.
Revenues. The increase in revenues for the three months ended March 31, 2024, as compared to Nine Months Ended September 30, 2016
Store Revenue. Total store revenue decreased by $212.4 million, or 9.4%, to $2,048.2 million for the ninethree months ended September 30, 2017,March 31, 2023, included increases in rentals and fees revenues and merchandise sales revenue of $59.4 million and $18.2 million, respectively, resulting from $2,260.6 million for the nine months ended September 30, 2016. Thishigher GMV. Growth in GMV was primarily due to a decrease of approximately $206.1 millionan increase in the Core U.S. segment, as discussed furthermerchant locations, merchant productivity which resulted in the segment performance section below.more leases per merchant, expanding direct-to-consumer offerings, and improved conversion rates.
Same store revenue is reported on a constant currency basis and generally represents revenue earned in 3,324 locations that were operated by us for 13 months or more, excluding any store that receives a certain level of customer accounts from another store (acquisition or merger). Receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer. In addition, due to the severity of the hurricane impacts, we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months. Same store revenues decreased by $90.9 million, or 6.3%, to $1,357.5 millionGross Profit. Gross profit increased for the ninethree months ended September 30, 2017,March 31, 2024, as compared to $1,448.4 million in 2016. The decrease in same store revenues was primarily attributable to a decline in the Core U.S. segment, as discussed further in the segment performance section below.
Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the ninethree months ended September 30, 2017, decreased by $30.3 million, or 6.0%, to $474.5 million, as compared to $504.8 million in 2016. This decrease in cost of rentals and fees was primarily attributable to a $31.2 million decrease in the Core U.S. segment as a result of lower rentals and fees revenue. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 27.5% for the nine months ended September 30, 2017 as compared to 26.4% in 2016.
Cost of Merchandise Sold. Cost of merchandise sold increased by $3.3 million, or 1.3%, to $256.7 million for the nine months ended September 30, 2017, from $253.5 million in 2016, primarily attributable to an increase of $4.8 million in the Acceptance Now segment, partially offset by a decrease of $1.6 million in both the Core U.S. and Mexico segments. The gross margin percent of merchandise sales decreased to 3.5% for the nine months ended September 30, 2017, from 10.0% in 2016.
Gross Profit. Gross profit decreased by $184.7 million, or 12.4%, to $1,307.7 million for the nine months ended September 30, 2017, from $1,492.3 million in 2016, due primarily to a decrease of $172.4 million in the Core U.S. segment. Gross profit as a percentage of total revenue decreased to 63.4% for the nine months ended September 30, 2017, as compared to 65.5% in 2016.
Store Labor. Store labor decreased by $44.5 million, or 7.5%, to $551.2 million, for the nine months ended September 30, 2017, as compared to $595.7 million in 2016, primarily attributable to a decrease of $40.2 million in the Core U.S. segment as a result of our rationalization of the Core U.S. store base in the prior year and lower medical insurance expenses. Store labor expressed as a percentage of total store revenue was 26.9% for the nine months ended September 30, 2017, as compared to 26.3% in 2016.
Other Store Expenses. Other store expenses decreased by $53.3 million, or 8.9%, to $546.5 million for the nine months ended September 30, 2017, as compared to $599.8 million in 2016, primarily attributable to a decrease of $61.4 million in the Core U.S. segment as a result of our rationalization of the Core U.S. store base, partially offset by an increase of $8.4 million in the Acceptance Now segment as a result of increased customer stolen merchandise. Other store expenses expressed as a percentage of total store revenue were 26.7% for the nine months ended September 30, 2017, compared to 26.5% in 2016.
General and Administrative Expenses. General and administrative expenses increased by $9.3 million, or 7.6%, to $130.6 million for the nine months ended September 30, 2017, as compared to $121.4 million in 2016, primarily due to project related expenses, insurance expenses, legal and other professional fees. General and administrative expenses expressed as a percentage of total revenue were 6.3% for the nine months ended September 30, 2017, compared to 5.3% in 2016.
Other Charges. Other charges increased by $9.3 million, or 42.0%, to $31.6 million for the nine months ended September 30, 2017, as compared to $22.2 million in 2016. Other charges for the nine months ended September 30, 2017 and 2016 primarily included charges related to the closure of Core U.S. and Acceptance Now locations, reductions in our field support center, damage caused by hurricanes, and incremental legal and advisory fees, partially offset by litigation claims settlements.
Operating (Loss) Profit. Operating results decreased by $100.8 million, or 108.8%, to a loss of $8.2 million for the nine months ended September 30, 2017, as compared to a profit of $92.7 million in 2016 due primarily to decreases of $47.8 million and $36.9 million in the Core U.S. and Acceptance Now segments, respectively, offset by an increase of $1.7 million in the Mexico segment as discussed in the segment performance sections below. Operating loss expressed as a percentage of total revenue was (0.4)% for the nine months ended September 30, 2017, compared to operating profit expressed as a percentage of total revenue of 4.1% in 2016, primarily due to the decrease in gross profit for the Core U.S. and Acceptance Now segments, store deleverage, and increases in general & administrative expenses and other charges discussed above. Excluding other charges, operating profit was $23.4 million, or 1.1% of revenue for the nine months ended September 30, 2017, compared to $114.9 million, or 5.0% of revenue for the comparable period of 2016.
Income Tax. Income tax benefit for the nine months ended September 30, 2017 was $15.8 million, as compared to income tax expense of $16.4 million in 2016. The effective tax rate was 35.9% for the nine months ended September 30, 2017, compared to
RENT-A-CENTER, INC. AND SUBSIDIARIES
28.5% in 2016. Excluding other charges, the effective tax rate was 36.7% for the nine months ended September 30, 2017, as compared to 37.8% in 2016.
Segment Performance
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Nine Months Ended | | | | |
| September 30, | | Change | | September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
Revenues | $ | 442,763 |
| | $ | 481,805 |
| | $ | (39,042 | ) | | (8.1 | )% | | $ | 1,390,687 |
| | $ | 1,596,782 |
| | $ | (206,095 | ) | | (12.9 | )% |
Gross profit | 309,779 |
| | 343,071 |
| | (33,292 | ) | | (9.7 | )% | | 965,739 |
| | 1,138,089 |
| | (172,350 | ) | | (15.1 | )% |
Operating profit | 23,859 |
| | 26,058 |
| | (2,199 | ) | | (8.4 | )% | | 79,241 |
| | 127,009 |
| | (47,768 | ) | | (37.6 | )% |
Change in same store revenue | | | | | | | (5.1 | )% | | | | | | | | (9.4 | )% |
Stores in same store revenue calculation | | | | | | | 2,008 | | | | | | | | 2,108 |
Revenues. The decrease in revenue for the three and nine months ended September 30, 2017, wereMarch 31, 2023, driven primarily by a decreasethe increase in rentals and fees revenue of $34.5 million and $189.3 million, respectively, as compared to 2016. This decrease is primarily due to the decrease in same store revenue, rationalization of our Core U.S. store base in the prior year, and impacts from the recent hurricanes. The decrease in same store revenue was driven primarily by a lower portfolio balance in 2017.
Gross Profit. Gross profit decreased for the three and nine months ended September 30, 2017, as compared to 2016, primarily due to the decrease in store revenuerevenues described above and targeted pricing actions implemented to right size the inventory mix and changes from the new value proposition.above. Gross profit as a percentage of segment revenues decreased to 70.0% and 69.4%30.2% for the three and nine months ended September 30, 2017, respectively, asMarch 31, 2024, compared to 71.2% and 71.3%32.1% for the respective periodsthree months ended March 31, 2023, partly due to an increase in 2016.merchandise sales resulting from a larger portfolio at the beginning of 2024 compared to 2023, in addition to the conversion of Acceptance Now locations to the Acima Holdings Lease Management platform.
Operating Profit.Operating profit as a percentage of segment revenues was 5.4% and 5.7%decreased to 9.2% for the three and nine months ended September 30, 2017, respectively,March 31, 2024 compared to 5.4% and 8.0%11.1% for the respective periodsthree months ended March 31, 2023. The decrease in 2016,operating profit for the three months ended March 31, 2024 is primarily due to sales deleverage,an increase in non-labor operating expenses of approximately $17.7 million, partially offset by a decreasethe increase in store labor of $3.8 million and $40.2 million, and other store expenses of $27.4 million and $61.4 million, for the three and nine months ended September 30, 2017, respectively. Declines in store labor and other store expenses were driven primarily by lower store count, lower customer stolen merchandisegross profit. Merchandise losses and lower advertising expenses. Charge-offs in our Core U.S. rent-to-own storesAcima locations due to customer stolen merchandise,LCOs, expressed as a percentage of Core U.S. rent-to-ownsegment revenues, were approximately 2.4% and 2.7%9.6% for the three and nine months ended September 30, 2017, respectively,March 31, 2024, compared to 4.7% and 3.7%8.9% for the respective periods in 2016. Charge-offsthree months ended March 31, 2023. Merchandise losses in our Core U.S. rent-to-own storesAcima locations due to other merchandise losses, expressed as a percentage of Core U.S. rent-to-ownsegment revenues, were approximately 2.0% and 1.9%0.3% for the three and nine months ended September 30, 2017, respectively,March 31, 2024, compared to 2.1% and 1.8%approximately 0.2% for the respective periodsthree months ended March 31, 2023.
Rent-A-Center segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | |
| March 31, | | Change | | | | | |
(dollar amounts in thousands) | 2024 | | 2023 | | $ | | % | | | | | | | | | |
Revenues | $ | 485,753 | | | $ | 485,008 | | | $ | 745 | | | 0.2 | % | | | | | | | | | |
Gross profit | 337,643 | | | 331,725 | | | 5,918 | | | 1.8 | % | | | | | | | | | |
Operating profit | 74,774 | | | 68,961 | | | 5,813 | | | 8.4 | % | | | | | | | | | |
Lease portfolio value(1) | 139,313 | | | 140,205 | | | (892) | | | (0.6) | % | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Change in same store sales(1) | | | | | | | 0.8 | % | | | | | | | | | |
Stores in same store sales calculation | | | | | | | 1,764 | | | | | | | | | | |
(1) See Key Metrics described above for additional information.
Revenues. The increase in 2016.revenue for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to an increase in same store sales of 0.8%, driven by an increase in rentals and fees revenues of $3.5 million, partially offset by decreases in merchandise sales and installment sales of $1.5 million primarily attributable to fewer customers electing early purchase options.
Gross Profit. Gross profit increased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, driven primarily by the increase in revenues described above. Gross profit as a percentage of segment revenues was 69.5% for the three months ended March 31, 2024, as compared to 68.4% for the three months ended March 31, 2023, primarily due to mix-shift changes between lease merchandise product categories.
Operating Profit. Operating profit as a percentage of segment revenues was 15.4% for the three months ended March 31, 2024, compared to 14.2% for the three months ended March 31, 2023. The increase in operating margin for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily driven by the increase in gross profit described above. Merchandise losses in our Rent-A-Center lease-to-own stores due to LCOs, expressed as a percentage of Rent-A-Center lease-to-own revenues, were approximately 4.7% for the three months ended March 31, 2024, compared to 4.8% for the three months ended March 31, 2023. Other merchandise losses in our Rent-A-Center lease-to-own stores, expressed as a percentage of Rent-A-Center lease-to-own revenues, were approximately 1.1% for the three months ended March 31, 2024, compared to approximately 1.4% for the three months ended March 31, 2023. Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims.
Acceptance NowMexico segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| March 31, | | Change | | | | |
(dollar amounts in thousands) | 2024 | | 2023 | | $ | | % | | | | | | | | |
Revenues | $ | 20,567 | | | $ | 17,430 | | | $ | 3,137 | | | 18.0 | % | | | | | | | | |
Gross profit | 14,716 | | | 12,391 | | | 2,325 | | | 18.8 | % | | | | | | | | |
Operating profit | 1,696 | | | 995 | | | 701 | | | 70.5 | % | | | | | | | | |
Change in same store revenue(1) | | | | | | | 5.6 | % | | | | | | | | |
Stores in same store revenue calculation | | | | | | | 112 | | | | | | | | |
(1) See Key Metrics described above for additional information. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Nine Months Ended | | | | |
| September 30, | | Change | | September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
Revenues | $ | 184,293 |
|
| $ | 194,398 |
| | $ | (10,105 | ) | | (5.2 | )% | | $ | 622,160 |
| | $ | 624,310 |
| | $ | (2,150 | ) | | (0.3 | )% |
Gross profit | 92,088 |
|
| 102,998 |
| | (10,910 | ) | | (10.6 | )% | | 310,451 |
| | 319,492 |
| | (9,041 | ) | | (2.8 | )% |
Operating profit | 10,379 |
|
| 29,592 |
| | (19,213 | ) | | (64.9 | )% | | 49,595 |
| | 86,508 |
| | (36,913 | ) | | (42.7 | )% |
Change in same store revenue | | | | | | | 7.9 | % | | | | | | | | 4.9 | % |
Stores in same store revenue calculation | | | | | | | 537 |
| | | | | | | | 1,098 |
Revenues.The decrease in revenue Revenues were positively impacted by exchange rate fluctuations of approximately $1.9 million for the three and nine months ended September 30, 2017, was driven primarily by store closures for hhgregg and Conn's locations,March 31, 2024, as well as impacts fromcompared to the recent hurricanes, partially offset by higher same store revenue.
Gross profit. Gross profit decreasedthree months ended March 31, 2023. On a constant currency basis, revenues for the three and nine months ended September 30, 2017,March 31, 2024 increased approximately $1.2 million, compared to the respective periods in 2016, primarily duethree months ended March 31, 2023.
Gross Profit. Gross profit was positively impacted by exchange rate fluctuations of approximately $1.3 million for the three months ended March 31, 2024, as compared to an increase in cost of merchandise sold driventhe three months ended March 31, 2023. On a constant currency basis, gross profit for the three months ended March 31, 2024 increased by a focused effortapproximately $1.0 million as compared to encourage ownership and reduce returned product.the three months ended March 31, 2023. Gross profit as a percentage of segment revenues was 50.0% and 49.9% for the three and nine months ended September 30, 2017, respectively, compared to 53.0% and 51.2% for the respective periods in 2016.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Operating profit. Operating profit decreased by 64.9% and 42.7% for the three and nine months ended September 30, 2017, respectively, as compared to the respective periods in 2016. The decrease in operating profit for the three and nine months ended September 30, 2017 was primarily due to increased rental merchandise losses, charges incurred for store closures, and sales deleverage. Excluding other charges, operating profit decreased by 46.5% and 17.9% for the three and nine months ended September 30, 2017, respectively, as compared to the respective periods in 2016. Charge-offs in our Acceptance Now locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately 12.5% and 12.0% for the three and nine months ended September 30, 2017, respectively, compared to 8.4% and 9.2% for the respective periods in 2016. Excluding other charges, charge-offs due to customer stolen merchandise were 10.8% and 9.8% for the three and nine months ended September 30, 2017, respectively. Charge-offs in our Acceptance Now locations due to other merchandise losses, expressed as a percentage of revenues, were approximately 1.2% and 1.1% for the three and nine months ended September 30, 2017, compared to 1.3% and 1.1% for the respective periods in 2016.
Mexico segment
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Nine Months Ended | | | | |
| September 30, | | Change | | September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
Revenues | $ | 12,237 |
| | $ | 12,454 |
| | $ | (217 | ) | | (1.7 | )% | | $ | 35,351 |
| | $ | 39,514 |
| | $ | (4,163 | ) | | (10.5 | )% |
Gross profit | 8,466 |
| | 8,897 |
| | (431 | ) | | (4.8 | )% | | 24,668 |
| | 27,478 |
| | (2,810 | ) | | (10.2 | )% |
Operating (loss) profit | (242 | ) | | 235 |
| | (477 | ) | | (203.0 | )% | | (122 | ) | | (1,803 | ) | | 1,681 |
| | 93.2 | % |
Change in same store revenue | | | | | | | (6.2 | )% | | | | | | | | (6.3 | )% |
Stores in same store revenue calculation | | | | | | | 118 |
| | | | | | | | 118 |
|
Revenues. Revenues71.6% for the three months ended September 30, 2017 wereMarch 31, 2024, compared to 71.1% for the three months ended March 31, 2023.
Operating Profit. Operating profit was positively impacted by approximately $0.6 million due to exchange rate fluctuations of approximately $0.2 million for the three months ended March 31, 2024, as compared to the three months ended September 30, 2016, while revenues for the nine months ended September 30, 2017 were negatively impacted by approximately $1.2 million compared to the nine months ended September, 30 2016.March 31, 2023. On a constant currency basis, the decrease in revenue for the three and nine months ended September 30, 2017, was primarily driven by a decrease in same store revenue, compared to the same periods in 2016.
Gross Profit. Grossoperating profit for the three months ended September 30, 2017 was positively impactedMarch 31, 2024 increased by approximately $0.4$0.5 million due to exchange rate fluctuations, while gross profit for the nine months ended September 30, 2017,was negatively impacted by approximately $0.9 million compared to the same periods in 2016. On a constant currency basis, gross profit decreased primarily as a result of decreased rental revenue, partially offset by increased merchandise sales. Gross profit as a percentage of segment revenues was 69.2% and 69.8% for the three and nine months ended September 30, 2017, respectively, as compared to 71.4% and 69.5% for the respective periods in 2016.
Operating (Loss) Profit. Operating results for the three and nine months ended September 30, 2017, were minimally impacted by the exchange rate fluctuations compared to respective periods in 2016. On a constant currency basis, operating results as a percentage of segment revenues decreased to (2.0)% for the three months ended September 30, 2017, from 1.9% for the respective period in 2016, primarily driven by the declines in revenues and grossMarch 31, 2023. Operating profit described above. Operating results as a percentage of segment revenues increased to (0.3)% for the nine months ended September 30, 2017, from (4.6)% for the respective period in 2016. Operating losses for the nine months ended September 30, 2016 included other charges of $2.3 million, primarily related to store closures during the first quarter of 2016. Excluding other charges, operating results as a percentage of segment revenues would have been (0.7%) and 0.5%8.2% for the three and nine months ended September 30, 2017, respectively,March 31, 2024, compared to 1.7% and 1.3%5.7% for the respective periods in 2016.three months ended March 31, 2023, primarily due to lower LCOs.
Franchising segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | |
| March 31, | | Change | | | | |
(dollar amounts in thousands) | 2024 | | 2023 | | $ | | % | | | | | | | | |
Revenues | $ | 28,301 | | | $ | 29,776 | | | $ | (1,475) | | | (5.0) | % | | | | | | | | |
Gross profit | 7,407 | | | 7,004 | | | 403 | | | 5.8 | % | | | | | | | | |
Operating profit | 3,364 | | | 4,760 | | | (1,396) | | | (29.3) | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Nine Months Ended | | | | |
| September 30, | | Change | | September 30, | | Change |
(dollar amounts in thousands) | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % |
Revenues | $ | 4,672 |
| | $ | 5,220 |
| | $ | (548 | ) | | (10.5 | )% | | $ | 15,388 |
| | $ | 18,542 |
| | $ | (3,154 | ) | | (17.0 | )% |
Gross profit | 2,132 |
| | 2,260 |
| | (128 | ) | | (5.7 | )% | | 6,803 |
| | 7,269 |
| | (466 | ) | | (6.4 | )% |
Operating profit | 1,032 |
| | 1,430 |
| | (398 | ) | | (27.8 | )% | | 3,565 |
| | 4,268 |
| | (703 | ) | | (16.5 | )% |
Revenues. Revenues decreased for the three and nine months ended September 30, 2017, respectively,March 31, 2024 compared to the respective periods in 2016,three months ended March 31, 2023, primarily due to lowera decrease in merchandise sales to the Company's franchise partners.purchases by franchisees of $2.0 million, partially offset by increases in royalty income and fees revenue of $0.3 million.
Gross Profit. Gross profit as a percentage of segment revenues increased to 45.6% and 44.2%26.2% for the three and nine months ended September 30, 2017, respectively, from 43.3% and 39.2%March 31, 2024, compared to 23.5% for the respective periodsthree months ended March 31, 2023, primarily due to the change in 2016.allocation of merchandise sales compared to royalty and fee revenue.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Operating Profit. Operating profit as a percentage of segment revenues decreased to 22.1%11.9% for the three months ended September 30, 2017,March 31, 2024 compared to 27.4%16.0% for the respective period in 2016, and increased to 23.2% for the ninethree months ended September 30, 2017, comparedMarch 31, 2023, primarily due to 23.0% for the respective periodan increase in 2016.segment operating expenses of $1.8 million.
Liquidity and Capital Resources
Overview. For the ninethree months ended September 30, 2017,March 31, 2024, we had $135.4generated $45.4 million of netin operating cash provided by operating activities. We paid down debt by $86.6 million from cash generated from operationsflow and also used cash in the amount of $53.5$79.2 million for debt repayments, $21.5 million for dividends and $11.8 million for capital expenditures, and $12.8 million for paymentpartially offset by cash proceeds from indebtedness of dividends, ending$60.0 million. We ended the nine-month periodfirst quarter of 2024 with $76.2$84.8 million of cash and cash equivalents.equivalents and outstanding indebtedness of $1.3 billion.
Analysis of Cash Flow. Cash provided by operating activities decreased $239.5by $60.0 million to $135.4$45.4 million for the ninethree months ended September 30, 2017,March 31, 2024, from $374.9$105.4 million in 2016. This wasfor the three months ended March 31, 2023, primarily attributabledue to the receipt in 2016 of income tax refunds of approximately $80.0 million, the declinea decrease in net earnings for the nine months ended September 30, 2017 compared to the same periodand an increase in 2016, and other net changes in operating assets and liabilities.our inventory purchases driven by increased consumer demand.
Cash used in investing activities increased approximately $6.4 million to $51.8$11.7 million for the ninethree months ended September 30, 2017, from $45.4March 31, 2024, compared to $9.6 million for the three months ended March 31, 2023, primarily due to higher investment in 2016, due primarily to an increasestore-related assets in capital expenditures.our Rent-A-Center segment for the three months ended March 31, 2024.
Cash used in financing activities was $104.6decreased to $42.8 million for the ninethree months ended September 30, 2017,March 31, 2024, compared to $254.8 million in 2016, a change of $150.2 million, primarily driven by our net reduction in debt of $86.6$69.4 million for the ninethree months ended September 30, 2017, as comparedMarch 31, 2023, primarily due to a net decreasean increase in borrowings under the ABL Credit Facility of $60.0 million, partially offset by an increase in debt repayments of $233.3$37.1 million for the comparable period in 2016, payment of debt issuance costs of $5.3 million related to our recent debt amendment, offset by an $8.5 million decrease in dividend payments for the ninethree months ended September 30, 2017 compared to the same period in 2016.March 31, 2024.
Liquidity Requirements. Our primary liquidity requirements are for rental merchandise purchases. As we implementpurchases, which are impacted by consumer demand for our growth strategies, the need for additional rental merchandise is expected to remain our primary capital requirement.lease-to-own solutions. Other capital requirements include expenditures for technology and property assets, and debt service. Our primary sourcessource of liquidity havehas been cash provided by operations. In the future, to provide any additional funds necessary for the continued operations and expansion of our business, we may incur from time to time additional short-term or long-term bank indebtedness and may issue, in public or private transactions, equity and debt securities. The availability and attractiveness of any outside sources of financing will depend on a number of factors, some of which relate to our financial condition and performance, and some of which are beyond our control, such as prevailing interest rates and general financing and economic conditions. There can be no assurance that additional financing will be available, or if available, that it will be on terms we find acceptable.
Should we require additional funding sources, we maintain revolving credit facilities, including a $20.0 million line of credit at INTRUST Bank, N.A. The availability of our INTRUST line of credit is restricted if the borrowing capacity under our Revolving Facility drops below $10 million. We utilize our RevolvingABL Credit Facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow caused by the timing of cash receipts. In that regard, we may from time to time draw funds under the RevolvingABL Credit Facility for general corporate purposes. Amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities. We believe the cash flow generated from operations together with amounts availableand availability under our ABL Credit Agreement,Facility will be sufficient to fund our liquidity requirementsoperations during the next 12twelve months. While our operating cash flow has been strong and we expect this strength to continue, our liquidity could be negatively impacted if we do not remain as profitable as we expect. At October 23, 2017,April 24, 2024, we had $51.2approximately $39.8 million in cash on hand, and $147.5$409.6 million available under our Revolving Facility at September 30, 2017, net of the $50 million of excess availability we must maintain on the Revolving Facility as a result of being out of compliance with our Fixed Charge Coverage Ratio covenant.ABL Credit Facility.
On October 31, 2017, we renewed our line of credit at INTRUST Bank, N.A. The availability of our INTRUST line of credit following the renewal is $12.5 million.
On June 6, 2017, we amended our Credit Agreement (the “Fourth Amendment”), effective as of June 6, 2017, with JPMorgan Chase Bank, N.A., as administrative agent, the other agents party thereto and the lenders party thereto. Under the Fourth Amendment, we agreed to provide additional collateral protections to secure the obligations under the Credit Agreement. The Fourth Amendment also modified the borrowing terms of the revolving loans under the Credit Agreement, which, as amended, establishes that the aggregate outstanding amounts (including after any draw request) not exceed the Borrowing Base. The Borrowing Base is tied to the Company’s Eligible Installment Sales Accounts, Inventory and Eligible Rental Contracts, in addition to Reserves and the Term Loan Reserve. We will provide to the Agent information necessary to calculate the Borrowing Base within 30 days of the end of each calendar month, unless the remaining availability of the Revolving Facility is less than 20% of the maximum borrowing capacity of the Revolving Facility or $60 million, in which case the Company must provide weekly information.
The Fourth Amendment reduced the capacity of the Revolving Facility from $675 million to $350 million and the aggregate amount of Incremental Term Loans and Incremental Revolving Commitments from $250 million to $100 million. We may request an Incremental Revolving Loan, provided that at the time of such draw, and after giving effect thereto, (i) the Consolidated Fixed
RENT-A-CENTER, INC. AND SUBSIDIARIES
Charge Coverage Ratio on a pro forma basis is no less than 1.10:1, (ii) the Total Revolving Extensions of Credit do not exceed the Borrowing Base, and (iii) if the draw occurs during a Minimum Availability Period, the Availability must be more than the Availability Threshold Amount.
A change in control would result in an event of default under our senior credit facilities which would allow our lenders to accelerate the indebtedness owed to them. In addition, if a change in control occurs, we may be required to offer to repurchase all of our outstanding senior unsecured notes at 101% of their principal amount, plus accrued interest to the date of repurchase. Our senior credit facilities limit our ability to repurchase the senior unsecured notes, including in the event of a change in control. In the event a change in control occurs, we cannot be sure we would have enough funds to immediately pay our accelerated senior credit facilities and senior note obligations or that we would be able to obtain financing to do so on favorable terms, if at all.
Deferred Taxes. Certain federal tax legislation enacted during the period 2009 to 2014 permitted bonus first-year depreciation deductions ranging from 50% to 100% of the adjusted basis of qualified property placed in service during such years. The depreciation benefits associated with these tax acts are now reversing. On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 ("PATH") extended the bonus depreciation to 2015 and through December 2019. The PATH act permits first-year bonus depreciation of 50% in 2015-2017, 40% in 2018, and 30% in 2019. The PATH act resulted in an estimated benefit of $154 million for us in 2016. We estimate the remaining tax deferral associated with these acts is approximately $199 million at September 30, 2017, of which approximately 75.4%, or $149 million will reverse in 2017, and the remainder will reverse between 2018 and 2019. We also estimate a benefit of $171 million resulting from bonus depreciation in 2017 which will offset the $149 million reversal, resulting in a net positive impact to cash taxes of $22 million.
Merchandise Losses. Merchandise losses consist of the following:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands) | 2024 | | 2023 | | | | |
Lease charge-offs | $ | 81,343 | | | $ | 72,033 | | | | | |
Other merchandise losses(1) | 7,001 | | | 8,090 | | | | | |
Total merchandise losses | $ | 88,344 | | | $ | 80,123 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Customer stolen merchandise (1) | $ | 36,950 |
| | $ | 41,962 |
| | $ | 120,245 |
| | $ | 124,070 |
|
Other merchandise losses (2) | 10,899 |
| | 12,917 |
| | 32,380 |
| | 35,420 |
|
Total merchandise losses | $ | 47,849 |
| | $ | 54,879 |
| | $ | 152,625 |
| | $ | 159,490 |
|
(1)Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. | |
(1)
| Customer stolen merchandise for the three and nine months ended September 30, 2017 includes inventory losses related to the closure of hhgregg and Conn's locations. See other charges in Note 5 to the condensed consolidated financial statements. |
| |
(2)
| Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. |
Capital Expenditures. We make capital expenditures in order to maintain our existing operations, as well as foracquire new capital assets in new and acquired stores and investmentinvest in information technology. We spent $53.5$11.8 million and $46.8$9.5 million on capital expenditures during the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively. The increase in capital expenditures for the nine months ended September 30, 2017, compared to the respective period in 2016,of $2.3 million is primarily due to the timing of cash payments related to information technology investmentshigher investment in 2016, and store refreshes performed during 2017.store-related assets in our Rent-A-Center segment.
Acquisitions and New Location Openings. During the first nine months of 2017, we acquired new locations and customer accounts for an aggregate purchase price of approximately $2.2 million in two different transactions.
The table below summarizes the store location activity for the nine-monththree-month period ended September 30, 2017.March 31, 2024 for our Rent-A-Center, Mexico and Franchising operating segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| Rent-A-Center | | Mexico | | Franchising | | Total |
Locations at beginning of period | 1,839 | | | 131 | | | 440 | | | 2,410 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Closed locations | | | | | | | |
| | | | | | | |
Sold or closed with no surviving location | (3) | | | — | | | (6) | | | (9) | |
Locations at end of period | 1,836 | | | 131 | | | 434 | | | 2,401 | |
| | | | | | | |
| | | | | | | |
Senior Debt. On February 17, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and lenders party thereto, that provides for a five-year asset-based revolving credit facility with commitments of $550 million and a letter of credit sublimit of $150 million, which commitments may be increased, at our option and under certain conditions, by up to an additional $125 million in the aggregate (as amended on August 10, 2022, the “ABL Credit Facility”). Under the ABL Credit Facility, we may borrow only up to the lesser of the level of the then-current borrowing base and the aggregate amount of commitments under the ABL Credit Facility. The borrowing base is tied to the amount of eligible
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Core U.S. | | Acceptance Now Staffed | | Acceptance Now Direct | | Mexico | | Franchising | | Total |
Locations at beginning of period | 2,463 |
| | 1,431 |
| | 478 |
| | 130 |
| | 229 |
| | 4,731 |
|
New location openings | — |
| | 196 |
| | 11 |
| | 1 |
| | — |
| | 208 |
|
Acquired locations remaining open | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Conversions | — |
| | (15 | ) | | 15 |
| | — |
| | — |
| | — |
|
Closed locations | | | | | | | | | | | |
Merged with existing locations | (40 | ) | | (436 | ) | | (427 | ) | | — |
| | — |
| | (903 | ) |
Sold or closed with no surviving location | (17 | ) | | (1 | ) | | (1 | ) | | — |
| | (5 | ) | | (24 | ) |
Locations at end of period | 2,406 |
| | 1,175 |
| | 76 |
| | 131 |
| | 227 |
| | 4,015 |
|
Acquired locations closed and accounts merged with existing locations | 6 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
|
Total approximate purchase price of acquired stores (in millions) | $ | 2.2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2.2 |
|
27
RENT-A-CENTER, INC. AND SUBSIDIARIES
Senior Debt. See descriptioninstallment sales accounts, inventory and eligible lease contracts, reduced by certain reserves. The ABL Credit Facility bears interest at a fluctuating rate determined by reference to an adjusted Term SOFR rate plus an applicable margin of 1.50% to 2.00%, which, as of April 24, 2024, was 7.41%. A commitment fee equal to 0.250% to 0.375% of the unused portion of the ABL Credit AgreementFacility fluctuates dependent upon average utilization for the prior month as defined by a pricing grid included in Note 2the documentation governing the ABL Credit Facility. Loans under the ABL Credit Facility may be borrowed, repaid and re-borrowed until February 17, 2026, at which time all amounts borrowed must be repaid.
The obligations under the ABL Credit Facility are guaranteed by us and certain of our material wholly owned domestic restricted subsidiaries, subject to certain exceptions. The obligations under the ABL Credit Facility and such guarantees are secured on a first-priority basis by all of our and our subsidiary guarantors’ accounts, inventory, deposit accounts, securities accounts, cash and cash equivalents, rental agreements, general intangibles (other than equity interests in our subsidiaries), chattel paper, instruments, documents, letter of credit rights, commercial tort claims related to the foregoing and other related assets and all proceeds thereof related to the foregoing, subject to permitted liens and certain exceptions (such assets, collectively, the “ABL Priority Collateral”) and a second-priority basis in substantially all other present and future tangible and intangible personal property of ours and the subsidiary guarantors, subject to certain exceptions.
On February 17, 2021, we also entered into a term loan credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and lenders party thereto, that provides for a seven-year $875 million senior secured term loan facility (as amended on September 21, 2021 and June 15, 2023, the “Term Loan Facility”). Subject in each case to certain restrictions and conditions, we may add up to $500 million of incremental term loan facilities to the Term Loan Facility or utilize incremental capacity under the Term Loan Facility at any time by issuing or incurring incremental equivalent term debt. Interest on borrowings under the Term Loan Facility is payable at a fluctuating rate of interest determined by reference to an adjusted Term SOFR rate plus an applicable margin of 3.25%, subject to a 0.50% Term SOFR floor, which, as of April 24, 2024 was 9.12%.
Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.000% per annum of the original aggregate principal amount thereof, with the remaining balance due at final maturity. The Term Loan Facility is secured by a first-priority security interest in substantially all of present and future tangible and intangible personal property of us and our subsidiary guarantors, other than the ABL Priority Collateral, and by a second-priority security interest in the ABL Priority Collateral, subject to certain exceptions. The obligations under the Term Loan Facility are guaranteed by us and our material wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit Facility.
At April 24, 2024, we had outstanding borrowings of $808.9 million under the Term Loan Facility and available commitments of $409.6 million under our ABL Credit Facility, net of letters of credit.
See Note 5 of our condensed consolidated financial statements.statements included in this Quarterly Report on Form 10-Q for additional information regarding our senior debt.
Senior Notes. On February 17, 2021, we issued $450 million in senior unsecured notes due February 15, 2029, at par value, bearing interest at 6.375% (the “Notes”). Interest on the Notes is payable in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. We may use $150 millionredeem some or all of the Revolving FacilityNotes at any time for cash at the issuanceredemption prices set forth in the indenture governing the Notes, plus accrued and unpaid interest to, but not including, the redemption date. If we experience specific kinds of letters of credit, of which $91.5 million had been so utilized as of October 23, 2017. The Term Loans are scheduledchange in control, we will be required to mature on March 19, 2021, andoffer to purchase the Revolving Facility hasNotes at a scheduled maturity of March 19, 2019. The weighted average Eurodollar rate on our outstanding debt was 1.23% at October 23, 2017.
Senior Notes. See descriptionsprice equal to 101% of the senior notes inprincipal amount thereof plus accrued and unpaid interest. See Note 3 to the6 of our condensed consolidated financial statements.statements included in this Quarterly Report on Form 10-Q for additional information regarding our senior notes.
StoreOperating Leases. We lease space for substantially all of our Core U.S.Rent-A-Center and Mexico stores andunder operating leases expiring at various times through 2034. In addition, we lease space for certain support facilities under operating leases expiring at various times through 2023.2032. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas. As of March 31, 2024, our total remaining obligation for existing store lease contracts was approximately $342.1 million.
Franchising Guarantees. Our subsidiary, ColorTyme Finance, Inc. ("ColorTyme Finance"), is a party to an agreementWe lease vehicles for all of our Rent-A-Center stores under operating leases with Citibank, N.A., pursuant to which Citibank provides financing to qualifying franchisees of Franchising. Underlease terms expiring twelve months after the Citibank agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Citibank can assign the loans and the collateral securing such loans to ColorTyme Finance, with ColorTyme Finance paying or causing to be paid the outstanding debt to Citibank and then succeeding to the rights of Citibank under the debt agreements, including the right to foreclose on the collateral. Rent-A-Center and ColorTyme Finance guarantee the obligationsstart date of the franchise borrowers underlease. We classify these leases as short-term and have elected the Citibank facility. The maximum guaranteeshort-term lease exemption for our vehicle leases, and have therefore excluded them from our operating lease right-of-use assets within our Condensed Consolidated Balance Sheets. As of March 31, 2024, our total remaining minimum obligation under this agreement, excludingfor existing Rent-A-Center vehicle lease contracts was approximately $0.9 million.
We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2027 with rental rates adjusted periodically for inflation. As of March 31, 2024, our total remaining obligation for existing Mexico vehicle lease contracts was approximately $4.3 million.
Uncertain Tax Position. As of March 31, 2024, we have recorded $1.2 million in uncertain tax positions. Although these positions represent a potential future cash liability to us, the effectsamounts and timing of any amounts that could be recovered under collateralization provisions, is $27.0 million, of which $1.1 million was outstanding as of September 30, 2017.such payments are uncertain.
Contractual Cash Commitments. The table below summarizes debt, lease and other minimum cash obligations outstanding as of September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
(in thousands) | Total | | 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
Senior Term Debt(1) | $ | 49,125 |
| | $ | 562 |
| | $ | 4,500 |
| | $ | 44,063 |
| | $ | — |
|
Revolving Facility(2) | 55,000 |
| | — |
| | 55,000 |
| | — |
| | — |
|
INTRUST Line of Credit | 1,070 |
| | 1,070 |
| | — |
| | — |
| | — |
|
6.625% Senior Notes(3) | 360,619 |
| | 9,697 |
| | 38,788 |
| | 312,134 |
| | — |
|
4.75% Senior Notes(4) | 297,500 |
| | 5,938 |
| | 23,750 |
| | 267,812 |
| | — |
|
Operating Leases | 474,279 |
| | 42,148 |
| | 272,337 |
| | 138,389 |
| | 21,405 |
|
Total(5) | $ | 1,237,593 |
| | $ | 59,415 |
| | $ | 394,375 |
| | $ | 762,398 |
| | $ | 21,405 |
|
| |
(1)
| Does not include interest payments. Our senior term debt bears interest at varying rates equal to the Eurodollar rate (not less than 0.75%) plus 3.00% or the prime rate plus 2.00% at our election. The Eurodollar rate on our senior term debt at September 30, 2017, was 1.24%. |
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(2)
| Does not include interest payments. Our Revolving Facility bears interest at varying rates equal to the Eurodollar rate plus 1.50% to 3.00% or the prime rate plus 0.50% to 2.00% at our election. The weighted average Eurodollar rate on our Revolving Facility at September 30, 2017 was 1.19%. |
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(3)
| Includes interest payments of $9.7 million on each May 15 and November 15 of each year. |
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(4)
| Includes interest payments of $5.9 million on each May 1 and November 1 of each year. |
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(5)
| As of September 30, 2017, we have recorded $33.1 million in uncertain tax positions. Because of the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, uncertain tax positions are not reflected in the contractual obligations table. |
Seasonality. Our revenue mix is moderately seasonal, with the first quarter of each fiscal year generally providing higher merchandise sales than any other quarter during a fiscal year, primarily related to our customers' receipt of their federal income tax refunds.year. Generally, our customers will more frequently exercise the early purchase option on their existing rentallease purchase agreements in our Acima and Rent-A-Center segments or purchase pre-leased merchandise off the showroom floor in our Rent-A-Center segment during the first quarter of each fiscal year. Furthermore, we tendyear, primarily due to experience slower growththe receipt of federal income tax refunds. In contrast, our cash expenditures for our merchandise purchases for the fiscal year are generally the highest beginning in the numberlatter part of rental purchase agreements in the third quarter through the fourth quarter, primarily as a result of each fiscal year when comparedholiday promotions that lead to other quarters throughout the year. We expect these trends to continue in the future.increased demand for our lease-to-own offerings.
NewRecently Issued Accounting Pronouncements
In May 2014,December 2023, the FASB issued ASU 2014-09, Revenue from Contracts with Customers2023-09, Income Taxes (Topic 606)740): Improvements to Income Tax Disclosures, which clarifies existing accounting literature relatingis intended to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflectsimprove the consideration to which the company expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved a one-year deferraltransparency of the effective date. In March 2016,annual income tax disclosures by requiring specific categories in the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU 2014-09 relatingincome tax rate reconciliation and disaggregation of income taxes paid by jurisdiction. It also includes certain other amendments to how and when a company recognizes revenue when another party is involved in providing a good or service to a customer. Under Topic 606, a
RENT-A-CENTER, INC. AND SUBSIDIARIES
company will recognize revenue on a gross basis when it provides a good or service to a customer (acts asimprove the principal in a transaction), and on a net basis when it arranges for the good or service to be provided to the customer by another party (acts as an agent in a transaction). ASU 2016-08 provides additional guidance for determining whether a company acts as a principal or agent, depending primarily on whether a company controls goods or services before delivery to the customer. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides additional guidance related to the identificationeffectiveness of performance obligations within the contract, and licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides additional guidance related to certain technical areas within ASU 2014-09. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides additional guidance related to certain technical areas within ASU 2014-09. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, which adds, amends, and supersedes SEC paragraphs related to the adoption and transition provisions of ASU 2014-09 and ASU 2016-02.income tax disclosures. The adoption of these additional ASUs must be concurrent with the adoption of ASU 2014-09, which2023-09 will be required for us for fiscal years beginning January 1, 2018, with early adoption permitted as of the original effective date. These ASUs allow adoption with either retrospective application to each prior period presented, or modified retrospective application with the cumulative effect recognized as of the date of initial application. We are currently in the process of evaluating the potential impact this new pronouncement will have on our financial statements and do not anticipate early adoption. We have not completed our evaluation and therefore cannot conclude whether the pronouncement will have a significant impact on our financial statements at this time. We expect to complete our evaluation by the end of 2017. We currently anticipate that we will utilize the modified retrospective method of adoption, however, this expectation may change following the completion of our evaluation of the impact of this pronouncement on our financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaces existing accounting literature relating to the classification of, and accounting for, leases. Under ASU 2016-02, a company must recognize for all leases (with the exception of leases with terms less than 12 months) a liability representing a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset representing the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged, with certain improvements to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The adoption of ASU 2016-02 will be required for us beginning January 1, 2019, with early adoption permitted. The ASU must be adopted using a modified retrospective transition, applying the new criteria to all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements.December 15, 2024. We do not expect to early adopt this standard and are currently in the process of determining what impactbelieve the adoption of this ASU will have on our financial position, results of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the treatment of cash receipts and cash payments for certain types of cash transactions, to eliminate diversity in practice in the presentation of the cash flow statement. The adoption of ASU 2016-15 will be required for us on a retrospective basis beginning January 1, 2018, with early adoption permitted. We do not expect to early adopt this standard or believe that the adoption of this ASU will materially affect our presentation of cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the hypothetical purchase price allocation and instead using the difference between the carrying amount and the fair value of the reporting unit. The adoption of ASU 2017-04 will be required for us on a prospective basis beginning January 1, 2020, with early adoption permitted. We are currently in the process of determining our adoption date and whatmaterial impact the adoption of this ASU will have on our financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. The adoption of ASU 2017-09 will be required for us on a prospective basis beginning January 1, 2018, with early adoption permitted. We do not expect to early adopt this standard or believe that the adoption of this ASU will materially affect our financial statements.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. UnlessAs of March 31, 2024, unless otherwise discussed (including with respect to ASU 2023-07), we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time, or will not have a material impact on our consolidated financial statements upon adoption.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.
Interest Rate Sensitivity
As of September 30, 2017, we had $292.7 million in senior notes outstanding at a fixed interest rate of 6.625%, and $250.0 million in senior notes outstanding at a fixed interest rate of 4.75%. We also had $49.1 million outstanding in Term Loans, $55.0 million outstanding under our Revolving Facility and $1.1 million outstanding on our INTRUST line of credit, each at interest rates indexed to the Eurodollar rate or the prime rate. The fair value of the 6.625% senior notes, based on the closing price at September 30, 2017, was $277.4 million. The fair value of the 4.75% senior notes, based on the closing price at September 30, 2017, was $226.3 million. Carrying value approximates fair value for all other indebtedness.
Market Risk
Market risk is the potential change in an instrument’s value caused by fluctuations in interest rates. Our primary market risk exposure is fluctuations in interest rates. Monitoring and managing this risk is a continual process carried out by our senior management. We manage our market risk based on an ongoing assessment of trends in interest rates and economic developments, giving consideration to possible effects on both total return and reported earnings. As a result of such assessment, we may enter into swap contracts or other interest rate protection agreements from time to time to mitigate this risk.
Interest Rate Risk
As of March 31, 2024, we had $450 million in Notes outstanding at a fixed interest rate of 6.375%. We havealso had $808.9 million outstanding debt with variableunder the Term Loan Facility and $53.0 million outstanding under our ABL Credit Facility, each at interest rates indexed to prime or Eurodollar rates that exposes us to the risk of increased interest costs if interest rates rise. As of September 30, 2017, we have not entered into any interest rate swap agreements.Term SOFR rate. Carrying value approximates fair value for such indebtedness. Based on our overall interest rate exposure at September 30, 2017,March 31, 2024, a hypothetical 1.0% increase or decrease in market interest rates would have the effect of causing a $1.1an additional $8.6 million additional annualized pre-tax charge or credit to our consolidated statementCondensed Consolidated Statements of operations.Operations. We have not entered into any interest rate swap agreements as of March 31, 2024.
Foreign Currency Translation
We are also exposed to market risk from foreign exchange rate fluctuations of the Mexican peso to the U.S. dollar as the financial position and operating results of our stores in Mexico are translated into U.S. dollars for consolidation. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.
Item 4.Controls and Procedures.
Disclosure controlsControls and proceduresProcedures. In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including our Chief Executive Officer and our interim Chief Financial Officer, concluded that, as of September 30, 2017,March 31, 2024, our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) were effective.
Changes in internal controlsInternal Controls over financial reportingFinancial Reporting. For the quarter ended September 30, 2017,March 31, 2024, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that, in the aggregate, have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – Other Information
Item 1. Legal Proceedings
Alan Hall, et. al. v. Rent-A-Center, Inc., et. al.; James DePalma, et. al. v. Rent-A-Center, Inc., et. al. On December 23, 2016,From time to time, we, along with our subsidiaries, are party to various legal proceedings and governmental inquiries arising in the ordinary course of business. We regularly monitor developments related to these legal proceedings and governmental inquiries, review the adequacy of our legal reserves on a putative class action was filedquarterly basis, and reserve for loss contingencies that we determine are both probable and reasonably estimable. Although we have not determined that any of these matters will have a material impact on our consolidated financial statements, we cannot predict the impact of future developments or provide assurances that a resolution of any such matter would not have a material and adverse impact during a future period. In addition, claims and lawsuits against us may seek injunctive or other relief that requires changes to our business practices or operations and it is possible that any required changes may materially and adversely impact our business, financial condition, results of operations or reputation. Please see Note 11 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional discussion of certain of our former officers by Alan Hall in federal court in Sherman, Texas. The complaint alleges that the defendants violated Section 10(b) and/or Section 20(a) of the Securities Exchange Act of 1934legal proceedings and Rule 10b-5 promulgated thereunder by issuing false and misleading statements and omitting material facts regarding our business, including implementation of our point-of-sale system, operations and prospects during the period covered by the complaint. The complaint purports to be brought on behalf of all purchasers of our common stock from July 27, 2015 through October 10, 2016, and seeks damages in unspecified amounts and costs, fees, and expenses. A complaint filed by James DePalma also in Sherman, Texas alleging similar claims was consolidated by the court into the Hall matter. On October 19, 2017, the magistrate judge entered a recommendation to deny our motion to dismiss the complaint to the district judge who will decide the issue. We intend to file our objections to the magistrate's recommendation by November 2, 2017, as permitted. We believe that these claims are without merit and intend to vigorously defend ourselves. However, we cannot assure you that we will be found to have no liability in this matter.governmental inquiries.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Kevin Paul, derivatively and on behalf of Rent-A-Center, Inc. v. Robert D. Davis et. al.; Sheila Coleman, derivatively and on behalf of Rent-A-Center, Inc. v. Robert D. Davis et. al.; Michael Downing, derivatively and on behalf of Rent-A-Center, Inc. v. Mark E. Speese et. al. On March 15 and 16, 2017, substantially similar shareholder derivative suits were filed against certain current and former officers and directors and, nominally, against us, in state court in Dallas County, Texas. Another substantially similar shareholder derivative suit was filed against certain current and former officers and directors and, nominally, against us, in state court in Collin County, Texas on May 8, 2017. All three of the cases have been consolidated in state court in Dallas County, Texas. The lawsuits allege that the defendants breached their fiduciary duties owed to Rent-A-Center and otherwise mismanaged the affairs of the company as it concerns public statements made related to our point-of-sale system, operational results of our Acceptance Now segment, and our revenues and profitability. The petitions in these suits claim damages in unspecified amounts; seek an order directing the Company to make various changes to corporate governance and internal procedures, including putting forth a shareholder vote on various governance matters; restitution from the individual defendants; and cost, fees and expenses. We believe that these claims are without merit and intend to vigorously defend ourselves. However, we cannot assure you that the individual defendants will be found to have no liability in this matter.
Arnaud van der Gracht de Rommerswael, derivatively and on behalf of Rent-A-Center, Inc. v. Mark Speese et. al. On April 3, 2017, another shareholder derivative suit was filed against certain current and former officers and directors, JPMorgan Chase Bank, N.A., The Bank of New York Mellon Trust Company, N.A., and, nominally, against us, in federal court in Sherman, Texas. The complaint alleges that the defendants breached their fiduciary duties owed to Rent-A-Center and otherwise mismanaged the affairs of the company as it concerns (i) public statements made related to the rollout of our point-of-sale system; (ii) compensation paid to Guy Constant and Robert Davis surrounding their resignations; and (iii) change-of-control language in certain debt agreements, which the suit alleges impacts shareholders’ willingness to vote for a slate of directors nominated by Engaged Capital Flagship Master Fund, LP. (“Engaged Capital”). The complaint claims damages in unspecified amounts, disgorgement of benefits from alleged breaches of duty by the individual defendants; an order declaring that certain language in the debt agreements is unenforceable; an order enjoining the lender defendants from enforcing certain provisions in the debt agreements; an order directing the Company’s board to approve Engaged Capital’s slate of directors; an order directing the Company to make unspecified changes to corporate governance and internal procedures; and costs, fees, and expenses.
In response to the motion to dismiss filed by the defendants on April 25, 2017, the plaintiff amended his complaint on May 9, 2017 and on May 19, 2017. The amended complaint alleges breach of fiduciary duty, unjust enrichment and waste of corporate assets related to alleged acts for the purposes of entrenching board members, including the approval of change-of-control language in certain debt agreements, the implementation of the point-of-sale system, and the severance compensation paid to Guy Constant and Robert Davis.
On July 10, 2017, the plaintiff’s claims against JPMorgan Chase Bank, N.A. and The Bank of New York Mellon Trust Company, N.A. were dismissed.
On October 12, 2017, the court issued an order requiring plaintiffs to re-plead the claims related to our point-of-sale system, and denying the motion to dismiss with respect to the waste and entrenchment claims.
We believe that these claims are without merit and intend to vigorously defend ourselves. However, we cannot assure you that the defendants will be found to have no liability in this matter.
Blair v. Rent-A-Center, Inc. This matter is a state-wide class action complaint originally filed on March 13, 2017 in the Federal District Court for the Northern District of California. The complaint alleges various claims, including that our cash sales and total rent to own prices exceed the pricing permitted under the Karnette Rental-Purchase Act. In addition, the plaintiffs allege that we fail to give customers a fully executed rental agreement and that all such rental agreements that were issued to customers unsigned are void under the law. The plaintiffs are seeking statutory damages under the Karnette Rental-Purchase Act which range from $100 - $1,000 per violation, injunctive relief, and attorney’s fees. We believe that these claims are without merit and intend to vigorously defend ourselves. However, we cannot assure you that we will be found to have no liability in this matter.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Except as set forth in Item 1A of Part II, "Risk Factors," in our Form 10-Q for the quarter ended September 30, 2017, thereThere have been no material changes to the risk factors disclosed in Item 1A of Part 1, "Risk Factors," in“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.2023.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Certain of our officers have made, or may make, elections to participate in, or are participating in, the Company's stock investment option and dividend reinvestment available through the Company's 401(k) plan. In addition, certain of our officers and directors may from time to time make elections to have shares withheld to cover withholding taxes owed in connection with long-term incentive plan awards or to pay the exercise price of options or make standing elections to reinvest dividends received on our shares or long-term incentive plan awards held by them, which may be intended to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act, or may constitute “non-Rule 10b5–1 trading arrangements” as defined in Item 408(c) of Regulation S-K.
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 6.Exhibits.
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Exhibit No. | Description | |
| Exhibit No. | Description |
Articles of Incorporation and Bylaws | |
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3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
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3.5 | | |
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3.6 | | |
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Instruments Defining the Rights of Security Holders, Including Indentures | |
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4.1 | | |
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4.2 | | |
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4.24.3 | Indenture, dated as of November 2, 2010,February 17, 2021, by and among Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors,between Radiant Funding SPV, LLC and TheTruist Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated(incorporated herein by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated as of November 2, 2010.February 17, 2021.) | |
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4.3Management Contracts and Compensatory Plans or Arrangements | |
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10.1* | Indenture, dated asForm of May 2, 2013, by and among Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York Mellon Trust Company, N.A., as Trustee (Incorporated herein by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated as of May 2, 2013.)EVP Executive Transition Agreement | |
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4.410.2 | |
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10.1† | |
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10.2 | |
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10.3 | Franchisee FinancingLetter Agreement, dated April 30, 2002, but effective as of June 28, 2002, by and3, 2024, between Texas Capital Bank, National Association, ColorTyme,Upbound Group, Inc. and Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 10.14 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.) |
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10.4 | |
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10.5 | |
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10.6 | |
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10.7 | |
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10.8 | |
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10.9† | |
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RENT-A-CENTER, INC. AND SUBSIDIARIES
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10.10† | |
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10.11† | |
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10.12† | |
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10.13† | |
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10.14† | |
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10.15† | |
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10.16† | |
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10.17† | |
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10.18† | |
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10.19† | |
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10.20† | |
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10.21† | |
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10.22† | |
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10.23† | |
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10.24† | |
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10.25† | |
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10.26† | |
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10.27† | |
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10.28 | Credit Agreement, dated as of March 19, 2014, among Rent-A-Center, Inc., the several lenders from time to time parties thereto, Bank of America, N.A., BBVA Compass Bank, Wells Fargo Bank, N.A. and Suntrust Bank, as syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated as of March 19, 2014.) |
RENT-A-CENTER, INC. AND SUBSIDIARIES
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10.29† | |
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10.30 | |
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10.31 | |
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10.32 | |
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10.33 | |
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10.34 | |
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10.35 | |
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10.36† | |
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10.37† | |
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10.38† | |
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10.39 | |
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10.40†
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10.41†
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10.42†
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10.43Other Exhibits and Certifications | |
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31.1* | |
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10.44 | |
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18.1 | |
RENT-A-CENTER, INC. AND SUBSIDIARIES
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21.1 | |
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31.1* | | |
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31.2* | | |
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32.1* | | |
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32.2* | | |
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101.INS* | XBRL Instance Document - The instance document does not appear in the interactive data files because its XBRL tags are embedded within the inline XBRL document | |
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101.SCH* | XBRL Taxonomy Extension Schema Document | |
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101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
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101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
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101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
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104* | Cover page Interactive Data File (embedded within the inline XBRL document contained in Exhibit 101) | |
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* | Filed herewith. | |
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† | Management contract or compensatory plan or arrangement |
RENT-A-CENTER, INC. AND SUBSIDIARIES
SIGNATURE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| UPBOUND GROUP, INC. |
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| RENT-A-CENTER, INC. |
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| By: | /S/ MAUREEN B. SHORT FAHMI W. KARAM |
| | | Maureen B. ShortFahmi W. Karam |
| | | InterimEVP, Chief Financial Officer |
Date: November 1, 2017May 2, 2024