SEC Form 10-Q Summary
Filing identity: The provided filing identifies the registrant as Rent-A-Center, Inc. (Nasdaq: RCII), not Upbound Group, Inc. The report covers the quarter and six months ended June 30, 2021, and was filed August 5, 2021.
Business Context and Reporting Period
Rent-A-Center operates lease-to-own businesses in the United States, Puerto Rico, and Mexico through the Rent-A-Center Business, Acima, Mexico, and Franchising segments. On February 17, 2021, the company completed its approximately $1.4 billion acquisition of Acima Holdings, a virtual lease-to-own platform. Acima results are included from the acquisition date.
Financial Performance
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $1,194.0 million, up 74.6% | $2,230.8 million, up 61.0% |
| Gross profit | $587.5 million, up 47.0% | $1,098.0 million, up 33.9% |
| Gross margin | 49.2%, versus 58.4% | 49.2%, versus 59.2% |
| Operating profit | $106.5 million, up 98.6% | $176.6 million, up 72.2% |
| Operating margin | 8.9%, versus 7.8% | 7.9%, versus 7.4% |
| Net earnings | $61.3 million, up 59.3% | $103.9 million, up 18.3% |
| Diluted earnings per share | $0.90, versus $0.70 | $1.55, versus $1.58 |
| Operating cash flow | Not separately provided | $250.5 million, versus $254.7 million |
Revenue growth was primarily driven by the Acima acquisition and higher same-store sales in the Rent-A-Center Business segment. Rent-A-Center Business revenue increased 12.7% for the six-month period, while Acima revenue increased 168.2%. Same-store revenue increased 16.6% in the Rent-A-Center Business segment and 21.6% in Mexico for the quarter.
Liquidity, Debt, and Cash Flow
- Cash and cash equivalents were $145.1 million at June 30, 2021, compared with $159.4 million at December 31, 2020.
- Total outstanding indebtedness was approximately $1.32 billion, consisting primarily of $872.8 million under a senior secured term loan and $450.0 million of senior unsecured notes, net of issuance costs.
- The term loan matures in February 2028 and carries interest at a floating rate based on the Eurodollar rate plus a 4.00% margin, subject to a 0.75% floor.
- The $550 million ABL facility had no outstanding borrowings and $462.6 million of available borrowing capacity at June 30, 2021, net of letters of credit.
- The company issued $450 million of 6.375% senior notes due February 2029 to fund the Acima acquisition.
- Cash used in investing activities was $1.299 billion, principally for the Acima acquisition. Financing activities provided $1.034 billion, primarily from new debt proceeds.
- Capital expenditures were $25.4 million, and dividends paid were $35.1 million during the first six months.
- Management stated that operating cash flow and ABL availability should be sufficient to fund operations for the next 12 months.
Material Changes Versus the Prior Comparable Period
- The Acima acquisition materially increased consolidated revenue, assets, debt, and operating complexity. Acima contributed $615.6 million of revenue and $69.0 million of net earnings from February 17 through June 30, 2021.
- Other charges increased to $123.8 million for the six months, compared with $9.6 million in 2020. These charges included $50.3 million of acquisition-related restricted stock compensation, $48.5 million of acquired-asset depreciation and amortization, transaction costs, integration costs, and legal settlement reserves.
- Gross margin declined because of the higher mix of Acima virtual lease-to-own activity and increased merchandise costs. Merchandise sales had a negative gross margin of 12.9% in the second quarter and 7.9% for the six-month period, compared with positive margins in 2020.
- Interest expense increased to $32.4 million for the six months from $8.6 million, and the company recorded $8.7 million of debt refinancing charges.
- The effective tax rate increased to 23.4% for the six months from 6.9% in 2020, when the company benefited from CARES Act-related net operating loss carrybacks.
- Diluted share count increased substantially because of shares issued in the Acima transaction and related restricted stock awards.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide specific quantitative full-year revenue, earnings, or EBITDA guidance. Management’s stated strategy focuses on expanding traditional and virtual lease-to-own offerings, growing e-commerce and digital capabilities, integrating Acima, improving margins and free cash flow, and returning capital to shareholders.
- COVID-19 remained a risk to store operations, retail partners, customer payment capacity, merchandise supply, staffing, and liquidity, although all previously restricted locations were providing full in-store services as of July 29, 2021, subject to local requirements.
- The Consumer Financial Protection Bureau continued investigating Acima’s products and practices. Additional information requests were received in July 2021, and the ultimate scope and outcome were uncertain. A $50 million escrow indemnity holdback provides limited recourse against Acima’s former owners.
- The California and Massachusetts attorneys general continued investigations involving lease-to-own practices, with proposed settlement terms under discussion. Potential monetary payments, business-practice changes, penalties, or other remedies were not yet determinable.
- Interest-rate exposure is significant: a hypothetical 1% change in market rates would affect annualized pretax interest expense by approximately $8.8 million. The company had not entered into interest-rate swaps as of June 30, 2021.
- Acima integration, higher merchandise costs and losses, consumer-credit regulation, competition, supply-chain disruption, data security, and the ability to realize acquisition synergies were identified as key risks.
- The company’s board authorized a new stock repurchase program of up to $250 million in early August 2021; no shares had been repurchased during the first six months of 2021.
Important Facts for Investors to Verify
- Confirm the registrant and ticker: the supplied filing is for Rent-A-Center, Inc. (RCII), despite the request metadata naming Upbound Group, Inc.
- Assess the sustainability of revenue and earnings growth after separating Acima acquisition effects from organic performance.
- Evaluate Acima’s lower gross margin, merchandise-loss rates, integration costs, and future stock-based compensation expense.
- Review leverage, floating-rate exposure, debt covenants, required amortization, and available ABL capacity.
- Monitor the CFPB, California Attorney General, and Massachusetts Attorney General matters, including potential costs and operational restrictions.
- Reconcile reported net earnings and diluted EPS with acquisition-related charges, refinancing costs, tax-rate changes, and the substantially higher diluted share count.