Business Context and Reporting Period
Upbound Group, Inc. is identified in the request, but the filing is for Rent-A-Center, Inc. and Subsidiaries, the company’s former name. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The business operates through Rent-A-Center Business, Acima, Mexico and Franchising segments and provides lease-to-own, installment-sale and related services.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,071.3 million | $1,194.0 million | $2,231.0 million | $2,230.8 million |
| Gross profit | $532.5 million | $587.5 million | $1,078.6 million | $1,098.0 million |
| Gross margin | 49.7% | 49.2% | 48.3% | 49.2% |
| Operating profit | $58.1 million | $106.5 million | $69.1 million | $176.6 million |
| Operating margin | 5.4% | 8.9% | 3.1% | 7.9% |
| Net earnings | $19.7 million | $61.3 million | $15.5 million | $103.9 million |
| Diluted EPS | $0.33 | $0.90 | $0.26 | $1.55 |
| Operating cash flow | Not separately provided | Not separately provided | $287.1 million | $250.5 million |
- Q2 revenue declined 10.3%, while six-month revenue was essentially flat year over year.
- Q2 net earnings declined 67.8%; six-month net earnings declined 85.1%.
- Six-month store rentals and fees increased 4.7% to $1,740.3 million, but merchandise sales declined 13.3% to $393.6 million.
- Merchandise losses increased to $94.0 million in Q2 and $203.7 million for the six months, versus $77.2 million and $142.4 million, respectively, in 2021.
- Cash and cash equivalents were $112.2 million at June 30, 2022, compared with $108.3 million at December 31, 2021.
- Total assets were $2.77 billion and stockholders’ equity was $558.8 million at June 30, 2022.
Debt and Liquidity
- Outstanding indebtedness was approximately $1.4 billion, consisting principally of $864.1 million under the senior secured term loan, $90.0 million under the ABL facility and $450.0 million of senior unsecured notes, net of issuance costs on the balance sheet.
- The ABL facility had $387.8 million of availability at June 30, 2022, net of letters of credit; outstanding letters of credit totaled $72.2 million.
- The term loan matures in February 2028, the ABL facility in February 2026 and the senior notes in February 2029. The term loan carried a 4.94% interest rate and the ABL facility carried a 3.375% rate at June 30, 2022.
- The company repaid $294.4 million of debt during the first six months, paid $39.5 million in dividends and incurred $30.9 million of capital expenditures.
- Management stated that operating cash flow and ABL availability are expected to be sufficient to fund operations during the next 12 months.
- A hypothetical 1.0% change in market interest rates would affect annualized pretax results by approximately $9.7 million. No interest-rate swaps were outstanding.
Material Changes Versus the Prior Comparable Period
- Rent-A-Center Business revenue declined 2.1% for the six months, and operating profit declined 19.6%, primarily due to lower same-store sales, higher labor costs and higher merchandise losses.
- Acima six-month revenue increased 3.4%, reflecting the February 2021 acquisition, but operating profit declined 51.1%. The decline reflected lower gross margins, higher delinquency provisions and merchandise losses, and underwriting changes.
- Acima Q2 revenue declined 16.5% because of a lower lease portfolio, higher delinquency provisions and fewer early purchase options.
- Mexico revenue increased 8.9% for the six months, but operating profit declined 8.2% because of higher operating expenses.
- Franchising revenue declined 22.2% for the six months because franchisees purchased less inventory; operating profit declined 5.5%.
- Other store expenses increased 21.4% for the six months, primarily due to higher customer stolen merchandise losses and delivery expenses. Store labor increased 4.6%.
- Interest expense increased on a net basis by $5.6 million for the six months. The effective tax rate increased to 50.4% from 23.4%, primarily due to tax treatment of goodwill and equity consideration related to the Acima acquisition.
- Other charges totaled $123.8 million for the six months and included $69.4 million of Acima-related restricted stock compensation, $44.3 million of acquired-asset depreciation and amortization, $5.2 million of asset impairments and employee severance and other costs.
Outlook, Commentary, Risks and Unusual Items
Management did not provide specific quantitative revenue, earnings or EBITDA guidance in the filing. The stated strategy emphasizes growth in traditional and virtual lease-to-own channels, e-commerce, retailer integration, digital payments and cost savings, while generating adjusted EBITDA margin and free cash flow.
- Management reported continued pressure from inflation, reduced discretionary income, the expiration of government stimulus, wage inflation, labor-market constraints and supply-chain disruptions.
- Acima changed its underwriting process during the first half of 2022 to improve portfolio risk management. The filing states that the future effect of this change and broader macroeconomic trends cannot be predicted with certainty.
- COVID-19 effects, consumer payment behavior, delinquency rates, merchandise losses, competition, interest rates, supply-chain conditions and regulatory developments remain material risks.
- The Consumer Financial Protection Bureau continues to investigate Acima practices. No allegations had been made as of the filing, and the company could not predict the scope, timing or outcome. Former Acima owners provided a $50 million indemnity escrow for specified losses.
- The California Attorney General matter was finalized on August 2, 2022, after the quarter end, with $15.5 million of restitution, civil penalties and injunctive requirements. The company did not admit wrongdoing and had reserved the amount at December 31, 2021.
- A multistate investigation involving Acima and a coalition of state attorneys general was ongoing; no specific allegations had been made against Acima as of the filing.
- The Massachusetts Attorney General inquiry remained unresolved, with timing and outcome not predictable.
- Management concluded that disclosure controls were effective as of June 30, 2022 and reported no material changes in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Confirm the issuer identity and corporate-name transition because this filing is under Rent-A-Center, Inc., while the request identifies Upbound Group, Inc.
- Assess whether Acima’s lower lease portfolio, elevated delinquency provisions and merchandise-loss rates are temporary or structural.
- Monitor cash generation relative to required debt repayments, dividends, capital expenditures and the large term-loan maturity profile.
- Review the impact of inflation, consumer liquidity, underwriting changes and potential recession on lease renewals and collections.
- Track the CFPB, multistate attorney general and Massachusetts investigations, including possible monetary penalties, restitution or required business-practice changes.
- Reconcile reported earnings with substantial Acima-related stock compensation, amortization, impairments and other unusual charges.