Business Context and Reporting Period
This Form 10-K covers Rent-A-Center, Inc. for the fiscal year ended December 31, 2021. The filing does not identify Upbound Group, Inc. as the registrant; the reported registrant is Rent-A-Center, Inc. (Nasdaq: RCII). The company provides lease-to-own and installment-sale solutions through company-owned stores, e-commerce, third-party retail partners, Mexico operations, and franchised locations.
The February 17, 2021 acquisition of Acima Holdings materially changed the company’s scale and business mix. The Acima segment includes virtual and staffed lease-to-own offerings through retail partners.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $4.583 billion | $2.814 billion | +62.9% |
| Gross profit | $2.235 billion | $1.672 billion | +33.7% |
| Gross margin | 48.8% | 59.4% | Down 10.6 percentage points |
| Operating profit | $280.5 million | $237.3 million | +18.2% |
| Operating margin | 6.1% | 8.4% | Down 2.3 percentage points |
| Operating profit excluding other charges | $570.5 million | $273.9 million | Margin of 12.4% versus 9.7% |
| Net earnings | $134.9 million | $208.1 million | Down 35.2% |
| Diluted earnings per share | $2.02 | $3.73 | Down 45.8% |
| Operating cash flow | $392.3 million | $236.5 million | +65.9% |
| Cash and cash equivalents at year-end | $108.3 million | $159.4 million | Down $51.1 million |
| Total indebtedness | Approximately $1.61 billion | Not directly comparable | Higher following acquisition financing |
Net margin was approximately 2.9% in 2021 versus 7.4% in 2020. Interest expense increased to $70.9 million from $15.3 million, and debt refinancing charges were $15.6 million. Income tax expense increased to $59.4 million from $14.7 million, with an effective tax rate of 30.6% versus 6.6%.
Segment Performance
- Rent-A-Center Business: Revenue of $2.038 billion, up 10.0%; same-store revenue increased 15.4%; operating profit was $448.9 million, up 34.7%.
- Acima: Revenue of $2.328 billion, up 187.4%, primarily reflecting the Acima acquisition; operating profit was $176.5 million, up 205.1%. Segment operating margin was 7.6%.
- Mexico: Revenue of $61.4 million, up 21.4%; operating profit was $7.9 million, up 35.5%.
- Franchising: Revenue of $156.1 million, up 54.8%; operating profit was $20.3 million, up 61.7%.
Cash Flow, Debt and Liquidity
- Operating cash flow was $392.3 million. Cash uses included $1.274 billion for acquisitions, $390.1 million for share repurchases, $369.1 million for debt repayments, $71.5 million for dividends, $62.5 million for capital expenditures, and $47.6 million of debt issuance costs.
- At December 31, 2021, senior debt consisted principally of $868.4 million under the Term Loan Facility and $290.0 million under the ABL Credit Facility, plus $450.0 million of senior unsecured notes due 2029. Net senior debt and notes were $1.571 billion after issuance-cost offsets.
- The ABL facility had $173.6 million of borrowing availability after letters of credit. At February 21, 2022, management reported $123.1 million of cash and approximately $290.0 million of ABL availability.
- The Term Loan Facility matures in 2028, the ABL facility in 2026, and the senior notes in 2029. Approximately $1.158 billion of senior debt was variable-rate debt at year-end; a 1% interest-rate change was estimated to affect annual pretax expense by approximately $11.6 million.
- Management stated that operating cash flow and ABL availability should be sufficient to fund operations for the next 12 months, but debt agreements restrict dividends, repurchases, additional debt, and other transactions.
Material Changes Versus the Prior Comparable Period
- The Acima acquisition added approximately $1.518 billion of segment revenue and was funded with approximately $1.273 billion of cash consideration, new term debt, ABL borrowings, senior notes, and equity consideration.
- Revenue increased substantially, but gross margin declined because Acima has different merchandise depreciation economics and generally purchases merchandise at retail rather than wholesale prices.
- Other charges increased to $289.9 million from $36.6 million. 2021 charges included $127.1 million of stock compensation related to acquisition consideration, $114.9 million of acquired-asset depreciation and amortization, approximately $17.7 million of transaction costs, approximately $10.3 million of integration costs, and legal settlement reserves.
- Merchandise losses increased to $331.9 million from $205.2 million, and the merchandise-loss reserve increased to $98.2 million from $58.1 million.
- Share repurchases totaled approximately $390.1 million in 2021. A December 2021 program authorized up to $500 million, with approximately $360 million remaining available at year-end. The quarterly dividend was increased approximately 10% to $0.34 per share for the first quarter of 2022.
Outlook, Commentary, Risks and Unusual Items
No formal revenue, earnings, or margin guidance is provided in the filing. Management’s strategy emphasizes expanding virtual and e-commerce lease-to-own offerings, integrating Acima, improving technology and retailer onboarding, growing product categories, and generating adjusted EBITDA and free cash flow.
- Following the expiration of government stimulus programs and amid higher inflation, the company experienced lower customer payments and higher loss activity in the latter part of 2021. Labor shortages, wage inflation, supply-chain disruptions, reduced product availability, and rising product costs also affected the business.
- The Acima business carries higher merchandise-cost and merchandise-loss risks than the traditional Rent-A-Center Business. It also depends on retail partners, proprietary decisioning technology, electronic payments, data vendors, and effective cybersecurity.
- The CFPB is investigating Acima’s products, services, and practices. A multistate attorneys general investigation was also initiated in November 2021. The company disclosed ongoing inquiries involving the California and Massachusetts attorneys general. Outcomes, timing, and potential financial or operational impacts remain uncertain.
- A $50 million escrow holdback from the former Acima owners is the company’s stated sole recourse for specified indemnifiable CID and tax claims, subject to release provisions. The filing states that the escrow may be insufficient to cover all losses.
- Legal settlement reserves included approximately $17.5 million in 2021. The company states that currently known legal matters are not expected to materially affect the consolidated financial statements, but future developments could materially affect results or require changes to business practices.
- Management and the auditor concluded that internal control over financial reporting was effective, but the assessment excluded Acima Holdings, which represented approximately 33% of 2021 revenue. This exclusion is important when evaluating the maturity of the combined company’s control environment.
Most Important Facts to Verify
- Confirm the issuer identity: the supplied filing is for Rent-A-Center, Inc., not Upbound Group, Inc.
- Reconcile reported total indebtedness of approximately $1.61 billion to the Term Loan Facility, ABL borrowings, senior notes, and unamortized debt costs.
- Assess whether Acima’s growth can be sustained while improving its lower gross margin and higher merchandise-loss profile.
- Review the CFPB, state attorneys general, and other regulatory matters, including potential penalties, restitution, settlements, or required changes to lease-to-own practices.
- Evaluate liquidity, ABL borrowing-base availability, fixed-charge covenant requirements, variable-rate exposure, and the 2026 ABL maturity.
- Consider the sustainability of dividends and share repurchases given leverage, debt covenants, acquisition integration costs, and cash requirements for rental merchandise.
- Review the $98.2 million merchandise-loss reserve, $82.6 million self-insurance reserve, and assumptions underlying customer payment and loss behavior.