Rent-A-Center, Inc., Now Upbound Group, Inc., Reports Fourth Quarter and Full Year 2022 Results
PLANO, Texas--(BUSINESS WIRE)--Rent-A-Center, Inc. (the "Company" or "Rent-A-Center") (NASDAQ:RCII), now known as Upbound Group, Inc. (the "Company" or "Upbound") (NASDAQ:UPBD, effective February 27, 2023) today announced results for the quarter and year ended December 31, 2022. “We are encouraged by the Company’s fourth quarter performance as we executed well on our top line, risk management, and efficiency initiatives to mitigate the effects of macro-economic headwinds, and delivered financial results that exceeded our revised outlook,” said Mitch Fadel, Chief Executive Officer. “Reflecting on full-year results, 2022 was a challenging operating environment with many households adjusting their financial priorities following the unsustainable levels of stimulus-driven income and consumption that occurred in 2020 and 2021, while experiencing the highest inflation in decades. This drove significant headwinds in our business throughout the year, to which we responded with several initiatives that we believe position the Company well going forward. Examples of recent initiatives include improved automation, new investments to better utilize data analytics in our underwriting processes, and several new executive hires,” continued Mr. Fadel. “While the external environment remains challenging and uncertain, we believe the Company is in better standing today to address the growing demand for flexible consumer financial solutions. To effectively align our vision, values, and strategies, the Company is organizing itself under a new enterprise brand and changing its corporate name to Upbound Group, Inc., which will trade under the ticker UPBD starting on February 27th. As we start this next stage of the Company’s evolution, I am very optimistic about our ability to deliver significant value for our customers, merchant partners, employees and shareholders,” concluded Mr. Fadel. Corporate Name Change Effective February 22, 2023, Rent-A-Center, Inc. changed its parent company name to Upbound Group, Inc. Upbound™ will function as an enterprise brand, unifying the Company’s resources and capabilities. The holding company will define the vision, values, and strategies for how the operating businesses will offer innovative and technology-driven financial solutions to address the evolving needs and aspirations of consumers. Key Management Changes Fahmi Karam joined as Chief Financial Officer, effective October 31, 2022. Mr. Karam has over 20 years of experience in finance and accounting, most recently as the Chief Financial Officer of Santander Consumer USA since September 2019. Mr. Karam previously served as Santander's Head of Pricing and Analytics, and EVP, Strategy and Corporate Development. Prior to his roles at Santander, Mr. Karam spent 12 years at JP Morgan Investment Bank, and he began his career at Deloitte. Tyler Montrone has been appointed Executive Vice President of Acima, effective February 20, 2023, and will lead the Acima business segment, reporting to CEO, Mitch Fadel. Mr. Montrone is a long-time Acima executive who most recently served as Acima's Chief Development Officer where he was responsible for Acima's product, engineering and underwriting functions. Aaron Allred, founder and former Executive Vice President of Acima, will continue to work for the Company in an advisory role. Sudeep Gautam joined the Company as Chief Technology and Digital Officer, effective January 16, 2023. Mr. Gautam has over 20 years of experience in large-scale digital transformations, including the position of Chief Digital Officer at Pratt & Whitney and several senior executive positions at Hewlett-Packard. Mike Bagull joined the Company as Senior Vice President, Business Development and Partnerships, in August 2022. Mr. Bagull has over 20 years of experience in business development and sales management roles, including over 8 years at Synchrony, most recently as Senior Vice President, Business Development and Partnerships. Fourth Quarter Consolidated Results Fourth quarter 2022 consolidated revenues decreased 15.4% year-over-year to $990 million, primarily due to lower rental revenues in both the Acima and Rent-A-Center Business segments from lower lease portfolio values compared to the prior year period. GAAP operating profit for the fourth quarter of 2022 was $42.3 million and included $49.8 million of pre-tax costs relating to special items described below, compared to $36.8 million of GAAP operating profit and $73.5 million of pre-tax costs relating to special items in the prior year period. The year-over-year decrease in GAAP operating profit, excluding special items, for the fourth quarter of 2022 was primarily due to lower consolidated revenues and higher loss rates. GAAP operating profit margin for the fourth quarter of 2022 was 4.3%, compared to 3.1% in the prior year period. Adjusted EBITDA in the fourth quarter of 2022 decreased 15.2% year-over-year to $110.1 million, primarily due to lower revenues and higher loss rates for the Rent-A-Center Business segment. Adjusted EBITDA margin of 11.1% in the fourth quarter of 2022, was unchanged compared to the prior year period. GAAP diluted earnings per share for the fourth quarter of 2022 was $0.05 compared to $0.15 in the prior year period. Non-GAAP diluted earnings per share, which excludes the impact of special items described below, for the fourth quarter of 2022 was $0.86 compared to $1.08 in the prior year period. Fourth Quarter Segment Highlights Rent-A-Center Business Segment: As of December 31, 2022, the segment lease portfolio value was 4.7% lower than the prior year period. Fourth quarter 2022 revenues decreased 7.7% year-over-year to $467.4 million, primarily due to the lower lease portfolio value yielding less rental and fee revenues. E-commerce accounted for approximately 25% of revenue in our lease-to-own stores in the fourth quarter, compared to approximately 24% in the prior year period. Same-store sales decreased 8.1% year-over-year in the fourth quarter, but were up 2.3% on a two-year stacked basis. Skip/stolen losses were 5.8% of revenue in the fourth quarter of 2022 compared to 4.0% in the prior year period and 5.8% in the third quarter of 2022. On a GAAP basis, segment operating profit margin was 13.5%, compared to 18.2% in the fourth quarter of 2021. Adjusted EBITDA margin was 14.6%, compared to 19.3% in the fourth quarter of 2021. The year-over-year decrease in operating profit margin and Adjusted EBITDA margin was primarily attributable to lower revenues, and higher loss rates, partially offset by the Company's efficiency initiatives. On December 31, 2022, the Rent-A-Center Business segment had 1,851 company-operated locations. Acima Segment: Fourth quarter 2022 Gross Merchandise Volume (GMV) decreased 23.4% year-over-year, primarily due to lower customer traffic at merchant partners generating fewer lease applications per store. Fourth quarter revenues decreased 22.2% year-over-year to $476.3 million, primarily due to a lower portfolio value yielding less rental and fees revenues. Skip/stolen losses were 8.9% of revenue in the fourth quarter of 2022 compared to 11.8% in the prior year period and 9.0% in the third quarter of 2022. On a GAAP basis, segment operating profit margin was 12.0% in the fourth quarter of 2022, compared to 5.2% in the fourth quarter of 2021. Adjusted EBITDA margin was 15.0% in the fourth quarter of 2022, compared to 9.6% in the fourth quarter of 2021. The increase in operating profit margin and Adjusted EBITDA Margin from the prior year period and third quarter of 2022 was primarily attributable to lower loss rates, driven by improvements in underwriting. Franchising Segment: Fourth quarter 2022 revenues decreased 19.5% year-over-year to $30.3 million, primarily due to lower inventory purchases per store. Segment operating profit, on a GAAP basis, and Adjusted EBITDA were $4.0 million in the fourth quarter and decreased $0.9 million year-over-year. On December 31, 2022, there were 447 franchise-operated locations. Mexico Segment: Fourth quarter 2022 revenues of $16.4 million increased 0.2% year-over-year on a constant currency basis. Segment operating profit, on a GAAP basis, and Adjusted EBITDA were $1.3 million and $1.5 million, respectively. On December 31, 2022, the Mexico business had 126 company-operated locations. Corporate Segment: Fourth quarter 2022 GAAP expenses of $83.1 million included $35.3 million of pre-tax costs relating to special items described below, decreased 10% year-over-year, compared to the prior year period that included $46.1 million of pre-tax costs relating to special items. Full Year Consolidated Results Full year 2022 consolidated revenues decreased 7.4% year-over-year on a reported basis and 11.2% on a pro-forma(1) basis to $4.2 billion, primarily due to lower lease portfolio values for the Acima and Rent-A-Center Businesses compared to 2021. GAAP operating profit for the full year 2022 was $148.5 million and included $232.4 million of pre-tax costs relating to special items described below, compared to GAAP operating profit of $280.5 million that included $275.6 million of pre-tax costs relating to special items in the prior year period. GAAP operating profit margin for the full year 2022 was 3.5%, compared to 6.1% in 2021. Adjusted EBITDA for the full year 2022 decreased 28.2% year-over-year on a reported basis and 32.0% on a pro-forma(1) basis to $453.5 million, primarily due to lower revenues and higher loss rates in the Rent-A-Center Business and Acima segments, compared to 2021. Adjusted EBITDA margin for the full year 2022 was 10.7%, compared to 13.8% in 2021. GAAP diluted earnings per share for the full year 2022 was $0.21 compared to $2.02 in 2021. Non-GAAP diluted earnings per share, which excludes the impact of special items described below, for the full year 2022 was $3.70 compared to $5.57 in 2021. For the year ended December 31, 2022, the Company returned $154.2 million of cash to shareholders through a $1.36 annualized dividend and share repurchases. For the year ended December 31, 2022, cash from operations was $468.5 million, the value of cash and cash equivalents was $144.1 million, debt outstanding was $1.4 billion, liquidity was $540 million, including $396 million of revolving credit availability, and the net debt to Adjusted EBITDA ratio was 2.8. Key Metrics Table 1 Q4 2022 Q4 2021 FY 2022 FY 2021 Metrics ($'s Millions - except per share & store count data) Consolidated Revenue 990.5 1,171.4 4,245.4 4,583.5 GAAP Operating Profit 42.3 36.8 148.5 280.5 Adj. EBITDA (2) 110.1 129.9 453.5 631.5 Adj. EBITDA Margin (2) 11.1 % 11.1 % 10.7 % 13.8 % GAAP Operating Expenses as % of Total Revenue 45.7 % 45.4 % 45.5 % 42.6 % GAAP Diluted EPS 0.05 0.15 0.21 2.02 Non-GAAP Diluted EPS (2) 0.86 1.08 3.70 5.57 Operating Cash Flow 56.4 66.1 468.5 392.3 Free Cash Flow (2) 44.4 49.5 407.1 329.8 Rent-A-Center Business Segment Lease Portfolio - Monthly Value (as of 12/31) (3) 142.8 150.0 142.8 150.0 Lease Portfolio Value (Y/Y % Change - as of 12/31) (3) (4.7 )% 10.2 % (4.7 )% 10.2 % Same Store Sales (Y/Y % Change) (4) (8.1 )% 10.4 % (4.5 )% 15.3 % Revenue 467.4 506.2 1,949.9 2,037.9 GAAP Operating Profit 63.2 91.9 334.5 448.9 Adj. EBITDA (2) 68.3 97.8 356.8 469.6 Adj. EBITDA Margin (2) 14.6 % 19.3 % 18.3 % 23.0 % Skip / Stolen Loss Rate (5) 5.8 % 4.0 % 4.9 % 3.1 % 30+ Day Past Due Rate (6) 3.5 % 2.4 % 3.0 % 2.2 % Corporate Owned Store Count (U.S. & PR - as of 12/31) 1,851 1,846 1,851 1,846 Acima Business Segment GMV (7) 399.5 521.3 1,584.4 2,056.5(1 ) GMV (Y/Y % Change) (7) (23.4 )% 5.1 % (23.0 )% 23.1%(1) Revenue 476.3 611.9 2,110.3 2,328.1 GAAP Operating Profit 57.0 31.7 151.3 176.5 Adj. EBITDA (2) 71.7 58.6 217.3 273.1 Adj. EBITDA Margin (2) 15.0 % 9.6 % 10.3 % 11.7 % Skip / Stolen Loss Rate (5) 8.9 % 11.8 % 10.6 % 9.6 % 60+ Day Past Due Rate (8) 13.9 % 13.2 % 14.1 % 10.8 % (1) For full-year 2021 results, the disclosed pro forma results and metrics in this release and the Company's related earnings conference call represent estimated financial results and metrics as if the acquisition of Acima had been completed on January 1, 2021. The pro forma results and metrics may not necessarily reflect the actual results of operations or metrics that would have been achieved had the acquisition been completed on January 1, 2021, nor are they necessarily indicative of future results of operations or metrics. Our acquisition of Acima was completed on February 17, 2021. (2)Non-GAAP financial measure. Refer to the explanations and reconciliations elsewhere in this release. (3)Lease Portfolio Value: Represents the aggregate dollar value of the expected monthly rental income associated with current active lease agreements from our Rent-A-Center Business stores and ecommerce platform at the end of any given period. (4)Same Store Sales (SSS): Same store sales generally represents revenue earned in stores that were operated by us for 13 months or more and 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 closed stores or acquisitions. The receiving store will be eligible for inclusion in the same store sales base in the 30th full month following account transfer. (5)Skip / Stolen Loss Rate: Represents charge-offs of the depreciated value of unrecoverable on-rent merchandise with lease-to-own customers who are past due as a percentage of revenues (6)30+ Days Past Due Rate: Defined as the average number of accounts 30+ days past due as a % of total open leases. (7)Gross Merchandise Volume (GMV): The Company defines Gross Merchandise Volume as the retail value in U.S. dollars of merchandise acquired by the Company that is leased to customers through a transaction that occurs within a defined period, net of cancellations. (8)60+ Days Past Due Rate: Defined as the average number of accounts 60+ days past due as a % of total open leases. Full Year 2023 Guidance The Company is providing the following guidance for its 2023 fiscal year. Because of the inherent uncertainty related to the special items identified in the tables below, management does not believe it is able to provide a meaningful forecast of the comparable GAAP measures or reconciliation to any forecasted GAAP measure without unreasonable effort. The actual amount of these items during 2023 may have a significant impact on our future GAAP results. Table 2 Guidance Full Year 2023 Consolidated (1) Revenues ($'s billion) $3.8 - $4.0 Adjusted EBITDA Excluding Stock Based Compensation (2) ($'s million) $380 - $415 Non-GAAP Diluted Earnings Per Share (2)(3) $2.50 - $3.00 Free Cash Flow (2) ($'s million) $180 - $215 (1)Consolidated includes Acima, Rent-A-Center Business, Franchising, Mexico and Corporate Segments. (2)Non-GAAP financial measure. See descriptions below in this release. Adjusted EBITDA figures exclude stock based compensation beginning with the first quarter of 2022. Full year 2023 guidance excludes stock-based compensation of approximately $24M. (3)Non-GAAP diluted earnings per share excludes the impact of incremental depreciation and amortization related to the estimated fair value of acquired Acima assets, stock compensation expense associated with the Acima acquisition equity consideration subject to vesting conditions, and one-time transaction and integration costs related to the Acima acquisition. Guidance excludes the impact of any future share repurchases. Webcast Information Rent-A-Center, Inc., now Upbound Group, Inc., will host a conference call to discuss the fourth quarter and full year results, guidance and other operational matters on the morning of Thursday, February 23, 2023, at 9:00 a.m. ET. For a live webcast of the call, visit https://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website. Participants can access the call by phone via this link (registration link), where the dial-in details will be provided. About Rent-A-Center, Inc. Rent-A-Center, Inc. (NASDAQ: RCII) now known as Upbound Group, Inc. (NASDAQ:UPBD, effective February 27, 2023), is an omni-channel platform company committed to elevating financial opportunity for all through innovative, inclusive, and technology-driven financial solutions that address the evolving needs and aspirations of consumers. The Company's customer-facing operating units include industry-leading brands such as Rent-A-Center® and Acima® that facilitate consumer transactions across a wide range of store-based and digital retail channels, including over 2,400 company branded retail units across the United States, Mexico and Puerto Rico. Upbound Group, Inc. is headquartered in Plano, Texas. Forward-Looking Statements This press release and the guidance above and the Company's related conference call contain forward-looking statements that involve risks and uncertainties. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "predict," "continue," "maintain," "should," "anticipate," "believe," or “confident,” or the negative thereof or variations thereon or similar terminology and including, among others, statements concerning (i) the Company's guidance for 2023 and future outlook, (ii) the potential effects of ongoing challenging macro-economic conditions on the Company's business operations, financial performance, and prospects, (iii) the future business prospects and financial performance of the Company following the acquisition of Acima Holdings, LLC ("Acima Holdings"), (iv) cost and revenue synergies and other benefits expected to result from the Acima Holdings acquisition, (v) the Company's expectations, plans and strategy relating to its capital structure and capital allocation, including any share repurchases under the Company's share repurchase program, (vi) opportunities relating to the Company's parent entity name change and related initiatives, and (vii) other statements that are not historical facts. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially and adversely from such statements. Factors that could cause or contribute to these differences include, but are not limited to: (1) risks relating to the Acima Holdings acquisition, (2) the impact of the COVID-19 pandemic and related government and regulatory restrictions issued to combat the pandemic, including adverse changes in such restrictions, the expiration of governmental stimulus programs, and impacts on (i) demand for the Company's lease-to-own products offered in the Company's operating segments, (ii) the Company's Acima retail partners, (iii) the Company's customers and their willingness and ability to satisfy their lease obligations, (iv) the Company's suppliers' ability to satisfy its merchandise needs and related supply chain disruptions, (v) the Company's employees, including the ability to adequately staff its operating locations, (vi) the Company's financial and operational performance, and (vii) the Company's liquidity; (3) the general strength of the economy and other economic conditions affecting consumer preferences and spending, including the availability of credit to the Company's target consumers and to other consumers, impacts from the high level of inflation, central bank monetary policy initiatives to address inflation concerns and possible recession; (4) factors affecting the disposable income available to the Company's current and potential customers; (5) changes in the unemployment rate; (6) capital market conditions, including availability of funding sources for the Company; (7) changes in the Company's credit ratings; (8) difficulties encountered in improving the financial and operational performance of the Company's business segments; (9) risks associated with pricing changes and strategies being deployed in the Company's businesses; (10) the Company's ability to continue to realize benefits from its initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements; (11) the Company's ability to continue to effectively execute its strategic initiatives, including mitigating risks associated with any potential mergers and acquisitions, or refranchising opportunities; (12) the Company's ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies; (13) failure to manage the Company's store labor and other store expenses, including merchandise losses; (14) disruptions caused by the operation of the Company's store information management systems or disruptions in the systems of the Company's host retailers; (15) risks related to the Company's virtual lease-to-own business, including the Company's ability to continue to develop and successfully implement the necessary technologies; (16) the Company's ability to achieve the benefits expected from its integrated virtual and staffed retail partner offering and to successfully grow this business segment; (17) exposure to potential operating margin degradation due to the higher cost of merchandise in the Company's Acima offering and higher merchandise losses than compared to our Rent-A-Center Business segment; (18) the Company's transition to more-readily scalable, “cloud-based” solutions; (19) the Company's ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications; (20) the Company's ability to protect its proprietary intellectual property; (21) the Company's ability or that of the Company's host retailers to protect the integrity and security of customer, employee and host retailer information, which may be adversely affected by hacking, computer viruses, or similar disruptions; (22) impairment of our goodwill or other intangible assets; (23) disruptions in the Company's supply chain; (24) limitations of, or disruptions in, the Company's distribution network; (25) rapid inflation or deflation in the prices of the Company's products and other related costs; (26) allegations of product safety and quality control issues, including recalls; (27) the Company's ability to execute and the effectiveness of store consolidations, including the Company's ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation; (28) the Company's available cash flow and its ability to generate sufficient cash flow to continue paying dividends; (29) 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; (30) the Company's ability to identify and successfully market products and services that appeal to its current and future targeted customer segments and to accurately estimate the size of the total addressable market; (31) consumer preferences and perceptions of the Company's brands; (32) the Company's ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores; (33) the Company's ability to enter into new, and collect on, its rental or lease purchase agreements; (34) changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting the Company's business, including any legislative or 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 the Company's business; (35) the Company's compliance with applicable statutes or regulations governing its businesses; (36) changes in interest rates; (37) changes in tariff policies; (38) adverse changes in the economic conditions of the industries, countries or markets that the Company serves; (39) information technology and data security costs; (40) the impact of any breaches in data security or other disturbances to the Company's information technology and other networks (41) changes in estimates relating to self-insurance liabilities, and income tax and litigation reserves; (42) changes in the Company's effective tax rate; (43) fluctuations in foreign currency exchange rates; (44) the Company's ability to maintain an effective system of internal controls; (45) litigation or administrative proceedings to which the Company is or may be a party to from time to time; and (46) the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its Annual Report on Form 10-K for the year ended December 31, 2021 and upcoming Annual Report on Form 10-K for the year ended December 31, 2022, and in its subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Upbound Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED Table 3 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands, except per share data) 2022 2021 2022 2021 Revenues Store Rentals and fees $ 805,649 $ 929,665 $ 3,375,453 $ 3,522,453 Merchandise sales 134,023 183,184 675,288 829,222 Installment sales 19,973 20,593 72,328 73,585 Other 1,277 1,113 4,975 4,148 Total store revenues 960,922 1,134,555 4,128,044 4,429,408 Franchise Merchandise sales 23,501 30,514 91,350 126,856 Royalty income and fees 6,036 6,357 25,998 27,187 Total revenues 990,459 1,171,426 4,245,392 4,583,451 Cost of revenues Store Cost of rentals and fees 300,154 347,902 1,268,809 1,260,434 Cost of merchandise sold 164,246 217,783 779,789 935,765 Cost of installment sales 7,168 7,071 25,547 25,637 Total cost of store revenues 471,568 572,756 2,074,145 2,221,836 Franchise cost of merchandise sold 23,532 30,412 91,715 126,603 Total cost of revenues 495,100 603,168 2,165,860 2,348,439 Gross profit 495,359 568,258 2,079,532 2,235,012 Operating expenses Store expenses Labor 147,590 164,774 634,341 644,763 Other store expenses 197,515 229,374 821,821 770,073 General and administrative expenses 45,197 45,426 186,470 194,894 Depreciation and amortization 12,871 14,037 53,079 54,830 Other charges 49,848 77,818 235,283 289,913 Total operating expenses 453,021 531,429 1,930,994 1,954,473 Operating profit 42,338 36,829 148,538 280,539 Debt refinancing charges — — — 15,582 Interest expense 26,690 18,708 87,708 70,874 Interest income (288 ) (73 ) (641 ) (221 ) Earnings before income taxes 15,936 18,194 61,471 194,304 Income tax expense 13,289 8,382 49,114 59,364 Net earnings $ 2,647 $ 9,812 $ 12,357 $ 134,940 Basic weighted average shares 52,271 55,401 53,850 57,053 Basic earnings per common share $ 0.05 $ 0.18 $ 0.23 $ 2.37 Diluted weighted average shares 56,468 64,989 58,966 66,839 Diluted earnings per common share $ 0.05 $ 0.15 $ 0.21 $ 2.02 Upbound Group, Inc. and Subsidiaries SELECTED BALANCE SHEETS HIGHLIGHTS - UNAUDITED Table 4 December 31, (In thousands) 2022 2021 Cash and cash equivalents $ 144,141 $ 108,333 Receivables, net 111,865 126,378 Prepaid expenses and other assets 46,070 63,468 Rental merchandise, net On rent 989,869 1,173,024 Held for rent 134,959 132,984 Operating lease right-of-use assets 302,311 291,338 Goodwill 289,750 289,750 Total assets 2,763,619 2,993,327 Operating lease liabilities $ 305,556 $ 296,535 Senior debt, net 930,902 1,135,207 Senior notes, net 437,956 435,992 Total liabilities 2,238,473 2,480,051 Stockholders' equity 525,146 513,276 Upbound Group, Inc. and Subsidiaries SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED Table 5 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Revenues Rent-A-Center Business $ 467,419 $ 506,163 $ 1,949,864 $ 2,037,849 Acima 476,326 611,915 2,110,320 2,328,089 Mexico 16,426 15,733 64,880 61,403 Franchising 30,288 37,615 120,328 156,110 Total revenues $ 990,459 $ 1,171,426 $ 4,245,392 $ 4,583,451 Table 6 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Gross profit Rent-A-Center Business $ 326,531 $ 360,590 $ 1,372,863 $ 1,433,536 Acima 150,502 189,671 632,244 728,852 Mexico 11,570 10,794 45,812 43,117 Franchising 6,756 7,203 28,613 29,507 Total gross profit $ 495,359 $ 568,258 $ 2,079,532 $ 2,235,012 Table 7 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Operating profit Rent-A-Center Business $ 63,242 $ 91,869 $ 334,525 $ 448,905 Acima 56,983 31,699 151,301 176,496 Mexico 1,256 1,199 6,267 7,858 Franchising 3,954 4,826 19,124 20,321 Total segments 125,435 129,593 511,217 653,580 Corporate (83,097 ) (92,764 ) (362,679 ) (373,041 ) Total operating profit $ 42,338 $ 36,829 $ 148,538 $ 280,539 Table 8 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Depreciation and amortization Rent-A-Center Business $ 4,861 $ 4,767 $ 20,526 $ 18,588 Acima 432 554 1,928 2,122 Mexico 217 142 711 511 Franchising 36 35 146 93 Total segments 5,546 5,498 23,311 21,314 Corporate 7,325 8,539 29,768 33,516 Total depreciation and amortization $ 12,871 $ 14,037 $ 53,079 $ 54,830 Table 9 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Capital expenditures Rent-A-Center Business $ 5,765 $ 1,937 $ 36,682 $ 23,139 Acima 39 100 244 1,045 Mexico 371 288 1,590 1,032 Franchising 54 — 332 — Total segments 6,229 2,325 38,848 25,216 Corporate 5,722 14,249 22,539 37,234 Total capital expenditures $ 11,951 $ 16,574 $ 61,387 $ 62,450 Table 10 On lease at December 31, Held for lease at December 31, (In thousands) 2022 2021 2022 2021 Lease merchandise, net Rent-A-Center Business $ 465,095 $ 477,901 $ 124,117 $ 123,111 Acima 503,795 676,279 373 626 Mexico 20,979 18,844 10,469 9,247 Total lease merchandise, net $ 989,869 $ 1,173,024 $ 134,959 $ 132,984 Table 11 December 31, (In thousands) 2022 2021 Assets Rent-A-Center Business $ 1,067,875 $ 1,026,886 Acima 1,198,879 1,476,752 Mexico 51,225 41,669 Franchising 18,194 15,412 Total segments 2,336,173 2,560,719 Corporate 427,446 432,608 Total assets $ 2,763,619 $ 2,993,327 Non-GAAP Financial Measures This release and the Company's related conference call contain certain financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles (GAAP), including (1) Non-GAAP diluted earnings per share (net earnings or loss, as adjusted for special items (as defined below), net of taxes, divided by the number of shares of our common stock on a fully diluted basis), (2) Adjusted EBITDA (net earnings before interest, taxes, stock-based compensation, depreciation and amortization, as adjusted for special items) on a consolidated and segment basis, (3) Free Cash Flow (net cash provided by operating activities less capital expenditures), (4) Adjusted EBITDA margin on a consolidated and segment basis and (5) net debt to Adjusted EBITDA ratio. “Special items” refers to certain gains and charges we view as extraordinary, unusual or non-recurring in nature or which we believe do not reflect our core business activities. For the periods presented herein, these special items are described in the quantitative reconciliation tables included below in this release. Because of the inherent uncertainty related to the special items, management does not believe it is able to provide a meaningful forecast of the comparable GAAP measures or reconciliation to any forecasted GAAP measure without unreasonable effort. These non-GAAP measures are additional tools intended to assist our management in comparing our performance on a more consistent basis for purposes of business decision-making by removing the impact of certain items management believes do not directly reflect our core operations. These measures are intended to assist management in evaluating operating performance and liquidity, comparing performance and liquidity across periods, planning and forecasting future business operations, helping determine levels of operating and capital investments and identifying and assessing additional trends potentially impacting our Company that may not be shown solely by comparisons of GAAP measures. Consolidated Adjusted EBITDA is also used as part of our incentive compensation program for our executive officers and others. We believe these non-GAAP financial measures also provide supplemental information that is useful to investors, analysts and other external users of our consolidated financial statements in understanding our financial results and evaluating our performance and liquidity from period to period. However, non-GAAP financial measures have inherent limitations and are not substitutes for or superior to, and they should be read together with, our consolidated financial statements prepared in accordance with GAAP. Further, because non-GAAP financial measures are not standardized, it may not be possible to compare such measures to the non-GAAP financial measures presented by other companies, even if they have the same or similar names. Reconciliation of net earnings to net earnings excluding special items and non-GAAP diluted earnings per share: Table 12 Three Months Ended December 31, 2022 (In thousands) Gross Profit Operating Profit Earnings Before Income Tax Tax Expense Net Earnings Diluted Earnings per Share GAAP Results 495,359 $ 42,338 $ 15,936 $ 13,289 $ 2,647 $ 0.05 Plus: Special Items Acima equity consideration vesting — 31,721 31,721 1,395 30,326 0.54 Acima acquired assets depreciation and amortization (1) — 18,234 18,234 803 17,431 0.31 Legal settlement — (298 ) (298 ) (13 ) (285 ) (0.01 ) Cost savings initiatives — (178 ) (178 ) (8 ) (170 ) — Legal settlement reserves — 150 150 7 143 — Store closure costs — 111 111 5 106 — Hurricane charges — 108 108 5 103 — Discrete income tax items — — — 1,463 (1,463 ) (0.03 ) Non-GAAP Adjusted Results $ 495,359 $ 92,186 $ 65,784 $ 16,946 $ 48,838 $ 0.86 (1)Includes amortization of approximately $14.3 million related to the total fair value of acquired intangible assets and incremental depreciation of approximately $4.0 million. Table 13 Three Months Ended December 31, 2021 (In thousands) Gross Profit Operating Profit Earnings Before Income Tax Tax Expense Net Earnings Diluted Earnings per Share GAAP Results $ 568,258 $ 36,829 $ 18,194 $ 8,382 $ 9,812 $ 0.15 Plus: Special Items Acima equity consideration vesting — 33,940 33,940 — 33,940 0.52 Acima acquired assets depreciation and amortization (1) (4,280 ) 28,955 28,955 5,200 23,755 0.37 Legal settlement reserves — 6,750 6,750 1,212 5,538 0.09 Acima integration costs — 2,415 2,415 434 1,981 0.03 Hurricane charges — 770 770 138 632 0.01 Acima transaction costs — 344 344 62 282 — COVID-19 testing — 293 293 53 240 — Store closure costs — 71 71 12 59 — Discrete income tax items — — — 5,989 (5,989 ) (0.09 ) Non-GAAP Adjusted Results $ 563,978 $ 110,367 $ 91,732 $ 21,482 $ 70,250 $ 1.08 (1)Includes amortization of approximately $29.3 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $4.0 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(4.3) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Table 14 Twelve Months Ended December 31, 2022 (In thousands) Gross Profit Operating Profit Earnings Before Income Tax Tax Expense Net Earnings Diluted Earnings per Share GAAP Results $ 2,079,532 $ 148,538 $ 61,471 $ 49,114 $ 12,357 $ 0.21 Plus: Special Items Acima equity consideration vesting — 143,210 143,210 15,431 127,779 2.16 Acima acquired assets depreciation and amortization (1) (2,853 ) 77,939 77,939 8,397 69,542 1.18 IT Asset disposals — 5,808 5,808 626 5,182 0.09 Cost savings initiatives — 1,726 1,726 186 1,540 0.03 Store closure costs — 1,368 1,368 147 1,221 0.02 Retail partner conversion losses — 1,169 1,169 126 1,043 0.02 State tax audit assessment reserves — 1,165 1,165 126 1,039 0.02 Legal settlement — (831 ) (831 ) (90 ) (741 ) (0.01 ) Legal settlement reserves — 650 650 70 580 0.01 Hurricane impacts — 249 249 27 222 — Other — (210 ) (210 ) (23 ) (187 ) — Acima transaction costs — 187 187 20 167 — Discrete income tax items — — — 1,532 (1,532 ) (0.03 ) Non-GAAP Adjusted Results $ 2,076,679 $ 380,968 $ 293,901 $ 75,689 $ 218,212 $ 3.70 (1)Includes amortization of approximately $64.9 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $15.9 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(2.9) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Table 15 Twelve Months Ended December 31, 2021 (In thousands) Gross Profit Operating Profit Earnings Before Income Tax Tax Expense Net Earnings Diluted Earnings per Share GAAP Results $ 2,235,012 $ 280,539 $ 194,304 $ 59,364 $ 134,940 $ 2.02 Plus: Special Items Acima equity consideration vesting — 127,060 127,060 — 127,060 1.90 Acima acquired assets depreciation and amortization (1) (14,265 ) 100,694 100,694 24,241 76,453 1.14 Acima transaction costs — 17,680 17,680 4,256 13,424 0.20 Legal settlement reserves — 17,500 17,500 4,213 13,287 0.20 Acima integration costs — 10,305 10,305 2,481 7,824 0.12 Hurricane impacts — 1,424 1,424 343 1,081 0.02 Store closure costs — 531 531 128 403 0.01 COVID-19 testing — 293 293 71 222 — State tax audit assessment reserves — 161 161 39 122 — Debt refinancing charges — — 15,582 3,751 11,831 0.18 Discrete income tax items — — — 14,316 (14,316 ) (0.22 ) Non-GAAP Adjusted Results $ 2,220,747 $ 556,187 $ 485,534 $ 113,203 $ 372,331 $ 5.57 (1)Includes amortization of approximately $101.7 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $13.2 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(14.2) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Reconciliation of operating profit to Adjusted EBITDA (consolidated and by segment): Table 16 Three Months Ended December 31, 2022 (In thousands) Rent-A-Center Business Acima Mexico Franchising Corporate Consolidated GAAP Operating Profit (Loss) $ 63,242 $ 56,983 $ 1,256 $ 3,954 $ (83,097 ) $ 42,338 Plus: Amortization, Depreciation 4,861 432 217 36 7,325 12,871 Plus: Stock-based compensation — — — — 5,016 5,016 Plus: Special Items Acima equity consideration vesting — — — — 31,721 31,721 Acima acquired assets depreciation and amortization (1) — 14,262 — — 3,972 18,234 Legal settlement — — — — (298 ) (298 ) Cost savings initiatives — 22 — — (200 ) (178 ) Legal settlement reserves — — — — 150 150 Store closure costs 111 — — — — 111 Hurricane impacts 108 — — — — 108 Adjusted EBITDA $ 68,322 $ 71,699 $ 1,473 $ 3,990 $ (35,411 ) $ 110,073 (1)Includes amortization of approximately $14.3 million related to the total fair value of acquired intangible assets and incremental depreciation of approximately $4.0 million. Table 17 Three Months Ended December 31, 2021 (In thousands) Rent-A-Center Business Acima Mexico Franchising Corporate Consolidated GAAP Operating Profit (Loss) $ 91,869 $ 31,699 $ 1,199 $ 4,826 $ (92,764 ) $ 36,829 Plus: Amortization, Depreciation 4,767 554 142 35 8,539 14,037 Plus: Stock-based compensation — — — — 5,460 5,460 Plus: Special Items Acima equity consideration vesting — — — — 33,940 33,940 Acima acquired assets depreciation and amortization (1) 24,983 — — 3,972 28,955 Legal settlement reserves — — — — 6,750 6,750 Acima integration costs — 1,318 — — 1,097 2,415 Hurricane impacts 770 — — — — 770 Acima transaction costs — — — — 344 344 COVID-19 testing 293 — — — — 293 Store closure costs 71 — — — — 71 Adjusted EBITDA $ 97,770 $ 58,554 $ 1,341 $ 4,861 $ (32,662 ) $ 129,864 (1)Includes amortization of approximately $29.3 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $4.0 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(4.3) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Table 18 Twelve Months Ended December 31, 2022 (In thousands) Rent-A-Center Business Acima Mexico Franchising Corporate Consolidated GAAP Operating Profit (Loss) $ 334,525 $ 151,301 $ 6,267 $ 19,124 $ (362,679 ) $ 148,538 Plus: Amortization, Depreciation 20,526 1,928 711 146 29,768 53,079 Plus: Stock-based compensation — — — — 19,399 19,399 Plus: Special Items Acima equity consideration vesting — — — — 143,210 143,210 Acima acquired assets depreciation and amortization (1) — 62,052 — — 15,887 77,939 IT Asset disposals — — — — 5,808 5,808 Cost savings initiatives 118 (384 ) — — 1,992 1,726 Store closure costs 1,368 — — — — 1,368 Retail partner conversion losses — 1,169 — — — 1,169 State tax audit assessment reserves — 1,165 — — — 1,165 Legal settlement — — — — (831 ) (831 ) Legal settlement reserves — — — — 650 650 Hurricane impacts 249 — — — — 249 Other — 77 — — (287 ) (210 ) Acima Transaction costs — — — — 187 187 Adjusted EBITDA $ 356,786 $ 217,308 $ 6,978 $ 19,270 $ (146,896 ) $ 453,446 (1)Includes amortization of approximately $64.9 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $15.9 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(2.9) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Table 19 Twelve Months Ended December 31, 2021 (In thousands) Rent-A-Center Business Acima Mexico Franchising Corporate Consolidated GAAP Operating Profit (Loss) $ 448,905 $ 176,496 $ 7,858 $ 20,321 $ (373,041 ) $ 280,539 Plus: Amortization, Depreciation 18,588 2,122 511 93 33,516 54,830 Plus: Stock-based compensation — — — — 20,494 20,494 Plus: Special Items Acima equity consideration vesting — — — — 127,060 127,060 Acima acquired assets depreciation and amortization (1) — 87,455 — — 13,239 100,694 Acima transaction costs — — — — 17,680 17,680 Legal settlement reserves — — — — 17,500 17,500 Acima integration costs 14 6,849 — — 3,442 10,305 Hurricane impacts 1,276 148 — — — 1,424 Store closure costs 528 — 3 — — 531 COVID-19 testing 293 — — — — 293 State tax audit assessment reserves — — — — 161 161 Adjusted EBITDA $ 469,604 $ 273,070 $ 8,372 $ 20,414 $ (139,949 ) $ 631,511 (1)Includes amortization of approximately $101.7 million related to the total fair value of acquired intangible assets, incremental depreciation of approximately $13.2 million related to the fair value increase over net book value for acquired software assets, and a depreciation credit adjustment of approximately $(14.2) million related to a step-down of estimated fair value below net book value for acquired lease merchandise. Reconciliation of net cash provided by operating activities to free cash flow: Table 20 Three Months Ended December 31, Twelve Months Ended December 31, (In thousands) 2022 2021 2022 2021 Net cash provided by operating activities $ 56,377 $ 66,094 $ 468,460 $ 392,298 Purchase of property assets (11,951 ) (16,574 ) (61,387 ) (62,450 ) Free cash flow $ 44,426 $ 49,520 $ 407,073 $ 329,848
Feb 23, 2023 | www.businesswire.com