RCII - Rent-A-Center Inc. Reports Fourth Quarter and Full Year 2021 Results

Total Revenues of $1.2 billion, up 10.5% Pro Forma ¹ for the Fourth Quarter

Acima Segment GMV of over $520 million, up 5% Pro Forma for the Fourth Quarter

Rent-A-Center Business Segment Same-Store-Sales up 10.4% for the Fourth Quarter

Fourth Quarter Diluted EPS of $0.15; Non-GAAP Diluted EPS of $1.08

Full Year GAAP Diluted EPS of $2.02; Non-GAAP Diluted EPS of $5.57

Rent-A-Center, Inc. (the "Company" or "Rent-A-Center") (NASDAQ:RCII) today announced results for the quarter and year ended December 31, 2021.

"2021 was a dynamic year for the Company with significant progress and some challenges. We generated revenues of $4.6 billion, which grew 17.3% on a pro-forma basis, and non-GAAP EPS of $5.57, driven by strong organic growth for both the Rent-A-Center Business segment and the Acima business that we acquired in February of 2021,” said Mitch Fadel, Chief Executive Officer.

“In the fourth quarter, the combined effect of significantly reduced government pandemic relief, decades-high rates of inflation, and supply chain disruptions impacted our target customers’ ability to access and afford durable goods, which negatively impacted our results. We anticipate these external headwinds will continue for the foreseeable future, resulting in year-over-year declines in revenue and earnings for 2022, on a pro forma basis, while free cash flow should increase for the year," continued Mr. Fadel.

"Looking forward to a normal post-pandemic environment, our mission to provide flexible leasing solutions for the financially underserved will be even more important as consumers adjust their spending choices to a less stimulative economic setting. Moreover, with the Acima acquisition and the Acima digital ecosystem test we launched in August, we are transforming into a leading consumer Fintech platform business, with omni-channel capabilities, a large addressable market opportunity, and potential for expansion that we believe should drive incremental earnings and shareholder value in the future," concluded Mr. Fadel.

Fourth Quarter Consolidated Results

• Fourth quarter 2021 consolidated revenues of $1.2 billion increased 63.5% year-over-year, primarily due to the acquisition of Acima Holdings, LLC (the "Acima Acquisition"), which closed in the first quarter of 2021, and strong growth in the Rent-A-Center Business. On a pro-forma ¹ basis, revenues grew 10.5%, led by organic growth in the Acima and Rent-A-Center Business segments.

• GAAP operating profit for the fourth quarter of 2021 was $36.8 million compared to $54.6 million in the prior year period. GAAP net income for the fourth quarter of 2021 was $9.8 million and included $60.4 million of costs, net of tax, relating to special items described below, compared to $56.3 million of GAAP net income and $1.1 million of costs, net of tax, relating to special items in the prior year period.

• Adjusted EBITDA in the fourth quarter of 2021 was $124.4 million and decreased 22.4% year-over-year on a pro-forma basis ¹ , primarily due to an increase in delinquency and loss rates compared to the prior year period that benefited from government programs and stimulus payments. Adjusted EBITDA margin was 10.6% in the fourth quarter of 2021 compared to 15.1% in the prior year period on a pro-forma ¹ basis, also primarily due to the effects of higher delinquency and loss rates, supply chain disruptions and rising inflation rates.

• GAAP earnings per share for the fourth quarter of 2021 was $0.15 compared to $1.00 in the prior year period. Non-GAAP earnings per share, which exclude the impact of special items described below, for the fourth quarter of 2021 was $1.08 compared to $1.03 in the prior year period.

• For the year ended December 31, 2021, the Company generated $392.3 million of cash from operations, and ended the fourth quarter of 2021 with $108.3 million of cash and cash equivalents, $1.6 billion of debt outstanding, $280.9 million of liquidity, including $172.6 million of undrawn revolving credit availability, and a pro-forma net debt to Adjusted EBITDA ratio of 2.3 times.

• During the fourth quarter of 2021, the Company returned $388.4 million of cash to shareholders through a combination of $18.3 million in dividends and $370.1 million in share repurchases. For the year ended December 31, 2021, the Company returned $461.6 million of cash to shareholders.

Fourth Quarter Segment Highlights

Acima Segment: Fourth quarter 2021 revenues of $611.9 million increased 204.3% year-over-year due to the Acima Acquisition, completed in the first quarter of 2021. On a pro-forma ¹ basis, revenues increased 12.3%, and GMV increased 5% year-over-year, with growth in merchant partners and lease applications partially offset by the effects of tighter lease underwriting, supply chain disruptions on merchant partners, and headwinds on consumer discretionary income from elevated rates of inflation and the wind down of government pandemic financial relief. Revenue was also negatively impacted by higher projected delinquency rates based on recent payment activity. Skip/stolen losses were 11.8% of revenue in the fourth quarter of 2021 compared to 10.8% in the prior year period on a pro-forma basis. On a GAAP basis, segment operating profit was $31.7 million with an operating profit margin of 5.2% in the fourth quarter of 2021, compared to $17.3 million and 8.6% in the prior year period. Adjusted EBITDA was $58.6 million with an Adjusted EBITDA margin of 9.6% in the fourth quarter of 2021, compared to $81.6 million and 15.0% in the prior year period on a pro-forma ¹ basis. The year-over-year decline in Adjusted EBITDA was primarily attributable to higher delinquency and loss rates, which the Company believes largely stemmed from the effect of the wind down of government pandemic relief and elevated rates of inflation on customer discretionary income.

Rent-A-Center Business Segment: Fourth quarter 2021 revenues of $506.2 million increased 9.0% year-over-year, primarily due to a 10.4% increase in same store sales, including 17.9% growth in e-commerce sales and strong lease portfolio performance, partially offset by the impact of refranchising approximately 100 stores in California in the fourth quarter of 2020. Skip/stolen losses were 4.0% of revenue in the fourth quarter of 2021 compared to 2.6% in the prior year period. On a GAAP basis, segment operating profit was $91.9 million with an operating profit margin of 18.2% in the fourth quarter of 2021, compared to $80.4 million and 17.3% in the prior year period. Adjusted EBITDA was $97.8 million with an Adjusted EBITDA margin of 19.3% in the fourth quarter of 2021, compared to $102.9 million and 22.2% in the prior year period. The decline in segment operating profit and Adjusted EBITDA was primarily attributable to higher loss rates that the Company believes stemmed from the wind down of government pandemic relief, and higher labor expense due to wage inflation that more than offset revenue growth. On December 31, 2021, the Rent-A-Center Business segment had 1,846 company-operated locations.

Franchising Segment: Fourth quarter 2021 revenues of $37.6 million increased 2.1% year-over-year due to higher store count as a result of the Company refranchising approximately 100 California stores during 2020 and partially offset by lower inventory purchases per store. Segment operating profit, on a GAAP basis, and Adjusted EBITDA were $4.9 million in the fourth quarter and increased $0.9 million year-over-year. On December 31, 2021, there were 466 franchise-operated locations.

Mexico Segment: Fourth quarter 2021 revenues of $15.7 million increased 9.9% year-over-year on a constant currency basis. Segment operating profit, on a GAAP basis, and Adjusted EBITDA were $1.2 million and $1.3 million, respectively. In the fourth quarter, GAAP operating profit decreased $0.9 million year-over-year. On December 31, 2021, the Mexico business had 123 company-operated locations.

Corporate Segment: Fourth quarter 2021 non-GAAP basis expenses increased $7.9 million year-over-year or 20.7%, reflecting our addition of Acima related costs and investments we have been making in talent and technology to support our growth initiatives.

Key Operating Metrics

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.

^{1) 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, 2020. 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, 2020, nor are they necessarily indicative of future results of operations or metrics.}

Full Year 2022 Guidance

The Company is providing the following guidance for its 2022 fiscal year:

Additional Commentary on the 2022 Outlook

• 2022 guidance assumes the macro headwinds that affected the business in late 2021, including supply chain disruptions, high rates of inflation, and the effect of lower levels of government support for our core consumers, will continue throughout the year.

• The Company has modified its definition of Adjusted EBITDA beginning with first quarter 2022 results to exclude stock-based compensation. Therefore, 2022 Adjusted EBITDA guidance excludes the impact of stock-based compensation, whereas prior period Adjusted EBITDA within the remainder of this press release includes the impact of stock-based compensation.

Webcast Information

Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on the morning of Thursday, February 24, 2022, at 9:30 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. Residents of the United States and Canada can listen to the call by dialing (855) 642-7045. International participants can access the call by dialing (346) 294-9649.

About Rent-A-Center, Inc.

Rent-A-Center, Inc. (NASDAQ: RCII) is a leading provider of technology driven, flexible, no debt obligation leasing solutions that offer underserved consumers access to and potential ownership of high-quality durable goods that enhance the quality of life. The Company’s omnichannel model utilizes proprietary data and technology to facilitate transactions across a wide range of retail channels including its own Acima virtual lease-to-own platform, Rentacenter.com, e-commerce partner platforms, partner retail stores, and Rent-A-Center branded stores. For additional information about the Company, please visit our website Rentacenter.com or Investor.rentacenter.com .

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 2022 and future outlook, (ii) the potential effects of the pandemic of the respiratory disease caused by a novel coronavirus ("COVID-19") on the Company's business operations, financial performance, and prospects, (iii) the future business prospects and financial performance of the Company following the merger with Acima Holdings, LLC ("Acima Holdings"), (iv) cost and revenue synergies and other benefits expected to result from the Acima Holdings acquisition, (v) planned technologies and other enhancements to the Company's lease-to-own solutions for consumers and retailers, (vi) potential additional product or service offerings, (vii) 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, and (viii) 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, including (i) the possibility that the anticipated benefits from the Acima Holdings acquisition may not be fully realized or may take longer to realize than expected, (ii) the possibility that costs, difficulties or disruptions related to the integration of Acima Holdings operations into the Company's other operations will be greater than expected, (iii) the Company's ability to (A) effectively adjust to changes in the composition of the Company's offerings and product mix as a result of acquiring Acima Holdings and continue to maintain the quality of existing offerings and (B) successfully introduce other new product or service offerings on a timely and cost-effective basis, and (iv) changes in the Company's future cash requirements as a result of the Acima Holdings acquisition, whether caused by unanticipated increases in capital expenditures or working capital needs, unanticipated liabilities or otherwise; (2) the Company's ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies; (3) the impact of the COVID-19 pandemic and related government and regulatory restrictions issued to combat the pandemic, including adverse changes in such restrictions, and 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; (4) 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 impacts from inflation; (5) factors affecting the disposable income available to the Company's current and potential customers; (6) changes in the unemployment rate; (7) capital market conditions, including availability of funding sources for the Company; (8) changes in the Company's credit ratings; (9) difficulties encountered in improving the financial and operational performance of the Company's business segments; (10) risks associated with pricing changes and strategies being deployed in the Company's businesses; (11) the Company's ability to continue to realize benefits from its initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements; (12) 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; (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) disruptions in the Company's supply chain; (23) limitations of, or disruptions in, the Company's distribution network; (24) rapid inflation or deflation in the prices of the Company's products; (25) 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; (26) the Company's available cash flow and its ability to generate sufficient cash flow to continue paying dividends; (27) 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; (28) 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; (29) consumer preferences and perceptions of the Company's brands; (30) the Company's ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores; (31) the Company's ability to enter into new, and collect on, its rental or lease purchase agreements; (32) 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; (33) the Company's compliance with applicable statutes or regulations governing its businesses; (34) the impact of any additional social unrest such as that experienced in 2020 or otherwise, and resulting damage to the Company's inventory or other assets and potential lost revenues; (35) changes in interest rates; (36) changes in tariff policies; (37) adverse changes in the economic conditions of the industries, countries or markets that the Company serves; (38) information technology and data security costs; (39) the impact of any breaches in data security or other disturbances to the Company's information technology and other networks and the Company's ability to protect the integrity and security of individually identifiable data of its customers, employees and retail partners; (40) changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; (41) changes in the Company's effective tax rate; (42) fluctuations in foreign currency exchange rates; (43) the Company's ability to maintain an effective system of internal controls, including in connection with the integration of Acima; (44) litigation or administrative proceedings to which the Company is or may be a party to from time to time; and (45) 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, 2020, its Annual Report on Form 10-K for the year ended December 31, 2021 (when filed) 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.

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, 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, depreciation and amortization, as adjusted for special items) on a consolidated and segment basis and (3) Free Cash Flow (net cash provided by operating activities less capital expenditures). “Special items” refers to certain gains and charges we view as extraordinary, unusual or non-recurring in nature and 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: