# Upbound Group, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Upbound Group, Inc.](/companies/upbd.md) (CIK 933036)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 13:48 ET
- Period: 2023-09-30
- Accession: 0000933036-23-000174
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/933036/000093303623000174/upbd-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/933036/000093303623000174/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $979.1m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $2.97bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $481.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.46bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $497.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.51bn | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $58.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $107.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $27.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $84.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $27.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $19.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $4.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $6.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.11 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 56,852,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 56,667,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $219.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $14.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $36.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $64.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $24.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $105.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $2.63bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $2.03bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $597.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,561 characters.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” These forward-looking statements, include, without limitation, those relating to the impact of ongoing challenging macro-economic conditions on our business, operations, financial performance and prospects, the future business prospects and financial performance of our Company following our acquisition of Acima Holdings, LLC (“Acima Holdings”), cost and revenue synergies and other benefits expected to result from the Acima Holdings acquisition, our growth strategies, our expectations, plans and strategy relating to our capital structure and capital allocation, including any share repurchases under our share repurchase program, and other statements that are not historical facts.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially and adversely depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Quarterly Report on Form 10-Q and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. Except as required by law, we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. Factors that could cause or contribute to these differences include, but are not limited to:

- the possibility that the anticipated benefits from the Acima Holdings acquisition may not be fully realized or may take longer to realize than expected;
- the possibility that costs, difficulties or disruptions related to the integration of Acima Holdings operations into our other operations will be greater than expected;
- our ability to (i) effectively adjust to changes in the composition of our offerings and product mix as a result of acquiring Acima Holdings and continue to maintain the quality of existing offerings and (ii) successfully introduce other new product or service offerings on a timely and cost-effective basis;
- changes in our 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;
- the impact of the COVID-19 pandemic and subsequent post pandemic impacts 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 our lease-to-own products offered in our operating segments, (ii) our Acima retail partners, (iii) our customers and their willingness and ability to satisfy their lease obligations, (iv) our suppliers' ability to satisfy our merchandise needs and related supply chain disruptions, (v) our employees, including our ability to adequately staff our operating locations, (vi) our financial and operational performance, and (vii) our liquidity;
- the general strength of the economy and other economic conditions affecting consumer preferences and spending, including the availability of credit to our target consumers and to other consumers, impacts from the continued inflation, central bank monetary policy initiatives to address inflation concerns, and possible recession or slowdown in economic growth;
- factors affecting the disposable income available to our current and potential customers;
- changes in the unemployment rate;
- capital market conditions, including availability of funding sources for us;
- changes in our credit ratings;
- difficulties encountered in improving the financial and operational performance of our business segments;
- risks associated with pricing changes and strategies being deployed in our businesses;
- our ability to continue to realize benefits from our initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements;
- our ability to continue to effectively execute our strategic initiatives, including mitigating risks associated with any potential mergers and acquisitions, or refranchising opportunities;
- our ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
- failure to manage our store labor and other store expenses, including merchandise losses;
- disruptions caused by the operation of our store information management systems or disruptions in the systems of our host retailers;
- risks related to our virtual lease-to-own business, including our ability to continue to develop and successfully implement the necessary technologies;
- our ability to achieve the benefits expected from our integrated virtual and staffed retail partner offering and to successfully grow this business segment;
- exposure to potential operating margin degradation due to the higher cost of merchandise in our Acima segment and higher merchandise losses than compared to our Rent-A-Center segment;
- our transition to more-readily scalable “cloud-based” solutions;
- our ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications;
- our ability to protect our proprietary intellectual property;
- our ability or that of our 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;
- impairment of our goodwill or other intangible assets;
- disruptions in our supply chain;
- limitations of, or disruptions in, our distribution network;
- rapid inflation or deflation in the prices of our products and other related costs;
- allegations of product safety and quality control issues, including recalls;
- our ability to execute, as well as the effectiveness of, store consolidations, including our ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation;
- our available cash flow and our ability to generate sufficient cash flow to continue paying dividends;
- 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;
- our ability to identify and successfully market products and services that appeal to our current and future targeted customer segments and to accurately estimate the size of the total addressable market;
- consumer preferences and perceptions of our brands;
- our ability to effectively provide consumers with additional products and services beyond lease-to-own, including through third party partnerships;
- our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;
- our ability to enter into new rental or lease purchase agreements and collect on our existing rental or lease purchase agreements;
- changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting our business, including in connection with the regulatory matters described in Note 12 of our condensed consolidated financial statements, included in this Quarterly Report on Form 10-Q, and any legislative or other 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 our business;
- our compliance with applicable statutes or regulations governing our businesses;
- changes in interest rates;
- changes in tariff policies;
- adverse changes in the economic conditions of the industries, countries or markets that we serve;
- information technology and data security costs;
- the impact of any breaches in data security or other disturbances to our information technology and other networks;
- changes in estimates relating to self-insurance liabilities and income tax and litigation reserves;
- changes in our effective tax rate;
- fluctuations in foreign currency exchange rates;
- our ability to maintain an effective system of internal controls;
- litigation or administrative proceedings to which we are or may be a party to from time to time; and
- the other risks detailed from time to time in our reports furnished or filed with the United States Securities and Exchange Commission (the “SEC”).

Additional important factors that could cause our actual results to differ materially from our expectations are discussed under the section “*Risk Factors”* in our Annual Report on Form 10-K for the year ended December 31, 2022 and elsewhere in this Quarterly Report on Form 10-Q.

### Our Business

We are a leading lease-to-own provider with operations in the United States, Puerto Rico and Mexico. We provide a critical service for a large portion of underserved consumers by providing them with access to, and the opportunity to obtain ownership of, high-quality, durable products under a flexible lease-purchase agreement with no long-term debt obligation. Through our Rent-A-Center business, we provide a fully integrated customer experience through our e-commerce platform and brick and mortar presence. Our Acima business offers lease-to-own solutions through retailers in stores and online enabling such retailers to grow sales by expanding their customer base utilizing our differentiated offering. We were incorporated in the State of Delaware in 1986, and our common stock is traded on the Nasdaq Global Select Market under the ticker symbol “UPBD.”

### Executive Summary

### Our Strategy

Our strategy is focused on serving our mission to elevate financial opportunity for all and growing our business through emphasis on the following key initiatives:

- Develop centers of excellence that will be leveraged across the organization to support the various business segments, utilizing best practices and drive efficiency and growth;
- Maximize Rent-A-Center brand awareness and customer loyalty by accelerating the shift to e-commerce, expanding product categories, and improving the fully integrated, omni-channel customer experience;
- Grow penetration with current Acima merchants and attract new merchants to our platform;
- Enhance, upgrade and integrate technology platforms to allow for a seamless consumer experience, merchant and third-party waterfall integration, and simplify the transaction process for the consumer;
- Leverage data analytics capabilities to attract new customers, approve more customers and mitigate risk across all business segments; and
- Execute on market opportunities and enhance our competitive position across both traditional and virtual lease-to-own solutions, and implement complementary products and services that supplement our current offering and provide our customers more financial alternatives.

As we pursue our strategy, we may take advantage of joint venture, partnership, or merger and acquisition opportunities from time to time that advance our key initiatives and elevate the financial mobility of underserved consumers.

### Recent Developments

*Dividend.* On September 21, 2023, we announced that our board of directors approved a quarterly cash dividend of $0.34 per share for the fourth quarter of 2023. The dividend was paid on October 24, 2023 to our common stockholders of record as of the close of business on October 3, 2023.

### Business and Operational Trends

*Macroeconomic Conditions.* Beginning in the first quarter of 2020, the worldwide spread of COVID-19 caused significant disruptions to the U.S. and world economies. In response to COVID-19, the U.S. government enacted the Coronavirus Aid,

Relief, and Economic Security Act (the “CARES Act”), providing U.S. citizens and businesses with various stimulus and income tax relief benefits throughout 2020 and early 2021 to help offset immediate negative financial impacts sustained as a result of COVID-19. In addition, we proactively implemented certain response measures, including providing our Rent-A-Center and Acima customers with additional electronic payment methods to facilitate contactless transactions. These response measures resulted in improved customer payment behaviors contributing to higher revenues and lower merchandise losses in 2020 and the first half of 2021.

In the third quarter of 2021, we began to experience negative customer behavioral trends, including increases in delinquent payments and merchandise loss activity, resulting in declining revenues and increased operating expenses, respectively. These negative trends continued to accelerate in the fourth quarter of 2021, following the expiration of government stimulus and relief programs combined with a significant rise in the US consumer price index, resulting in significant pressure on the discretionary income levels of our consumers. This led us to tighten our underwriting policies in an effort to improve risk management related to the execution of new leases. The continuation of the above trends combined with the tightening of our underwriting policies has reduced the number of active leases with corresponding decreases in lease revenue and operating cash flows.

In addition to the negative trends in customer behavior described above, we have also been impacted by other negative macroeconomic trends, including a condensed labor market, which has contributed to wage inflation, and global supply chain disruptions resulting in reduced product availability and rising product costs.

While the lease-to-own industry has historically remained a resilient business model throughout various economic cycles, the full extent to which our risk management strategy and macro-economic trends (including consumer spending behavior) may impact our business in future periods is uncertain. The continuation of these negative trends may have a material adverse impact on our financial statements, including our results of operations, operating cash flows, liquidity and capital resources.

See “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, for additional discussion of operational impacts to our business and additional risks associated with COVID-19 and other macroeconomic conditions.

*Rent-A-Center E-commerce revenue.* In recent years, e-commerce revenues have continued to increase as a percentage of total revenue in our Rent-A-Center segment. For the nine months ended September 30, 2023 e-commerce revenues represented approximately 26% of total lease-to-own store revenues compared to 23% for the nine months ended September 30, 2022. Due to recent trends in consumer shopping behaviors and expectations, we believe e-commerce solutions are an important part of our lease-to-own offering. However, we are unable to quantify the extent to which e-commerce revenues are incremental compared to what our overall revenues would have been in the absence of those e-commerce transactions. In addition, the profitability of e-commerce transactions can be impacted by different merchandise loss factors compared to traditional store-based transactions in the Rent-A-Center segment. Therefore, we are unable to determine with certainty whether the continuation of this trend toward increased e-commerce transactions will have a significant impact to our financial statements in future periods or be favorable or unfavorable to our financial results.

### Results of Operations

The following discussion focuses on our results of operations and our liquidity and capital resources. You should read this discussion in conjunction with the condensed consolidated financial statements and notes thereto for the nine months ended September 30, 2023 included in Part I, Item I of this Quarterly Report on Form 10-Q.

### Key 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.

*Rent-A-Center 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 stores and e-commerce platform at the end of any given period.

*Same Store Sales:* 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.

*Skip / Stolen Losses:* Represents the charge-off of the remaining net book value of unrecoverable on-rent merchandise with lease-to-own customers who are past due.

### Overview

The following briefly summarizes certain of our financial information for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

During the first nine months of 2023, consolidated revenues and gross profit decreased by approximately $280.6 million and $74.5 million, respectively, while operating profit increased by approximately $0.8 million, primarily due to a decrease in other store expenses of $55.0 million and labor expenses of $26.3 million.

Revenues in our Rent-A-Center segment decreased approximately $77.6 million for the nine months ended September 30, 2023 due to a 5.2% decrease in same store sales driven by decreases in rentals and fees revenues and merchandise sales of $45.1 million and $25.4 million, respectively. Operating profit decreased approximately $59.6 million for the nine months ended September 30, 2023, primarily due to lower revenues described above, partially offset by a decrease in labor expenses of $14.2 million. See "Segment Performance" below for further discussion of Rent-A-Center segment operating results for the nine months ended September 30, 2023.

The Acima segment revenues decreased approximately $210.6 million for the nine months ended September 30, 2023, due to decreases in rentals and fees revenues and merchandise sales of $110.2 million and $100.7 million, respectively, primarily attributable to a decrease in GMV and fewer customers electing early payout options. Operating profit increased approximately $80.8 million for the nine months ended September 30, 2023, primarily due to decreases in other store expenses and labor costs of approximately $62.4 million and $14.2 million, respectively. See "Segment Performance" below for further discussion of Acima segment operating results for the nine months ended September 30, 2023.

The Mexico segment revenues increased by 14.6% for the nine months ended September 30, 2023, contributing to an increase in gross profit of 15.1%, or $5.2 million. Operating profit, however, decreased $1.6 million for the nine months ended September 30, 2023, primarily due to increases in other store expenses and labor costs of approximately $3.9 million and $2.2 million, respectively. See "Segment Performance" below for further discussion of Mexico segment operating results for the nine months ended September 30, 2023.

Revenues for the Franchising segment increased $0.5 million for the nine months ended September 30, 2023, primarily due to an increase in merchandise sales of $1.9 million partially offset by a decrease in royalty income and fees of $1.3 million.

Cash flow from operations was $219.9 million for the nine months ended September 30, 2023. As of September 30, 2023, we held $105.7 million of cash and cash equivalents and had outstanding indebtedness of $1.3 billion.

The following table is a reference for the discussion that follows.

*(dollar amounts in thousands)*

| Revenues Store | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Rentals and fees | $806,766 | $829,459 | $(22,693) | (2.7)% | $2,421,039 | $2,569,804 | $(148,765) | (5.8)% |
| Merchandise sales | 127,564 | 147,616 | (20,052) | (13.6)% | 415,256 | 541,265 | (126,009) | (23.3)% |
| Installment sales | 13,444 | 16,718 | (3,274) | (19.6)% | 45,191 | 52,355 | (7,164) | (13.7)% |
| Other | 1,429 | 1,340 | 89 | 6.6% | 4,422 | 3,698 | 724 | 19.6% |
| Total store revenues | 949,203 | 995,133 | (45,930) | (4.6)% | 2,885,908 | 3,167,122 | (281,214) | (8.9)% |
| Franchise |  |  |  |  |  |  |  |  |
| Merchandise sales | 24,082 | 22,823 | 1,259 | 5.5% | 69,778 | 67,849 | 1,929 | 2.8% |
| Royalty income and fees | 5,813 | 6,001 | (188) | (3.1)% | 18,636 | 19,962 | (1,326) | (6.6)% |
| Total revenues | 979,098 | 1,023,957 | (44,859) | (4.4)% | 2,974,322 | 3,254,933 | (280,611) | (8.6)% |
| Cost of revenues |  |  |  |  |  |  |  |  |
| Store |  |  |  |  |  |  |  |  |
| Cost of rentals and fees | 296,820 | 310,079 | (13,259) | (4.3)% | 885,662 | 968,655 | (82,993) | (8.6)% |
| Cost of merchandise sold | 155,937 | 179,477 | (23,540) | (13.1)% | 492,879 | 615,543 | (122,664) | (19.9)% |
| Cost of installment sales | 5,102 | 6,032 | (930) | (15.4)% | 16,359 | 18,379 | (2,020) | (11.0)% |
| Total cost of store revenues | 457,859 | 495,588 | (37,729) | (7.6)% | 1,394,900 | 1,602,577 | (207,677) | (13.0)% |
| Franchise cost of merchandise sold | 24,073 | 22,834 | 1,239 | 5.4% | 69,766 | 68,183 | 1,583 | 2.3% |
| Total cost of revenues | 481,932 | 518,422 | (36,490) | (7.0)% | 1,464,666 | 1,670,760 | (206,094) | (12.3)% |
| Gross profit | 497,166 | 505,535 | (8,369) | (1.7)% | 1,509,656 | 1,584,173 | (74,517) | (4.7)% |
| Operating expenses |  |  |  |  |  |  |  |  |
| Store expenses |  |  |  |  |  |  |  |  |
| Labor | 152,080 | 156,192 | (4,112) | (2.6)% | 460,470 | 486,751 | (26,281) | (5.4)% |
| Other store expenses | 191,455 | 197,847 | (6,392) | (3.2)% | 569,267 | 624,306 | (55,039) | (8.8)% |
| General and administrative expenses | 53,898 | 40,002 | 13,896 | 34.7% | 150,434 | 141,273 | 9,161 | 6.5% |
| Depreciation and amortization | 12,624 | 12,798 | (174) | (1.4)% | 38,102 | 40,208 | (2,106) | (5.2)% |
| Other charges | 29,057 | 61,619 | (32,562) | (52.8)% | 184,413 | 185,435 | (1,022) | (0.6)% |
| Total operating expenses | 439,114 | 468,458 | (29,344) | (6.3)% | 1,402,686 | 1,477,973 | (75,287) | (5.1)% |
| Operating profit | 58,052 | 37,077 | 20,975 | 56.6% | 106,970 | 106,200 | 770 | 0.7% |
| Interest, net | 26,632 | 22,744 | 3,888 | 17.1% | 81,543 | 60,665 | 20,878 | 34.4% |
| Earnings before income taxes | 31,420 | 14,333 | 17,087 | 119.2% | 25,427 | 45,535 | (20,108) | (44.2)% |
| Income tax expense | 27,057 | 20,111 | 6,946 | 34.5% | 19,352 | 35,825 | (16,473) | (46.0)% |
| Net earnings (loss) | $4,363 | $(5,778) | $10,141 | 175.5% | $6,075 | $9,710 | $(3,635) | (37.4)% |

### Three Months Ended September 30, 2023, compared to Three Months Ended September 30, 2022

*Store Revenue.* Total store revenue decreased by $45.9 million, or 4.6%, to $949.2 million for the three months ended September 30, 2023, from $995.1 million for the three months ended September 30, 2022. This decrease was primarily due to decreases of approximately $29.2 million and $20.1 million in revenues in the Acima and Rent-A-Center segments, respectively, as discussed further in the “Segment Performance” section below.

*Cost of Rentals and Fees.* Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the three months ended September 30, 2023 decreased by $13.3 million, or 4.3%, to $296.8 million as compared to $310.1 million in 2022. The decrease was primarily attributable to a decrease of approximately $12.0 million in the Acima segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue was 36.8% for the three months ended September 30, 2023, as compared to 37.4% in 2022.

*Cost of Merchandise Sold.* Cost of merchandise sold decreased by $23.6 million, or 13.1%, to $155.9 million for the three months ended September 30, 2023, from $179.5 million in 2022, primarily attributable to a decrease of $24.2 million in the Acima segment, driven by fewer customers electing early payout options. The gross margin percent of merchandise sales decreased to (22.2)% for the three months ended September 30, 2023, from (21.6)% in 2022.

*Gross Profit.* Gross profit decreased by $8.3 million, or 1.7%, to $497.2 million for the three months ended September 30, 2023, from $505.5 million in 2022, primarily due to a decrease of $17.7 million in the Rent-A-Center segment partially offset by increases of $7.0 million and $2.6 million in the Acima and Mexico segments, respectively, as discussed further in the “Segment Performance” section below. Gross profit as a percentage of total revenue increased to 50.8% for the three months ended September 30, 2023, as compared to 49.4% in 2022.

*Store Labor.* Store labor decreased by $4.1 million, or 2.6%, to $152.1 million for the three months ended September 30, 2023, as compared to $156.2 million in 2022, primarily due to decreases of $3.9 million and $1.3 million in the Rent-A-Center and Acima segments, respectively, driven by lower operating headcount. Store labor expressed as a percentage of total store revenue was 16.0% for the three months ended September 30, 2023, as compared to 15.7% in 2022.

*Other Store Expenses.* Other store expenses decreased by $6.3 million, or 3.2%, to $191.5 million for the three months ended September 30, 2023, as compared to $197.8 million in 2022, primarily due to a decrease of $6.9 million in the Rent-A-Center segment driven by lower merchandise losses. Please reference the “Segment Performance” section below for additional discussion of segment merchandise losses. Other store expenses expressed as a percentage of total store revenue were 20.2% for the three months ended September 30, 2023, compared to 19.9% in 2022.

*General and Administrative Expenses.* General and administrative expenses increased by $13.9 million, or 34.7%, to $53.9 million for the three months ended September 30, 2023, as compared to $40.0 million in 2022, primarily due to increases in overhead labor and incentive compensation. General and administrative expenses expressed as a percentage of total revenue were 5.5% and 3.9% for the three months ended September 30, 2023 and 2022, respectively.

*Other Charges.* Other charges decreased by $32.5 million, or 52.8%, to $29.1 million for the three months ended September 30, 2023, as compared to $61.6 million in 2022. Other charges for the three months ended September 30, 2023 primarily included $18.2 million in depreciation and amortization of acquired software and intangible assets, $9.4 million in stock compensation expense related to the vesting of a portion of the equity consideration issued in the acquisition of Acima Holdings, and $4.6 million in accelerated software depreciation, partially offset by $3.1 million in interest income earned on tax refunds related to prior year returns received in the third quarter of 2023. Other charges for the three months ended September 30, 2022 primarily included $42.1 million related to the vesting of a portion of the equity consideration issued in the acquisition of Acima Holdings and $18.1 million in depreciation and amortization of acquired software and intangible assets.

*Operating Profit.* Operating profit increased by $21.0 million, or 56.6%, to $58.1 million for the three months ended September 30, 2023, as compared to $37.1 million in 2022, primarily due to the decrease of $29.3 million in operating expenses, driven by the decrease in other charges, partially offset by the decrease in gross profit as described above. Operating profit expressed as a percentage of total revenue was 5.9% for the three months ended September 30, 2023, compared to 3.6% in 2022.

*Income Tax Expense.* Income tax expense increased by $7.0 million to $27.1 million for the three months ended September 30, 2023, as compared to $20.1 million in 2022, primarily due to the increase in earnings before income taxes for the three months ended September 30, 2023 compared to the same period in 2022, partially offset by a higher effective tax rate for the three months ended September 30, 2022 due to the difference between recorded goodwill and goodwill recognized for tax purposes associated with stock consideration subject to restricted stock agreements issued to the former owners of Acima Holdings.

### Nine Months Ended September 30, 2023, compared to Nine Months Ended September 30, 2022

*Store Revenue.* Total store revenue decreased by $281.2 million, or 8.9%, to $2,885.9 million for the nine months ended September 30, 2023, from $3,167.1 million for the nine months ended September 30, 2022. The decrease was primarily due to decreases of approximately $210.6 million and $77.6 million in the Acima and Rent-A-Center segments, respectively, as discussed further in the section “Segment Performance” below.

*Cost of Rentals and Fees.* Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the nine months ended September 30, 2023, decreased by $83.0 million, or 8.6%, to $885.7 million as compared to $968.7 million in 2022. This decrease in cost of rentals and fees was primarily attributable to a decrease of $85.4 million in the

Acima segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue decreased to 36.6% for the nine months ended September 30, 2023 as compared to 37.7% in 2022.

*Cost of Merchandise Sold.* Cost of merchandise sold decreased by $122.6 million, or 19.9%, to $492.9 million for the nine months ended September 30, 2023, from $615.5 million in 2022, primarily attributable to decreases of $117.7 million and $4.9 million in the Acima and Rent-A-Center segments, respectively. The gross margin percent of merchandise sales decreased to (18.7)% for the nine months ended September 30, 2023, from (13.7)% in 2022.

*Gross Profit.* Gross profit decreased by $74.5 million, or 4.7%, to $1,509.7 million for the nine months ended September 30, 2023, from $1,584.2 million in 2022, due primarily to decreases of $71.1 million and $7.5 million in the Rent-A-Center and Acima segments, respectively, partially offset by an increase of $5.2 million in the Mexico segment, as discussed further in the section “Segment Performance” below. Gross profit as a percentage of total revenue increased to 50.8% for the nine months ended September 30, 2023, as compared to 48.7% in 2022.

*Store Labor.* Store labor decreased by $26.3 million, or 5.4%, to $460.5 million for the nine months ended September 30, 2023, as compared to $486.8 million in 2022, primarily attributable to decreases of $14.2 million in each of the Acima and Rent-A-Center segments. Store labor expressed as a percentage of total store revenue was 16.0% for the nine months ended September 30, 2023, as compared to 15.4% in 2022.

*Other Store Expenses.* Other store expenses decreased by $55.0 million, or 8.8%, to $569.3 million for the nine months ended September 30, 2023, as compared to $624.3 million in 2022, due to a decrease of $62.4 million in the Acima segment, primarily attributable to a decrease of $54.3 million in merchandise losses, partially offset by increases of $3.9 million and $3.0 million in the Mexico and Rent-A-Center segments, respectively. Other store expenses expressed as a percentage of total store revenue were 19.7% for both the nine months ended September 30, 2023 and 2022.

*General and Administrative Expenses.* General and administrative expenses increased by $9.1 million, or 6.5%, to $150.4 million for the nine months ended September 30, 2023, as compared to $141.3 million in 2022, primarily due to higher incentive compensation. General and administrative expenses expressed as a percentage of total revenue were 5.1% for the nine months ended September 30, 2023, compared to 4.3% in 2022.

*Other Charges.* Other charges decreased by $1.0 million to $184.4 million for the nine months ended September 30, 2023, as compared to $185.4 million for the nine months ended September 30, 2022. Other charges for the nine months ended September 30, 2023 primarily included $128.1 million in stock compensation expense related to the vesting of a portion of the equity consideration issued in the acquisition of Acima Holdings, $54.7 million in depreciation and amortization of acquired software and intangible assets and $4.6 million in accelerated software depreciation, partially offset by $3.1 million of interest income on income tax refunds related to prior year returns received in 2023. Other charges for the nine months ended September 30, 2022 primarily included $111.5 million in stock compensation expense related to equity consideration in the acquisition of Acima Holdings, $62.5 million in depreciation and amortization of acquired software and intangible assets related to the acquisition of Acima Holdings, $6.8 million in asset impairments, $5.2 million in employee severance, $1.2 million in state sales tax assessment reserves, and $1.2 million in Acima retail partner conversion losses. See Note 9 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding our other charges.

*Operating Profit.* Operating profit increased by $0.8 million to $107.0 million for the nine months ended September 30, 2023, as compared to $106.2 million in 2022, primarily due to a decrease of $75.3 million in operating expenses, partially offset by a decrease of $74.5 million in gross profit, as described above. Operating profit expressed as a percentage of total revenue was 3.6% for the nine months ended September 30, 2023, compared to 3.3% in 2022.

*Income Tax Expense.* Income tax expense decreased by $16.4 million to $19.4 million for the nine months ended September 30, 2023, as compared to $35.8 million in 2022. The effective tax rate was 76.1% for the nine months ended September 30, 2023, compared to 78.7% in 2022. The decrease in income tax expense for the nine months ended September 30, 2023 compared to 2022 was primarily due to the decrease in operating profit described above. See Note 5 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding our effective tax rate.

### Segment Performance

#### Rent-A-Center segment

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $453,632 | $473,755 | $(20,123) | (4.2)% | $1,404,831 | $1,482,445 | $(77,614) | (5.2)% |
| Gross profit | 317,233 | 334,892 | (17,659) | (5.3)% | 975,210 | 1,046,332 | (71,122) | (6.8)% |
| Operating profit | 63,762 | 71,999 | (8,237) | (11.4)% | 211,637 | 271,283 | (59,646) | (22.0)% |
| Lease portfolio value(1) |  |  |  |  | 137,949 | 141,825 | (3,876) | (2.7)% |
| Change in same store revenue(1) |  |  |  | (4.0)% |  |  |  | (5.2)% |
| Stores in same store revenue calculation |  |  |  | 1,777 |  |  |  | 1,777 |

(1) See Key Metrics described above for additional information.

*Revenues.* The decrease in revenue for the three and nine months ended September 30, 2023, as compared to 2022, were primarily due to decreases in same store sales of 4.0% and 5.2%, respectively, driven by decreases in rentals and fees revenues of $13.8 million and $45.1 million, and decreases in merchandise sales of $3.2 million and $25.4 million, respectively, primarily attributable to a decrease in lease portfolio value, and fewer customers electing early payout options. The segment lease portfolio value as of September 30, 2023 decreased 2.7% compared to the value as of September 30, 2022.

*Gross Profit.* Gross profit decreased for the three and nine months ended September 30, 2023, as compared to 2022, driven primarily by the decrease in revenues described above. Gross profit as a percentage of segment revenues was 69.9% and 69.4% for the three and nine months ended September 30, 2023, as compared to 70.7% and 70.6% for the corresponding periods in 2022, primarily due to mix-shift changes between lease merchandise product categories.

*Operating Profit.* Operating profit as a percentage of segment revenues was 14.1% and 15.1% for the three and nine months ended September 30, 2023, compared to 15.2% and 18.3% for the corresponding periods in 2022. The decrease in operating margin for the three and nine months ended September 30, 2023, as compared to 2022, was primarily driven by decreases in revenues and gross profit described above, partially offset by lower merchandise losses. Charge-offs in our Rent-A-Center lease-to-own stores due to customer stolen merchandise, expressed as a percentage of Rent-A-Center lease-to-own revenues, were approximately 4.3% and 4.5% for the three and nine months ended September 30, 2023, compared to 5.8% and 4.6% for the corresponding periods in 2022. Charge-offs in our Rent-A-Center lease-to-own stores due to other merchandise losses, expressed as a percentage of Rent-A-Center lease-to-own revenues, were approximately 1.5% and 1.4% for the three and nine months ended September 30, 2023, compared to approximately 1.7% for the corresponding periods in 2022. Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims.

#### Acima segment

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $475,216 | $504,448 | $(29,232) | (5.8)% | $1,423,421 | $1,633,994 | $(210,573) | (12.9)% |
| Gross profit | 159,427 | 152,434 | 6,993 | 4.6% | 474,258 | 481,742 | (7,484) | (1.6)% |
| Operating profit | 58,124 | 48,885 | 9,239 | 18.9% | 175,103 | 94,318 | 80,785 | 85.7% |
| Gross merchandise volume(1) | 385,837 | 391,494 | (5,657) | (1.4)% | 1,106,132 | 1,184,869 | (78,737) | (6.6)% |

(1) See Key Metrics described above for additional information.

*Revenues*. The decrease in revenues for the three and nine months ended September 30, 2023, as compared to 2022, was primarily due to decreases in rentals and fees revenues of $12.3 million and $110.2 million, and decreases in merchandise sales revenue of $16.9 million and $100.7 million, respectively. The decreases in rentals and fees revenue were primarily due to fewer open lease agreements and the decreases in merchandise sales revenues were primarily attributable to decreases in GMV and fewer customers electing early payout options in the current year period.

*Gross Profit.* Gross profit as a percentage of segment revenues increased to 33.5% and 33.3% for the three and nine months ended September 30, 2023, compared to 30.2% and 29.5% for the corresponding periods in 2022, primarily due to fewer customers electing early purchase options.

*Operating Profit.* Operating profit as a percentage of segment revenues increased to 12.2% and 12.3% for the three and nine months ended September 30, 2023 compared to 9.7% and 5.8% for the corresponding periods in 2022. The increase in operating profit for the three months ended September 30, 2023 is primarily due to lower labor costs of approximately $1.3 million and an increase in gross margin described above. The increase in operating profit for the nine months ended September 30, 2023 is primarily due to lower customer stolen merchandise losses of approximately $53.1 million, lower labor costs of $14.2 million and a decrease in amortization of acquired intangible assets of $9.9 million, partially offset by lower revenues described above. Charge-offs in our Acima locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately 9.4% and 9.1% for the three and nine months ended September 30, 2023, compared to 9.0% and 11.2% for the three and nine months ended September 30, 2022. Charge-offs in our Acima locations due to other merchandise losses, expressed as a percentage of revenues, were negligible for the three and nine months ended September 30, 2023 and 2022.

#### Mexico segment

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $19,642 | $16,041 | $3,601 | 22.4% | $55,526 | $48,454 | $7,072 | 14.6% |
| Gross profit | 13,971 | 11,330 | 2,641 | 23.3% | 39,410 | 34,242 | 5,168 | 15.1% |
| Operating profit | 1,124 | 996 | 128 | 12.9% | 3,417 | 5,011 | (1,594) | (31.8)% |
| Change in same store revenue(1) |  |  |  | 0.1% |  |  |  | (2.0)% |
| Stores in same store revenue calculation |  |  |  | 110 |  |  |  | 110 |

(1) See Key Metrics described above for additional information.

*Revenues.* Revenues were positively impacted by exchange rate fluctuations of approximately $3.1 million and $6.8 million for the three and nine months ended September 30, 2023, as compared to the same period in 2022. On a constant currency basis, revenues for the three and nine months ended September 30, 2023 increased approximately $0.5 million and $0.3 million, compared to the corresponding periods in 2022.

*Gross Profit.* Gross profit was positively impacted by exchange rate fluctuations of approximately $2.2 million and $4.8 million for the three and nine months ended September 30, 2023, as compared to the same periods in 2022. On a constant currency basis, gross profit for both the three and nine months ended September 30, 2023 increased by approximately $0.4 million as compared to the same periods in 2022. Gross profit as a percentage of segment revenues was 71.1% and 71.0% for the three and nine months ended September 30, 2023, compared to 70.6% and 70.7% for the corresponding periods in 2022.

*Operating Profit.* Operating profit was positively impacted by exchange rate fluctuations of approximately $0.2 million and $0.4 million for the three and nine months ended September 30, 2023, as compared to the same periods in 2022. On a constant currency basis, operating profit for the three and nine months ended September 30, 2023 decreased by approximately $0.1 million and $2.0 million as compared to the same periods in 2022. Operating profit as a percentage of segment revenues decreased to 5.7% and 6.2% for the three and nine months ended September 30, 2023, compared to 6.2% and 10.3% for the corresponding periods in 2022, primarily due to higher customer stolen merchandise losses.

#### Franchising segment

*(dollar amounts in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $30,608 | $29,713 | $895 | 3.0% | $90,544 | $90,040 | $504 | 0.6% |
| Gross profit | 6,535 | 6,879 | (344) | (5.0)% | 20,778 | 21,857 | (1,079) | (4.9)% |
| Operating profit | 3,541 | 5,077 | (1,536) | (30.3)% | 13,280 | 15,170 | (1,890) | (12.5)% |

*Revenues.* Revenues increased for the three and nine months ended September 30, 2023 compared to the corresponding periods in 2022, primarily due to increases in merchandise purchases by franchisees of $1.3 million and $1.9 million, partially offset by decreases in royalty income and fees revenue of $0.2 million and $1.3 million, respectively.

*Gross Profit.* Gross profit as a percentage of segment revenues decreased to 21.4% and 22.9% for the three and nine months ended September 30, 2023, compared to 23.2% and 24.3% for the corresponding periods in 2022, primarily due to the changes in allocation of merchandise sales compared to royalty and fee revenue.

*Operating Profit.* Operating profit as a percentage of segment revenues was 11.6% and 14.7% for the three and nine months ended September 30, 2023 compared to 17.1% and 16.8% for the corresponding periods in 2022, primarily due to the change in gross profit described above.

### Liquidity and Capital Resources

*Overview.* For the nine months ended September 30, 2023, we generated $219.9 million in operating cash flow, and used cash in the amount of $134.2 million for debt repayments, $64.4 million for dividends, $36.2 million for capital expenditures and $24.0 million for share repurchases. We ended the third quarter of 2023 with $105.7 million of cash and cash equivalents and outstanding indebtedness of $1.3 billion.

*Analysis of Cash Flow.* Cash provided by operating activities decreased by $192.2 million to $219.9 million for the nine months ended September 30, 2023, from $412.1 million in 2022, primarily due to an increase in inventory purchases.

Cash used in investing activities decreased to $36.2 million for the nine months ended September 30, 2023, compared to $50.2 million in 2022, primarily due to lower investment in store-related assets in our Rent-A-Center segment for the nine months ended September 30, 2023.

Cash used in financing activities decreased to $223.8 million for the nine months ended September 30, 2023, compared to $304.5 million in 2022, primarily due to a decrease in debt repayments of $162.3 million partially offset by debt proceeds received of $90.0 million in 2022.

*Liquidity Requirements*. Our primary liquidity requirements are for rental merchandise purchases. Other capital requirements include expenditures for property assets, and debt service. Our primary sources of liquidity have been cash provided by operations.

We utilize our ABL Credit Facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow caused by the timing of cash receipts. In that regard, we may from time to time draw funds under the ABL Credit Facility for general corporate purposes. Amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities. We believe cash flow generated from operations and availability under our ABL Credit Facility will be sufficient to fund our operations during the next twelve months. At October 24, 2023, we had approximately $50.3 million in cash on hand, and $485.6 million available under our ABL Credit Facility.

*Deferred Taxes.* Certain federal tax legislation enacted during the period 2009 to 2017 permitted bonus first-year depreciation deductions ranging from 50% to 100% of the adjusted basis of qualified property placed in service during such years. The Protecting Americans from Tax Hikes Act of 2015 (“PATH”) extended the 50% bonus depreciation to 2015 and through September 26, 2017, when it was updated by the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The Tax Act allows 100% bonus depreciation for certain property placed in service between September 27, 2017 and December 31, 2022, at which point it will begin to phase out. The bonus depreciation provided by the Tax Act resulted in an estimated benefit of $298 million for us in 2022. The depreciation benefits associated with these tax acts are now reversing. We estimate the remaining tax deferral associated with bonus depreciation from these Acts is approximately $380 million at December 31, 2022, of which approximately 80%, or $303 million, will reverse in 2023, and the majority of the remainder will reverse between 2024 and 2025.

*Merchandise Losses*. Merchandise losses consist of the following:

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Customer stolen merchandise | $68,925 | $77,005 | $208,375 | $262,236 |
| Other merchandise losses(1) | 6,353 | 8,146 | 20,882 | 26,577 |
| Total merchandise losses | $75,278 | $85,151 | $229,257 | $288,813 |

(1) Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims.

*Capital Expenditures*. We make capital expenditures in order to maintain our existing operations, acquire new capital assets in new and acquired stores and invest in information technology. We spent $36.2 million and $49.4 million on capital expenditures during the nine months ended September 30, 2023 and 2022, respectively. The decrease of $13.2 million is primarily due to lower investment in store-related assets in our Rent-A-Center segment.

*Acquisitions and New Location Openings.* During the first nine months of 2023, we acquired one lease-to-own store location and customer accounts for an aggregate purchase price of approximately $39.0 thousand. The store location was closed upon acquisition and consolidated into existing store operations in our Rent-A-Center segment.

The table below summarizes the store location activity for the nine-month period ended September 30, 2023 for our Rent-A-Center, Mexico and Franchising operating segments.

|  | Rent-A-Center | Mexico | Franchising | Total |
| --- | ---: | ---: | ---: | ---: |
| Locations at beginning of period | 1,851 | 126 | 447 | 2,424 |
| New location openings | 5 | 5 | 2 | 12 |
| Closed locations |  |  |  |  |
| Merged with existing locations | (12) | (1) | — | (13) |
| Sold or closed with no surviving location | — | — | (10) | (10) |
| Locations at end of period | 1,844 | 130 | 439 | 2,413 |
| Acquired locations closed and accounts merged with existing locations | 1 | — | — | 1 |
| Total approximate purchase price of acquired store (in thousands) | $39 | $— | $— | $39 |

*Senior Debt.* On February 17, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and lenders party thereto, that provides for a five-year asset-based revolving credit facility with commitments of $550 million and a letter of credit sublimit of $150 million, which commitments may be increased, at our option and under certain conditions, by up to an additional $125 million in the aggregate. Under the ABL Credit Facility, we may borrow only up to the lesser of the level of the then-current borrowing base and the aggregate amount of commitments under the ABL Credit Facility. The borrowing base is tied to the amount of eligible installment sales accounts, inventory and eligible rental contracts, reduced by certain reserves. The ABL Credit Facility bears interest at a fluctuating rate determined by reference to Term SOFR plus an applicable margin of 1.50% to 2.00%, which, as of October 24, 2023, was 7.54%. A commitment fee equal to 0.250% to 0.375% of the unused portion of the ABL Credit Facility fluctuates dependent upon average utilization for the prior month as defined by a pricing grid included in the documentation governing the ABL Credit Facility. Loans under the ABL Credit Facility may be borrowed, repaid and re-borrowed until February 17, 2026, at which time all amounts borrowed must be repaid.

The obligations under the ABL Credit Facility are guaranteed by us and certain of our wholly owned domestic restricted subsidiaries, subject to certain exceptions. The obligations under the ABL Credit Facility and such guarantees are secured on a first-priority basis by all of our and our subsidiary guarantors’ accounts, inventory, deposit accounts, securities accounts, cash and cash equivalents, rental agreements, general intangibles (other than equity interests in our subsidiaries), chattel paper, instruments, documents, letter of credit rights, commercial tort claims related to the foregoing and other related assets and all proceeds thereof related to the foregoing, subject to permitted liens and certain exceptions (such assets, collectively, the “ABL Priority Collateral”) and a second-priority basis in substantially all other present and future tangible and intangible personal property of ours and the subsidiary guarantors, subject to certain exceptions.

On February 17, 2021, we also entered into a term loan credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and lenders party thereto, that provides for a seven-year $875 million senior secured term loan facility (as amended on September 21, 2021 and June 15, 2023, the “Term Loan Facility”). Subject in each case to certain restrictions and conditions, we may add up to $500 million of incremental term loan facilities to the Term Loan Facility or utilize incremental capacity under the Term Loan Facility at any time by issuing or incurring incremental equivalent term debt. Interest on borrowings under the Term Loan Facility is payable at a fluctuating rate of interest determined by reference to the Term SOFR rate plus an applicable margin of 3.51%, subject to a 0.50% Term SOFR floor, which, as of October 24, 2023 was 8.88%.

Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.000% per annum of the original aggregate principal amount thereof, with the remaining balance due at final maturity. The Term Loan Facility is secured by a first-priority security interest in substantially all of present and future tangible and intangible personal property of us and our subsidiary guarantors, other than the ABL Priority Collateral, and by a second-priority security interest in the ABL Priority Collateral, subject to certain exceptions. The obligations under the Term Loan Facility are guaranteed by us and our material wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit Facility.

The Term Loan Facility was fully drawn at the closing of the Acima Holdings acquisition to fund a portion of the Aggregate Cash Consideration, repay our outstanding indebtedness under the previous term loan facility, repay all outstanding indebtedness of Acima and its subsidiaries and pay certain fees and expenses incurred in connection with the Acima Holdings acquisition.

At October 24, 2023, we had outstanding borrowings of $815.5 million under the Term Loan Facility and available commitments of $485.6 million under our ABL Credit Facility, net of letters of credit.

See Note 6 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding our senior debt.

*Senior Notes*. On February 17, 2021, we issued $450 million in senior unsecured notes due February 15, 2029, at par value, bearing interest at 6.375% (the “Notes”), the proceeds of which were used to fund a portion of the Aggregate Cash Consideration upon closing of the Acima Holdings acquisition. Interest on the Notes is payable in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. We may redeem some or all of the Notes at any time on or after February 15, 2024 for cash at the redemption prices set forth in the indenture governing the Notes, plus accrued and unpaid interest to, but not including, the redemption date. Prior to February 15, 2024, we may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 106.375% plus accrued and unpaid interest to, but not including, the redemption date. In addition, we may redeem some or all of the Notes prior to February 15, 2024, at a redemption price of 100% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date, plus a “make-whole” premium. If we experience specific kinds of change of control, it will be required to offer to purchase the Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest. See Note 7 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding our senior notes.

*Operating Leases.* We lease space for all of our Rent-A-Center and Mexico stores under operating leases expiring at various times through 2034. In addition, we lease space for certain support facilities under operating leases expiring at various times through 2032. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas. As of September 30, 2023, our total remaining obligation for existing store lease contracts was approximately $349.9 million.

We lease vehicles for all of our Rent-A-Center stores under operating leases with lease terms expiring twelve months after the start date of the lease. We classify these leases as short-term and have elected the short-term lease exemption for our vehicle leases, and have therefore excluded them from our operating lease right-of-use assets within our Condensed Consolidated Balance Sheets. As of September 30, 2023, our total remaining minimum obligation for existing Rent-A-Center vehicle lease contracts was approximately $1.6 million.

We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2026 with rental rates adjusted periodically for inflation. As of September 30, 2023, our total remaining obligation for existing Mexico vehicle lease contracts was approximately $2.9 million.

See Note 4 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional discussion of our store operating leases.

*Uncertain Tax Position.* As of September 30, 2023, we have recorded $1.4 million in uncertain tax positions. Although these positions represent a potential future cash liability to us, the amounts and timing of such payments are uncertain.

*Seasonality.* Our revenue mix is moderately seasonal, with the first quarter of each fiscal year generally providing higher merchandise sales than any other quarter during a fiscal year. Generally, our customers will more frequently exercise the early purchase option on their existing lease purchase agreements or purchase pre-leased merchandise off the showroom floor during the first quarter of each fiscal year, primarily due to the receipt of federal income tax refunds.

### New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. As of September 30, 2023, we believe the impact of any recently issued standards that are not yet effective are either not applicable to us at this time, or will not have a material impact on our consolidated financial statements upon adoption.

## Market risk

As filed, 1,671 characters.

### Market Risk

Market risk is the potential change in an instrument’s value caused by fluctuations in interest rates. Our primary market risk exposure is fluctuations in interest rates. Monitoring and managing this risk is a continual process carried out by our senior management. We manage our market risk based on an ongoing assessment of trends in interest rates and economic developments, giving consideration to possible effects on both total return and reported earnings. As a result of such assessment, we may enter into swap contracts or other interest rate protection agreements from time to time to mitigate this risk.

As of September 30, 2023, we had $450 million in Notes outstanding at a fixed interest rate of 6.375%. We also had $815.5 million outstanding under the Term Loan Facility at interest rates indexed to the Term SOFR rate or the prime rate. Carrying value approximates fair value for such indebtedness. Based on our overall interest rate exposure at September 30, 2023, a hypothetical 1.0% increase or decrease in market interest rates would have the effect of causing an additional $8.3 million additional annualized pre-tax charge or credit to our Condensed Consolidated Statement of Operations. We have not entered into any interest rate swap agreements as of September 30, 2023.

### Foreign Currency Translation

We are exposed to market risk from foreign exchange rate fluctuations of the Mexican peso to the U.S. dollar as the financial position and operating results of our stores in Mexico are translated into U.S. dollars for consolidation. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.

## Controls and procedures

As filed, 1,222 characters.

*Disclosure Controls and Procedures*. In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of September 30, 2023, our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) were effective.

*Changes in Internal Controls over Financial Reporting*. For the quarter ended September 30, 2023, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that, in the aggregate, have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 174 characters.

There have been no material changes to the risk factors disclosed in Item 1A of Part 1, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000933036-23-000174. Last ingested by Listed: Nov 5, 2026, 18:47 ET. No prices; not investment advice.