UPBOUND GROUP, INC. (UPBD) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Objective
We report financial operating performance under four operating segments, including our Acima segment, which includes our virtual and staffed business models; our Rent-A-Center segment, which represents our company-owned stores and e-commerce platform through rentacenter.com; and our Mexico and Franchising segments.
The following discussion focuses on recent developments expected to have current and future impacts on the results of our business, trends and uncertainties within our industry and business model that may impact our financial results, our recent results of operations, and discussion of our liquidity and capital resources. You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
For similar historical operating and financial data and discussion of our year ended December 31, 2023 results compared to our year ended December 31, 2022 results, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K, for the year ended December 31, 2023, incorporated herein by reference, which was filed with the SEC on February 27, 2024.
Recent Developments
Brigit Acquisition. On January 31, 2025, we completed the acquisition of Brigit for total consideration of up to $460 million, consisting of approximately $278.7 million in cash consideration and approximately 2.7 million shares of Upbound Group, Inc. common stock at closing, $75 million in deferred consideration, payable in multiple installments, and an earnout of up to $60 million based on the achievement of certain financial performance metrics for the Brigit business in 2026. Brigit is a holistic financial health technology company that has helped millions of Americans budget better, access their earned wages before their regularly scheduled payday, build their credit through savings, protect themselves from identity theft, and find ways to earn and save money. Its mission is to help everyday Americans build a better financial future.
Executive Management Changes.
•On February 20, 2025, we announced that Mitchell E. Fadel will retire from his position as Chief Executive Officer and as a member of the Board of Directors, effective June 1, 2025. Fahmi Karam will succeed Mr. Fadel as Chief Executive Officer and a member of the Board of Directors at that time. Mr. Karam has served as Chief Financial Officer since October 2022.
•On February 18, 2025, Sudeep Gautam, former Executive Vice President – Chief Technology and Digital Officer, departed the Company. We are currently searching for a successor to this position.
Dividend. On December 4, 2024, we announced that our board of directors approved a quarterly cash dividend of $0.39 per share for the first quarter of 2025. The dividend was paid on January 7, 2025 to our common stockholders of record as of the close of business on December 18, 2024.
Business and Operational Trends
Macroeconomic Conditions. In recent years, we have experienced significant change in business and operational trends driven by macroeconomic conditions, which have directly impacted our customers as well as our operations, including significant changes in the U.S. consumer price index, changes in demand for certain consumer retail categories, changes in consumer payment behaviors, a condensed labor market, which has also contributed to wage inflation, rapid increases in interest rates, 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 these macroeconomic trends (including consumer spending and payment behavior) may impact our business in future periods is uncertain. The continuation of volatile macroeconomic 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 this Annual Report on Form 10-K, for additional discussion of impacts to our business and additional risks associated with macroeconomic conditions.
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Rent-A-Center e-commerce revenue. In recent years, e-commerce revenues increased as a percentage of total rentals and fees revenue in our Rent-A-Center segment. For the years ended December 31, 2024 and 2023, e-commerce revenues represented approximately 26% of total lease-to-own revenues. 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 consolidated financial statements and notes thereto for the year ended December 31, 2024 included in Part II, Item 8 of this Annual Report on Form 10-K.
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 Acima segment that is leased to customers through a transaction that occurs within a defined period, net of estimated cancellations as of the measurement date.
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 lease-to-own stores and e-commerce platform at the end of any given period.
Same Store 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 lease-to-own stores that were operated by us for 13 months or more at the end of any given period. The Company excludes from the same store 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 base in the 30th full month following account transfer.
Same Store Sales: Same store sales generally represents revenue earned in Rent-A-Center 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.
Lease Charge-Offs (“LCOs”) (previously referred to as “skip/stolen losses”): Represents charge-offs of the net book value of unrecoverable on-rent merchandise with lease-to-own customers who are past due. This is typically expressed as a percentage of revenues for the applicable period. For the Rent-A-Center segment, LCOs exclude Get It Now and Home Choice locations.
Overview
The following briefly summarizes certain of our financial information for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
During the year ended December 31, 2024, consolidated revenues and gross profit increased by approximately $328.2 million and $58.1 million, respectively, primarily due to an increase in the Acima segment revenues described below. Operating profit increased by approximately $128.7 million, primarily due to decreases in other gains and charges of $112.3 million and operating labor expenses of $4.3 million in addition to the increase in gross profit noted above, partially offset by increases in non-labor operating expenses of $35.7 million and general and administrative expense of $10.8 million.
The Acima segment revenues increased approximately by $330.1 million for the year ended December 31, 2024, due to increases in rentals and fees revenues and merchandise sales of $244.9 million and $84.1 million, respectively, primarily resulting from an increase in GMV of 17.1%. Growth in GMV was primarily due to an increase in third-party retailer locations and productivity, which resulted in more leases per retailer, and expanded direct-to-consumer offerings. Operating profit increased approximately $20.1 million for the year ended December 31, 2024, primarily due to an increase in gross profit of $58.2 million and a decrease in other gains and charges of $11.6 million, partially offset by an increase in non-labor operating expenses of approximately $49.2 million. See “Segment Performance” below for further discussion of Acima segment operating results for the year ended December 31, 2024.
Revenues in our Rent-A-Center segment decreased approximately $0.7 million for the year ended December 31, 2024, primarily due to decreases in merchandise sales and installment sales of $1.0 million and $2.7 million, partially offset by an
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increase in rentals and fees revenue of $3.1 million, resulting from an increase in same store sales of 1.5%. Operating profit increased approximately $6.9 million for the year ended December 31, 2024, primarily due to decreases in non-labor operating expenses and operating labor expenses of $13.4 million and $5.7 million, respectively partially offset by an increase in other gains and charges of $7.3 million and a decrease in gross profit of $5.2 million. See “Segment Performance” below for further discussion of Rent-A-Center segment operating results for the year ended December 31, 2024.
The Mexico segment revenues increased by 5.5% for the year ended December 31, 2024, contributing to an increase in gross profit of 6.7%, or $3.6 million. See “Segment Performance” below for further discussion of Mexico segment operating results for the year ended December 31, 2024.
Revenues for the Franchising segment decreased $5.4 million for the year ended December 31, 2024, primarily due to a decrease in merchandise sales of $6.9 million. See “Segment Performance” below for further discussion of Franchising segment operating results for the year ended December 31, 2024.
Cash flow from operations was $104.7 million for the year ended December 31, 2024 As of December 31, 2024, we held $60.9 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.
| Year Ended December 31, | 2024-2023 Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | 2024 | 2023 | $ | % | ||||||||||||
| Revenues | ||||||||||||||||
| Rentals and fees | $ | 3,513,658 | $ | 3,261,678 | $ | 251,980 | 7.7 | % | ||||||||
| Merchandise sales | 624,735 | 541,766 | 82,969 | 15.3 | % | |||||||||||
| Installment sales | 60,884 | 63,630 | (2,746) | (4.3) | % | |||||||||||
| Franchise Merchandise sales | 88,125 | 95,054 | (6,929) | (7.3) | % | |||||||||||
| Royalty income and fees | 24,738 | 24,416 | 322 | 1.3 | % | |||||||||||
| Other | 8,424 | 5,869 | 2,555 | 43.5 | % | |||||||||||
| Total revenues | 4,320,564 | 3,992,413 | 328,151 | 8.2 | % | |||||||||||
| Cost of revenues | ||||||||||||||||
| Cost of rentals and fees | 1,355,539 | 1,199,161 | 156,378 | 13.0 | % | |||||||||||
| Cost of merchandise sold | 773,937 | 652,894 | 121,043 | 18.5 | % | |||||||||||
| Cost of installment sales | 22,523 | 22,997 | (474) | (2.1) | % | |||||||||||
| Franchise cost of merchandise sold | 88,214 | 95,103 | (6,889) | (7.2) | % | |||||||||||
| Total cost of revenues | 2,240,213 | 1,970,155 | 270,058 | 13.7 | % | |||||||||||
| Gross profit | 2,080,351 | 2,022,258 | 58,093 | 2.9 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| Operating labor | 609,169 | 613,538 | (4,369) | (0.7) | % | |||||||||||
| Non-labor operating expenses | 811,635 | 775,919 | 35,716 | 4.6 | % | |||||||||||
| General and administrative expenses | 212,450 | 201,706 | 10,744 | 5.3 | % | |||||||||||
| Depreciation and amortization | 50,886 | 51,321 | (435) | (0.8) | % | |||||||||||
| Other gains and charges | 104,580 | 216,909 | (112,329) | (51.8) | % | |||||||||||
| Total operating expenses | 1,788,720 | 1,859,393 | (70,673) | (3.8) | % | |||||||||||
| Operating profit | 291,631 | 162,865 | 128,766 | 79.1 | % | |||||||||||
| Debt refinancing charges | 6,604 | — | 6,604 | 100.0 | % | |||||||||||
| Interest, net | 107,486 | 109,998 | (2,512) | (2.3) | % | |||||||||||
| Earnings before income taxes | 177,541 | 52,867 | 124,674 | 235.8 | % | |||||||||||
| Income tax expense | 54,063 | 58,046 | (3,983) | (6.9) | % | |||||||||||
| Net earnings (loss) | $ | 123,478 | $ | (5,179) | $ | 128,657 | nm |
nm - percent change is not meaningful for comparison
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Comparison of the Years Ended December 31, 2024 and 2023
Revenue. Total revenue increased by $328.2 million, or 8.2%, to $4,320.6 million for the year ended December 31, 2024, from $3,992.4 million for 2023. The increase was primarily due to an increase of approximately $330.1 million in the Acima segment, 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 year ended December 31, 2024 increased by $156.3 million, or 13.0%, to $1,355.5 million, as compared to $1,199.2 million in 2023. This increase in cost of rentals and fees was primarily attributable to an increase of $156.7 million in the Acima segment, driven by an increase in rentals and fees revenue. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 38.6% for the year ended December 31, 2024 as compared to 36.8% in 2023.
Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold increased by $121.0 million, or 18.5%, to $773.9 million for the year ended December 31, 2024, from $652.9 million in 2023, primarily attributable to an increase of $115.3 million in the Acima segment, driven by an increase in merchandise sales. The gross margin percent of merchandise sales decreased to (23.9)% for the year ended December 31, 2024, from (20.5)% in 2023.
Gross Profit. Gross profit increased by $58.1 million, or 2.9%, to $2,080.4 million for the year ended December 31, 2024, from $2,022.3 million in 2023, primarily due to an increase of $58.2 million in the Acima segment, as discussed further in the section “Segment Performance” below. Gross profit as a percentage of total revenue decreased to 48.1% in 2024, as compared to 50.7% in 2023.
Operating Labor. Operating labor includes all salaries and wages paid to store operational employees and district managers, together with payroll taxes and benefits. Operating labor decreased by $4.3 million, or 0.7%, to $609.2 million for the year ended December 31, 2024, as compared to $613.5 million in 2023, primarily attributable to a decrease of $5.7 million in the Rent-A-Center segment, partially offset by an increase of $1.2 million in the Mexico segment. Operating labor expressed as a percentage of total revenue excluding franchise merchandise sales and royalty income and fees was 14.5% for the year ended December 31, 2024, as compared to 15.8% in 2023.
Non-Labor Operating Expenses. Non-labor operating expenses include LCOs, occupancy, delivery, advertising, selling, insurance, travel and other operating expenses. Non-labor operating expenses increased by $35.7 million, or 4.6%, to $811.6 million for the year ended December 31, 2024, as compared to $775.9 million in 2023, due to an increase of $49.2 million in the Acima segment, primarily attributable to an increase of $35.8 million in LCOs and other merchandise losses. Non-labor operating expenses expressed as a percentage of total revenue excluding franchise merchandise sales and royalty income and fees were 19.3% for the year ended December 31, 2024, compared to 20.0% in 2023.
General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses increased by $10.8 million, or 5.3%, to $212.5 million for the year ended December 31, 2024, as compared to $201.7 million in 2023, primarily due to higher compensation. General and administrative expenses expressed as a percentage of total revenue were 4.9% for the year ended December 31, 2024, compared to 5.1% in 2023.
Other gains and charges. Other gains and charges decreased by $112.3 million to $104.6 million in 2024, as compared to $216.9 million in 2023. The decrease in other gains and charges was primarily driven by a decrease of $132.6 million in stock compensation expense recognized for the year ended December 31, 2024, related to the restricted stock issued in connection with the Acima Holding acquisition. The decrease to other gains and charges was also due to a decrease of $11.6 million in amortization of acquired intangible assets and $3.1 million in interest income on tax refunds related to prior year returns received in 2023, partially offset by increases of $15.4 million in estimated legal accruals and legal expenses, $5.9 million in lease impairment charges and fixed asset disposal, $5.1 million in accelerated stock compensation expense related to our letter agreement with the Company’s Chief Executive Officer, $3.1 million in accelerated software depreciation, and $3.7 million in acquisition transaction costs. See Note N of our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our other gains and charges.
Operating Profit. Operating profit increased $128.7 million, or 79.1%, to $291.6 million for the year ended December 31, 2024, as compared to $162.9 million in 2023, primarily due to an increase in gross profit and decreases in other gains and charges and labor operating expenses, partially offset by increases in non-labor operating and general and administrative expenses as described above. Operating profit expressed as a percentage of total revenue was 6.7% for the year ended December 31, 2024, compared to 4.1% in 2023.
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Income Tax Expense. Income tax expense decreased by $3.9 million to $54.1 million for the year ended December 31, 2024, as compared to $58.0 million in 2023. The effective tax rate of 30.5% for the year ended December 31, 2024, compared to 109.8% in 2023, decreased primarily due to a lower tax impact of stock compensation expense related to stock consideration issued to the former owners of Acima Holdings in the form of restricted stock awards, compared to the prior year period. See Note J of our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our effective tax rate.
Comparison of the Years Ended December 31, 2023 and 2022
For similar operating and financial data and discussion of our year ended December 31, 2023 results compared to our year ended December 31, 2022 results, refer to Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Segment Performance
Acima segment.
| Year Ended December 31, | 2024-2023 Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | 2024 | 2023 | $ | % | ||||||||||||
| Revenues | $ | 2,261,446 | $ | 1,931,325 | $ | 330,121 | 17.1 | % | ||||||||
| Gross profit | 702,620 | 644,447 | 58,173 | 9.0 | % | |||||||||||
| Operating profit | 255,549 | 235,480 | 20,069 | 8.5 | % | |||||||||||
| Gross merchandise volume(1) | 1,851,616 | 1,581,259 | 270,357 | 17.1 | % |
(1) See Key Metrics described above for additional information
Revenues. The increase in revenues for the year ended December 31, 2024 compared to 2023 was primarily due to increases in rentals and fees revenue and merchandise sales revenue of $244.9 million and $84.1 million, respectively, primarily resulting from higher GMV. Growth in GMV was primarily due to an increase in third-party retailer locations and productivity, which resulted in more leases per retailer, in addition to expanded direct-to-consumer offerings.
Gross Profit. Gross profit increased for the year ended December 31, 2024 compared to 2023, driven primarily by the increase in revenues described above. Gross profit as a percentage of segment revenues decreased to 31.1% for the year ended December 31, 2024, compared to 33.4% in 2023, primarily due to an increase in merchandise sales as a percent of total revenue, and the conversion of Acceptance Now locations to the Acima platform.
Operating Profit. Operating profit as a percentage of segment revenues decreased to 11.3% for the year ended December 31, 2024, compared to 12.2% in 2023. The decrease in operating profit margin was primarily due to increases in non-labor operating expense of approximately $49.2 million for the year ended December 31, 2024 compared to 2023 and decreases in gross profit margin described above. The increase in non-labor operating expense is primarily attributable to an increase of $35.8 million in LCOs and other merchandise losses for the year ended December 31, 2024 compared to 2023. Merchandise losses in our Acima locations due to LCOs, expressed as a percentage of revenues, were approximately 9.4% in 2024, compared to 9.3% in 2023. Merchandise losses in our Acima locations due to other merchandise losses, expressed as a percentage of revenues, were 0.2% in 2024, compared to 0.1% in 2023. Other merchandise losses include unrepairable and missing merchandise and loss/damage waiver claims.
Rent-A-Center segment.
| Year Ended December 31, | 2024-2023 Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | 2024 | 2023 | $ | % | ||||||||||||
| Revenues | $ | 1,863,425 | $ | 1,864,123 | $ | (698) | — | % | ||||||||
| Gross profit | 1,292,546 | 1,297,705 | (5,159) | (0.4) | % | |||||||||||
| Operating profit | 280,423 | 273,518 | 6,905 | 2.5 | % | |||||||||||
| Lease portfolio value(1) | 136,751 | 144,960 | (8,209) | (5.7) | % | |||||||||||
| Same store lease portfolio value(1) | 123,364 | 125,905 | (2,541) | (2.0) | % | |||||||||||
| Change in same store sales(1) | 1.5 | % | ||||||||||||||
| Stores in same store sales calculation | 1,578 |
(1) See Key Metrics described above for additional information
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Revenues. The decrease in revenue for the year ended December 31, 2024 was primarily due to decreases in merchandise sales and installment sales of $1.0 million and $2.7 million, respectively, partially offset by an increase in rentals and fees revenues of $3.1 million, primarily attributable to a smaller portfolio, as a result of the sale of 55 stores to a Rent-A-Center franchisee and store consolidated. For the years ended December 31, 2024 and 2023, e-commerce revenues represented approximately 26% of total Rent-A-Center segment lease-to-own revenues.
Gross Profit. Gross profit decreased in 2024, driven primarily by the decrease in revenues described above. Gross profit as a percentage of segment revenues decreased to 69.4% in 2024 from 69.6% in 2023, primarily due to mix-shift changes between lease merchandise product categories.
Operating Profit. Operating profit as a percentage of segment revenues was 15.0% for 2024 compared to 14.7% for 2023. The increase in operating profit margin for the year ended December 31, 2024 was primarily due to a decrease in non-labor operating expenses of $13.4 million, which includes the net gain on refranchise sale of approximately $3.1 million, and decrease in operating labor expenses of approximately $5.7 million, partially offset by increase in other gains and charges of $7.3 million. Merchandise losses in our Rent-A-Center lease-to-own stores due to LCOs, expressed as a percentage of Rent-A-Center lease-to-own revenues, were approximately 4.7% for the year ended December 31, 2024, compared to 4.5% in 2023. Merchandise losses 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 1.3% for the year ended December 31, 2024, compared to 1.4% in 2023. Other merchandise losses include unrepairable and missing merchandise and loss/damage waiver claims.
Mexico segment.
| Year Ended December 31, | 2024-2023 Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | 2024 | 2023 | $ | % | ||||||||||||
| Revenues | $ | 78,726 | $ | 74,625 | $ | 4,101 | 5.5 | % | ||||||||
| Gross profit | 56,432 | 52,869 | 3,563 | 6.7 | % | |||||||||||
| Operating profit | 4,806 | 4,846 | (40) | (0.8) | % | |||||||||||
| Change in same store sales(1) | 8.1 | % | ||||||||||||||
| Stores in same store sales calculation | 117 |
(1) See Key Metrics described above for additional information
Revenues. Revenues for 2024 were negatively impacted by exchange rate fluctuations of approximately $2.2 million, as compared to 2023. On a constant currency basis, revenues for the year ended December 31, 2024 increased approximately $6.3 million, compared to 2023.
Gross Profit. Gross profit for the year ended December 31, 2024 was negatively impacted by exchange rate fluctuations of approximately $1.6 million, as compared to 2023. On a constant currency basis, gross profit for the year ended December 31, 2024 increased by approximately $5.2 million, compared to 2023. Gross profit as a percentage of segment revenues increased to 71.7% in 2024, compared to 70.8% in 2023.
Operating Profit. Operating profit for the year ended December 31, 2024 was minimally impacted by exchange rate fluctuations, as compared to 2023. On a constant currency basis, the decrease in operating profit was less than $0.1 million for the year ended December 31, 2024, as compared to 2023. Operating profit as a percentage of segment revenues decreased to 6.1% in 2024, compared to 6.5% in 2023.
Franchising segment.
| Year Ended December 31, | 2024-2023 Change | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | 2024 | 2023 | $ | % | ||||||||||||
| Revenues | $ | 116,967 | $ | 122,340 | $ | (5,373) | (4.4) | % | ||||||||
| Gross profit | 28,753 | 27,237 | 1,516 | 5.6 | % | |||||||||||
| Operating profit | 16,737 | 17,087 | (350) | (2.0) | % |
Revenues. Revenues decreased for the year ended December 31, 2024, compared to 2023, primarily due to a decrease in merchandise purchases by franchisees of $6.9 million.
Gross Profit. Gross profit as a percentage of segment revenues increased to 24.6% in 2024, compared to 22.3% in 2023, primarily due to the changes in the proportion of merchandise sales compared to royalty and fee revenue.
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Operating Profit. Operating profit as a percentage of segment revenues increased to 14.3% in 2024, compared to 14.0% for 2023, primarily due to the change in gross profit described above.
Liquidity and Capital Resources
Overview. For the year ended December 31, 2024, we generated $104.7 million in operating cash flow and used cash in the amount of $323.8 million for debt repayments, $82.3 million for dividends and $56.3 million for capital expenditures, and had cash proceeds from indebtedness of $320.0 million and proceeds from sale of property assets of $18.7 million. We ended the year with $60.9 million of cash and cash equivalents and outstanding indebtedness of $1.3 billion. In connection with the Merger, we incurred additional indebtedness in January 2025, as discussed in the “Senior Debt” section below.
Analysis of Cash Flow. Cash provided by operating activities decreased by $95.6 million to $104.7 million in 2024 from $200.3 million in 2023, primarily due to an increase in our inventory purchases driven by increased consumer demand.
Cash used in investing activities decreased to $41.5 million in 2024, compared to $51.0 million in 2023, primarily due to an increase in proceeds from the sale of property assets, partially offset by higher investment in store-related assets in our Rent-A-Center segment in 2024.
Cash used in financing activities decreased to $93.5 million in 2024, compared to $202.1 million in 2023, primarily due to an increase in borrowings under the ABL Credit Facility of $250.0 million and a decrease in share repurchases of $50.0 million, partially offset by an increase in debt repayments of $185.1 million.
Liquidity Requirements. Our primary liquidity requirements are for rental merchandise purchases, which are impacted by consumer demand for our lease-to-own solutions. Other capital requirements include expenditures for technology and property assets, and debt service. Our primary source of liquidity has been cash provided by operations.
We generally 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 February 18, 2025, we had approximately $113.7 million in cash on hand. Please reference the Senior Debt section below for additional discussion of our ABL Credit Facility.
Merchandise Losses. Merchandise losses consist of the following:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2024 | 2023 | 2022 | |||||||
| Lease charge-offs | $ | 316,402 | $ | 284,703 | $ | 336,475 | ||||
| Other merchandise losses(1) | 30,670 | 29,112 | 38,734 | |||||||
| Total merchandise losses | $ | 347,072 | $ | 313,815 | $ | 375,209 |
(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 $56.3 million, $53.4 million and $61.4 million on capital expenditures in the years 2024, 2023 and 2022, respectively. The increase of $2.9 million for the year ended December 31, 2024 is primarily due to higher investment in store-related assets in our Rent-A-Center segment.
Acquisitions and New Location Openings. During 2024, we acquired six lease-to-own store locations and customer accounts for an aggregate purchase price of approximately $1.5 million. Three of the store locations were closed upon acquisition and consolidated into existing store operations in our Rent-A-Center segment and three remained open as part of our Rent-A-Center segment.
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The tables below summarize the location activity for the years ended December 31, 2024, 2023 and 2022 for our Rent-A-Center, Mexico and Franchising operating segments.
| Year Ended December 31, 2024 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rent-A-Center | Mexico | Franchising | Total | |||||||||||
| Locations at beginning of period | 1,839 | 131 | 440 | 2,410 | ||||||||||
| New location openings | 3 | 3 | 1 | 7 | ||||||||||
| Conversions | (52) | — | 52 | — | ||||||||||
| Closed locations | ||||||||||||||
| Merged with existing locations | (60) | — | (2) | (62) | ||||||||||
| Sold or closed with no surviving location | (2) | (2) | (43) | (47) | ||||||||||
| Locations at end of period | 1,728 | 132 | 448 | 2,308 | ||||||||||
| Acquired locations closed and accounts merged with existing locations | 3 | — | — | 3 | ||||||||||
| Total approximate purchase price of acquired stores (in thousands) | $ | 1,463 | $ | — | $ | — | $ | 1,463 |
| Year Ended December 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rent-A-Center | Mexico | Franchising | Total | |||||||||||
| Locations at beginning of period | 1,851 | 126 | 447 | 2,424 | ||||||||||
| New location openings | 7 | 6 | 2 | 15 | ||||||||||
| Conversions | (7) | — | 7 | — | ||||||||||
| Closed locations | ||||||||||||||
| Merged with existing locations | (12) | (1) | — | (13) | ||||||||||
| Sold or closed with no surviving location | — | — | (16) | (16) | ||||||||||
| Locations at end of period | 1,839 | 131 | 440 | 2,410 | ||||||||||
| Acquired locations closed and accounts merged with existing locations | 1 | — | — | 1 | ||||||||||
| Total approximate purchase price of acquired store (in thousands) | $ | 39 | $ | — | $ | — | $ | 39 |
| Year Ended December 31, 2022 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rent-A-Center | Mexico | Franchising | Total | |||||||||||
| Locations at beginning of period | 1,846 | 123 | 466 | 2,435 | ||||||||||
| New location openings | 16 | 4 | 1 | 21 | ||||||||||
| Conversions | 1 | — | (1) | — | ||||||||||
| Closed locations | ||||||||||||||
| Merged with existing locations | (12) | (1) | — | (13) | ||||||||||
| Sold or closed with no surviving location | — | — | (19) | (19) | ||||||||||
| Locations at end of period | 1,851 | 126 | 447 | 2,424 | ||||||||||
| Acquired locations closed and accounts merged with existing locations | 4 | — | — | 4 | ||||||||||
| Total approximate purchase price of acquired stores (in thousands) | $ | 995 | $ | — | $ | — | $ | 995 |
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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 (as amended on June 7, 2024, the “ABL Credit Facility”). 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 lease contracts, reduced by certain reserves. The ABL Credit Facility bears interest at a fluctuating rate determined by reference to an adjusted Term SOFR rate plus an applicable margin of 1.50% to 2.00%, which, as of February 18, 2025, was 6.41%. 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 June 7, 2029, at which time all amounts borrowed must be repaid.
The obligations under the ABL Credit Facility are guaranteed by us and certain of our material 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 May 28, 2024, 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 2.75%, subject to a 0.50% Term SOFR floor, which, as of February 18, 2025, was 7.04%.
Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00% 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.
On January 31, 2025, we used $323 million of our available commitments under our ABL Credit Facility to finance the Brigit acquisition. At February 18, 2025, we had outstanding borrowings of $802.3 million under the Term Loan Facility and available commitments of $94.5 million under our ABL Credit Facility, net of letters of credit.
See Note K of our consolidated financial statements included in this Annual Report on Form 10-K 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”). 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 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. If we experience specific kinds of change in control, we 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 L of our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our senior notes.
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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 December 31, 2024, our total remaining obligation for existing store lease contracts was approximately $317.1 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 Consolidated Balance Sheets. As of December 31, 2024, our total remaining minimum obligation for existing Rent-A-Center vehicle lease contracts was approximately $5.4 million.
We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2029 with rental rates adjusted periodically for inflation. As of December 31, 2024, our total remaining obligation for existing Mexico vehicle lease contracts was approximately $3.1 million.
Reference Note G of our consolidated financial statements included in this Annual Report on Form 10-K for additional discussion of our store operating leases.
Uncertain Tax Position. As of December 31, 2024, we have recorded $0.4 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 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 in our Acima and Rent-A-Center segments or purchase pre-leased merchandise off the showroom floor in our Rent-A-Center segment during the first quarter of each fiscal year, primarily due to the receipt of federal income tax refunds. In contrast, our cash expenditures for our merchandise purchases for the fiscal year are generally the highest beginning in the latter part of the third quarter through the fourth quarter, primarily as a result of holiday promotions that lead to increased demand for our lease-to-own offerings.
Critical Accounting Estimates, Uncertainties or Assessments in Our Financial Statements
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent losses and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. However, uncertainties, including those related to recent macroeconomic trends or other factors, may affect certain estimates and assumptions inherent in the financial reporting process, which may impact reported amounts of assets and liabilities in future periods and cause actual results to differ from those estimates. We believe the following are areas where the degree of judgment and complexity in determining amounts recorded in our consolidated financial statements make the accounting policies critical.
If we make changes to our reserves in accordance with the policies described below, our earnings would be impacted. Increases to our reserves would reduce earnings and, similarly, reductions to our reserves would increase our earnings. A pre-tax change of approximately $0.8 million in our estimates would result in a corresponding $0.01 change in our diluted earnings per common share as of December 31, 2024.
Self-Insurance Liabilities. We have self-insured retentions with respect to losses under our workers' compensation, general liability, vehicle liability and health insurance programs. We establish reserves for our liabilities associated with these losses by obtaining forecasts for the ultimate expected losses and estimating amounts needed to pay losses within our self-insured retentions.
We continually institute procedures to manage our loss exposure and increases in health care costs associated with our insurance claims through our risk management function, including a transitional duty program for injured workers, ongoing safety and accident prevention training, and various other programs designed to minimize losses and improve our loss experience in our store locations. We make assumptions on our liabilities within our self-insured retentions using actuarial loss forecasts, company-specific development factors, general industry loss development factors, and third-party claim administrator loss estimates which are based on known facts surrounding individual claims. These assumptions incorporate expected increases in health care costs. Periodically, we reevaluate our estimate of liability within our self-insured retentions. At that
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time, we evaluate the adequacy of our reserves by comparing amounts reserved on our balance sheet for anticipated losses to our updated actuarial loss forecasts and third-party claim administrator loss estimates, and make adjustments to our reserves as needed.
As of December 31, 2024, the amount reserved for losses within our self-insured retentions with respect to workers’ compensation, general liability and vehicle liability insurance was $61.1 million, as compared to $71.6 million at December 31, 2023. However, if any of the factors that contribute to the overall cost of insurance claims were to change, the actual amount incurred for our self-insurance liabilities could be more or less than the amounts currently reserved.
Rental Merchandise. Rental merchandise is carried at cost, net of accumulated depreciation. Depreciation for merchandise in Rent-A-Center, certain Acima locations formerly operating under the Acceptance Now brand, and Mexico stores is depreciated using the income forecasting method, which is intended to match as closely as practicable the recognition of depreciation expense with the consumption of the rental merchandise, and assumes no salvage value. The consumption of rental merchandise occurs during periods of rental and directly coincides with the receipt of rental revenue over the rental purchase agreement period. Under the income forecasting method, merchandise held for rent is not depreciated and merchandise on rent is depreciated in the proportion of rents received to total rents provided in the lease contract, which is an activity-based method similar to the units of production method. Depreciation of merchandise for Acima Holdings is recognized using a straight-line method over the term of the lease contract. Depreciation under the straight-line method is recognized each period over the term of the lease-to-own contract irrespective of receipt of revenue payments from the customer. In addition, merchandise that is held for rent for at least 180 consecutive days is depreciated using the straight-line method over a period generally not to exceed 18 months, and smartphones are also depreciated on a straight-line basis over an 18-month period beginning with the earlier of on rent or 90 consecutive days held for rent.
Rental merchandise that is damaged and inoperable is expensed when such impairment occurs. If a customer does not return the merchandise or make payment, the remaining book value of the rental merchandise associated with delinquent accounts is generally charged off on or before the 90th day following the time the account became past due in the Rent-A-Center and Mexico segments, on or before the 120th day in our Acima segment and during the month following the 150th day in certain Acima locations formerly operating under the Acceptance Now brand. Minor repairs made to rental merchandise are expensed at the time of the repair. In addition, we maintain a reserve for these expected losses, which estimates the merchandise losses expected but not yet incurred as of the end of the accounting period based on a combination of historical write-offs and expected future losses. As of December 31, 2024 and 2023, the reserve for merchandise losses was $83.6 million and $84.7 million, respectively.
Receivables and Allowance for Doubtful Accounts. The installment sales receivable associated with the sale of merchandise at our Get It Now and Home Choice stores generally consists of the sales price of the merchandise purchased and any additional fees for services the customer has chosen, less the customer’s down payment. No interest is accrued and interest income is recognized each time a customer makes a payment, generally on a monthly basis.
We have established an allowance for doubtful accounts for our installment notes receivable. Our policy for determining the allowance is primarily based on historical loss experience, as well as the results of management’s review and analysis of the payment and collection of the installment notes receivable within the previous year. Our allowance is adequate to absorb all expected losses. Our policy is to charge off installment notes receivable that are 120 days or more past due. Charge-offs are applied as a reduction to the allowance for doubtful accounts and any recoveries of previously charged off balances are recognized as contra-bad debt expense in our Consolidated Statements of Operations.
Our trade and notes receivables consist of amounts due from our lease-to-own customers for lease renewal payments and past due uncollected lease payments, adjusted for the probability of collection based on our assessment of historical collection rates and length of time the receivable is past due; amounts owed from our franchisees for inventory purchases, earned royalties and other obligations; and other corporate-related receivables. The majority of our Franchising trade and notes receivables relate to amounts due from franchisees for inventory purchases, earned royalties and other obligations. Credit is extended to franchisees based on an evaluation of each franchisee’s financial condition and collateral is generally not required. Trade receivables are generally due within 30 days and are reported as amounts due from franchisees, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are considered past due. Franchising determines its allowance by considering a number of factors, including the length of time receivables are past due, previous loss history, the franchisee’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Franchising writes off trade receivables that are 90 or more days past due and payments subsequently received on such receivables recognized as contra-bad debt expense in our Consolidated Statements of Operations.
Valuation of Goodwill. We perform an assessment of goodwill for impairment at the reporting unit level annually as of October
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1 or when events or circumstances indicate that impairment may have occurred. Factors which could necessitate an interim impairment assessment include a sustained decline in our stock price, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results.
Based on our assessment, if the fair value of the reporting unit exceeds its carrying value, then the goodwill is not deemed impaired. If the carrying value of the reporting unit exceeds fair value, goodwill is deemed impaired and the impairment is measured as the difference between the carrying value and the fair value of the respective reporting unit. As an alternative to performing a quantitative assessment to measure the fair value of the relevant unit, we may perform a qualitative assessment for impairment if we believe it is not more likely than not that the carrying value of the net assets of the reporting unit exceeds its fair value.
Our reporting units are our reportable operating segments identified in Note T to our consolidated financial statements included in this Annual Report on Form 10-K. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions that we believe are reasonable but inherently uncertain, and actual results may differ from those estimates. These estimates and assumptions include, but are not limited to, future cash flows based on revenue growth rates and operating margins, and future economic and market conditions approximated by a discount rate derived from our weighted average cost of capital. Factors that could affect our ability to achieve the expected growth rates or operating margins include, but are not limited to, the general strength of the economy and other economic conditions that affect consumer preferences and spending and factors that affect the disposable income of our current and potential customers and other factors discussed in “Risk Factors” contained in Item 1A of this Annual Report on Form 10-K. Factors that could affect our weighted average cost of capital include changes in interest rates and changes in our effective tax rate.
During the period from our 2023 goodwill impairment assessment through the third quarter 2024, we periodically analyzed whether any indicators of impairment had occurred, including by comparing the estimated fair value of the Company, as determined based on our consolidated stock price, to its net book value. As the estimated fair value of the Company was higher than its net book value during each of these periods, no additional testing was deemed necessary.
We completed a qualitative assessment for impairment of goodwill as of October 1, 2024, concluding it was not more likely than not that the carrying value of the net assets of our reporting units exceeded their respective fair values.
At December 31, 2024 and 2023, the amount of goodwill allocated to the Rent-A-Center segment was $1.9 million and $1.5 million, respectively. At both December 31, 2024 and 2023, the amount of goodwill allocated to the Acima segment was $288.3 million.
Contingencies. We, along with our subsidiaries, are party to various legal proceedings and governmental inquiries and investigations given the nature of our business. We regularly monitor developments related to these matters to determine whether a potential loss is probable and can be reasonably estimated for purposes of recording a reserve in our financial statements. We review the adequacy of our reserves for such matters on a quarterly basis. As a result, we do not have reserves for all matters with respect to which we may or will have future liability, and no assurance can be given that our reserves, when recorded, will be adequate to cover the full amount of any loss we may ultimately incur. As of December 31, 2024 and 2023, we recorded legal reserves of approximately $20.7 million and $8.8 million, respectively. Legal reserves are recorded under Accrued Liabilities in our Consolidated Balance Sheet. Please reference Notes I, M and N in the Notes to our Consolidated Financial Statements for additional disclosure related to our outstanding legal matters and related legal reserves.
Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe our consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of our company as of, and for, the periods presented in this Annual Report on Form 10-K. However, we do not suggest that other general risk factors, such as those discussed elsewhere in this report as well as changes in our growth objectives or performance of new or acquired locations, could not adversely impact our consolidated financial position, results of operations and cash flows in future periods.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve the transparency of the annual income tax disclosures by requiring specific categories in the income tax rate reconciliation and disaggregation of income taxes paid by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The adoption of ASU 2023-09 will be required for us for fiscal years beginning after December 15, 2024. We expect the adoption of this ASU to result in additional disaggregation in the income taxes footnote disclosures.
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In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires new tabular disclosures disaggregating prescribed expense categories within relevant income statement captions. In January 2025, the FASB issued ASU 2025-01, which clarifies the effective date for ASU No. 2024-03. The adoption of ASU 2024-03 will be required for us for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. We are currently assessing the ASU and the impact it will have on our financial statements following adoption.
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. Unless otherwise discussed, we believe the impact of any other 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.