UPBOUND GROUP, INC. 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
potential effects of the pandemic of the respiratory disease caused by a novel
coronavirus ("COVID-19") 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 expectations, plans and strategy relating to our
capital structure and capital allocation, including any share repurchases under
the Company's 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, 2021 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
• the possibility that costs, difficulties or disruptions related to the
integration of
• our ability to (i) effectively adjust to changes in the composition of our offerings and product mix as a result of acquiringAcima 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 theAcima Holdings acquisition, whether caused by unanticipated increases in capital expenditures or working capital needs, unanticipated liabilities or otherwise; • our ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies; •the impact of the COVID-19 pandemic and related government and regulatory restrictions issued to combat the pandemic, including adverse changes in such restrictions, the expiration of governmental stimulus programs, and impacts on (i) demand for 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 impacts from inflation;
•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;
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•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;
•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 offering and higher merchandise losses than compared to our Rent-A-Center Business 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;
•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;
•our ability to execute and 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 retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;
•our ability to enter into new and collect on our 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 any legislative or regulatory enforcement efforts that seek to re-characterize store-based or virtual lease-to-own transactions as credit sales and to apply consumer credit laws and regulations to 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;
•our ability to protect the integrity and security of individually identifiable data of our customers, employees and retail partners;
•changes in estimates relating to self-insurance liabilities, 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, including in connection with the integration of Acima;
•litigation or administrative proceedings to which we are or may be a party to from time to time; and
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•the other risks detailed from time to time in our reports furnished or filed
with the
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
Our Business
We are a leading lease-to-own provider with operations inthe United States ,Puerto Rico andMexico . 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 via small payments over time 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 theState of Delaware in 1986, and our common stock is traded on the Nasdaq Global Select Market under the ticker symbol "RCII."
Executive Summary
Our Strategy
Our strategy is focused on growing our business model through emphasis on the following key initiatives:
•executing on market opportunities and enhancing our competitive position across both traditional and virtual lease-to-own solutions;
•accelerating the shift to e-commerce, expanding product categories, including into emerging product categories, and improving the fully integrated customer experience;
•using technology to support frictionless retailer onboarding with seamless integration to retailers' platforms;
•continuing to generate repeat business while expanding our potential customer base;
•leveraging the integration of the
•generating favorable adjusted EBITDA margin and strong free cash flow to fund strategic priorities and deliver and return capital to shareholders.
As we pursue our strategy, we may take advantage of merger and acquisition opportunities from time to time that advance our key initiatives, and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or dispositions or other transactions, although there can be no assurance that any such activities will be consummated.
Recent Developments
OnMarch 23, 2022 , we announced that our board of directors approved a quarterly cash dividend of$0.34 per share for the first quarter of 2022. The dividend was paid onApril 22, 2022 to our common stockholders of record as of the close of business onApril 5, 2022 . 24 --------------------------------------------------------------------------------
Business and Operational Trends
COVID-19 Pandemic. Beginning in the first quarter of 2020, the worldwide spread of COVID-19 caused significant disruptions to theU.S. and world economies, as a result ofU.S. state and local and foreign jurisdictions implementing various containment or mitigation measures, including temporary shelter-in-place orders and the temporary closure of non-essential businesses. Despite the availability of COVID-19 vaccines, the number of COVID-19 cases has increased at various times over the course of the pandemic resulting in certain governmental authorities imposing or re-imposing certain restrictions on businesses. In response to COVID-19, theU.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), providingU.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 the implementation of certain cost savings initiatives following the onset of the pandemic and providing our Rent-A-Center Business 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. However, in the third quarter of 2021 we began to see negative trends in customer behavior, payment and loss activity, which were accelerated 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. Other Macroeconomic Conditions. In addition to the above, we believe that we have been impacted by other negative macroeconomic trends, including a condensed labor market, wage inflation, and global supply chain issues 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, providing credit constrained customers with a viable option to obtain merchandise they may not otherwise be able to obtain, at this time we are unable to predict the full extent to which consumer spending behavior, or other macro-economic trends, may impact our business in future periods. See "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , for additional discussion of operational impacts to our business and additional risks associated with COVID-19 and these macroeconomic conditions.
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 three months endedMarch 31, 2022 included in Part I, Item I of this Quarterly Report on Form 10-Q. Overview
The following briefly summarizes certain of our financial information for the
three months ended
During the first three months of 2022, consolidated revenues increased
approximately
Revenues in our Rent-A-Center Business segment decreased approximately
The Acima segment revenues increased approximately$141.9 million for the three months endedMarch 31, 2022 , driven primarily by the acquisition ofAcima Holdings . Operating profit decreased approximately$15.2 million for the three months endedMarch 31, 2022 , primarily due to higher merchandise losses, partially offset by higher gross profit.
The
Revenues for the Franchising segment decreased
Cash flow from operations was
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--------------------------------------------------------------------------------The following table is a reference for the discussion that follows.
Three Months Ended
March 31, Change
(dollar amounts in thousands) 2022 2021 $ %
Revenues
Store
Rentals and fees $ 883,047 $ 745,534 $ 137,513 18.4 %
Merchandise sales 232,881 232,793 88 - %
Installment sales 17,089 17,773 (684) (3.8) %
Other 1,290 918 372 40.5 %
Total store revenue 1,134,307 997,018 137,289 13.8 %
Franchise
Merchandise sales 18,521 33,055 (14,534) (44.0) %
Royalty income and fees 6,894 6,709 185 2.8 %
Total revenues 1,159,722 1,036,782 122,940 11.9 %
Cost of revenues
Store
Cost of rentals and fees 338,633 247,035 91,598 37.1 %
Cost of merchandise sold 250,331 240,106 10,225 4.3 %
Cost of installment sales 5,921 6,041 (120) (2.0) %
Total cost of store revenues 594,885 493,182 101,703 20.6 %
Franchise cost of merchandise sold 18,742 33,077 (14,335) (43.3) % Total cost of revenues 613,627 526,259 87,368 16.6 % Gross profit 546,095 510,523 35,572 7.0 % Operating expenses Store expenses Labor 166,603 156,707 9,896 6.3 % Other store expenses 227,369 170,133 57,236 33.6 % General and administrative expenses 56,403 49,125 7,278 14.8
%
Depreciation and amortization 14,529 13,393 1,136 8.5 % Other charges 70,148 51,119 19,029 37.2 % Total operating expenses 535,052 440,477 94,575 21.5 % Operating profit 11,043 70,046 (59,003) (84.2) % Debt refinancing charges - 8,743 (8,743) - % Interest, net 18,925 11,916 7,009 58.8 % (Loss) earnings before income taxes (7,882) 49,387 (57,269) (116.0) % Income tax (benefit) expense (3,645) 6,835 (10,480) (153.3) % Net (loss) earnings$ (4,237) $ 42,552 $ (46,789) (110.0) %
Three Months Ended
Store Revenue. Total store revenue increased by$137.3 million , or 13.8%, to$1,134.3 million for the three months endedMarch 31, 2022 , from$997.0 million for the three months endedMarch 31, 2021 . This increase was primarily due to increases of approximately$141.9 million in the Acima segment, partially offset by a decrease of$6.4 million in the Rent-A-Center Business 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 three
months ended
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$4.0 million in the Acima and Rent-A-Center Business segments, respectively.
Cost of rentals and fees expressed as a percentage of rentals and fees revenue
increased to 38.3% for the three months ended March 31, 2022 as compared to
33.1% in 2021.
Cost of Merchandise Sold. Cost of merchandise sold increased by $10.2 million ,
or 4.3%, to $250.3 million for the three months ended March 31, 2022 , from
$240.1 million in 2021, primarily attributable to increases of $24.8 million in
the Acima segment, partially offset by a decrease of $14.5 million in the
Rent-A-Center Business segment, respectively. The gross margin percent of
merchandise sales decreased to (7.5)% for the three months ended March 31, 2022 ,
from (3.1)% in 2021.
Gross Profit. Gross profit increased by $35.6 million , or 7.0%, to
$546.1 million for the three months ended March 31, 2022 , from $510.5 million in
2021, due primarily to increases of $30.0 million and $4.2 million in the Acima
and Rent-A-Center Business segments, respectively, as discussed further in the
section "Segment Performance" below. Gross profit as a percentage of total
revenue decreased to 47.1% for the three months ended March 31, 2022 , as
compared to 49.2% in 2021.
Store Labor. Store labor increased by $9.9 million , or 6.3%, to $166.6 million ,
for the three months ended March 31, 2022 , as compared to $156.7 million in
2021, primarily attributable to increases of $1.0 million and $8.5 million in
the Acima and Rent-A-Center Business segments, respectively, as discussed
further in the section "Segment Performance" below. Store labor expressed as a
percentage of total store revenue was 14.7% for the three months ended March 31,
2022 , as compared to 15.7% in 2021.
Other Store Expenses. Other store expenses increased by $57.3 million , to
$227.4 million for the three months ended March 31, 2022 , as compared to
$170.1 million in 2021, due to increases of $41.4 million and $15.2 million in
the Acima and Rent-A-Center Business segments, respectively, primarily
attributable to higher customer stolen merchandise loss rates, as discussed
further in the section "Segment Performance" below. Other store expenses
expressed as a percentage of total store revenue were 20.0% for the three months
ended March 31, 2022 , compared to 17.1% in 2021.
General and Administrative Expenses. General and administrative expenses
increased by $7.3 million , or 14.8%, to $56.4 million for the three months
ended March 31, 2022 , as compared to $49.1 million in 2021, primarily due to
higher labor overhead as a result of the acquisition of Acima Holdings . General
and administrative expenses expressed as a percentage of total revenue were 4.9%
for the three months ended March 31, 2022 , compared to 4.7% in 2021.
Other Charges. Other charges increased by $19.0 million , to $70.1 million for
the three months ended March 31, 2022 , as compared to $51.1 million in 2021.
Other charges for the three months ended March 31, 2022 primarily included stock
compensation expense related to the vesting of a portion of the equity
consideration issued in the acquisition of Acima Holdings , depreciation and
amortization of acquired software and intangible assets, software asset
impairment, and employee severance. Other charges for the three months ended
March 31, 2021 primarily included one-time transaction and integration costs,
stock compensation expense related to equity consideration subject to vesting
conditions, and depreciation and amortization of acquired software and
intangible assets, related to the acquisition of Acima Holdings .
Operating Profit. Operating profit decreased by $59.0 million , to $11.0 million
for the three months ended March 31, 2022 , as compared to $70.0 million in 2021,
primarily due to the increases in other store expenses, other charges, and store
labor, partially offset by the increase in gross profit, as described above.
Operating profit expressed as a percentage of total revenue was 1.0% for the
three months ended March 31, 2022 , compared to 6.8% in 2021.
Income Tax (Benefit) Expense. Income tax expense for the three months
ended March 31, 2022 was $(3.6) million , as compared to $6.8 million in 2021,
primarily due to a decrease in earnings before taxes of approximately $57.2
million . The effective tax rate was 46.2% for the three months ended March 31,
2022 , compared to 13.8% in 2021, primarily due to the difference between
recorded goodwill and goodwill recognized for tax purposes, as a result of the
Aggregate Stock Consideration from the Acima Holdings transaction subject to
restricted stock agreements. In addition, the effective tax rate for the three
months ended March 31, 2021 , was further impacted by discrete income tax items
related to excess tax benefits from the vesting of our annual restricted stock
award grants and stock option exercises, and the release of domestic and foreign
tax valuation allowances.
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--------------------------------------------------------------------------------Segment Performance
Rent-A-Center Business segment
Three Months Ended
March 31, Change
(dollar amounts in thousands) 2022 2021 $ %
Revenues $ 518,505 $ 524,866 $ (6,361) (1.2) %
Gross profit 363,380 359,169 4,211 1.2 %
Operating profit 100,176 121,277 (21,101) (17.4) %
Change in same store revenue (1.1) %
Stores in same store revenue calculation(1) 1,757
(1) 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. We exclude 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. Due to the
COVID-19 pandemic and related temporary store closures, all 32 stores in Puerto
Rico were excluded starting in March 2020 through March 2022 .
Revenues. The decrease in revenue for the three months ended March 31, 2022 , as
compared to 2021, was primarily due to a decrease in same store sales revenue
driven by lower merchandise sales stemming from the lapse of government stimulus
programs and the increase in U.S. consumer price index.
Gross Profit. Gross profit increased for the three months ended March 31, 2022 ,
as compared to 2021, driven primarily by an increase in rental and fee revenue
combined with lower merchandise sales. Gross profit as a percentage of segment
revenues was 70.1% for the three months ended March 31, 2022 , as compared to
68.4% for the corresponding period in 2021.
Operating Profit. Operating profit as a percentage of segment revenues was 19.3%
for the three months ended March 31, 2022 , compared to 23.1% for the
corresponding period in 2021. The decrease in operating margin for the three
months ended March 31, 2022 , as compared to 2021, was driven primarily by the
decrease in revenues described above, in addition to higher loss rates and
higher labor expense. Charge-offs in our Rent-A-Center Business lease-to-own
stores due to customer stolen merchandise, expressed as a percentage of
Rent-A-Center Business lease-to-own revenues, were approximately 3.9% for the
three months ended March 31, 2022 , compared to 2.7% for the corresponding period
in 2021. Charge-offs in our Rent-A-Center Business lease-to-own stores due to
other merchandise losses, expressed as a percentage of Rent-A-Center Business
lease-to-own revenues, were approximately 1.7% for the three months
ended March 31, 2022 , compared to approximately 1.3% for the corresponding
period in 2021. Other merchandise losses include unrepairable and missing
merchandise, and loss/damage waiver claims.
Acima segment
Three Months Ended
March 31, Change
(dollar amounts in thousands) 2022 2021 $ %
Revenues $ 599,377 $ 457,449 $ 141,928 31.0 %
Gross profit 164,228 134,250 29,978 22.3 %
Operating profit 9,600 24,814 (15,214) (61.3) %
Revenues. The increase in revenue for the three months ended
Gross Profit. Gross profit as a percentage of segment revenues decreased to 27.4% for the three months endedMarch 31, 2022 , compared to 29.3% for the corresponding period in 2021. Gross profit margin decreased for the three months endedMarch 31, 2022 , compared to 2021, primarily due to a higher mix of rental agreements generated from our virtual business model, driven by the acquisition ofAcima Holdings . Operating Profit. Operating profit as a percentage of segment revenues decreased to 1.6% for the three months endedMarch 31, 2022 , compared to 5.4% for the corresponding period in 2021. Operating profit margin decreased for the three months endedMarch 31, 2022 , as compared to 2021, primarily due to the acquisition ofAcima Holdings , including amortization of acquired software and intangible assets, and higher merchandise losses, partially offset by higher revenues. Charge-offs in our Acima locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately 12.6% for the three months endedMarch 31, 2022 , compared to 8.6% for the corresponding period in 2021. 28 --------------------------------------------------------------------------------
Charge-offs in our Acima locations due to other merchandise losses, expressed as
a percentage of revenues, were approximately 0.1% for the three months
ended
Mexico segment Three Months Ended March 31, Change (dollar amounts in thousands) 2022 2021 $ % Revenues$ 15,712 $ 14,498 $ 1,214 8.4 % Gross profit 11,101 10,212 889 8.7 % Operating profit 2,066 1,954 112 5.7 % Change in same store revenue 7.6 % Stores in same store revenue calculation(1) 108 (1) 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. We exclude 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. Revenues. Revenues were negatively impacted by exchange rate fluctuations of approximately$0.2 million for the three months endedMarch 31, 2022 , as compared to the same periods in 2021. On a constant currency basis, revenues for the three months endedMarch 31, 2022 increased approximately$1.4 million , compared to the same periods in 2021. Gross Profit. Gross profit was negatively impacted by exchange rate fluctuations of approximately$0.1 million for the three months endedMarch 31, 2022 , as compared to the same periods in 2021. On a constant currency basis, gross profit for the three months endedMarch 31, 2022 increased by approximately$1.0 million as compared to the same periods in 2021. Gross profit as a percentage of segment revenues was 70.7% for the three months endedMarch 31, 2022 , compared to 70.4% for the corresponding period in 2021. Operating Profit. Operating profit for the three months endedMarch 31, 2022 was minimally impacted by exchange rate fluctuations as compared to the same period in 2021. Operating profit as a percentage of segment revenues increased to 13.1% for the three months endedMarch 31, 2022 , compared to 13.5% for the corresponding periods in 2021. Franchising segment Three Months Ended March 31, Change (dollar amounts in thousands) 2022 2021 $ % Revenues$ 26,128 $ 39,969 $ (13,841) (34.6) % Gross profit 7,386 6,892 494 7.2 % Operating profit 4,790 4,985 (195) (3.9) % Revenues. Revenues decreased for the three months endedMarch 31, 2022 compared to the corresponding period in 2021, primarily due to lower inventory purchases by franchisees.
Gross Profit. Gross profit as a percentage of segment revenues was 28.3% for the
three months ended
Operating Profit. Operating profit as a percentage of segment revenues was 18.3%, for the three months endedMarch 31, 2022 compared to 12.5% for the corresponding period in 2021. The increase for the three months endedMarch 31, 2022 , compared to the corresponding period in 2021 was primarily due to a higher percentage of royalty income and fees included in revenues described above.
Liquidity and Capital Resources
Overview. For the three months endedMarch 31, 2022 , we generated$205.3 million in operating cash flow. We paid down debt by$172.2 million from cash generated from operations and also used cash in the amount of$21.1 million for dividends and$16.4 million for capital expenditures. We ended the first quarter of 2022 with$95.7 million of cash and cash equivalents and outstanding indebtedness of$1.44 billion .
Analysis of Cash Flow. Cash provided by operating activities increased by
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Cash used in investing activities was
Cash (used in) provided by financing activities was$(201.3) million for the three months endedMarch 31, 2022 , compared to$1,107.3 million in 2021, representing a change of$1,308.6 million , primarily due to debt proceeds of$1.5 billion received in the first quarter of 2021 used to fund the acquisition ofAcima Holdings inFebruary 2021 , partially offset by debt issuance costs of$46.1 million paid in the first quarter of 2021 in connection with the receipt of debt proceeds, in addition to lower debt repayments of$135.3 million for the three months endedMarch 31, 2022 compared to the same period in 2021.
Liquidity Requirements. Our primary liquidity requirements are for rental merchandise purchases. Other capital requirements include expenditures for property assets, debt service, and dividends. 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 12 months. AtApril 27, 2022 , we had approximately$104.5 million in cash on hand, and$343.6 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 depreciation benefits associated with these tax acts are now reversing. The Protecting Americans from Tax Hikes Act of 2015 ("PATH") extended the 50% bonus depreciation to 2015 and throughSeptember 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 betweenSeptember 27, 2017 andDecember 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$349 million for us in 2021. We estimate the remaining tax deferral associated with bonus depreciation from these Acts is approximately$402 million atDecember 31, 2021 , of which approximately 80%, or$320 million , will reverse in 2022, and the majority of the remainder will reverse between 2023 and 2024.
Merchandise Losses. Merchandise losses consist of the following:
Three Months Ended March 31 ,
(in thousands) 2022 2021
Customer stolen merchandise(1)$ 99,742 $ 56,588 Other merchandise losses(2) 9,907 8,674 Total merchandise losses$ 109,649 $ 65,262 (1)Increase in customer stolen merchandise in 2022 is primarily due to the increase in customer stolen merchandise loss rates for the three months endedMarch 31, 2022 compared to the corresponding period in 2021, as described in the Results of Operations section above. In addition, the increase is partly attributable to the timing of the acquisition ofAcima Holdings onFebruary 17, 2021 , resulting in a partial period of losses for the first quarter of 2021. (2)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$16.4 million and$11.4 million on capital expenditures during the three months endedMarch 31, 2022 and 2021, respectively. Acquisitions and New Location Openings. During the first three months of 2022, we acquired one rent-to-own store location and customer accounts for an aggregate purchase price of approximately$0.3 million . The store location was closed upon acquisition and consolidated into existing store operations in our Rent-A-Center Business segment. 30 --------------------------------------------------------------------------------
The table below summarizes the store location activity for the three-month
period ended
Rent-A-Center
Business Mexico Franchising Total
Locations at beginning of period(1) 1,846 123 466 2,435
New location openings 6 - 1 7
Conversions - - - -
Closed locations
Merged with existing locations - (1) - (1)
Sold or closed with no surviving location - - (3) (3)
Locations at end of period(1) 1,852 122 464 2,438
Acquired locations closed and accounts merged
with existing locations 1 - - 1
Total approximate purchase price of acquired
stores (in millions) $ 0.3
$ - $ -
(1) Does not include locations in our Acima segment.
Senior Debt. OnFebruary 17, 2021 , we entered into a credit agreement withJPMorgan 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 (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 rental contracts, reduced by reserves. The ABL Credit Facility bears interest at a fluctuating rate determined by reference to the eurodollar rate plus an applicable margin of 1.50% to 2.00%, which margin, as ofApril 27, 2022 , was 2.250%. 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 untilFebruary 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. OnFebruary 17, 2021 , we also entered into a term loan credit agreement withJPMorgan 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 onSeptember 21, 2021 , 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 eurodollar rate plus an applicable margin of 3.25%, subject to a 0.50% LIBOR floor. 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 the Company and the 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 the Company and the Company's material wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit Facility. The Term Loan Facility was fully drawn at the closing of theAcima Holdings acquisition to fund a portion of the Aggregate Cash Consideration, repay certain of our and our subsidiaries' outstanding indebtedness, repay all outstanding indebtedness of Acima and its subsidiaries and pay certain fees and expenses incurred in connection with theAcima Holdings acquisition. 31 -------------------------------------------------------------------------------- AtApril 27, 2022 , we had outstanding borrowings of$866.3 million under our Term Loan Facility and available commitments of$343.6 million under our ABL Credit Facility, net of letters of credit.
See Note 7 of our condensed consolidated financial statements included in this report for additional information regarding our senior debt.
Senior Notes. OnFebruary 17, 2021 , we issued$450.0 million in senior unsecured notes dueFebruary 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 theAcima Holdings acquisition. Interest on the Notes is payable in arrears onFebruary 15 andAugust 15 of each year, beginning onAugust 15, 2021 . We may redeem some or all of the Notes at any time on or afterFebruary 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 toFebruary 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 toFebruary 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. Operating Leases. We lease space for all of our Rent-A-Center Business andMexico stores under operating leases expiring at various times through 2030. 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 ofMarch 31, 2022 , our total remaining obligation for existing store lease contracts was approximately$335.7 million . We lease vehicles for all of our Rent-A-Center Business stores under operating leases with lease terms expiring 12 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 ofMarch 31, 2022 , our total remaining minimum obligation for existing Rent-A-Center Business vehicle lease contracts was approximately$0.3 million . We also lease vehicles for all of ourMexico stores which have terms expiring at various times through 2026 with rental rates adjusted periodically for inflation. As ofMarch 31, 2022 , our total remaining obligation for existingMexico vehicle lease contracts was approximately$1.2 million .
See Note 5 of our condensed consolidated financial statements included in this report for additional discussion of our store operating leases.
Uncertain Tax Position. As ofMarch 31, 2022 , we have recorded$6.5 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 ofMarch 31, 2022 , 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. 32
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