Rent-A-Center, Inc. Reports Fourth Quarter and Year End 2018 Results

February 25, 2019 at 4:30 PM EST

Rent-A-Center posts positive consolidated same store sales of 9.1 percent and strong earnings and cash flow in the fourth quarter

PLANO, Texas--(BUSINESS WIRE)--Feb. 25, 2019-- Rent-A-Center, Inc. (the "Company" or "Rent-A-Center") (NASDAQ/NGS: RCII) today announced results for the quarter ended December 31, 2018.

"When I returned to Rent-A-Center last January as CEO, we focused the Company’s strategy on optimizing the cost structure, increasing store traffic through an enhanced value proposition and growing our franchising business. I am extremely pleased with our 2018 results as we made substantial progress in each of those areas and exceeded our financial and operational expectations," stated Mitch Fadel, Chief Executive Officer of Rent-A-Center.

Mr. Fadel continued, “Consolidated same store sales increased by 9.1 percent in the fourth quarter and extended our streak of quarterly same store sales improvement to eight consecutive quarters. The cost savings initiatives and improved operational performance led to an increase of over $100 million in adjusted EBITDA versus 2017. The operational results coupled with working capital improvements and franchise sales helped reduce our net debt by over $220 million in 2018 and we ended the year with over $155 million of cash on the balance sheet. In 2019, we expect to further benefit from the full year impact of the cost savings initiatives implemented in 2018, which are expected to reduce costs year-over-year by approximately $50 million. Customer demand is also on a positive trajectory and we will continue to refine our value proposition with a strong focus on execution in 2019."

Termination of Merger Agreement

On December 18, 2018, after the Company did not receive an extension notice from Vintage Rodeo Parent, LLC (“Vintage”) that was required by December 17, 2018 to extend the Merger Agreement’s stated End Date, we terminated the Merger Agreement. Our Board of Directors determined that terminating the Merger Agreement was in the best interests of our stockholders, and instructed Rent-A-Center’s management to exercise the Company’s right to terminate the Merger Agreement and make a demand on Vintage for the $126.5 million reverse breakup fee owed to us following the termination of the Merger Agreement. On December 21, 2018, Vintage and its affiliates filed a lawsuit in Delaware Court of Chancery against Rent-A-Center, asserting that the Merger Agreement remained in effect, and that Vintage did not owe Rent-A-Center the $126.5 million reverse breakup fee. B. Riley, a guarantor of the payment of the reverse breakup fee, later joined the lawsuit brought by Vintage in Delaware Court of Chancery. In addition, Rent-A-Center brought a counterclaim against Vintage and B. Riley asserting its right to payment of the reverse breakup fee.

On February 11th and 12th of this year, a trial was held in Delaware Court of Chancery in the lawsuit arising from Rent-A-Center's termination of the Merger Agreement. While it is difficult to predict the outcome of litigation, we believe Rent-A-Center, under the express and unambiguous language of that agreement, had a clear right to terminate the Merger Agreement and that it is entitled to the $126.5 million reverse breakup fee. Oral argument on the parties' post-trial briefs is scheduled for Monday, March 11th.

Consolidated Overview

Explanations of performance for the fourth quarter of 2018 are excluding special items and compared to the fourth quarter of last year unless otherwise noted.

On a consolidated basis, total revenues were $661.8 million representing an increase of 3.6 percent primarily driven by a consolidated same store sales increase of 9.1 percent partially offset by closures of certain Core U.S. stores. Net earnings and diluted earnings per share, on a GAAP basis, were $1.7 million and $0.03 compared to net earnings and diluted earnings per share of $34.8 million and $0.65 in the fourth quarter of last year. We note that in 2017 GAAP diluted earnings per share were benefited by $1.45 related to the Tax Cuts and Jobs Act (the "Tax Act") passed in December of 2017, which resulted in the revaluation of net deferred tax liabilities to a 21 percent federal tax rate.

Excluding special items, the Company’s diluted earnings per share were $0.35 and the Company generated $49.0 million in adjusted EBITDA in the fourth quarter, compared to a loss per diluted share of $0.41 and adjusted EBITDA loss of $8.5 million in the fourth quarter of last year.

Special items impacting adjusted EBITDA of $18.7 million included charges primarily driven by cost savings initiatives, incremental legal and advisory fees, and store closure costs.

For the twelve months ended December 31, 2018, the Company generated $227.5 million of cash from operations and reduced its outstanding debt balance by $139.3 million. The Company ended the fourth quarter with $155.4 million of cash and cash equivalents compared to $73.0 million as of the end of 2017. The Company's net debt to adjusted EBITDA ratio ended the year at 2.1 times, reflecting a substantial reduction compared to the ratio of 8.6 times as of the end of 2017.

Segment Operating Performance

CORE U.S. fourth quarter revenues of $466.6 million increased 4.9 percent due to a same store sales increase of 8.8 percent offset by the rationalization of the Core U.S. store base. Gross profit as a percent of total revenue versus the prior year decreased 30 basis points. Labor and other store expenses decreased by $6.7 million and $13.7 million, respectively, primarily driven by lower store count and the cost savings initiatives. Adjusted EBITDA was $52.4 million and as a percent of total revenue increased 700 basis points versus the prior year.

ACCEPTANCE NOW fourth quarter revenues of $173.1 million decreased 1.5 percent primarily due to closures in 2017 partially offset by a same store sales increase of 9.6 percent. Gross profit as a percent of total revenue versus prior year decreased 290 basis points primarily due to the intercompany book value adjustment on returned Acceptance NOW products and certain value proposition enhancements. Labor and other store expenses decreased by $24.4 million primarily driven by the cost savings initiatives and lower skip/stolen losses. Adjusted EBITDA was $23.8 million and as a percent of total revenue increased 10.9 percentage points versus the prior year.

MEXICO fourth quarter revenues increased 12.1 percent on a constant currency basis. Gross profit as a percent of total revenue versus prior year increased 90 basis points driven by higher rental and fees gross margin. Other store expense improved 70 basis points versus prior year driven by lower skip/stolen losses. Adjusted EBITDA was $0.5 million and as a percent of total revenue increased 110 basis points versus prior year.

FRANCHISING fourth quarter revenues of $9.5 million increased primarily due an increase in merchandise sales driven by higher store count and a 2018 accounting standard change for franchise advertising fees. Adjusted EBITDA was $0.7 million.

CORPORATE fourth quarter operating expenses decreased $6.4 million compared to the prior year primarily due to the realization of cost savings partially offset by higher incentive compensation.


SAME STORE SALES
(Unaudited)
Table 1
Period	Core U.S.		Acceptance Now		Mexico		Total
Three Months Ended December 31, 2018 ⁽¹⁾	8.8	%	9.6	%	13.8	%	9.1	%
Three Months Ended September 30, 2018 ⁽¹⁾	5.2	%	6.7	%	12.8	%	5.7	%
Three Months Ended December 31, 2017 ⁽¹⁾	(3.6	)%	6.7	%	(2.3	)%	(2.0	)%

Note: Same store sale methodology - 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. 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 24^th full month following account transfer.

⁽¹⁾ Given the severity of the 2017 hurricanes, the Company instituted a change to the same store sales store selection starting in the month of September 2017, excluding geographically impacted regions for 18 months.

2019 Guidance ⁽¹⁾

The Company is providing the following guidance for its 2019 fiscal year which has been updated to reflect the impact of a franchise transaction completed in January of 2019.

Consolidated revenues of $2.585 billion to $2.630 billion
- Core U.S. revenues of $1.765 billion to $1.790 billion
- Acceptance NOW revenues of $725 million to $740 million
Consolidated Same Store Sales increases in the low to mid-single digits
Adjusted EBITDA of $220 million to $250 million
Non-GAAP diluted earnings per share of $1.75 to $2.15
Free cash flow of $115 million to $145 million ⁽²⁾
Net debt of $270 million to $235 million
Leverage ratio of 1.25x to 0.90x

⁽¹⁾ Guidance does not include the impact of new franchising transactions beyond the transaction completed in January of 2019, refinancing the balance sheet or the reverse breakup fee associated with the termination of the Merger Agreement.

⁽²⁾ Free cash flow defined as Net cash provided by operating activities less purchase of property assets (reference table 3).

Non-GAAP Reconciliation

To supplement the Company's financial results presented on a GAAP basis, Rent-A-Center uses the non-GAAP measures ("special items”) indicated in Table 2 below, which primarily excludes financial impacts in the fourth quarter of 2018 related to cost savings initiatives, incremental legal and advisory fees, capitalized software write downs, store closures, and hurricane impacts. Gains or charges related to store closures will generally recur with the occurrence of these events in the future. The presentation of these financial measures is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Rent-A-Center management believes that excluding special items from the GAAP financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results. This press release also refers to the non-GAAP measures adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and Free Cash Flow (net cash provided by operating activities less purchase of property assets). Reconciliation of adjusted EBITDA and Free Cash Flow to the most comparable GAAP measures are provided in Tables 3 and 4, below.

The Company believes that presentation of adjusted EBITDA is useful to investors as, among other things, this information impacts certain financial covenants under the Company's senior credit facilities and the indentures governing its 6.625% senior unsecured notes due November 2020 and its 4.75% senior unsecured notes due May 2021. The Company believes that presentation of free cash flow provides investors with meaningful additional information regarding the Company's liquidity. While management believes these non-GAAP financial measures are useful in evaluating the Company, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from similar measures presented by other companies.

Reconciliation of net earnings to net earnings (loss) excluding special items:


Table 2	Three Months Ended December 31,										Twelve Months Ended December 31,
	2018				2017						2018				2017
(in thousands, except per share data)	Amount		Per Share		Amount			Per Share			Amount		Per Share		Amount			Per Share
Net earnings	$	1,664	$	0.03	$	34,824		$	0.65		$	8,492	$	0.16	$	6,653		$	0.12
Special items, net of taxes:
Other charges ⁽¹⁾		14,500		0.26		17,009			0.32			45,725		0.83		37,256			0.70
Debt refinancing charges		373		0.01		—			—			373		0.01		1,239			0.02
Tax Cut and Jobs Act gain		—		—		(77,505	)		(1.45	)		—		—		(77,505	)		(1.45	)
Discrete income tax items		2,567		0.05		3,566			0.07			3,244		0.06		3,642			0.07
Net earnings (loss) excluding special items	$	19,104	$	0.35	$	(22,106	)	$	(0.41	)	$	57,834	$	1.06	$	(28,715	)	$	(0.54	)

⁽¹⁾ Other charges for the three months ended December 31, 2018 primarily includes financial impacts, net of tax, related to cost savings initiatives, incremental legal and advisory fees, store closures, capitalized software write-downs, and hurricane damage. Other charges for the three months ended December 31, 2017 primarily includes charges, net of tax, related to capitalized software write-downs, hurricane damage, closure of Acceptance Now locations, incremental legal and advisory fees, legal settlements, and charges related to previous store closure plans. Charges related to store closures are primarily comprised of losses on rental merchandise, lease obligation costs, employee severance, asset disposals, and miscellaneous costs incurred as a result of the closures.

Reconciliation of net cash provided by operations to free cash flow:


Table 3	Twelve Months Ended December 31,
(In thousands)	2018			2017
Net cash provided by operating activities	$	227,505		$	110,533
Purchase of property assets		(27,962	)		(65,460	)
Free cash flow	$	199,543		$	45,073

Proceeds from sale of stores	$	25,317		$	4,638
Acquisitions of businesses		(2,048	)		(2,525	)
Free cash flow including acquisitions and divestitures	$	222,812		$	47,186

Webcast Information

Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, February 26, 2019, at 8:30 a.m. ET. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website. Residents of the United States and Canada can listen to the call by dialing (800) 399-0012. International participants can access the call by dialing (404) 665-9632.

About Rent-A-Center, Inc.

A rent-to-own industry leader, Plano, Texas-based, Rent-A-Center, Inc., is focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 2,300 stores in the United States, Mexico, and Puerto Rico, and approximately 1,200 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 280 rent-to-own stores operating under the trade names of "Rent-A-Center", "ColorTyme", and "RimTyme". For additional information about the Company, please visit our website at www.rentacenter.com.

Forward-Looking Statements

This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "predict," "continue," "should," "anticipate," "believe," or “confident,” or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; factors affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; the outcome of the litigation initiated by Vintage Capital and B. Riley challenging the validity of the termination of the Merger Agreement and the Company's right, or the ability, to collect on the $126.5 million reverse breakup fee; risks relating to operations of the business and the Company’s financial results arising out of the termination of the Merger Agreement; the effect of the termination of the Merger Agreement on the Company’s relationships with third parties, including its employees, franchisees, customers, suppliers, business partners and vendors, which may make it more difficult to maintain business and operations relationships, and negatively impact the operating results of the Company’s business segments and the Company’s business generally; the risk of material price volatility with respect to trading in the Company’s common stock during litigation related to the termination of the Merger Agreement; the Company's ability to continue to effectively operate and execute its strategic initiatives as a stand-alone enterprise following the termination of the Merger Agreement; capital market conditions, including availability of funding sources for the Company; changes in the Company’s credit ratings; difficulties encountered in improving the financial and operational performance of the Company's business segments, including its ability to execute its franchise strategy; the Company’s ability to recapitalize its debt, including its revolving credit facility expiring December 31, 2019, and senior notes maturing in November 2020 and May 2021 on favorable terms, if at all; risks associated with pricing changes and strategies being deployed in the Company's businesses; the Company's ability to continue to realize benefits from its initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements; the Company's ability to continue to effectively operate and execute its strategic initiatives; failure to manage the Company's store labor and other store expenses; disruptions caused by the operation of the Company's store information management system; the Company's transition to more-readily scalable, “cloud-based” solutions; the Company's ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications; disruptions in the Company's supply chain; limitations of, or disruptions in, the Company's distribution network, and the impact, effects and results of the changes the Company has made and is making to its distribution methods; rapid inflation or deflation in the prices of the Company's products; the Company's ability to execute and the effectiveness of a store consolidation, including the Company's ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation; the Company's available cash flow; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; the Company's ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the Rent-to-Own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; changes in tariff policies; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; information technology and data security costs; the impact of any breaches in data security or other disturbances to the Company's information technology and other networks and the Company's ability to protect the integrity and security of individually identifiable data of its customers and employees; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its Annual Report on Form 10-K for the year ended December 31, 2017, and its Quarterly Report on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.


Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS (LOSS) HIGHLIGHTS - UNAUDITED

Table 4	Three Months Ended December 31,
	2018			2018		2017				2017
	Before			After		Before				After
	Special Items			Special Items		Special Items				Special Items
	(Non-GAAP			(GAAP		(Non-GAAP				(GAAP
(In thousands, except per share data)	Earnings)			Earnings)		Earnings)				Earnings)
Total revenues	$	661,750		$	661,750	$	638,954			$	638,954
Operating profit (loss)		32,283	⁽¹⁾		13,624		(27,254	)	⁽³⁾		(54,893	)
Net earnings (loss)		19,104	⁽¹⁾⁽²⁾		1,664		(22,106	)	⁽³⁾⁽⁴⁾		34,824
Diluted earnings (loss) per common share	$	0.35	⁽¹⁾⁽²⁾	$	0.03	$	(0.41	)	⁽³⁾⁽⁴⁾	$	0.65
Adjusted EBITDA	$	48,955		$	48,955	$	(8,543	)		$	(8,543	)
Reconciliation to Adjusted EBITDA:
Earnings (loss) before income taxes	$	22,368	⁽¹⁾	$	3,234	$	(38,605	)	⁽³⁾	$	(66,244	)
Add back:
Other charges		—			18,659		—				27,639
Debt refinancing charges		—			475		—				—
Interest expense, net		9,915			9,915		11,351				11,351
Depreciation, amortization and impairment of intangibles		16,672			16,672		18,711				18,711
Adjusted EBITDA	$	48,955		$	48,955	$	(8,543	)		$	(8,543	)

⁽¹⁾ Excludes the effects of approximately $18.7 million of pre-tax charges including $12.3 million related to cost savings initiatives, $4.3 million in incremental legal and advisory fees, $0.9 million related to store closure costs, $0.8 million in capitalized software write-downs, $0.4 million related to the 2018 hurricanes. These charges increased net earnings and net earnings per diluted share for the three months ended December 31, 2018, by approximately $14.5 million and $0.26, respectively.

⁽²⁾ Excludes the effects of $2.6 million of discrete income tax adjustments and $0.5 million of pre-tax debt refinancing charges that increased net earnings per diluted share for the three months ended December 31, 2018, by approximately $2.9 million and $0.06, respectively.

⁽³⁾ Excludes the effects of approximately $27.6 million of pre-tax charges including $18.2 million for capitalized software write-downs, $3.5 million for hurricane impacts, $3.1 million for the closure of Acceptance Now locations, $2.0 million for incremental legal and advisory fees, $0.5 million in legal settlements, and $0.3 million for previous store closure plans. These charges reduced net earnings and net earnings per diluted share for the three months ended December 31, 2017, by approximately $17.0 million and $0.32, respectively.

⁽⁴⁾ Excludes the effects of a $77.5 million gain resulting from the Tax Cuts and Jobs Act and $3.6 million of discrete income tax adjustments that increased net earnings per diluted share by $1.38.


Table 5	Twelve Months Ended December 31,
	2018			2018		2017				2017
	Before			After		Before				After
	Special Items			Special Items		Special Items				Special Items
	(Non-GAAP			(GAAP		(Non-GAAP				(GAAP
(In thousands, except per share data)	Earnings)			Earnings)		Earnings)				Earnings)
Total revenues	$	2,660,465		$	2,660,465	$	2,702,540			$	2,702,540
Operating profit (loss)		115,461	⁽¹⁾		56,137		(3,840	)	⁽³⁾		(63,059	)
Net earnings (loss)		57,834	⁽¹⁾⁽²⁾		8,492		(28,715	)	⁽³⁾⁽⁴⁾		6,653
Diluted earnings (loss) per common share	$	1.06	⁽¹⁾⁽²⁾	$	0.16	$	(0.54	)	⁽³⁾⁽⁴⁾	$	0.12
Adjusted EBITDA	$	184,407		$	184,407	$	70,799			$	70,799
Reconciliation to Adjusted EBITDA:
Earnings (loss) before income taxes	$	73,640	⁽¹⁾	$	13,841	$	(49,045	)	⁽³⁾	$	(110,200	)
Add back:
Other charges		—			59,324		—				59,219
Debt refinancing charges		—			475		—				1,936
Interest expense, net		41,821			41,821		45,205				45,205
Depreciation, amortization and impairment of intangibles		68,946			68,946		74,639				74,639
Adjusted EBITDA	$	184,407		$	184,407	$	70,799			$	70,799

⁽¹⁾ Excludes the effects of approximately $59.3 million of pre-tax charges including $30.4 million related to cost savings initiatives, $16.4 million in incremental legal and advisory fees, $11.6 million related to store closure costs, $1.2 million in capitalized software write-downs, and $(0.3) million related to 2018 and 2017 hurricanes impacts. These charges increased net earnings and net earnings per diluted share for the twelve months ended December 31, 2018, by approximately $45.7 million and $0.83, respectively.

⁽²⁾ Excludes the effects of $3.2 million of discrete income tax adjustments and $0.5 million of pre-tax debt refinancing charges that increased net earnings per diluted share for the twelve months ended December 31, 2018, by approximately $3.6 million and $0.07, respectively.

⁽³⁾ Excludes the effects of approximately $59.2 million of pre-tax charges including $24.0 million for the closure of Acceptance Now locations, $18.2 million for capitalized software write-downs, $6.5 million for incremental legal and advisory fees, $5.4 million for hurricane impacts, $3.4 million for reductions at the field support center, $1.1 million for previous store closure plans, and $0.6 million in legal settlements. These charges reduced net earnings and net earnings per diluted share for the twelve months ended December 31, 2017, by approximately $37.3 million and $0.70, respectively.

⁽⁴⁾ Excludes the effects of a $77.5 million gain resulting from the Tax Cuts and Jobs Act, $3.6 million of discrete income tax adjustments, and $1.9 million of pre-tax debt refinancing charges that increased net earnings per diluted share for the twelve months ended December 31, 2017, by approximately $72.6 million and $1.36, respectively.


SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED

Table 6	December 31,
(In thousands)	2018		2017
Cash and cash equivalents	$	155,391	$	72,968
Receivables, net		69,645		69,823
Prepaid expenses and other assets		51,352		64,577
Rental merchandise, net
On rent		683,808		701,803
Held for rent		123,662		167,188
Goodwill		56,845		56,614
Total assets		1,396,917		1,420,781

Senior debt, net	$	—	$	134,125
Senior notes, net		540,042		538,762
Total liabilities		1,110,400		1,148,338
Stockholders' equity		286,517		272,443


Rent-A-Center, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - UNAUDITED

Table 7	Three Months Ended December 31,								Twelve Months Ended December 31,
(In thousands, except per share data)	2018				2017				2018				2017
Revenues
Store
Rentals and fees	$	565,163			$	544,722			$	2,244,860			$	2,267,741
Merchandise sales		64,968				65,341				304,455				331,402
Installment sales		20,113				19,961				69,572				71,651
Other		2,005				2,192				9,000				9,620
Total store revenues		652,249				632,216				2,627,887				2,680,414
Franchise
Merchandise sales		6,438				3,946				19,087				13,157
Royalty income and fees		3,063				2,792				13,491				8,969
Total revenues		661,750				638,954				2,660,465				2,702,540
Cost of revenues
Store
Cost of rentals and fees		156,008				150,847				621,860				625,358
Cost of merchandise sold		72,657				65,898				308,912				322,628
Cost of installment sales		7,223				7,523				23,326				23,622
Total cost of store revenues		235,888				224,268				954,098				971,608
Franchise cost of merchandise sold		6,298				3,805				18,199				12,390
Total cost of revenues		242,186				228,073				972,297				983,998
Gross profit		419,564				410,881				1,688,168				1,718,542
Operating expenses
Store expenses
Labor		169,879				181,269				683,422				732,466
Other store expenses		164,765				197,702				656,894				744,187
General and administrative expenses		35,965				40,453				163,445				171,090
Depreciation, amortization and impairment of intangibles		16,672				18,711				68,946				74,639
Other charges		18,659		⁽¹⁾		27,639		⁽³⁾		59,324		⁽⁵⁾		59,219		⁽⁷⁾
Total operating expenses		405,940				465,774				1,632,031				1,781,601
Operating profit (loss)		13,624				(54,893	)			56,137				(63,059	)
Debt refinancing charges		475				—				475				1,936
Interest expense		10,306				11,650				42,968				45,996
Interest income		(391	)			(299	)			(1,147	)			(791	)
Earnings (loss) before income taxes		3,234				(66,244	)			13,841				(110,200	)
Income tax (benefit) expense		1,570		⁽²⁾		(101,068	)	⁽⁴⁾		5,349		⁽⁶⁾		(116,853	)	⁽⁸⁾
Net earnings	$	1,664			$	34,824			$	8,492			$	6,653
Basic weighted average shares		53,521				53,312				53,471				53,282
Basic earnings per common share	$	0.03			$	0.65			$	0.16			$	0.12
Diluted weighted average shares		54,967				53,894				54,542				53,844
Diluted earnings per common share	$	0.03			$	0.65			$	0.16			$	0.12

⁽¹⁾		Includes pre-tax charges of $12.3 million related to cost savings initiatives, $4.3 million in incremental legal and advisory fees, $0.9 million related to store closure costs, $0.8 million in capitalized software write-downs, $0.4 million related to the 2018 hurricanes.
⁽²⁾		Includes $2.6 million of discrete income tax adjustments.
⁽³⁾		Includes pre-tax charges of $18.2 million for capitalized software write-downs, $3.5 million for hurricane impacts, $3.1 million for the closure of Acceptance Now locations, $2.0 million for incremental legal and advisory fees, $0.5 million in legal settlements, and $0.3 million for previous store closure plans.
⁽⁴⁾		Includes a $77.5 million gain resulting from the Tax Cuts and Jobs Act and $3.6 million of discrete income tax adjustments.
⁽⁵⁾		Includes pre-tax charges of $30.4 million related to cost savings initiatives, $16.4 million in incremental legal and advisory fees, $11.6 million related to store closure costs, $1.2 million in capitalized software write-downs, $0.6 million for 2018 hurricane damages, and $(0.9) million related to the 2017 hurricanes.
⁽⁶⁾		Includes $3.2 million of discrete income tax adjustments.
⁽⁷⁾		Includes pre-tax charges of $24.0 million for the closure of Acceptance Now locations, $18.2 million for capitalized software write-downs, $6.5 million for incremental legal and advisory fees, $5.4 million for hurricane damages, $3.4 million for reductions at the field support center, $1.1 million for previous store closure plans, and $0.6 million in legal settlements.
⁽⁸⁾		Includes a $77.5 million gain resulting from the Tax Cuts and Jobs Act and $3.6 million of discrete income tax adjustments.


Rent-A-Center, Inc. and Subsidiaries

SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED

Table 8	Three Months Ended December 31,								Twelve Months Ended December 31,
(In thousands)	2018				2017				2018				2017
Revenues
Core U.S.	$	466,631			$	444,735			$	1,855,712			$	1,835,422
Acceptance Now		173,127				175,827				722,562				797,987
Mexico		12,491				11,654				49,613				47,005
Franchising		9,501				6,738				32,578				22,126
Total revenues	$	661,750			$	638,954			$	2,660,465			$	2,702,540

Table 9	Three Months Ended December 31,								Twelve Months Ended December 31,
(In thousands)	2018				2017				2018				2017
Gross profit
Core U.S.	$	324,578			$	310,473			$	1,299,809			$	1,276,212
Acceptance Now		83,175				89,551				339,616				400,002
Mexico		8,608				7,924				34,364				32,592
Franchising		3,203				2,933				14,379				9,736
Total gross profit	$	419,564			$	410,881			$	1,688,168			$	1,718,542

Table 10	Three Months Ended December 31,								Twelve Months Ended December 31,
(In thousands)	2018				2017				2018				2017
Operating profit (loss)
Core U.S.	$	32,652		⁽¹⁾	$	6,955		⁽⁴⁾	$	147,787		⁽⁷⁾	$	86,196		⁽¹¹⁾
Acceptance Now		23,086		⁽²⁾		(977	)	⁽⁵⁾		93,951		⁽⁸⁾		48,618		⁽¹²⁾
Mexico		299				(138	)			2,605		⁽⁹⁾		(260	)	⁽¹³⁾
Franchising		698				1,516				4,385				5,081
Total segments		56,735				7,356				248,728				139,635
Corporate		(43,111	)	⁽³⁾		(62,249	)	⁽⁶⁾		(192,591	)	⁽¹⁰⁾		(202,694	)	⁽¹⁴⁾
Total operating profit (loss)	$	13,624			$	(54,893	)		$	56,137			$	(63,059	)

⁽¹⁾		Includes approximately $13.6 million of pre-tax charges primarily related to $12.3 million for cost savings initiatives, $0.9 million for store closure costs, $0.1 million in capitalized software write-downs, and $0.3 million related to 2018 hurricane impacts.
⁽²⁾		Includes approximately $0.4 million of pre-tax charges primarily related to capitalized software write-downs.
⁽³⁾		Includes approximately $4.7 million of pre-tax charges primarily related to $4.3 million for incremental legal and advisory fees, and $0.4 million in capitalized software write-downs.
⁽⁴⁾		Includes approximately $4.6 million of pre-tax charges primarily related to $2.4 million in hurricane impacts, $1.9 million in capitalized software write-downs, and $0.3 million in previous store closure plans.
⁽⁵⁾		Includes approximately $5.6 million of pre-tax charges primarily related to $3.1 million for the closure of Acceptance Now locations, $1.4 million in capitalized software write-downs, and $1.1 million in hurricane impacts.
⁽⁶⁾		Includes approximately $17.4 million of pre-tax charges related to $14.9 million for capitalized software write-downs, $2.0 million in incremental legal and advisory fees, and $0.5 million in legal settlements.
⁽⁷⁾		Includes approximately $31.7 million of pre-tax charges primarily related to $20.2 million for cost savings initiatives, $11.7 million for store closure costs and $0.5 million related to 2018 hurricane impacts, $0.1 million in capitalized software write-downs, and $(0.8) million related to 2017 hurricane impacts.
⁽⁸⁾		Includes approximately $5.3 million of pre-tax charges primarily related to $3.5 million for cost savings initiatives, $2.2 million in capitalized software write-downs, and $(0.4) million for store closure adjustments.
⁽⁹⁾		Includes approximately $0.3 million of pre-tax charges primarily related to store closure costs.
⁽¹⁰⁾		Includes approximately $22.0 million of pre-tax charges primarily related to $16.4 million for incremental legal and advisory fees, $6.7 million for cost savings initiatives, $0.4 million in capitalized software write-downs, and $(1.5) million related to a favorable contract termination settlement.
⁽¹¹⁾		Includes approximately $7.2 million of pre-tax charges primarily related to $3.8 million in hurricane impacts, $1.9 million in capitalized software write-downs, $0.9 million in previous store closure plans, and $0.6 million in legal settlements.
⁽¹²⁾		Includes approximately $27.0 million of pre-tax charges primarily related to $24.0 million for the closure of Acceptance Now locations, $1.6 million in hurricane impacts, and $1.4 million in capitalized software write-downs.
⁽¹³⁾		Includes approximately $0.3 million of pre-tax charges primarily related to $0.2 million for closure of stores and $0.1 million for legal settlements.
⁽¹⁴⁾		Includes approximately $24.7 million of pre-tax charges related to $14.9 million for capitalized software write-downs, $6.5 million in incremental legal and advisory fees, and $3.4 million for reductions at the field support center, partially offset by $0.1 million in legal settlements.


Table 11	Three Months Ended December 31,				Twelve Months Ended December 31,
(In thousands)	2018		2017		2018		2017
Depreciation, amortization and impairment of intangibles
Core U.S.	$	6,084	$	7,355	$	25,566	$	31,070
Acceptance Now		389		515		1,677		2,498	⁽¹⁾
Mexico		167		424		1,006		1,973
Franchising		39		44		172		177
Total segments		6,679		8,338		28,421		35,718
Corporate		9,993		10,373		40,525		38,921
Total depreciation, amortization and impairment of intangibles	$	16,672	$	18,711	$	68,946	$	74,639

⁽¹⁾ We recorded an impairment charge of $3.9 million to our intangible assets, related to a vendor relationship, in the Acceptance Now segment during the first quarter of 2017 not included in the table above.


Table 12	Three Months Ended December 31,				Twelve Months Ended December 31,
(In thousands)	2018		2017		2018		2017
Capital expenditures
Core U.S.	$	4,372	$	5,173	$	17,173	$	26,506
Acceptance Now		47		1,198		203		2,723
Mexico		144		21		295		124
Total segments		4,563		6,392		17,671		29,353
Corporate		908		5,540		10,291		36,107
Total capital expenditures	$	5,471	$	11,932	$	27,962	$	65,460


Table 13	On Rent at December 31,				Held for Rent at December 31,
(In thousands)	2018		2017		2018		2017
Rental merchandise, net
Core U.S.	$	424,829	$	408,993	$	117,294	$	156,039
Acceptance Now		242,978		278,443		1,207		4,940
Mexico		16,001		14,367		5,161		6,209
Total rental merchandise, net	$	683,808	$	701,803	$	123,662	$	167,188


Table 14	December 31,
(In thousands)	2018		2017
Assets
Core U.S.	$	714,914	$	776,296
Acceptance Now		312,151		350,970
Mexico		29,321		33,529
Franchising		4,287		3,802
Total segments		1,060,673		1,164,597
Corporate		336,244		256,184
Total assets	$	1,396,917	$	1,420,781


Rent-A-Center, Inc. and Subsidiaries

LOCATION ACTIVITY – UNAUDITED

Table 15	Three Months Ended December 31, 2018
	Core U.S.		Acceptance Now Staffed		Acceptance Now Direct		Mexico		Franchising		Total
Locations at beginning of period	2,205		1,107		119		122		244		3,797
New location openings	—		23		—		—		—		23
Acquired locations remaining open	—		—		—		—		39		39
Conversions	—		—		—		—		—		—
Closed locations
Merged with existing locations	(8	)	(24	)	(23	)	—		—		(55	)
Sold or closed with no surviving location	(39	)	—		—		—		(2	)	(41	)
Locations at end of period	2,158		1,106		96		122		281		3,763
Acquired locations closed and accounts merged with existing locations	—		—		—		—		—		—

Table 16	Three Months Ended December 31, 2017
	Core U.S.		Acceptance Now Staffed		Acceptance Now Direct		Mexico		Franchising		Total
Locations at beginning of period	2,406		1,175		76		131		227		4,015
New location openings	—		26		13		—		1		40
Acquired locations remaining open	—		—		—		—		1		1
Conversions	—		(48	)	48		—		—		—
Closed locations
Merged with existing locations	(11	)	(47	)	(12	)	—		—		(70	)
Sold or closed with no surviving location	(14	)	—		—		—		(4	)	(18	)
Locations at end of period	2,381		1,106		125		131		225		3,968
Acquired locations closed and accounts merged with existing locations	2		—		—		—		—		2

Table 17	Twelve Months Ended December 31, 2018
	Core U.S.		Acceptance Now Staffed		Acceptance Now Direct		Mexico		Franchising		Total
Locations at beginning of period	2,381		1,106		125		131		225		3,968
New location openings	—		122		7		—		3		132
Acquired locations remaining open	1		—		—		—		71		72
Conversions	—		(3	)	3		—		—		—
Closed locations
Merged with existing locations	(137	)	(119	)	(39	)	(8	)	—		(303	)
Sold or closed with no surviving location	(87	)	—		—		(1	)	(18	)	(106	)
Locations at end of period	2,158		1,106		96		122		281		3,763
Acquired locations closed and accounts merged with existing locations	6		—		—		—		—		6

Table 18	Twelve Months Ended December 31, 2017
	Core U.S.		Acceptance Now Staffed		Acceptance Now Direct		Mexico		Franchising		Total
Locations at beginning of period	2,463		1,431		478		130		229		4,731
New location openings	—		222		24		1		1		248
Acquired locations remaining open	—		—		—		—		4		4
Conversions	—		(63	)	63		—		—		—
Closed locations											—
Merged with existing locations	(51	)	(483	)	(439	)	—		—		(973	)
Sold or closed with no surviving location	(31	)	(1	)	(1	)	—		(9	)	(42	)
Locations at end of period	2,381		1,106		125		131		225		3,968
Acquired locations closed and accounts merged with existing locations	8		—		—		—		—		8

View source version on businesswire.com: https://www.businesswire.com/news/home/20190225006050/en/

Source: Rent-A-Center, Inc.

Rent-A-Center, Inc.
Maureen Short
Chief Financial Officer
972-801-1899
maureen.short@rentacenter.com