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Investor Presentation November 2011

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Page 1: Q3'11 IR Presentation - FINAL

Investor Presentation

November 2011

Page 2: Q3'11 IR Presentation - FINAL

Safe Harbor StatementThis presentation contains forward-looking statements that involve risks and uncertainties. Such forward-lookingstatements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,”“could,” “estimate,” “should,” “anticipate,” or “believe,” or the negative thereof or variations thereon or similar terminology.Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct,the Company can give no assurance that such expectations will prove to have been correct. The actual future performanceof the Company could differ materially from such statements. Factors that could cause or contribute to such differencesinclude, but are not limited to: uncertainties regarding the ability to open new locations ; the Company’s ability to acquireadditional stores or customer accounts on favorable terms; the Company’s ability to control costs and increaseprofitability; the Company’s ability to enhance the performance of acquired stores; the Company’s ability to retain therevenue associated with acquired customer accounts; the Company’s ability to identify and successfully market productsand services that appeal to its customer demographic; the Company’s ability to enter into new and collect on its rentalpurchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company’s failure tocomply with statutes or regulations governing the rent-to-own or financial services industries; interest rates; changes in theunemployment rate; economic pressures, such as high fuel costs, affecting the disposable income available to theCompany’s targeted consumers; conditions affecting consumer spending and the impact, depth, and duration of currenteconomic conditions; changes in the Company’s stock price, the number of shares of common stock that it may or may notrepurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax andlitigation reserves; changes in the Company’s effective tax rate; the Company’s ability to maintain an effective system ofinternal controls; changes in the number of share-based compensation grants, methods used to value future share-basedpayments and changes in estimated forfeiture rates with respect to share-based compensation; the resolution of theCompany’s litigation; and the other risks detailed from time to time in the Company’s SEC reports, including but not limitedto, its annual report on Form 10-K for the year ended December 31, 2010 and its quarterly reports on Form 10-Q for thequarters ended March 31, 2011, June 30, 2011, and September 30, 2011. You are cautioned not to place undue relianceon these forward-looking statements, which speak only as of the date of this press release. Except as required by law, theCompany is not obligated to publicly release any revisions to these forward-looking statements to reflect the events orcircumstances after the date of this press release or to reflect the occurrence of unanticipated events.

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Page 3: Q3'11 IR Presentation - FINAL

Rent-A-Center todayRent-A-Center today

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Page 4: Q3'11 IR Presentation - FINAL

Rent-A-Center today is… The leader in an attractive and growing industry

Focused on providing affordable, high-quality products to our customers that improve their standard of living

An advantaged business model that delivers superior profitability

A highly recognized brand with highest levels of customer loyalty and service

Operating within the most constructive legislative framework in the industry’s history

Led by a seasoned management team with a proven track record for growth and innovation

Executing on a set of growth initiatives in key domestic and international markets

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Page 5: Q3'11 IR Presentation - FINAL

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

260 160 103 91 64 54

3,002

1,205

213

699

721

Market leader in an attractive sector

Notes:(1) APRO (Association of Progressive Rental Organizations) as of November 18, 2011(2) Company data as of September 30, 2011(3) Company press release dated October 24, 2011

Rent-A-Center’s current store base is nearly 5x the #3-8 competitors combined…

…giving us the scale to address an ever-expanding sub prime core customer base which makes up 35% of the population (6)

Num

ber o

f Sto

res

Rent-A-Center/ColorTyme(2)

Aarons(3) Rent One(4)Premier Rentals(4)

Bestway(4)Buddy’s HomeFurnishings(4)

Franchise Stores

3,936

1,904

Significant opportunity to continue to take share

RAC Acceptance Kiosks

4

Aarons 22%

RAC 45% Other

RTO33%

8,700North American Stores (1)

Flexi Compras (5)Easyhome (4)

(4) Company website estimates as of October 20, 2011(5) Company website estimates as of November 17, 2011(6) FICO report dated July 13, 2010

Page 6: Q3'11 IR Presentation - FINAL

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%16.6%

13.4% 13.1%

10.1% 10.0% 9.6% 8.7%

5.4%4.1% 3.9%

Summary unit revenue

EBITDA Margin profile benchmarking

0 2 4 6 8 101214161820

Historical RTO

Full term RTO

Buy upfront

Monthly Revenue Stream

Avg. Contract Life (months)

$1,700

$1,890

$850

Rental Revenues

$425

$425

$425

COGS

75.0%

77.5%

50.0%

Gross Margin

Most similar to traditional retail

Superior transaction economics relative to traditional retail

5

Note: EBITDA margin based on 2010 FYE GAAP Earnings

Page 7: Q3'11 IR Presentation - FINAL

With high brand awareness and exceptional customer loyalty

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Greater than 80% of customers surveyed would recommend Rent-A-Center to a best friend or family member

Approximately 75% of our business is from repeat customers

Customer loyalty

Brand awareness

Note: Based on internal operational metrics

RAC Top of Mind and Total Unaided Awareness of Potentials are at the highest levels in two years.

Customer Awareness is the highest in past four years.

Perceptions of RAC’s core value proposition ratings have continued to improve among Potentials.

Page 8: Q3'11 IR Presentation - FINAL

Rent-to-own has become a mainstream alternative to traditional retail

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National legislative framework

Currently, 47 states, the District of Columbia and Puerto Rico have legislation that recognize and regulate rental purchase transactions as separate and distinct from credit sales

In Minnesota, Wisconsin, and New Jersey, the rental purchase transaction is treated as a credit sale and subject to consumer lending restrictions

As a result, the Company has modified its consumer transaction to comply with the current regulatory environment for these states

Favorable legislation has been introduced in Wisconsin

Rent-A-Center complies with the Federal Trade Commission recommendations for disclosure in rental purchase transactions

The Dodd-Frank Wall Street Reform and Consumer Protection Act excludes leases with terms of 90 days or less. The Company believes that our leases with weekly or monthly terms will not be impacted by the Act.

Favorable legislation has been introduced in the U.S. Congress.

Favorable State Regulation Unfavorable State Regulation

State legislation updates Federal legislation updates

States with favorable legislation

Legislative framework by state

4

22

4146 47

1985 1990 1995 2000 2001 Strong pace of acceptance and stability

Page 9: Q3'11 IR Presentation - FINAL

Unmatched rent-to-own management experience

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Chairman and Chief Executive Officer Over 30 years of industry experience

President and Chief Operating Officer, Director 28 years of industry experience

Executive Vice President - Finance, Chief Financial Officer and Treasurer 18 years of industry experience

Executive Vice President - General Counsel 21 years of industry experience

Executive Vice President – Operations 21 years of industry experience

Executive Vice President – Operations 26 years of industry experience

Mark Speese

Mitch Fadel

Robert Davis

Ronald DeMoss

Christopher Korst

Theodore DeMarino

Rent-A-Center’s Senior Management Team Averages over 20 years of Rent-to-Own experience

Rent-A-Center’s Senior Management Team Averages over 20 years of Rent-to-Own experience

Joel MussatExecutive Vice President – Emerging Businesses & Strategic Planning 6 years of industry experience

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• 4% – 6% Revenue growth (CAGR)

• 6% – 7% EBITDA growth (CAGR)

• $165 – $225 million FCF generation

• Maximize shareholder value

Reinvest for future growth

Distribute dividends

Repurchase shares

Mandatory debt reduction

• We are on pace to hit these targets given our current expected performance

Our story–2010 to 2014 growth projections (Investor Day–November 2010)

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Page 11: Q3'11 IR Presentation - FINAL

10

Key Investment HighlightsKey Investment Highlights

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Rent-A-Center is uniquely positioned to deliver value

An established core business that generates significant free cash flow

Successful vehicles for growth in both existing and new markets

RAC Acceptance

International

A consistent financial policy that is prudent and focused on returning profits to shareholders

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Page 13: Q3'11 IR Presentation - FINAL

Combining our profitability with consistent top-line trends creates an engine for free cash flow…

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$0$50

$100$150$200$250$300$350

2007 2008 2009 2010 LTM'11

$137

$323 $261

$123 $163

$165

$175

$185

$195

$205

2007 2008 2009 2010 LTM'11

$178

$194$190

$196$201

Cumulative free cash flow of $844mm

Four-wall EBITDA per store (Core RTO Stores)

Free Cash Flow

($ in MM)

($ in 000’s)

Note: Cash Flow from Operations less CAPEX, Variability due in part to various federal stimulus acts impact on cash taxes

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…allowing us to reinvest in high-return, growth opportunities

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Increase domestic market share via partnerships with traditional retailers

Further expansion into Mexico and Canada to address an under-served core customer base

RAC Acceptance

Rent-A-Center International

Page 15: Q3'11 IR Presentation - FINAL

RAC Acceptance provides an opportunity to significantly grow our domestic footprint

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Overview of RAC Acceptance

RCII Kiosks inside traditional retailers Customers turned down for credit are referred to RAC associates Retailers “save the sale” (~50% conversion rate) Service customers likely outside our traditional customer base

Low initial investment as inventory is not purchased until the sale is made

Grow customer base and increase market penetration

Credit scores: < 520 521–580 > 581

RTO 62% 26% 12%

46% 29% 25%

RAC Acceptance customer vs. RTO

Approx. 90+ partners 600+ kiosks

Full potentialTBD

Full potentialTBD

Full potentialTBD

Less than 5 partners 75+ kiosks

Furniture Electronics Appliances

Less than 5 partners Less than 5 kiosks

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Mexico and Canada are a promising platform for international expansion

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111 million total population with over 50% falling into our core customer demographic

Potential market of 1,000 stores Opened 9 stores in Q3’11, ending with 24 stores,

expect 105 locations by 2012

Mexico

34 million potential customers Potential market of 200 – 300 stores Leverage core RTO business 20 current locations and expect 35 locations

by 2012

Canada

We are assessing markets across the world for additional international growth

Page 17: Q3'11 IR Presentation - FINAL

Rent-A-Center has a proven track record of returning cash to shareholders while deleveraging

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$0

$5

$10

$15

$20

2006 2007 2008 2009 2010 Q3'11YTD

$0 $0 $0 $0

$8

$17

2.3% Current dividend yield (1)

$359mm / 15mm shares repurchased

since 2006

Dividends paid

Share repurchases$0

$50

$100

$150

$200

2006 2007 2008 2009 2010 Q3'11YTD

$5

$83

$13 $9

$85

$164

Leverage (2)

0.0x

1.0x

2.0x

3.0x

4.0x

2006 2007 2008 2009 2010 Q3'11YTD

3.7x3.2x

2.7x2.0x 1.8x 1.7x $605mm debt repaid

since 2006

Note: Market data as of 10/10/2011(1) $0.64 annualized dividend / Q3’11 ending Stock Price of $27.29(2) Leverage represents Debt/LTM EBITDA

Page 18: Q3'11 IR Presentation - FINAL

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Financial reviewFinancial review

Page 19: Q3'11 IR Presentation - FINAL

Q3 2011 Rent-A-Center posted strong operating results

Total revenues for the quarter increased $39.7mm, or 6.0% to $704.3mm Revenue increase primarily driven by growth in RAC

Acceptance, offset by a reduction due to the discontinuation of the financial services business

Same store sales increased 2.0%

Gross profit declined 1.9ppts primarily due to RAC Acceptance growth

RAC Acceptance has a lower GP margin but higher EBITDA margin, at maturity, than the core business

Net earnings decreased approximately 23% to $31.2mm from $40.5mm Negatively impacted by non-recurring charges Excluding the non-recurring charges, net earnings were

$36.0mm

The Company generated cash flow from operations of approximately $95.5mm, and ended the quarter with $76.0mm of cash on hand

Opened an additional 120 kiosks under RAC Acceptance

Opened nine additional stores in Mexico

Repurchased 2.9 mm shares of common stock

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Q3 2011 Financial Metrics (in $MM) Q3 2011 Key Highlights

Q3 Q3 2011 2010

Store Revenue $696 $656

Same Store Sales 2.0% 0.3%

Total Revenue $704 $665

Store Gross Profit $504 $488Store Gross Profit % 72.5% 74.4%

EBITDA $83 $86EBITDA % 11.8% 12.9%

Diluted EPS $0.60 $0.62

Total Debt $688 $596

Capex $33 $28

Page 20: Q3'11 IR Presentation - FINAL

Maintain a sound balance sheet as a result of our judicious approach to leverage…

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Q3’11 Consolidated Leverage Ratio 1.66x (per bank covenant , maximum leverage of 3.25x)Q3’11 Consolidated Fixed Charge Coverage Ratio 1.53x - per bank covenant, minimum fixed charge coverage of 1.35x

Q3 2011

% of Book Capital

Q3 2010

% of Book Capital

Cash $76.0 $80.8

Senior Credit Facilities 388.3 19.4% 596.1 30.6%

Senior Unsecured Notes 300.0 14.9% - 0.0%

Total Debt 688.3 34.3% 596.1 30.6%

Shareholder's Equity 1,319.4 65.7% 1,352.9 69.4%

Total Capitalization $2,007.7 100.0% $1,949.0 100.0%

Net Debt/Total Capitalization 30.5% 26.4%

Q3 2011 Balance Sheet

Page 21: Q3'11 IR Presentation - FINAL

…and ample free cash flow to execute on our growth initiatives and return value to our shareholders

Reconciliation of EBITDA to Free Cash Flow 2012 Estimate ($MM)

20

Reconciliation of Operating Cash to Free Cash Flow 2012 Estimate ($MM)

$0 $75

$150 $225 $300 $375 $450

EBITDA Net CashInterest

CapEx WorkingCapital

CashTaxes

Free CashFlow

$420 - $440

$35

$100$70

$135

$80 - $100

$0

$40

$80

$120

$160

$200

OPERATING CASH FLOW CapEx Free Cash Flow

$180 - $200

$100

$80 - $100

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($400)

($200)

$0

$200

$400

$600

Year 1 Year 2 Year 3 Year 4 Year 5

$185

$400$520 $580 $600

($11)$105 $169 $199 $206

Revenues EBITDA

($400)($200)

$0$200$400$600$800

$1,000

Year 1 Year 2 Year 3 Year 4 Year 5

$430

$715 $780 $805 $820

$0 $155 $185 $195 $195

Revenues EBITDA

($400)($200)

$0$200$400$600$800

$1,000

Year 1 Year 2 Year 3 Year 4 Year 5

$408

$720$815 $843 $865

($145)

$65 $120 $130 $133

Revenues EBITDA

New initiatives will drive meaningful growth

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Growth initiatives are 100% funded via cash flow from operations

RA

C A

ccep

tanc

eM

exic

oC

anad

a

New Store Economics Year 1 Investment of $260K

(90% for inventory) Profitable within 6-8 months Break even within 12-15

months IRR of ~65%

New Store Economics Year 1 Investment of $800K

(70% for inventory) Profitable within 6-8 months Break even within 18 months IRR of ~35%

New Store Economics Year 1 Investment of $650K

(60% for inventory) Profitable within 13-17 months Break even with 37-43 months IRR of ~20%

Page 23: Q3'11 IR Presentation - FINAL

Continuing strong store growth will increase our already substantial customer base

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Note: (1) Includes Get-It-Now / Home Choice stores

Store Counts

2,000

2,500

3,000

3,500

4,000

4,500

2009A 2010A 2011P 2012P

2,989 2,985 2,980 3,000

82 384

765 965

5

45

105

18

18

25

35

RTO (1) RAC Acceptance Mexico Canada

3,089

3,392

3,815

4,105

Page 24: Q3'11 IR Presentation - FINAL

Our 2012 forecast includes high single digit / low double digit top and bottom line growth

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Notes:1) Per 10/24/2011 press release2) Excludes DPI from ‘09A

Reconciliation is available in the appendix at the end of the presentation3) Dollars in millions, except EPS

2011/2012 Guidance (1)

2009 2010 2011P 2012PActual Actual Midpoint Midpoint 3-Yr CAGR %

Total Revenue(2) $2,696 $2,732 $2,891 $3,163 5.5%

% change (4.9%) 1.3% 6.0% 9.4%

EBITDA(2) $354 $390 $390 $430 6.7%

Margin 13.1% 14.3% 13.5% 13.6%

% change (3.1%) 10.00% 0.3% 10.3%

EPS $2.48 $2.81 $2.88 $3.20 8.9%

% change 21.6% 13.3% 2.5% 10.7%

Same Store Sales (3.5%) Flat 1.3% 4.5%

Page 25: Q3'11 IR Presentation - FINAL

Rent-A-Center has a compelling strategic vision Leader of an established and growing industry

Established and advantaged business model that has demonstrated superior profitability and continues to generate strong free cash flow

Dependable cash flows with a proven track record of returning capital to shareholders

Outsized, low risk growth opportunities

Seasoned management team with a track record for growth and innovation

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Page 26: Q3'11 IR Presentation - FINAL

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%16.6%

13.4% 13.1%

10.1% 10.0% 9.6% 8.7%

5.4%4.1% 3.9%

EBITDA Margin profile benchmarking

2012 Forward P/E benchmarking

We believe Rent-A-Center represents an attractive investment opportunity

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0.0x

5.0x

10.0x

15.0x

20.0x17.3x 17.1x

14.8x13.2x 12.6x 11.8x 11.3x 11.0x 10.4x

8.7x

Note: Market data as of 11/18/2011(1) EBITDA margin based on 2010 FYE GAAP Earnings(2) Forward P/E based on 2012 Estimates

Page 27: Q3'11 IR Presentation - FINAL

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AppendixAppendix

Page 28: Q3'11 IR Presentation - FINAL

GAAP to Non-GAAP Reconciliation

NOTE: Dollars in millions

FYE FYE YTD'09A '10A '11A

REVENUE

GAAP TOTAL REVENUE $2,752.0 $2,731.6 $2,144.7Less: DPI 56.1 - -

Pro Forma TOTAL REVENUE $2,695.9 $2,731.6 $2,144.7

EBITDA

GAAP EBIT $270.4 $274.8 $183.7Plus: Litigation Expense (Credit) (4.9) - 2.8Plus: Impairment Charge - 18.9 7.3Plus: Restructuring Charge - - 12.5Plus: Finance Charges from Refinancing - 3.1 - Plus: Interest Expense, net 26.0 25.9 27.7Plus: Amortization 2.8 3.3 3.3Plus: Depreciation 65.8 63.4 47.9

Adjusted EBITDA $360.1 $389.4 $285.2Less: DPI 6.1 - -

Pro Forma EBITDA $354.0 $389.4 $285.2

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Page 29: Q3'11 IR Presentation - FINAL

Company Information

For quarterly press releases, conference call transcripts, investor presentations, annual reports and other company information, please access our investor relations Web site at:

investor.rentacenter.com

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