Good morning and thank you for holding. Welcome to Rent-A-Center's First Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded April 28, 2015. Your speakers today are Mr. Robert Davis, Chief Executive Officer of Rent-A-Center; Mr. Mitch Fadel, President and Chief Operating Officer; Guy Constant, Executive Vice President, Finance, and Chief Financial Officer; and Ms. Maureen Short, Senior Vice President, Finance, Investor Relations and Treasury. I would now like to turn the conference over to Ms. Short. Please go ahead, ma’am.

Thank you, Alisa. Good morning, everyone, and thank you for joining us. You should have received a copy of the earnings release distributed after the market close yesterday that outlines our operational and financial results that were made in the first quarter. If for some reason you did not receive a copy of the release, you can download it from our website at investor.rentacenter.com. In addition, certain financial and statistical information that will be discussed during the conference call will also be provided on the same website. Also, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of EBITDA is provided in our earnings press release under the Statement of Earnings Highlights. Finally, I must remind you that some of the statements made in this call, such as forecast growth in revenues, earnings, operating margin, cash flow, and profitability, and other business or trend information, are forward-looking statements. These matters are, of course, subject to many factors that could cause actual results to differ materially from our expectations reflected in the forward-looking statements. These factors are described in the earnings press release issued yesterday, as well as our annual report on Form 10-K for the year ended December 31, 2014. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements. I'd now like to turn the conference call over to Robert.

Thank you, Maureen, and good morning, everyone. Thank you for joining us. As you know, it has been a year since our Investor Day, when we announced our multi-year strategy to improve the performance and profitability of the core business. I am excited to say that we have made significant progress and we are already realizing benefits. In the first quarter, we beat our revenue and EPS expectations. In the core business, same-store sales swung to the positive, the first time in 11 quarters. Labor costs are lower. We are underway with the margin driving flexible labor and supply chain initiatives and we have taken significant steps to manage smartphone losses. At the same time, we were able to take the competitive advantage of our Acceptance Now customer value proposition to produce outstanding same-store sales growth and do so with industry-leading margin. Having the best business model in the space, strong retail partnerships and the recent expansion of our sales channels, uniquely positions the Acceptance Now business to drive even better margins in the future, with continued positive outcomes for our retail partners and the consumers. As we mentioned on our last call, 2014 saw a number of big wins with our strategic initiatives, as we began testing our new flexible labor model, launched the new product categories, smartphones, hosted our first ever supplier summit, launch promising pricing tests, deploy new technology to nearly half of our existing Acceptance Now staff locations and launched our new POS system. That momentum continued to build in the first quarter, as we rolled out the flexible labor initiatives to more stores, hit crucial milestones in our sourcing and distribution transformation and launched our first Acceptance Now direct locations, which is what we call our unstaffed locations. After two pilots of testing we determine…

Thanks Robert and good morning everyone. In the first quarter, we continue to make significant progress on improving topline performance in the core business. Core same-store sales were up 1% primarily due to smartphones and higher merchandise sales. Rental and fee revenue was flat in the quarter and smartphones were over 8% of our total core revenue. Merchandise sales were up more than we anticipated primarily due to lower pricing on smartphones. We continue to optimize our pricing strategies and have taken opportunistic actions based on our test results. Ownership rates are up and our new-to-use product mix is better, both of which are good for our customers and for our future business. Our core U.S. rent-to-own skip/stolen losses came in at 3.8% in the quarter, a 100 basis point higher than the same period last period driven by smartphones. In April, we added the smartphone device protection locking feature as a way to protect our customers from theft as well as minimize our losses if customers well past due. We expect this along with the registering of phones we talked about last quarter will help mitigate smartphones skip/stolen losses going forward. We continue to believe that our smartphone business is driving significant incremental revenue and operating profit growth. About 25% of our customers that rent smartphones are new customers and about 50% taken on in additional agreement, so expanding our customer base and effectively upselling additional products. Smartphones remains the strong category for us even with lower gross margin percent and higher losses. Our inventory held for rent is running higher than last year due to the smartphone inventory which -- that are continuing to reset a complement of rollout in the third quarter. Excluding smartphones though and also excluding our second quarter promotional buys that are going through…

Thank you, Mitch, and good morning, everyone. This morning, I will walk you through the highlights of our financial results for the first quarter. I’d also like to mentioned that as I refer to our first quarter performance, either this year or versus a year ago, all numbers will be presented on a recurring basis excluding special items. As outlined in the press release, total revenues were $878 million, which represents the 5.9% increase, driven by revenue increases in our Acceptance Now and Mexico segments and the same-store sales increase in our Core U.S. retail segment, offset by the impact of the 150 store consolidation we completed in the second quarter of 2014. We are encouraged that our first quarter consolidated same-store sales number represent a sequential improvement of over 300 basis points versus the year-over-year change in last quarter, accelerating a further 50 basis points from the end of the fourth quarter. Our total U.S. same-store sales when you include all of our U.S. formats was up about 8% versus a year ago. The fourth consecutive quarter was a year-over-year increase and representing a sequential improvement of over 300 basis points when compared to the fourth quarter. And on a two-year basis, same-store sales in the Core again showed sequential improvement versus the previous quarter, up 100 basis points in Q1 versus Q4. In fact since the first quarter of 2014, two-year comp sales in the Core have improved by 970 basis points. We now expect consolidated revenue to be at the high end of our guidance range due to higher Acceptance Now revenue, which we now project to be between $850 million and $875 million for the full year, offset by gross profit margins that we project to decline more than the 50 to 100 basis points we…

[Operator Instructions] Your first question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is open.

Thank you. Good morning. I wanted to first just dig in on trends within the Core segment if I could. You’ve obviously quantified the impact of phones and alluded to early payouts and the quality of the loans at the rental agreements outstanding as of the end of the quarter. But I was hoping if you could just give a little bit more color on the cadence of business in the quarter ex some of these one-time items and your thoughts as we move into 2Q?

As I said Brad, the rental and fee revenue was flat. We had positive same-store sales based on merchandise sales. So the rental and fee, which is the recurring piece, was flat. So we certainly see good things ahead us. First time we have been at these levels like we said earlier in 11 quarters. So certainly we saw positive things in the first quarter and on the horizon. The demand is there. It’s been solid. Some of our initiatives from a pricing standpoint are starting to -- we are starting to implement some of the things we learned in testing. Like I said from a pricing standpoint, smartphones obviously has helped but we are -- but other categories were performing strong too. So feel like we turned the corner in the quarter for sure.

Great. And then a follow-up on the flexible labor are recognized that it’s early, but could you talk a little bit about at a per store level if you get up to three part-time employees. What is the savings per store on a net basis that you think you will realize? And what if any benefits to revenues and the customer experience you think you might see from doing this as well?

Hi, Brad. This is Guy. So let me maybe cover the second half first. So, yeah, as we rollout the initiative and we comment on this before. There is a long way to go and get cost in these businesses and we certainly have our eyes towards making sure that anytime we make changes, the labor model on the store what we’re doing will benefit the customer, as well as the coworker. And so these changes that we’ve got, we think will allow us to staff more appropriately for the patterns of demand that we see in the business whether its by season or by day, week or even by day part. One of the challenges we have today with the full-time model is that it doesn’t give us a lot of flexibility to adjust our staffing during the week. So often we have to have too many people on in the middle of the week when we’re not as busy and we don’t have a enough people on the weekends when we’re busier. By introducing some part time labor, it enables us to have a higher number of people in the store at the times when we’re busy, which we think will be good for customers. We really filter every initiative that way whether it’s a labor model or the new supply chain model, any changes we make while certainly cost savers are a nice driver of what we’re doing and we also want to make sure that we benefit the customer as well. Long-term in term of the benefit that we see, Robert, talked about the $20 million to $25 million of overtime. But he also mentioned that that’s really the first phase in the most obvious opportunity that we can generate. Once we got the part time labor in the stores, we think the managers will see the opportunity to flex that labor and again, staff it when needed. And on the stores that perhaps don’t have as high volume, it will give us an opportunity to flex hours down and the stores where we do have higher volume, we can flex those labor hours up. So we think the opportunity is greater than the $20 million to $25 million, but that’s what we can identify in the first phase just by removing the overtime.

Great. Thank you very much.

Thanks, Brad.

Thanks, Brad.

Your next question comes from the line of John Baugh with Stifel. Your line is open.

Good morning. Thank you for taking my questions. I wonder if you could comment more specifically, on “pricing initiatives in the core business.” And overall, are you taking pricing up, some up some down? And then maybe, specifically, what you’re doing with pricing on smartphones?

Yeah. John, it is the mix. As you know, for a long time we used a cost based formula pretty much for every category, we have referred to it as a two by two formula and those kinds of things. Its much different as we test some of these things, some categories are up, some are down, some are being used as traffic drivers, some are being used to improve the margins. There is a lot of different levers. We might -- we talk about rate term, what’s the same as cash at the 90 day same as cash factor, its different and different products, whether its 50% of rent-to-own amount, maybe 40%, maybe 60%. So using much more customer centric pricing and using the levers can be different in any category. I guess that not just rate and about term and cash pricing, and what’s the early purchase option percent and so forth. So, much more customer centric or fully customer centric and not just cost base. And like I said, some drive margins, some drive traffic and we’re focused not only on driving business, but also retention, how long the customer keeps it and so forth. And you can drive retention with again, not just rate but term and with the opportunities out and payout the product for the customer also. So focus on the customer not only from a demand standpoint but a retention standpoint. So I know that some that’s a strategy answer to a question, but it really just depends, some things are up and some things are down. It depends whether you’re talking about whether that category is targeted from a retention standpoint or demand standpoint and a like.

So, Mitch, on the prices net to net going up flat, down, any kind of guidance there?

I think from a rate standpoint they’re slightly down. If you think about it from rate, primarily because of deflation on the electronic side, but its slight and it is about deflation on primarily television. But, overall, we’re looking at margin for agreement being higher from a retention standpoint and so forth. So slightly down but really as pretty slight, John, driven by deflation more than anything.

Okay. Thank you. And then on the Acceptance Now, you mentioned the direct location Europe to have, I think, it was 1,150 by year end. I am curious how many of those roughly would be with new retail merchant partners versus existing?

Well, there is a lot of filling with existing but most will be with new partners in new stores.

Okay. And then could you comment on Acceptance Now, again. In locations where you had the 90-day same-as-cash option, or retail merchant partners where you had that program a year ago, if you did, did their usage of that option go up or is this strictly an influence of your -- I think you mentioned 80% now converting more retail merchant partners and I guess where does that number, kind of top out timing wise and numerically? Thank you.

I think the 80% fall incremental year-over-year. We really didn’t have anybody on the 90 day-option in the first quarter a year ago. I don’t see it changing a whole lot from here at 80%. I mean, it’s going to fluctuate probably between 80% and 90% but we are pretty much there. I will remind you that the first quarter from a gross margin percentage basis is going to be the worst quarter because more people are going to be able to exercise the 90-day option in the first quarter because of income tax returns than any other time of the year. So, we’ll see margin go up from here. So, I think this is the low point for that income tax reason and certainly driving much more from a gross margin dollar standpoint. I think we also mentioned that even having said that even though they are naturally going to go up the next three quarters of the year, we are still working on ways to improve the gross margin business there and tweaking some of the offering to improve that. So it’s going to go up naturally, but we are still working on some things that we are going to implement that’ll drive it even higher.

Thanks for answering my questions. I appreciate it.

Thanks, John.

Your next question comes from the line of J.R. Bizzell with Stephens, Inc. Your line is open.

Yeah. Good morning. Thanks, guys and thanks for taking my questions.

Good morning, J.R.

Something, I was interested in and wanted to kind of talk about. The Acceptance Now growth is impressive and just wondering if you could dig in a little bit deeper on what you are seeing there and kind of the cadence? And is this maturation that you kind of spoke to in the release, is that something we should expect to continue to accelerate and just more detail around Acceptance Now growth moving forward?

Well. It’s certainly been good, J.R. for sure and the demand is high. We read the same reports that everyone else does. The subprime credits are getting a little easier and as we get asked the question a whole lot, it’s going to hurt us yet. I mean, the demand is strong as ever in our -- with our retail partners as far as people coming to our option, which obviously is our required credit. So the demand is very strong. The demand model as Robert talked about the staffed models, just worked very well. We approved more than anyone in the industry because for a couple of reasons. One, we have a person there in that instance, but also because we approve on-bank customers. We’ve got the collections back in line. Like I said, we beat March by 50 basis points year-over-year, which has been a big issue for us but the team really focused and executed well on that and the demand is high. And we see nothing but continued growth. Now, we are adding the direct channel for the storage that don’t have enough volume for the staffed model. As Robert mentioned, the staffed model does somewhere around eight times more than the competitive models and we expect our direct model doing more than the competitive direct models as well. So a lot of exciting things that are going on and when you can accelerate same-store sales at a period where there is less -- the stores are maturing that's pretty impressive in this business. When you’ve got a maturing group, not that they are mature, but they are more mature than they were a year ago yet same-store sales accelerate, that's pretty impressive performance by the team.

Highest levels of approvals and revenue along with highest margins.

Yeah. Good point.

Lower margins with higher revenues, we got low.

Yeah. Great point.

Great. Thanks for the detail there. And then kind of building on that and as direct because I think you all are excited about that model as well and the opportunity does that creates. Just to clarify, the direct model that you are kind of testing out is only in current customers and not new customers, correct?

I think the 10 stores, I think one of them is a new customers that we are in are already in the test. So, yes, we’re actually testing it with a new partner here in the Dallas area.

And I know, it’s probably early, but kind of feedback from those retailers that are testing it. And then what you all are seeing, if you can talk about the kind of the acceptance trends and kind of the credit trends. I know it’s very early but kind of your expectations there around at direct model?

Well, it’s certainly early. It’s only been a few week that we’ve been in these stores. So I don’t have a lot of feedback there. We certainly anticipate it being lower volume than the main model. It will be lower model than the staffed model. We are starting out with only the bank customer. Unbank will come in the last later phase so. But nothing surprising in the first couple of weeks. There is business there. Again it won't do what the staffed model does, but then again you don’t have the overhead of people there. And we’re putting in, in stores that don't -- that can’t justify the overhead of putting in the staff so. So far so good, JR, don’t have a lot more detail because it’s only been a couple of weeks. But we’re excited that the tool is working and we’re also excited to be adding unbank here in the next phase.

Great. And last one from me. And on this direct model, have you been out marketing at to additional third-party retailer, is it the pipeline starting to build and if still, can you give us an update there?

Yeah. We talked about having 1150 by the end of the year and that’s based on the demand and commitment we have from third-party retailers. That's not just an estimate -- those are commitments from third-party retailers.

Okay. Great. Thanks. Thanks for an impressive quarter.

Thank you.

Thank you.

Your next question comes from the line of Matt McCall with BB&T Capital. Your line is open.

Thanks. Good morning, everybody.

Good morning, Matt.

Good morning, Matt.

Can we, I guess, go back to the 90-day initiatives? I think, you talked about the margins naturally improving. But can you talk about the progress on the other thing that you're doing, how we should expect the margin progression both naturally and from some of the initiatives to improve that profitability?

Well, we don't have exact numbers to give you at this point. We’re still tweaking a few things. We’re negotiating with some retail partners on how to use the 90-day options as far as what we pay for the product, if the customer exercises that, where our mark-up is potentially on 90-day. Yeah, there is different piece that we’re testing and so forth. So there's a lot going on there moving that. Suffices to say they will -- they will be an improved margin as we move forward, not just because of the timing and naturally it gets better than the second quarter. And third and fourth as the income tax money runs out. It will be also because we’re tweaking the model. But more specific than that probably we would be able to talk more about that, Matt, next quarter that we implement them.

Okay. That’s fair. Guy, maybe one for you, G&A, was a little better than we thought. I don’t know if there was -- if look at the seasonality wrong. But I think you gave some guidance last quarter on what the G&A lines going to look like for the full year. Is there anything that’s change there? And then I think it was up year-over-year for ‘15 versus ‘14. How should we think about ‘16, how much of that ramp in spending is temporary?

Well, for the full year, Matt, no real change to what we’re thinking for G&A for the full years. So any fluctuations that you get during the year, probably more timing…

Okay.

…not necessarily anything else. As for ‘16, it’s a little early but certainly some of the G&A we have is associated with now the operationalization on the work. But moving from a development operationalizing some of the initiatives we've got, right now. So things that might have been capital as they were in the development before that moving on to expenses, we start to execute on them. But there is some one-time nature in standing up of that we hope will allow us going forward to start moving G&A down. But some of it will be ongoing as we know put things in the full operational like sourcing and distribution or like additional recruiting. For example, we have to do it to add more staff into our stores on part time basis, but that’s how I would see it moving forward for ‘16.

Okay. And when you talk about G&A going down, is that dollars or is that percentage sales?

Both…

Okay. I am sorry. Then, on the -- I guess the next one is Mexico, can you talk about the plans there? I mean, as we look, I know there is some initiatives going on both topline and profitability, how should we look at just broadly the profitability trend '16 versus '15 or '15 versus '14, just how do you expect that to progress?

Certainly we expect it to be better as the source mature. You can see in the first quarter from a year-over-year standpoint the improvement almost cut the losses in half, the operating losses in half. As we mentioned, we are evaluating the operation on the -- testing some things on approvals as well as centralized approval process and doing some different things on collections in the portfolio. So working on some things to improve the operation down there. And as we said by the end of the year, we will have enough information, enough data to figure out the go forward strategy. As far as how '16 looks, we don’t know until we get to the end of this year and know what our go forward strategy is. But suffice it to say, we anticipate the operating loss to go down quarter-over-quarter and continue to go down from a sequential standpoint.

Okay. All right. Thank you, Mitch.

Thanks.

Your next question comes from the line of Laura Champine with Cantor Fitzgerald. Your line is open.

Good morning, guys. This is Jason Smith on for Laura. Thanks for taking my question.

Hey, Jason.

First question, just kind of get a sense as to what percentage of sales are currently being sourced through NFI?

Well, we are just starting to identify -- just this month, we will end up with five distribution points. I mentioned when I was talking about our core store inventory some of our product already being in our distribution network and that’s product, that’s in our service centers that goes -- primarily it’s product that’s in our service centers because we have been using them also to distribute product. There will be once NFI is up and running, there’s still be a small piece of distribution network. Right now, there are --- all of our distribution network until NFI is up and running by the end of July. So there a little bit of distribution we are doing now is through our service centers where we make bulk buys and they deliver them as they return and repair product to the stores, they will also deliver some products. So there is a little bit distribution going on through service but NFI will be up and running by the end of July.

But ultimately, the majority of all of our sales will be going through NFI network other than couple of small.

Correct.

Yeah, once it’s up and running by the end of July, right.

Got it. And then if I could just ask question on charge-offs, specifically with smartphones. You guys have been doing the registry now for at least the quarter, just trying to get a sense. Do you guys have any idea if that’s had an impact, what kind of impact that’s had?

It has had an impact. In fact, it’s over $100,000 already in recaptured phones from that, not a huge number but we will take it. We expect the locking device that started, that’s being implemented in April is just about fully implemented as we speak in every store right now. For the safety of the customer, if they lose their phone we can lock it but also they go past due a certain amount of days we can lock it. So, I think that -- we think that’s going to have a bigger impact than the registry. Registry is having some impact but we think they are locking device. And the early indications of what we’ve seen already this month, the locking device is going to have even a bigger impact than the registry.

Okay. Good. Thank you.

Thanks, Jason.

Your next question comes from the line of Budd Bugatch with Raymond James. Your line is open.

Good morning, gentlemen. Thanks for taking my question. This is David Vargas on for Budd. I had a quick question on the margin -- gross margin guidance. You said it was going to be lower than the previous guidance range of down 50 to 100 basis points. I was wondering if could quantify that at all. Are we looking at now maybe a 150 basis points of contraction and what’s driving the change?

Hey Jason. It’s Guy. No, we aren’t going to quantify beyond that. But as Mitch said, the first quarter is going to be our poorest quarter in terms of a gross margin perspective simply because of the higher percentage of merchandised sales as a part of our mix. So clearly that was quite a bit below the 50 to 100 basis points guidance that we gave but certainly we expect that to get better through the balance of the year. But we don’t think it’s going to get back within that 50 to 100 basis point decline that we have in the original guidance. In terms of what’s driving it, the 90-day cash option in Acceptance Now is a big driver of that, better for gross profit dollars but poor for gross profit margins. And then on the core side, smartphones obviously carry with it a little bit lower gross profit margin and it’s becoming a greater and greater mix of our sales. But that was expected as we entered into the year as well.

Got it. Thanks. And then on smartphones, what are you seeing in terms of how many of the agreement resulting in customers taking ownership? What percentage are returned and of the smartphones that come back for re-rent, how are the re-rental rates in terms of price and being able to get those phones back out into the market?

The ownership rates run -- as far as exercising on 90-day option runs slightly higher than our other products, not dramatically different but it is higher. More customers take an ownership which is a good thing. As far as re-renting them, we are not having any problem re-renting them. We have a program where they come back, they give refurbish, they get re-boxed or returned a new program, if you will, as what we call it and they are not sitting around any longer than other products from an ideal standpoint. It’s tricky as one model -- as new models come out. From a pricing standpoint, you do end up having the lower margins, maybe on the older phones. So you get to build that in on the front-end and get your margins a little more upfront. But overall, ownership numbers are slightly better than the other categories. And they are not sitting around on a piece count standpoint any longer than anything else. And like I said, return to new programs seems to be working pretty well.

Thanks. And then one final question on Acceptance Now direct, you mentioned that one of the customers for that direct model is a brand new customer to firm in the Dallas area. What, I guess, what kind of retail is added today, is it furniture, is it electronics, can you give that information?

It’s a local furniture, regional furniture store.

Regional furniture. Okay. Thank you very much. Congratulations on the quarter.

Thanks David.

Thanks, David.

This concludes the time we have for questions today. I will now turn the call to Robert Davis, CEO, for closing remarks.

Thank you, Alisa and thank you everyone for joining us this morning. As you can see by the results, we are pleased with the quarter. However, we recognize there is opportunity for continued improvement in some of the areas we discussed, margins, losses that continue to trend more positively than it had last couple of quarters. So overall, very pleased and we’re on the cusp of the next couple of quarters some of our strategic initiatives coming online and having a meaningful impact to business. So we’re excited about where we are. We are optimistic about the future and appreciate your support and continued interest in Rent-A-Center as well. Have a great day.