Good morning, and thank you for holding. Welcome to Rent-A-Center's First Quarter Earnings Conference Call. As a reminder, this conference is being recorded, Thursday, May 6, 2021. Your speakers today are Mr. Mitch Fadel, Chief Executive Officer of Rent-A-Center; Maureen Short, Chief Financial Officer; Jason Hogg, Executive Vice President of Acima; Anthony Blasquez, Executive Vice President of Rent-A-Center Business; and Daniel O'Rourke, Senior Vice President of Finance and Real Estate. I would now like to turn the call over to Mr. O'Rourke. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us. Our earnings release was distributed after market close yesterday, and it outlines our operational and financial results for the first quarter of 2021. All related materials, including a link to the live webcast, are available on our website at investor.rentacenter.com. As a reminder, some of the statements provided on this call are forward-looking statements, which are subject to many factors that could cause actual results to differ materially and adversely from our expectations. These factors are described in our earnings release issued yesterday as well as in the company's SEC filings. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. This call will also include references to non-GAAP financial measures. Please refer to our first quarter earnings release, which can be found on our website, for a description of the non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. I'd now like to turn the call over to Mitch.

Thank you, Daniel, and good morning, everyone. Thank you for joining us. We will be providing a voiceover to the presentation shown on the webcast that can be found on our website at investor.rentacenter.com. We delivered the most successful quarter in our history in the first quarter. Same-store sales, invoice volume and portfolio performance were driven by strong demand tied to an improving economy, and we're pleased with the momentum across the businesses. The Acima integration is right on schedule. The teams are optimizing the business for scale as we increase our digital presence, turn on new functionality and continue to grow the portfolio. Our Acima segment, which combines our previous preferred lease segment with the acquired Acima business drove strong merchandise sales and invoice volume in the quarter. On a stand-alone basis, the Acima business we acquired in February, had adjusted EBITDA margins of 17.5% in the first quarter. The path around is truly exciting, and we feel great about our strategy to capture more of the retail partner opportunity. As we move ahead with Acima, the Rent-A-Center business is also making important progress to continue to accelerate profitable growth. And the first quarter is a testament to that. Demand was broad-based and driven by our value proposition, e-commerce and the digital investments we've put into motion. Total revenues were up 47.7%, driven by the Acima acquisition and a 15% year-over-year revenue increase in our Rent-A-Center business. Adjusted EBITDA margin was 13%, up approximately 370 basis points, supported by top line improvements and efficiency gains. The retail partner business had a great quarter with Acima invoice volume up approximately 28% on a pro forma basis, driving over 30% pro forma revenue growth. The Rent-A-Center business generated outstanding results with a 23.4% increase in same-store sales. That's the 13th consecutive…

Thanks, Mitch. Turning to Slide 5, the retail partner business had an excellent quarter with sales doubling versus last year. As you're likely aware, Q1 is the first quarter we included Acima in our financials after closing the transaction in mid-February. The business performed well versus our expectations, supported by improvement in merchandise sales and strong growth in invoice volume. The revenue gains were achieved despite continued constraints on inventory that have impacted many of our retail partners. Skip/stolen losses were 8.6%, improving by 360 basis points from the prior year. For 2021, we expect the total skip/stolen losses for the Acima segment to be between 9% and 11%, which we expect to decrease as we transition to the Acima decision engine. We continue to expect Acima's EBITDA margins to be approximately 14% for the full year. Adjusted EBITDA margins for the Acima LTO business we acquired in February were 17.5%, and skip/stolen losses were 3.7%. Turning to Slide 6, which shows some updates on our progress. We're making significant progress to integrate Acima. We're operating with a deliberate approach to optimize the business as we move forward on our strategy to scale revenue growth. Immediately following the successful close of the acquisition, we were able to restructure the regional leadership of our staff and virtual businesses. We're leveraging the existing Acima organization to improve span of control while reducing our organizational overhead Additionally, we've consolidated the sales organizations for the Acima segment with a three-pronged organizational approach designed to maintain our organic growth while accelerating our national account strategy. As such, we have completed the integration of our regional sales force, gaining overhead efficiency while maintaining strong growth in new merchant partners. We have simultaneously placed equal emphasis on utilizing talent within the combined companies to formalize our national…

Thanks, Jay. As we look at Slide 8, the Rent-A-Center Business had a terrific quarter with total revenues up 15%, driven by our strongest comp ever of 23.4%. It's our 13th quarter in a row of positive same-store sales. While we recognize the macro environment played a role, I want to underscore how proud I am of the team for executing at such a high level to achieve these results as well. Digital initiatives continue to be a big part of improving the customer experience. E-commerce grew over 50% in the quarter compared to the first quarter of 2020, now representing almost 25% of revenue. And digital payment penetration increased as well. Similar to the Acima business, we experienced higher early payout activity due to the tax season and stimulus. That helped the top line performance, but the demand for new agreements significantly outpaced our expectations as well. The net result is that we achieved sequential growth in the portfolio in Q1 for the first time in our history. To put a finer point on it, the portfolio was up 10% end 2020, and we came out of March with a portfolio that was 17% ahead of last year. We believe the current level of the portfolio, coupled with stronger retention that we are seeing, will benefit us in future periods. The top line performance, mixed with low skip/stolen losses of 2.7% and our consistent expense focus led to an increase in adjusted EBITDA of almost 70% versus last year, with an adjusted EBITDA margin of 24%. Turning to Slide 9, in addition to digital improvements, first quarter performance benefited from proactive measures to implement alternative inventory sourcing strategies. These strategies helped offset the inventory constraints we've experienced in certain product categories. And we ended the quarter with higher inventory…

Thanks, Anthony. On a consolidated basis, total revenues were $1.037 billion, a 47.7% increase versus the same period last year, benefiting from the Acima acquisition in mid-February. Pro forma revenue growth was 24.8%. Organic growth was driven by higher early payouts, strong demand and better customer payment activity aided by government stimulus. Adjusted EBITDA was $135 million, which is more than two times our performance in Q1 of last year. And pro forma adjusted EBITDA growth was 49.3%. Adjusted EBITDA margin was 13% of revenue, a 370-basis point improvement over the same period of last year. The margin improvement was driven by higher revenue, lower losses and lower operating expenses due to the asset-light virtual Acima model, partially offset by a lower gross margin percent given the mix shift to virtual. Diluted EPS on a non-GAAP basis nearly doubled versus Q1 of last year, coming in at $1.32 versus $0.67 in the previous year. The Acima acquisition and strong operational performance drove the improvements year-over-year, offsetting higher interest cost. On a GAAP basis, pre-tax earnings were negatively impacted by onetime Acima transaction and integration costs, stock compensation expense related to equity consideration subject to vesting and amortization of intangible assets related to the acquisition of Acima. Free cash flow was $124 million, up $86 million versus Q1 of last year. We ended the quarter with a $123 million cash balance and gross debt of $1.38 billion. Given the strong performance and higher early payout activity in Q1, we are well ahead of our target date to be under two times leverage as we are right at two times on a pro forma basis at the end of Q1. During the quarter, we paid down $110 million on our ABL revolver and paid down an additional $25 million in April. Liquidity…

[Operator Instructions] Your first question comes from the line of Anthony Chukumba from Loop Capital. Your line is open.

Good morning. Congrats on the strong start to the year. And thanks for taking my question. A lot of really good detailed information in the press release and in your comments, so appreciate that a lot. I guess my question is on your second half guidance. You're assuming no additional fiscal stimulus, which makes a lot of sense. But I guess I'm just wondering, how are you thinking about the child tax credit? Because if that doesn't really kick in until July, which is obviously the start of your second half, and I would have to think, with your core customer, that could be really beneficial to them. So how are you factoring that into your guidance?

Good morning Anthony, this is Mitch. And thanks for joining us this morning. We don't have that factored in. So, if that is a benefit, that would be upside to our numbers. We haven't really factored in – kind of we really don't know what the impact is going to be. And I agree with you, if it's anything, it's going to be positive. But we didn't factor in anything positive in our forecast because of that.

Got it. And I know this is probably pretty tough to parse out. But as you think about – maybe we'll just focus on the Rent-A-Center business, you did your strongest comp ever, that 23%. Very impressive. I mean, how much of that was fiscal stimulus, right? I mean, there was the checks. They started coming out in December. And those other checks that started coming out in March. Like is that sort of half of the comp, was that three quarters of the comp? I mean, I know you guys have been doing very strong comps for quite some time. But as you said, I mean, it accelerated meaningfully even on a two-year stack basis.

Hey good morning Anthony, this is Anthony. So, thanks for the question. Yes, it is kind of hard to parse out and be specific on it. So, we believe that maybe a third of it was driven by stimulus, namely the merchandise sales. I think the bigger question is, if you look at our go forward shown in our revised guidance, you can see that we still believe we're going to continue to outperform throughout the rest of this year. And we're taking market share. We believe that obviously some of the guidance increase that we have is driven by what happened in the first quarter. But what's more important to us and what we're focused on is really we're exiting this quarter with a portfolio that sequentially is up 17%. We exited the fourth quarter, up 10%, exit this quarter up 17%. And I'd say that stimulus played a role. We are extremely excited as well with what's happening in e-comm, 50% in comps – or 50% improvement in e-comm performance. So, on a go-forward basis, I think that that's what's really exciting to us.

Thanks so much for taking my questions and keep up the good work guys.

Thank you, Anthony.

Thanks, Anthony.

Your next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your line is open.

Hi, good morning, everybody. And congrats on a great quarter here. Two questions, if I could. The first around Acima and the decisioning tool and your ability to leverage some of Acima's expertise and insights across the broader portfolio. Hoping, Jason, Mitch, you all could talk a little bit about your early learnings and your level of confidence that this could reduce losses and potentially also increase approval rates.

Yes. So good morning, Brad, this is Jay. The good news for us is it's one of those things where when you acquire a company, you sort of always have some sort of mental discount factor. And that couldn't be more untrue. When we got in and began working with the team and the decision engine, we couldn't be more pleased. So, the direct impact that it will have is sort of threefold. The first is the engine is radically better at reducing – assessing out fraud and reducing fraud, which we are already seeing benefits of. The second is that the engine does a much better job with regard to the approvals and the line assignment, which enables us, and kind of through a combinatory effect, to increase yield. And so, as we've migrated and continue to migrate, which will be kind of largely complete with at the end of Q2, the preferred lease portfolio onto that platform, we'll begin to see material improvement in our yield and EBITDA contribution margin as a result.

Great. And if I could ask a follow-up regarding the guidance. I mean, I think just at a high level, you all beat by about $0.30 flowing through – about $0.30 to your guidance. Just as we think about the balance of the year, I would think there might be reason for more enthusiasm for the balance of the year. Can you just talk about any puts and takes? Are there any offsets that may be creeping up? Or is this just conservatism as we think of the year? Thanks.

Yes. Good morning, Brad. There are some puts and takes as we think about the guidance. And keep in mind that the variance versus The Street is slightly different than the variance versus our internal targets. But as we think about the back half of the year, we have additional costs that will be flowing through with labor and losses going back more toward normalized trends. Some of the customer behavior, we expect to become more muted toward the back half of the year as the country opens back up. And then we'll have the implementation of the $25 million of synergies in the Acima segment that will actually improve our margins going forward, both with gross margins and EBITDA margins. So those are the assumptions worked into the guidance.

Yes. And Brad, this is Mitch. I think you know we're – based on the way we've operated the last few years; we like to make sure we can do what we say we're going to do. You can call that being conservative or just making sure we fulfill our commitments and so forth. And as Anthony pointed out, we didn't take things like the child tax credit and how much is that worth and try to put everything in the kitchen sink into our forecast for the rest of the year. We're pretty much normalized trend that still takes the latter half of the year, like Anthony said, still takes a rent center business into the mid to high single digits from a same-store sales standpoint even late in the year. Obviously, great growth in the Acima business. But I mean, it's not we throw everything in there, every best-case scenario either. So yes, I think every time we come out with numbers, there's the potential for upside in them.

That’s very helpful. Thank you all so much.

Thanks, Brad.

Your next question comes from the line of Vincent Caintic from Stephens. Your line is open.

Hey, good morning. Thanks very much for taking my questions and let me echo the good results. And I appreciate all the seasonality details in the outlook. That's really helpful. First, on the Acima business. So, you talked a bit about national pipeline, working with 200 different accounts, and that's pretty exciting and interesting. As you're going through the pipeline, just kind of wondering what retailers are looking for sort of have they slowed the pace? Or are they – kind of where are you and sort of what are the general things you're looking for in this current environment.

Well, good morning, Vincent. This is Jay. And thanks for the question. So, a few things. One, the retailers continue to look for augmentative revenue streams, and so the LTO option that we provide is incremental toward, as I had mentioned earlier, the NPL segment. And so that gives them access to new consumers. They're also looking for low-friction ways in which to implement and integrate, both from a physical brick-and-mortar perspective as well as from a digital perspective. So obviously, the Acima platform gives us that capability. And then the third is that they want to be able to activate repeat utilization, so continuing to drive an ongoing relationship with the customer. And so, the ecosystem that we're putting in place and that we've been testing with our mobile solutions and browser extension and such, enable them to view that. All in all, still very strong demand on those fronts.

Okay. Great. Thank you. And then switching to the Rent-A-Center Business, so really strong result this quarter. And I was basically wondering how the competitive environment looks like. So, your other publicly traded peers had a good result. But when I think about the broad brick-and-mortar rent-to-own industry, I'm wondering, are you taking share from other guys, like maybe even the mom and pops? And how much of a – when you think about your e-comm benefit, that nice 50% growth, how much of that chuck kind of thinking about how that is affecting you as a differentiator and maybe kind of putting things from a market share perspective?

Yes. Good questions, Vincent. This is Mitch. I think you're right. I mean there's good results in our industry. Not a lot of other public companies look at good results. Obviously, ours are – we've done well for a number of years now. And as we get similar bumps that our competition got in the first quarter, we maintained that differential between our same-store sales and our competition, whether one quarter, you're 10%, somebody else is zero, another quarter, you're 23%, and we still got that differential in there. So, we're really happy with the way the team is performing. Anthony and his team are doing a great job. E-comm has been a big part of it, as you mentioned. And I think it is a differentiator, right? Probably more with – not so much a differentiator with the other public company as much as it is a differentiator for us and the other public company against more mom-and-pop or regional businesses because we've got a little more investment into things like e-com. So, I think it is a competitive advantage for us against the smaller regional players. So – and I think it only continues to be more – it will continue to be more and more of a tailwind as we invest every day in e-commerce. And you're not going to see much of that through smaller regional 5-store chains, 10-store chains, 20-store chains. So, I think it will only continue to get better. The differentiators, as you – is we have the money to invest our numerous e-comm in one of them. Certainly, the supply chain, we have advantages in the supply chain and others don't and things like that. So boy, we can be happy with the way the business is performing. The customer – I mean, the customer demand is incredible not just because it's stimulus, but I – we've talked about this before, Vincent. As LTO, as the virtual business continues to grow not just with Acima but the competition, as buy now pay later things become more mainstream, it's just helping drive – there's more awareness, I should say, to lease-to-own. And I believe that's one of the tailwinds for Rent-A-Center, too. And that's not a stimulus tailwind. I think that's a much longer-term tailwind as lease-to-own becomes more mainstream.

It’s okay. That’s very helpful. Thanks very much.

Thanks, Vincent.

Your next question comes from the line of Bobby Griffin from Raymond James. Your line is open.

Good morning, everybody. Thank you for taking my questions and congrats on a great start to 2021 and the initial integration of Acima.

Thanks, Bobby. Thank you.

Mitch, first, I want to circle back on the core business, and this is more kind of a long-term question, but obviously, there's been a lot going on with stimulus and different things. But you guys have also done a lot of really interesting initiatives, pulling costs out, e-commerce growth and different things like that during this period. So clearly, the business has benefited some from the government support. But when you look out and you think about the core business on a longer-term basis, any idea or kind of color around what maybe the normalized EBITDA margin is? Is it now a 20% EBITDA margin business? Or is it, at some point, you need to return back to maybe the high teens it was doing before? And I guess I'm just asking really in context given that the mix of the business has changed so much with e-commerce as well.

Yes. Good question, Bobby. Yes. I definitely believe it's a 20-plus business on an ongoing basis and it shouldn't come below that when you think about the technology and the e-com growth. Anthony even mentioned that we're going to open a few stores in markets this year and some smaller footprints to act as much as the showroom for our walk-in traffic is a technology center for payments and fulfillment center for e-com orders. So, there's such a transformation in the business. And we – I think a lot of people out there see Acima as our "fintech play" when the Rent-A-Center business is turning into a fintech company as well. It just happens to have a couple of thousand fulfillment centers out there that are brick-and-mortar. So – and I think as we go more and more into technology, we have the potential to even reduce our square footage cost. We're going to try some of that using technology to show more of the product and so forth. So, I think when you put it all together, it's definitely a 20%-plus business moving forward.

Okay. That's very helpful. And then I guess, secondly for me is just on the Acima EBITDA. Kind of looking to dig in maybe a little bit to the bridge to get to the 14% for the year. I think, Jason, you mentioned in your remarks the yield on the portfolio as you get the Acima decisioning kind of rolled out fully across that segment is one driver. But anything else to help kind of bridge from the 9-ish percent here in 1Q to get to the 14%? That would – and then I guess, secondly, that would imply a quarter to above 14%. So, is that in the back half? Or anything around there to help us think about some of the big drivers there?

Yes. I'll take that question. This is Maureen. So, we're assuming that both gross margins and EBITDA margins improved sequentially each quarter, and that's really driven by the integration and the $25 million of synergies that we've outlined for 2021. So as far as the gross margin improvements are concerned, that's the benefits of moving over to the Acima decision engine and capturing lower loss rates, improved yields based on the superior decision engine versus what we have today as well as the synergies from a bottom-line perspective, including lower loss rates from more fraud detection and also streamlining our SaaS business. Some of those locations will be converted to virtual and they will be moved to the Acima decision engine as well. So those are some of the drivers of the improved EBITDA margins throughout the year.

And I think probably, I'd add to that. Yes, that's one of the reasons we pointed out, as you factor all those things out, we thought it was important to point out what the standalone Acima virtual business did in the first quarter by itself is 17.5%. So that kind of gives us the target, right? And even though the extra early purchase options from stimulus can bring those margins down, then you obviously outperform – or maybe it's not obvious. But you outperform on the loss line, the customer performance is so good, it tends to make up for that. So, the 17.5% has some puts and takes in it, but it's a pretty good number. That's why we pointed out a couple of times to shoot for. So, as we go through the year and go from 9% and get to 14% for the year, obviously, that 17.5% is our target, once we're fully integrated. And the other thing I'd say the – when you think about that first quarter margin, and remind everybody, the first quarter, the overall is usually the lowest. Now stimulus helped this quarter. And when you look at the – some of the estimates out there, where that segment missed the estimates, but we obviously didn't change our annual guidance on Acima. So obviously, we weren't too disappointed internally with our – with how it performed against our estimates, that 9% margin compared to maybe the way it was modeled by some of the analysts. So, when you think about our full year guidance, we're still right on track. Even though I think some people – some analysts think that 9% was a surprisingly low number, obviously, internally without having to change our annual guidance. We had forecast a little differently because of the first quarter always being under pressure because of the extra payout from tax season, and in this case, stimulus. But the short answer is that 17.5% is a really important number for – from a target standpoint, when you think about how we step up to the year average, 14%, and where we get to going into 2022.

Absolutely. I appreciate the details and best of luck to you in the second quarter and the remainder of 2021.

Great. Thanks, Bobby.

Your next question comes from the line of Kyle Joseph from Jefferies. Your line is open.

Hey, good morning, I echo congratulations on a very strong start to the year. A few follow-up questions for me. In terms of Acima, did you guys give the mix of e-com versus brick-and-mortar? And can you give a kind of longer-term outlook of how you see the balance there?

Yes, we – I don't think we did say it, but we talked about it before, it's in that 15% range. It depends how you look at it, whether you're talking about volume versus contracts and so forth. But it's creeping toward that 15% range. We think there's a lot of upside to that number. So, as we mentioned, we're in the early innings there. And on the Rent-A-Center side, with a 50% growth, we're almost 25% of the business. On the Acima side, we're almost at the 15% and a lot of upside in both the businesses from an e-com standpoint.

Got it. Thanks. And then on the Rent-A-Center side of the business, given how much of the business is now e-com, and you touched on this earlier, but give us a sense for how you see store count evolving over time. I think in some of your prepared remarks, you talked about adding new stores in some markets for the potential for store consolidation and others?

Hey, Kyle, this is Anthony, yes. So, our strategy was, and I think I mentioned the last quarter was to remain at least net neutral. And the way we think about it this year is as we progress through the year, there's going to be opportunity to renegotiate leases. We might exit some leases and so forth. But our plan with a pretty strong pipeline is to continue to look for opportunistic new locations in the communities that we serve, recognizing the fact that at least net neutral is where we expect. And both from the opportunity, from a revenue perspective, we're not looking to lower the store count. But equally, we still see that there's plenty of white space out there. And as I mentioned in the prepared remarks, I think Mitch commented just a minute ago, the opportunity to test a smaller footprint is really exciting, something that's more technology-focused, more of a fulfillment and a payment center for our customers. And at the same time, it allows us to remain embedded in the communities that we serve. We do a lot of business with unbanked and underbanked customers, cash-paying customers. So, the ability to remain in those communities and serve those customers is really intriguing. So, the short answer is, at least net neutral, good pipeline of opportunities for stores. And that's our go-forward plan.

And if we can hit on the right smaller square footage program with the technology and so forth that Anthony just mentioned, think of the long-term impact of the 2,000 stores – roughly 2,000 corporate-owned locations, where we can – as leases expire, obviously, it's a long-term play, five years, 10 years out, what's the average rent – what's the rough percentage against our revenue compared to what it is today? And there's quite a bit of room in there. If we can – yes, the business has changed and we can use technology a little differently. And if there's a 10%, 15%, 20%, 30% square footage reduction somewhere in there, if we can find that by trying a few of these this year, it could be pretty darn significant, at least from a long-term view, which Wall Street doesn't always have. But from the long-term view, the way we look at the business, we're pretty excited about at least exploring that opportunity.

Got it. Thanks, Mitch and Anthony, you're tire pun [ph] was phenomenal. So, thank you…

No problem.

We've heard it so many times around here, Kyle. We're kind of tired of it around here.

And then last one for me, Maureen, just I want to make sure from a modeling perspective, did you give the ending share count? And then kind of what you expect the weighted average diluted count to be for the year?

Yes. We expect it to be around that 68 million count number that I gave that occurred in April, and that should be around the number on a go-forward basis. It was a little lower than that on a weighted average basis in the first quarter. But going forward, it's around that same 68 million.

Got it. Thanks very much for answering my questions.

Thank you.

Thanks, Tom.

Your next question comes from the line of Tim Vierengel from Northcoast Research. Your line is open.

Good morning, and thank you for taking my questions. Everyone else seemed to asked a good one, so I'm going to pick on Anthony one more time. Regarding supply chain, it seems like you guys commentary, at least on the brick-and-mortar side of the business seem to be a little bit more upbeat than maybe some of your competitors in durable goods business. I was wondering if there's anything inherent about kind of your product categories or maybe the price points in the rent-to-own industry that make you guys feel a little bit better about your supply chain and sourcing than some of your maybe larger, higher-priced competitors? Thank you.

Thanks, Tim. Yes. I appreciate it. And good question. So, from an inventory perspective, we feel like we're positioned well. We have done some things. Our strategy to order products, order promotional inventory to go ahead and beef up our supply was an important component. We've done some things about – around regional and local sourcing of inventory as well. And those were really proactive measures that we took to get us in the position that we're in right now. And if you look at our held for lease, one of the ways that we look at it to realize the strength is, it's up almost 9% versus the same period last year. And that's even considering that we have about 100 fewer locations, the refranchised locations in California. So, we feel good about where we're at right now, like I said, promotional purchases, regional and local sourcing. And don't forget that we're also in the business – we do have some customers who tend to – they like to return the product once in a while. And that's okay because we get that merchandise back, and we're able to go ahead and rerent it to somebody that's looking for a good deal. So those things, coupled with the success, and we're very proud of our merchants and our suppliers for their support and the things that they're working on. And as we go through the subsequent quarters, the back part of the year, we just expect that the supply chain will continue to get better. So, we feel good right now. We've got enough inventory to meet the demand.

And I'd add to that, Tim, that those are all great points. I would add one other one that inherent to our business, compared to traditional retail is the SKU count is a lot lower because of those returns that Anthony was talking about because you do get returns, you got to kind of limit what you have. I mean, we're not going to have – you're not going to have 4,000 different living groups to pick out of like you might on a Wayfair or something like that or even a big furniture store like Rooms To Go, where you can match frames to fabrics and so forth. So, there are limited SKUs in a rental store due to the returns primarily. And obviously, as you know, we're a small box retail. So, they're not large show rooms. So, the limited SKUs, I think, really, really helps in this kind of environment, and that is an inherent piece of the model that is always there. So, I think it helps from a supply chain standpoint. And then we get not only the returns that Anthony has talked about, but we get a few returns from our preferred lease business, the legacy business. And soon we'll – down the road, we'll be monetizing some of the Acima returns as well. So, we get – we got product coming back from there that really helps the supply chain as well, not to mention the variety of it.

That’s really good color. I really appreciate it guys. That’s all for me. Thanks.

Thanks Tim.

Thanks Tim.

Your next question comes from the line of John Rowan from Janney. Your line is open.

Good morning, everyone.

Hi John.

Good morning.

I was trying to make sure that the timing of the capital raise and the deal with Acima isn't impacting kind of the implied cost of debt. Can you just walk me through, if that stays stable, what happens to interest expense going forward?

Sure. So, as we generate more cash flow, we will be paying down the ABL revolver first to preserve liquidity since we have – that's a revolving line of credit. That is our lowest rate as far as the interest rate goes. So, there'll be a minimal change in interest rate going forward versus what we're seeing today.

Okay. So, the interest rate is roughly the same. But should interest expense come down as you're paying off some of that debt?

Yes, it will. As we pay down debt, it will – the dollars will decrease over time.

Maybe not down from the first quarter because the first quarter, we closed in the middle of the quarter, right?

That's what I'm trying to get at, right? You closed in the middle of the quarter. So, I'm just trying to figure out if the interest expense actually goes up next quarter because you only had a partial period, which makes the cost of debt look lower when you're just looking at one period end statement.

Yes, that's right. So, the – approximately $12 million that we saw in the first quarter was only about half of the quarter's worth. So, it will be around $20 million each quarter going forward, and that will reduce over time if we pay down debt.

Yes. It won't double from the $12 million because we paid down – we already got to that two times leverage that we're talking about would take the 12 to 18 months. The first quarter was still strong. We're already down to the two times. So, it won't quite double, but that's the ballpark. It goes to about $20 million.

Okay. And then just a couple of housekeeping questions. Maureen, you talked about EPS guidance in 2Q versus two – second half. I didn't quite get it written down. I believe you were talking about year-over-year growth. Can you repeat what you said?

Yes. So, the second quarter on a non-GAAP diluted EPS basis is expected to be up approximately 70% versus last year. And then for the back half of the year, we expect to be up 35% to 45% year-over-year. And part of that is because of the metrics returning to more normalized levels in the back half.

Yes. Partially that. And then obviously, we're comparing to last year. So last year's second quarter, the 70% in the second quarter then going to 35% to 45%, which is still obviously pretty strong in the latter half of the year, has a lot to do with what the second quarter last year was with the pandemic and taking reserves on skip/stolen, not knowing where those were going to end up with closures and so forth. So, it has a lot to do with what happened last year as well.

Okay. And just last question for me. Mitch, you mentioned around 2,000 company-owned stores. Do you have the actual number? I didn't see it in the press release.

I think it's 1,844 in the U.S. and 121 in Mexico and then, what is it, 461 in franchise. That's pretty good what's off top of my head.

It sounds pretty accurate to me. Okay. All right. Thank you.

Thanks, John.

Thanks John.

Thanks.

Your next question comes from the line of Anthony Chukumba from Loop Capital. Your line is open.

I'll keep it brief. So, you mentioned a couple of times buy now pay later. And I guess I was just wondering because one of your soon to be public competitors has a partnership with a large buy now pay later provider, and they certainly got a benefit from that. So, I was just wondering if you are having any conversations about similar partnerships. And if not, if you would consider partnering with a buy now pay later to provide the lease-to-own and the credit stack? Thank you.

Yes, Anthony. Thanks for the question. This is Jay. So, a few – actually, I'm not going to obviously comment on any specific partnership, but I put them into a few buckets. We have the waterfall bucket that we are always actively pursuing. We are already integrated in with a number, and we are in discussions to continue to expand on that strategy. Specific to your buy now pay later, we are in discussions there as well because, once again, it is incremental and additive to those players. Our consumer segment is very complementary. And so that is absolutely part of the strategy as well. And then the third is that, as we had mentioned with the Mastercard partnership, we actually have other ways in which we can begin to tie in with merchants with little to no integration effort in order to enable our consumer segment to get much more access to name brand merchants. So, a three-pronged resolve essentially that we are very coordinated out.

That’s helpful. Thank you.

Great. Thanks, Anthony.

Thank you.

That concludes our Q&A Session. I now turn the call back to Mitch Fadel for closing comments.

Thank you, Jason, and thank you, everyone, for joining us this morning. We appreciate your time. We're pretty excited about what we got going on here. We're very excited about our future. We've got fantastic growth rates at this point. And you look at our EBITDA margins and put those two together with our current multiple, and we think it's a pretty compelling story. So, we appreciate your time listening to it and look forward to reporting again next quarter to you. So have a great day out there. Thanks, everyone.

That concludes today’s conference call. Thank you everybody for joining. You may now disconnect.