Investor Presentation Second Quarter 2007

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Transkript:

Investor Presentation Second Quarter 2007 July 30, 2007

Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid Strong cash flow generation Sound balance sheet and strong credit statistics Continue execution in our core rent-to-own business, including the Rent-Way acquired storefronts Growth opportunity adding financial services within our existing store locations 1

Leading RTO Operator in U.S. Largest rent-to-own operator in the U.S. 41% market share based on 3,375 domestic stores in all 50 states as of June 30, 2007 ColorTyme subsidiary represents an additional 3% market share Broad selection of high quality, brand-name merchandise through flexible rental agreements Primarily serves the underbanked consumer Favorable legislation currently 47 states, the District of Columbia and Puerto Rico have legislation regulating rental purchase transactions Generated $2.72 billion in LTM revenue and $403.9 million in LTM adjusted EBITDA as of June 30, 2007 2

Leading Player in Fragmented Marketplace 8,300 Stores (1) 4,500 Number of Stores 4,000 3,500 3,000 2,500 2,000 1,500 1,000 3,645 270 3,375 1,382 2 Largest Firms 61% ~ 3,300 Stores 39% 500 0 Rent-A-Center / ColorTyme (2) 74 68 50 44 34 Aaron Bestway (3) Buddy s Home American Rent One (3) Premier Rents (2) Furnishings (3) Rentals (3) Rentals (3) Market Share (1) 43.9% 16.7% 0.9% 0.8% 0.6% 0.5% 0.4% Notes: (1) Based on Association of Progressive Rental Organization (APRO) estimates in 2006 Industry Survey (based on 2005 results) of 8,300 total stores (2) Company data as of June 30, 2007 (3) Company website estimates as of July 26, 2007 3

Rent-to-Own is an Appealing Transaction No Down Payment Lifetime Reinstatement No Traditional Credit Check 90 Days Same as Cash Flexible Rental Agreements No Long Term Obligation Service Included 7 36 Months Term to Ownership Same Day Delivery Early Purchase Options 4

Serving the Underbanked Working Family 75% of customers in the industry have household incomes between $15,000 and $50,000 (1) 45 million households with household incomes between $15,000 and $50,000 (2) Industry is serving only 2.8 million of these households (3) Great market opportunity Domestic market opportunity of 3,000 5,000 additional stores Rent-A-Center potential of approximately 4,000+ total stores Note: (1) America s Research Group, August 2004 (2) U.S. Census Bureau - 2001 (3) APRO 2006 Industry Survey (based on 2005 results) 5

With Attractive Economics Monthly Revenue Stream Total Rental Revenues COGS Gross Margin Buy Upfront $ 900 $ 450 50.0% Rent-To-Own $ 1,800 $ 450 75.0% Rent-To-Own (Average Contract Life) $ 2,000 $ 450 77.5% 0 2 4 6 8 10 12 14 16 18 20 Months 6

Proven Business Model Key Brands and Attractive Stores Systems Employee Training and Development Customer Relationship 7

Easily Accessible, Highly Visible Sites Leased Sites Only No Warehouses Vendors Ship Directly to the Stores 8

High Quality, Brand-Name Merchandise Furniture 36% of Rental Revenue Electronics 33% of Rental Revenue Appliances 16% of Rental Revenue Computers 15% of Rental Revenue Actual data for the twelve months ended June 30, 2007 9

Experienced Management Team Senior management team is the most experienced in RTO industry CEO Mark Speese has over 28 years of RTO experience President Mitch Fadel has over 24 years of RTO experience Senior executives average over 15 years of RTO experience Attracting the best personnel with industry-leading salary and incentive plans 10

Strategic Objectives Enhance store level operations and profitability in both our core and acquired Rent-Way stores Grow same store sales Maintain expense control Open new stores Acquire existing rent-to-own stores Storefronts Customer accounts Growth opportunity adding financial services within our existing store locations Repurchase our common stock and de-lever balance sheet 11

Acquired Rent-Way stores Of 782 stores acquired, 80% remain open As of June 30, 2007, stores on track and performing as expected Now, a matter of execution by working to enhance their operations with a 3 year objective of growing their revenue and profitability to 90% of a typical Rent-A-Center store that generates approximately: $70,000/month in revenue 20%+ store operating income (before overhead) 12

Strong New Store Economics Start-up investment of approximately $500,000 (3/4 for inventory) Begin turning a monthly profit in approximately nine months Cumulative break even within 18 24 months (1) Internal Rate of Return of approximately 50% Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $425,000 $675,000 $750,000 $800,000 $825,000 EBITDA (1) ($50,000) $110,000 $140,000 $160,000 $170,000 EBITDA Margin (1) (12%) 16% 19% 20% 21% Note: (1) Before market and corporate allocation and income tax expense, terminal value of 6.5 x EBITDA in Year 5 13

Financial Services Business Rationale Financial Services Industry High growth analyst estimate of high single digit store growth Fragmented similar to rent-to-own 25 years ago Customer within RAC s national footprint RAC s Strengths Developing ongoing and lasting relationships with customers Leveraging our real estate Operating cash flow to support growth Legislative expertise 14

Financial Services Measured Approach Implementation Product offerings primarily include deferred deposit and unsecured loans, check cashing, money transfers and money orders, debit cards and tax preparation Focusing on states that have enabling legislation Continue to fine-tune processes Approval and collection Cash control and cash management Measure and manage losses Build scale Technology Infrastructure Management 15

Financial Overview 16

Sales Growth Combined Revenue ($MM) 3,200 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 $1,602 $1,809 $2,010 9.0% CAGR $2,228 $2,313 $2,339 $2,434 $2,905 - $2,935 2000 2001 2002 2003 2004 2005 2006 2007 Store Revenue 17 Franchise Revenue

Same Store Sales Growth # of Same Stores 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 2,333 2.8% 2,095 2,043 1,952 12.1% 1,854 1.9% 1,937-2.3% 1,877 1,834-3.6% 8.0% 3.0% 6.0% 2000 2001 2002 2003 2004 2005 2006 2007 YTD # of Same Stores Same Store Sales Growth % 18

19 19 $430.5 $538.5 $300 $400 $500 $600 $700 Q2'06 Q2'07 $430.5 $538.5 $300 $400 $500 $600 $700 Q2'06 Q2'07 $89.7 $108.6 $60 $80 $100 $120 $140 $160 Q2'06 Q2'07 $89.7 $108.6 $60 $80 $100 $120 $140 $160 Q2'06 Q2'07 $39.8 $41.3 $20 $30 $40 $50 $60 $70 Q2'06 Q2'07 $39.8 $41.3 $20 $30 $40 $50 $60 $70 Q2'06 Q2'07 Net Income Net Income EBITDA EBITDA Revenue Revenue Gross Profit Gross Profit Q2 07 Review Q2 07 Review $583.6 $724.2 $400 $500 $600 $700 $800 $900 $1,000 Q2'06 Q2'07 $583.6 $724.2 $400 $500 $600 $700 $800 $900 $1,000 Q2'06 Q2'07 24.1% 24.1% 24.1% 25.1% 25.1% 25.1% 3.8% 3.8% 3.8% 21.1% 21.1% 21.1% EBITDA Margin Net Income Margin 15.4% 6.8% 15.0% 5.7% ($MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)

Current Capital Structure (in millions of dollars) Jun 30 2006 % of Book Capital Jun 30 2007 % of Book Capital Cash and Equivalents $41.2 N/A $79.0 N/A Senior Credit Facilities 417.2 25.5% 933.0 42.3% Subordinated Notes 300.0 18.4% 300.0 13.6% Total Debt 717.2 43.9% 1,233.0 55.9% Shareholder's Equity 915.8 56.1% 972.4 44.1% Total Capitalization $1,633.0 100.0% $2,205.4 100.0% Consolidated Leverage Ratio 2.86x (Q2 07) Consolidated Interest Coverage Ratio 5.10x (Q2 07) 20

Operating Cash Flow ($MM) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $342.4 $331.0 $294.5 $225.0 $245.0 $191.6 $175.7 $187.9 $187.4 2000 2001 2002 2003 2004 2005 2006 2007E Notes: Excludes non-recurring charges and credits 21

EBITDA and EBITDA Margin ($MM) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $425.9 $400.0-$420.0 $393.9 19.1 $389.3 19.6 16.8 $327.2 356.5 $306.1 $304.7 14.6 19.1 14.0 16.8 2000 2001 2002 2003 2004 2005 2006 2007E EBITDA (1) EBITDA Margin (%) Notes: Excludes non-recurring charges and credits 22

Schedule of Free Cash Flow 2007 Estimate ($ MM) EBITDA $400 - $420 OPERATING CASH FLOW $225 - $245 Net Cash Interest ($85) CapEx ($90) CapEx ($90) Working Capital ($60) Taxes ($30) Free Cash Flow $135 - $155 Free Cash Flow $135 - $155 23

Guidance (per July 30, 2007 press release) QUARTERLY Q3'06A Q3'07P Total Revenue $587.2 MM $695.0-$710.0 $710.0 MM Diluted EPS $0.51 (1,2,3) $0.30 - $0.36 (1) Excluding the effects of a $2.2 million pre-tax expense in the third quarter of 2006 for the refinancing of the Company s senior credit facility. Excluding this expense increased diluted earnings per share by approximately $0.02 in the third quarter of 2006. (2) (3) Excluding the effects of a $4.95 million pre-tax expense in the third quarter of 2006 associated with the settlement of the Burdusis/French/Corso litigation. Excluding this expense increased diluted earnings per share by approximately $0.04 in the third quarter of 2006. Excluding the effects of a $10.4 million pre-tax expense in the third quarter of 2006 associated with the settlement with the California Attorney General. Excluding this expense increased diluted earnings per share by approximately $0.09 in the third quarter of 2006. 24

Guidance (per July 30, 2007 press release) ANNUAL 2006A 2007P Total Revenue $2.434 BN $2.905-$2.935 $2.935 BN Diluted EPS $2.15 (1) $2.06 - $2.14 (2) (1) (2) Excludes the effects of a $58.0 million pre-tax litigation expense associated with the Perez case; a $4.95 million pre-tax expense associated with the settlement of the Burdusis/French/Corso litigation; a $4.8 million pre-tax expense for the refinancing of the Company s senior credit facility; and a $10.4 million pre-tax expense associated with the settlement with the California Attorney General. Excluding these expenses increased diluted earnings per share by approximately $0.69 for the twelve month period ended December 31, 2006. Excludes the effects of a $51.3 million pre-tax litigation expense in the first quarter of 2007 associated with the prospective settlement in the Perez case. Excluding this expense increased diluted earnings per share by $0.46 for the six month period ended June 30, 2007. 25

Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Experienced management team Financially solid Strong cash flow generation Sound balance sheet and strong credit statistics Continue execution in our core rent-to-own business, including the Rent-Way acquired storefronts Growth opportunity adding financial services within our existing store locations 26

Safe Harbor Statement This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forwardlooking statements 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 performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties regarding the ability to open new rent-to-own stores; the Company's ability to acquire additional rent-to-own stores on favorable terms; the Company's ability to identify and successfully enter new lines of business offering products and services that appeal to its customer demographic, including its financial services products; the Company's ability to enhance the performance of acquired stores, including the Rent-Way stores acquired in November 2006; the Company's ability to control costs; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; the Company's ability to enter into new and collect on its rental purchase agreements; the Company's ability to enter into new and collect on its short term loans; the passage of legislation adversely affecting the rent-to-own or financial services industries; interest rates; economic pressures affecting the disposable income available to the Company's targeted consumers, such as high fuel and utility costs; changes in the Company's stock price and the number of shares of common stock that it may or may not repurchase; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; the Company's ability to maintain an effective system of internal controls; changes in the number of share-based compensation grants, methods used to value future share-based payments and changes in estimated forfeiture rates with respect to share-based compensation; the resolution of the Company's litigation; the court hearing the Perez case could refuse to approve the settlement or could require changes to the settlement that are unacceptable to the Company or the plaintiffs; one or more parties filing an objection to the settlement of the Perez case; and the other risks detailed from time to time in our SEC reports, including but not limited to, the Company's annual report on Form 10-K for the year ended December 31, 2006, and its quarterly report for the quarter ended March 31, 2007. 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 of this press release or to reflect the occurrence of unanticipated events. 27