Revenues Revenues (Notes)

3 Months Ended

Mar. 31, 2020

Revenues

The following table disaggregates our revenue for the periods ended March 31, 2020 and 2019:


	Three Months Ended March 31, 2020
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)
Store
Rentals and fees	$	393,165	$	161,998	$	12,837	$	—	$	568,000
Merchandise sales	46,687		53,988		705		—		101,380
Installment sales	14,747		—		—		—		14,747
Other	366		141		4		211		722
Total store revenues	454,965		216,127		13,546		211		684,849
Franchise
Merchandise sales	—		—		—		12,437		12,437
Royalty income and fees	—		—		—		4,653		4,653
Total revenues	$	454,965	$	216,127	$	13,546	$	17,301	$	701,939


	Three Months Ended March 31, 2019
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)
Store
Rentals and fees	$	407,580	$	143,193	$	12,581	$	—	$	563,354
Merchandise sales	50,558		53,156		756		—		104,470
Installment sales	15,436		—		—		—		15,436
Other	483		173		8		—		664
Total store revenues	474,057		196,522		13,345		—		683,924
Franchise
Merchandise sales	—		—		—		8,456		8,456
Royalty income and fees	—		—		—		4,314		4,314
Total revenues	$	474,057	$	196,522	$	13,345	$	12,770	$	696,694

Rental-Purchase Agreements

Rent-A-Center Business, Preferred Lease, and Mexico

Rentals and Fees. Rental merchandise is leased to customers pursuant to rental purchase agreements, which provide for weekly, semi-monthly or monthly rental terms with non-refundable rental payments. At the expiration of each rental term, customers may renew the rental agreement for the next rental term. Generally, the customer has the right to acquire title of the merchandise either through a purchase option or through payment of all required rental terms. Customers can terminate the

rental agreement at the end of any rental term without penalty. Therefore, rental transactions are accounted for as operating leases.

Rental payments received at our Rent-A-Center Business, Preferred Lease (excluding virtual) and Mexico locations must be prepaid in advance of the next rental term. Rental revenue is then recognized over the rental term. Under the virtual business model, revenues are earned prior to the rental payment due date. Therefore, virtual business revenue is accrued prior to receipt of the rental payment, net of estimated returns and uncollectible renewal payments. See Note 4 for additional information regarding accrued rental revenue and the related allowances for returns and uncollectible payments.

Cash received for rental payments, including fees, prior to the period in which it should be recognized, is deferred and recognized according to the rental term. At March 31, 2020 and December 31, 2019, we had $37.3 million and $39.9 million, respectively, in deferred revenue included in accrued liabilities related to our rental purchase agreements. Revenue related to various payment, reinstatement or late fees is recognized when paid by the customer at the point service is provided. Rental merchandise is depreciated using the income forecasting method and is recognized in cost of sales over the rental term.

We also offer additional product plans along with our rental agreements which provide customers with liability protection against significant damage or loss of a product, and club membership benefits, including various discount programs, product service and replacement benefits in the event merchandise is damaged or lost, and payment insurance in the event eligible customers become unemployed. Customers renew product plans in conjunction with their rental term renewals, and can cancel the plans at any time. Revenue for product plans is recognized over the term of the plan. Costs incurred related to product plans are primarily recognized in cost of sales.

Revenue from contracts with customers

Rent-A-Center Business, Preferred Lease, and Mexico

Merchandise Sales. Merchandise sales include payments received for the exercise of the early purchase option offered through our rental purchase agreements or merchandise sold through point of sale transactions. Revenue for merchandise sales is recognized when payment is received and ownership of the merchandise passes to the customer. The remaining net value of merchandise sold is recorded to cost of sales at the time of the transaction.

Installment Sales. Revenue from the sale of merchandise in our retail installment stores is recognized when the installment note is signed and control of the merchandise has passed to the customer. The cost of merchandise sold through installment agreements is recognized in cost of sales at the time of the transaction. We offer extended service plans with our installment agreements which are administered by third parties and provide customers with product service maintenance beyond the term of the installment agreement. Payments received for extended service plans are deferred and recognized, net of related costs, when the installment payment plan is complete and the service plan goes into effect. Customers can cancel extended service plans at any time during the installment agreement period and receive a refund for payments previously made towards the plan. At each of March 31, 2020 and December 31, 2019, we had $2.9 million in deferred revenue included in accrued liabilities related to extended service plans.

Other. Other revenue primarily consists of other miscellaneous product plans offered to our rental and installment customers. Revenue for other product plans is recognized in accordance with the terms of the applicable plan agreement.

Franchising Merchandise Sales. Revenue from the sale of rental merchandise is recognized upon shipment of the merchandise to the franchisee.

Royalty Income and Fees. Franchise royalties, including franchisee contributions to corporate advertising funds, represent sales-based royalties calculated as a percentage of gross rental payments and sales. Royalty revenue is recognized as rental payments and sales occur. Franchise fees are initial fees charged to franchisees for new or converted franchise stores. Franchise fee revenue is recognized on a straight-line basis over the term of the franchise agreement. At March 31, 2020 and December 31, 2019, we had $4.4 million and $4.5 million, respectively, in deferred revenue included in accrued liabilities related to franchise fees.