Aaron's, Inc. Reports Third Quarter Revenue and Earnings

ATLANTA, Nov. 4, 2019 /PRNewswire/ -- Aaron's, Inc. AAN, a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three months ended September 30, 2019.

"While the third quarter was challenging, both Progressive and the Aaron's Business accomplished key objectives, which we believe significantly improve our long-term prospects for growth. At Progressive, third quarter invoice growth of 18.6% modestly decelerated from the second quarter. However, we expect increased productivity from new and existing retailers to drive accelerating invoice growth in the fourth quarter.   In the Aaron's Business, the team launched new sales and marketing programs, which resulted in the strongest delivery growth the business has experienced in many years but also led to a decline in collections performance as our stores adapted to the new program. Given the positive momentum we are seeing in both businesses, we remain optimistic that we can continue to deliver long-term earnings growth," said John Robinson, Chief Executive Officer.

Consolidated Results

For the third quarter of 2019, consolidated revenues were $963.8 million compared with $953.1 million for the third quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842 related to lease accounting, revenues increased $75.0 million, or 8.4%, compared to the prior year period.  The increase in consolidated revenues was primarily due to the increase in revenues at Progressive, the revenue contribution from franchised locations acquired by the Aaron's Business in 2018, and an increase in Aaron's Business revenue written into the portfolio, partially offset by the closure of Aaron's stores in the first half of 2019 and the impact of lower collections in the Aaron's Business.

Net earnings for the third quarter of 2019 were $39.8 million compared to $43.7 million in the prior year period. Net earnings in the third quarter of 2019 included $5.5 million in pretax restructuring charges.  Adjusted EBITDA for the Company was $87.1 million for the third quarter of 2019, compared with $82.5 million for the same period in 2018, an increase of $4.6 million, or 5.6%. As a percentage of revenues, Adjusted EBITDA was 9.0% in the third quarter of 2019 compared with 9.3% for the same period in 2018 when calculated on a basis consistent with the 2019 adoption of ASC 842.

Diluted earnings per share for the third quarter of 2019 were $0.58 compared with $0.62 in the year ago period. On a non-GAAP basis, diluted earnings per share were $0.73 in the third quarter of 2019 compared with $0.69 for the same quarter in 2018, an increase of $0.04 or 5.8%.

The Company generated $350.8 million in cash from operations during the nine months ended September 30, 2019 and ended the third quarter with $150.3 million in cash, compared with a cash balance of $15.3 million at the end of 2018. During the third quarter, the Company repurchased 399,424 shares for $25.0 million at an average purchase price of $62.61 per share.

Progressive Leasing Segment Results

Progressive Leasing's revenues in the third quarter of 2019 were $528.9 million compared to reported revenues of $504.4 million in the third quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842, revenues increased $88.7 million or 20.1%. Invoice volume increased 18.6% in the quarter, driven by a 20.5% increase in invoice volume per active door, partially offset by a 1.6% decrease in active doors to approximately 19,900. The decrease in active door count was primarily due to a reduction in locations in our mattress and mobile phone verticals in previous quarters, which was partially offset by additions in other verticals. Progressive Leasing had 953,000 customers at September 30, 2019, a 17.9% increase from September 30, 2018.

Earnings before income taxes for the third quarter of 2019 were $53.5 million. EBITDA for the third quarter of 2019 was $62.9 million compared with $51.7 million for the same period of 2018, an increase of 21.5%.  As a percentage of revenues, EBITDA was 11.9% for the third quarter of 2019, an increase of 20 basis points compared to the third quarter of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842. This increase was due primarily to improved gross margins partially offset by an acceleration in investments in anticipation of recent pipeline conversion.

The provision for lease merchandise write-offs was 7.7% of revenues in the third quarter of 2019, a slight improvement compared with 7.8% in the same period of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842.

The Aaron's Business Segment Results

For the third quarter of 2019, total revenues for the Aaron's Business decreased 2.9% to $426.3 million from $439.2 million in the third quarter of 2018. The decrease was primarily due to the net reduction of 149 stores during 2019, the expected attrition of revenue from prior year store mergers and lower collections, partially offset by the positive contributions from 152 franchised locations acquired throughout 2018. Same-store revenues and customer count on a same-store basis were both down 2.9% during the third quarter of 2019 compared to the same period in 2018. Company-operated Aaron's stores had 963,000 customers at September 30, 2019, a 2.6% decrease from September 30, 2018.

Lease revenue and fees for the three months ended September 30, 2019 increased 0.4% compared with the same period in 2018.  Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 29.9% for the third quarter of 2019 compared with the same period of the prior year.  The decline is attributed primarily to the franchisee acquisitions completed in 2018.

Earnings before income taxes for the third quarter of 2019 were $0.9 million. Adjusted EBITDA for the three months ended September 30, 2019 was $25.7 million. This compares to $32.7 million for the same period in 2018, a decrease of $7.0 million or 21.5%. The decrease in adjusted EBITDA was due primarily to a reduction in collections. Lower collections activity had unfavorable impacts on lease revenues, write-offs, adjusted EBITDA, and same-store revenues in the quarter. Partially offsetting lower collections was a 13.7% increase in revenues written into the portfolio.

Write-offs for damaged, lost or unsaleable merchandise were 7.4% of revenues in the third quarter of 2019, compared with 5.4% for the same period last year.  Contributing to the increase in write-offs was a reduction in collections resulting from the implementation and adoption of our new sales program, store closure activity during the first half of 2019, and an increasing mix of e-commerce as a percent of revenue.

At September 30, 2019, the Aaron's Business had 1,163 Company-operated stores and 341 franchised stores.

Significant Components of Revenue and Franchise Performance

Consolidated lease revenues and fees for the three months ended September 30, 2019 increased 11.0% over the same period of the prior year, calculated on a basis consistent with the 2019 adoption of ASC 842.  Franchise royalties and fees decreased 20.3% in the third quarter of 2019 compared with the same period a year ago, primarily as a result of the lower number of franchised stores.  Franchise revenues totaled $103.5 million for the three months ended September 30, 2019, a decrease of 19.8% from the same period for the prior year.  Same-store revenues for franchised stores increased 1.7% and same-store customer counts declined 3.7% for the third quarter of 2019 compared with the same quarter in 2018.  Franchised stores had 241,000 customers at the end of the third quarter of 2019.  Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company.

2019 Outlook

Conference Call and Webcast

The Company will hold a conference call to discuss its quarterly results on Monday, November 4, at 5:00 p.m. Eastern Time.  The public is invited to listen to the conference call by webcast accessible through the Investor Relations section of the Company's website, aarons.com.  The webcast will be archived for playback at that same site.

About Aaron's, Inc.

Headquartered in Atlanta, Aaron's, Inc. AAN, is a leading omnichannel provider of lease-purchase solutions.  Progressive Leasing provides lease-purchase solutions through approximately 20,000 retail partner locations in 46 states.  The Aaron's Business engages in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories through its approximately 1,500 Company-operated and franchised stores in 47 states, Puerto Rico and Canada, as well as its e-commerce platform, Aarons.com. Dent-A-Med, Inc., d/b/a the HELPcard®, provides a variety of second-look credit products that are originated through federally-insured banks.  For more information, visit investor.aarons.com, Aarons.com, ProgLeasing.com, and HELPcard.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding our business that are not historical facts are "forward-looking statements" that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements.  Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as "prospects," "believe," "expect," "optimistic," "continue," "guidance," "outlook," "will," "expectations," and "trends" and similar terminology.  These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, legal and regulatory proceedings and investigations, including those related to the FTC' and our Progressive and Aaron's Businesses: customer privacy; consumer, third party and employee fraud; information security, customer demand, the execution and results of our strategy and expense reduction and store closure and consolidation initiatives (including the risk that the costs associated with these initiatives exceeds expectations), risks related to M&A activities, including our recent franchisee acquisitions and the risk that the financial performance from those acquisitions and from any other M&A activities may not meet our expectations, risks related to Progressive Leasing's "virtual" lease-to-own business, the outcome of Progressive Leasing's pilot or test programs with various retailers and the results of Progressive Leasing's efforts to expand its relationships with existing retailer partners and establish new partnerships with additional retailers, increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments associated with Progressive Leasing's growth in doors and customers and changes in product mix, and the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Statements in this release that are "forward-looking" include without limitation statements about our expectations regarding: our long-term prospects for growth; benefits from the addition of a new national retail partner for Progressive; our new national sales program for the Aaron's Business, the strength of our lease-to-own businesses and its long-term prospects; our ability to create substantial shareholder value; and the updated 2019 fiscal year Outlook set forth in this press release. 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 undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this press release.

 

 

 

 

 

 

 

Use of Non-GAAP Financial Information:

Non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and Adjusted EBITDA are supplemental measures of our performance that are not calculated in accordance with generally accepted accounting principles in the United States ("GAAP").  Non-GAAP net earnings and non-GAAP diluted earnings per share for the third quarter of 2019 each exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $2.1 million in amortization expense resulting from franchisee acquisitions, $0.3 million in acquisition transaction and transition costs and $5.5 million in restructuring charges. For the first nine months of 2019 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $16.3 million in Progressive Leasing-related intangible amortization expense, $10.1 million in amortization expense resulting from franchisee acquisitions, $0.6 million in acquisition transaction and transition costs and $37.5 million in restructuring charges. Non-GAAP net earnings and non-GAAP diluted earnings per share for the third quarter of 2018 exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $3.0 million in amortization expense resulting from franchisee acquisitions, $0.6 million in acquisition transaction and transition costs related to franchisee acquisitions, $2.5 million in tax benefits related to a Tax Act adjustment and $0.5 million in restructuring charges. For the first nine months of 2018 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $16.3 million in Progressive Leasing-related intangible amortization expense, $5.4 million in amortization expense resulting from franchisee acquisitions, $0.6 million in acquisition transaction and transition costs related to franchisee acquisitions, $0.6 million in restructuring charges, $2.3 million in net tax benefits related to Tax Act adjustments and $21.6 million of charges related to the full impairment of the Company's PerfectHome Investment and the related expenses incurred.

The EBITDA and Adjusted EBITDA figures presented in this press release are calculated as the Company's earnings before interest expense, depreciation on property, plant and equipment, amortization of intangible assets and income taxes.  Adjusted EBITDA also excludes the other adjustments described in the calculation of non-GAAP net earnings above.

Management believes that non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and Adjusted EBITDA provide relevant and useful information, and are widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and business unit performance.

Non-GAAP net earnings and non-GAAP diluted earnings provides management and investors with an understanding of the results from the primary operations of our business by excluding the effects of certain items that generally arose from larger, one-time transactions that are not reflective of the ordinary earnings activity of our operations.  This measure may be useful to an investor in evaluating the underlying operating performance of our business.

EBITDA and Adjusted EBITDA also provides management and investors with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes.  These measures may be useful to an investor in evaluating our operating performance and liquidity because the measures:

• Are widely used by investors to measure a company's operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending upon accounting methods, book value of assets, capital structure and the method by which assets were acquired, among other factors.
• Are a financial measurement that is used by rating agencies, lenders and other parties to evaluate our creditworthiness.
• Are used by our management for various purposes, including as a measure of performance of our operating entities and as a basis for strategic planning and forecasting.

This press release also discloses non-GAAP revenues for periods prior to January 1, 2019 as if the lessor accounting impacts of ASC 842 were in effect during the three and nine months ended September 30, 2018. "Total Revenues, net of Progressive Bad Debt Expense" and the related percentages for the comparable prior year periods are a supplemental measure of our performance that are not calculated in accordance with GAAP in place during 2018. These non-GAAP measures assume that Progressive bad debt expense is recorded as a reduction to lease revenues and fees instead of within operating expenses in 2018. Please see Note 1 to the condensed consolidated financial statements and the "Results of Operations" section of our Form 10-Q for the quarter ended September 30, 2019 for a more comprehensive disclosure of bad debt expense and the impact of the adoption of ASC 842 related to accounting for leases for the prospective periods beginning with the first quarter of 2019.

Management believes these non-GAAP measures for 2018 provide relevant and useful information for users of our financial statements, as it provides comparability with the financial results we are reporting beginning in 2019 when ASC 842 became effective and we began reporting Progressive bad debt expense as a reduction to lease revenues and fees. We believe these non-GAAP measures provide management and investors the ability to better understand the results from the primary operations of our business in 2019 compared with 2018 by classifying Progressive bad debt expense consistently between the periods.

This press release also discloses the increase in Aaron's Business Revenue Written into the portfolio. Revenue Written is the expected recurring monthly lease payments from lease agreements originated in a given period. Revenue Written is not lease revenue as it does not adjust for certain items such as uncollectible payments, charge offs, and/or lease non-renewals.

Finally, this press release presents pre-tax, pre-provision loss for DAMI, which is also a supplemental measure not calculated in accordance with GAAP.  Management believes this measure is useful because it gives management and investors an additional, supplemental metric to assess DAMI's underlying operational performance for the period. Management uses this measure as one of its bases for strategic planning and forecasting for DAMI.  Our use of pre-provision, pre-tax loss may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner.

Non-GAAP financial measures, however, should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company's GAAP basis net earnings and diluted earnings per share and the GAAP revenues and earnings before income taxes of the Company's segments, which are also presented in the press release.  Further, we caution investors that amounts presented in accordance with our definitions of non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA, Adjusted EBITDA, Total revenues net of Progressive bad debt expense and the related percentages for the comparable prior year period, and pre-tax, pre-provision loss may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner.

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Aaron's, Inc.