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.

Aaron's Inc. Logo

"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





Current Outlook1

Previous Outlook

Original Outlook

(In thousands, except per share amounts)



Low

High

Low

High

Low

High

Aaron's Inc. - Total Revenues



$

3,905,000



$

4,010,000



$

3,905,000



$

4,065,000



$

3,905,000



$

4,065,000



Aaron's Inc. - Adjusted EBITDA



425,000



437,000



430,000



452,000



415,000



442,000



Aaron's Inc. - Diluted EPS



2.95



3.05



3.11



3.26



3.15



3.35



Aaron's Inc. - Diluted Non-GAAP EPS



3.75



3.85



3.85



4.00



3.65



3.85



Aaron's Inc. - Capital Expenditures



90,000



100,000



100,000



120,000



100,000



120,000



















Progressive - Total Revenues



2,100,000



2,150,000



2,100,000



2,175,000



2,100,000



2,175,000



Progressive - EBITDA



275,000



280,000



275,000



285,000



260,000



275,000



















Aaron's Business - Total Revenues



1,775,000



1,825,000



1,775,000



1,855,000



1,775,000



1,855,000



Aaron's Business - Adjusted EBITDA



155,000



160,000



160,000



170,000



160,000



170,000



Aaron's Business - Annual Same-Store Revenues



(1.0%)



1.0%



0.0%



2.0%



0.0%



2.0%



















DAMI - Total Revenues



30,000



35,000



30,000



35,000



30,000



35,000



DAMI - Adjusted EBITDA



(5,000)



(3,000)



(5,000)



(3,000)



(5,000)



(3,000)







1

See the "Use of Non-GAAP Financial Information" section accompanying this press release.

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.

 

Aaron's, Inc. and Subsidiaries

Consolidated Statements of Earnings

(In thousands, except per share amounts)







(Unaudited)

 Three Months Ended

(Unaudited)

 Nine Months Ended





September 30,

September 30,





2019

2018

2019

2018

Revenues:











Lease Revenues and Fees



$

906,776



$

880,871



$

2,758,498



$

2,596,876



Retail Sales



8,854



7,620



30,561



22,728



Non-Retail Sales



31,085



44,368



102,190



151,259



Franchise Royalties and Fees



8,087



10,153



25,899



35,140



Interest and Fees on Loans Receivable



8,687



9,508



25,943



28,258



Other



319



551



961



1,478



Total



963,808



953,071



2,944,052



2,835,739















Costs and Expenses:











Depreciation of Lease Merchandise



489,199



434,593



1,464,887



1,290,015



Retail Cost of Sales



5,742



4,877



20,025



14,695



Non-Retail Cost of Sales



24,913



35,214



83,057



130,302



Operating Expenses



383,264



420,602



1,154,056



1,199,171



Restructuring Expenses, Net



5,516



537



37,535



561



Other Operating Income, Net



(329)



(38)



(4,712)



(286)



Total



908,305



895,785



2,754,848



2,634,458















Operating Profit



55,503



57,286



189,204



201,281



Interest Income



360



18



1,405



374



Interest Expense



(3,991)



(3,735)



(13,247)



(11,868)



Impairment of Investment









(20,098)



Other Non-Operating (Expense) Income, Net



(207)



(154)



1,430



458



Earnings Before Income Tax Expense



51,665



53,415



178,792



170,147















Income Tax Expense



11,864



9,695



40,263



35,680



Net Earnings



$

39,801



$

43,720



$

138,529



$

134,467















Earnings Per Share



$

0.59



$

0.64



$

2.05



$

1.93



Earnings Per Share Assuming Dilution



$

0.58



$

0.62



$

2.02



$

1.89















Weighted Average Shares Outstanding



67,400



68,819



67,461



69,521



Weighted Average Shares Outstanding Assuming Dilution



68,652



70,139



68,739



70,996





 

Aaron's, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)







(Unaudited)







September 30, 2019



December 31, 2018



ASSETS:











Cash and Cash Equivalents



$

150,261





$

15,278





Accounts Receivable (net of allowances of $74,752 in 2019

and $62,704 in 2018)



93,090





98,159





Lease Merchandise (net of accumulated depreciation and

allowances of $890,932 in 2019 and $816,928 in 2018)



1,281,872





1,318,470





Loans Receivable (net of allowances and unamortized fees of

$19,970 in 2019 and $19,941 in 2018)



72,130





76,153





Property, Plant and Equipment at Cost (net of accumulated

depreciation of $311,155 in 2019 and $284,287 in 2018)



230,347





229,492





Operating Lease Right-of-Use Assets



330,508









Goodwill



735,782





733,170





Other Intangibles (net of accumulated amortization of

$147,389 in 2019 and $130,116 in 2018)



198,216





228,600





Income Tax Receivable



15,931





29,148





Prepaid Expenses and Other Assets



111,483





98,222





Total Assets



$

3,219,620





$

2,826,692





LIABILITIES & SHAREHOLDERS' EQUITY:











Accounts Payable and Accrued Expenses



$

254,234





$

293,153





Deferred Income Taxes Payable



297,110





267,500





Customer Deposits and Advance Payments



79,071





80,579





Operating Lease Liabilities



374,443









Debt



347,107





424,752





Total Liabilities



1,351,965





1,065,984





SHAREHOLDERS' EQUITY:











Common Stock, Par Value $0.50 Per Share: Authorized:

225,000,000 Shares at September 30, 2019 and December 31,

2018; Shares Issued: 90,752,123 at September 30, 2019 and

December 31, 2018



45,376





45,376





Additional Paid-in Capital



283,454





278,922





Retained Earnings



2,139,353





2,005,344





Accumulated Other Comprehensive Loss



(348)





(1,087)

















Less: Treasury Shares at Cost











Common Stock: 23,602,055 Shares at September 30, 2019 and

23,567,979 at December 31, 2018



(600,180)





(567,847)





Total Shareholders' Equity



1,867,655





1,760,708





Total Liabilities and Shareholders' Equity



$

3,219,620





2,826,692





 

Aaron's, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



(Unaudited)

Nine Months Ended

 September 30,

(In Thousands)

2019



2018

OPERATING ACTIVITIES:







Net Earnings

$

138,529





$

134,467



Adjustments to Reconcile Net Earnings to Cash Provided by Operating Activities:







Depreciation of Lease Merchandise

1,464,887





1,290,015



Other Depreciation and Amortization

79,419





68,730



Accounts Receivable Provision

228,608





188,763



Provision for Credit Losses on Loans Receivable

15,291





16,011



Stock-Based Compensation

20,261





21,793



Deferred Income Taxes

28,747





30,166



Impairment of Assets

29,031





20,098



Non-Cash Lease Expense

86,367







Other Changes, Net

3,423





(1,625)



Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions:







Additions to Lease Merchandise

(1,723,385)





(1,583,184)



Book Value of Lease Merchandise Sold or Disposed

298,904





289,859



Accounts Receivable

(225,372)





(181,512)



Prepaid Expenses and Other Assets

(19,642)





(6,685)



Income Tax Receivable

13,217





70,299



Operating Lease Liabilities

(91,333)







Accounts Payable and Accrued Expenses

5,762





7,998



Customer Deposits and Advance Payments

(1,954)





(2,198)



Cash Provided by Operating Activities

350,760





362,995



INVESTING ACTIVITIES:







Investments in Loans Receivable

(49,311)





(49,311)



Proceeds from Loans Receivable

40,423





44,016



Proceeds from Investments





666



Outflows on Purchases of Property, Plant and Equipment

(67,049)





(52,927)



Proceeds from Property, Plant and Equipment

2,805





5,488



Outflows on Acquisitions of Businesses and Customer Agreements, Net of Cash Acquired

(12,873)





(141,079)



Proceeds from Dispositions of Businesses and Customer Agreements, Net of Cash Disposed

2,813





802



Cash Used in Investing Activities

(83,192)





(192,345)



FINANCING ACTIVITIES:







(Repayments) Borrowings on Revolving Facility, Net

(16,000)





25,000



Repayments on Debt

(62,317)





(96,857)



Dividends Paid

(7,086)





(4,186)



Acquisition of Treasury Stock

(39,422)





(100,004)



Issuance of Stock Under Stock Option Plans

5,115





6,684



Shares Withheld for Tax Payments

(12,977)





(17,282)



Debt Issuance Costs





(55)



Cash Used in Financing Activities

(132,687)





(186,700)



EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

102





(1)



Increase (Decrease) in Cash and Cash Equivalents

134,983





(16,051)



Cash and Cash Equivalents at Beginning of Period

15,278





51,037



Cash and Cash Equivalents at End of Period

$

150,261





$

34,986





 

Aaron's, Inc. and Subsidiaries

Quarterly Revenues by Segment

(In thousands)





(Unaudited)



Three Months Ended



September 30, 2019



Progressive Leasing1

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

528,850



$

377,926



$



$

906,776



Retail Sales



8,854





8,854



Non-Retail Sales



31,085





31,085



Franchise Royalties and Fees



8,087





8,087



Interest and Fees on Loans Receivable





8,687



8,687



Other



319





319



Total Revenues

$

528,850



$

426,271



$

8,687



$

963,808







1

For the three months ended September 30, 2019, Progressive Leasing incurred bad debt expense of $78,425 which was recorded as a reduction to Lease Revenues and Fees as a result of the Company's adoption of ASC 842, Leases.

 



(Unaudited)



Three Months Ended



September 30, 2018



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

504,407



$

376,464



$



$

880,871



Retail Sales



7,620





7,620



Non-Retail Sales



44,368





44,368



Franchise Royalties and Fees



10,153





10,153



Interest and Fees on Loans Receivable





9,508



9,508



Other



551





551



Total Revenues

$

504,407



$

439,156



$

9,508



$

953,071



Progressive Bad Debt Expense

64,213







64,213



Total Revenues, net of Progressive Bad Debt Expense1

$

440,194



$

439,156



$

9,508



$

888,858







1

See the "Use of Non-GAAP Financial Information" section accompanying this press release.

 

Aaron's, Inc. and Subsidiaries

Nine Months Revenues by Segment

(In thousands)





(Unaudited)



Nine Months Ended



September 30, 2019



Progressive Leasing1

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

1,568,584



$

1,189,914



$



$

2,758,498



Retail Sales



30,561





30,561



Non-Retail Sales



102,190





102,190



Franchise Royalties and Fees



25,899





25,899



Interest and Fees on Loans Receivable





25,943



25,943



Other



961





961



Total Revenues

$

1,568,584



$

1,349,525



$

25,943



$

2,944,052







1

For the nine months ended September 30, 2019, Progressive Leasing incurred bad debt expense of $193,868 which was recorded as a reduction to Lease Revenues and Fees as a result of the Company's adoption of ASC 842, Leases.

 



(Unaudited)



Nine Months Ended



September 30, 2018



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

1,474,590



$

1,122,286



$



$

2,596,876



Retail Sales



22,728





22,728



Non-Retail Sales



151,259





151,259



Franchise Royalties and Fees



35,140





35,140



Interest and Fees on Loans Receivable





28,258



28,258



Other



1,478





1,478



Total Revenues

$

1,474,590



$

1,332,891



$

28,258



$

2,835,739



Progressive Bad Debt Expense

160,773







160,773



Total Revenues, net of Progressive Bad Debt Expense1

$

1,313,817



$

1,332,891



$

28,258



$

2,674,966







1

See the "Use of Non-GAAP Financial Information" section accompanying 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.

 

Reconciliation of Net Earnings and Earnings Per Share Assuming Dilution to Non-GAAP

Net Earnings and Earnings Per Share Assuming Dilution

(In thousands, except per share)





(Unaudited)

 Three Months Ended



(Unaudited)

 Nine Months Ended



September 30,



September 30,



2019

2018



2019

2018

Net Earnings

$

39,801



$

43,720





$

138,529



$

134,467



Add Progressive Leasing-Related Intangible Amortization Expense (1)(2)

4,175



4,186





12,600



12,616



Add Franchisee-Related Intangible Amortization Expense(3)(4)

1,593



2,288





7,803



4,163



Add Restructuring Expense, net (5)(6)

4,250



415





29,082



435



Add Acquisition Transaction and Transition Costs(7)(8)

248



499





492



501



Impairment of Investment and Related Expenses(9)









16,777



Tax Act Adjustments



(2,466)







(2,273)



Non-GAAP Net Earnings

$

50,067



$

48,642





$

188,506



$

166,686















Earnings Per Share Assuming Dilution

$

0.58



$

0.62





$

2.02



$

1.89



Add Progressive Leasing-Related Intangible Amortization Expense (1)(2)

0.06



0.06





0.18



0.18



Add Franchisee-Related Intangible Amortization Expense(3)(4)

0.02



0.03





0.11



0.06



Add Restructuring Expense, net(5)(6)

0.06



0.01





0.42



0.01



Add Acquisition Transaction and Transition Costs(7)(8)



0.01





0.01



0.01



Impairment of Investment and Related Expenses(9)









0.24



Tax Act Adjustments



(0.04)







(0.03)



Non-GAAP Earnings Per Share Assuming Dilution(10)

$

0.73



$

0.69





$

2.74



$

2.35















Weighted Average Shares Outstanding Assuming Dilution

68,652



70,139





68,739



70,996







(1)

Net of taxes of $1,245 and $3,662 for the three and nine months ended September 30, 2019 calculated using the effective tax rate for the respective periods.

(2)

Net of taxes of $1,234 and $3,646 for the three and nine months ended September 30, 2018 calculated using the estimated tax rates of 22.77% and 22.42% for the respective periods.

(3)

Net of taxes of $475 and $2,268 for the three and nine months ended September 30, 2019 calculated using the effective tax rate for the respective periods.

(4)

Net of taxes of $675 and $1,203 for the three and nine months ended September 30, 2018 calculated using the estimated tax rates of 22.77% and 22.42% for the respective periods.

(5)

Net of taxes of $1,266 and $8,453 for the three and nine months ended September 30, 2019 calculated using the effective tax rate for the respective periods.

(6)

Net of taxes of $122 and $126 for the three and nine months ended September 30, 2018 calculated using the estimated tax rates of 22.77% and 22.42% for the respective periods.

(7)

Net of taxes of $74 and $143 for the three and nine months ended September 30, 2019 calculated using the effective tax rate for the respective periods.

(8)

Net of taxes of $147 and $145 for the three and nine months ended September 30, 2018 calculated using the estimated tax rates of 22.77% and 22.42% for the respective periods.

(9)

Net of taxes of $4,848 for the nine months ended September 30, 2018 calculated using the estimated tax rate of 22.42% for the period.

(10)

In some cases, the sum of individual EPS amounts may not equal total non-GAAP EPS calculations due to rounding.

 

DAMI Pre-tax, Pre-provision Loss

(In thousands)





(Unaudited)

 Three Months Ended

(Unaudited)

 Nine Months Ended



September 30,

September 30,



2019

2018

2019

2018

Loss Before Income Taxes

$

(2,740)



$

(3,065)



$

(7,133)



$

(6,663)



Adjustment to Increase Allowance for Loan Losses During Period

1,271



1,552



1,084



1,684



Pre-tax, Pre-provision Loss

$

(1,469)



$

(1,513)



$

(6,049)



$

(4,979)





 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)





(Unaudited)



Three Months Ended



September 30, 2019



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings







$

39,801



Income Taxes1







11,864



Earnings (Loss) Before Income Taxes

$

53,473



$

932



$

(2,740)



51,665



Interest Expense

1,910



1,210



871



3,991



Depreciation

2,049



15,365



205



17,619



Amortization

5,420



2,373



145



7,938



EBITDA

$

62,852



$

19,880



$

(1,519)



$

81,213



Restructuring Expenses



5,516





5,516



Acquisition Transaction and Transition Costs



322





322



Adjusted EBITDA

$

62,852



$

25,718



$

(1,519)



$

87,051







(Unaudited)



Three Months Ended



September 30, 2018



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings







$

43,720



Income Taxes1







9,695



Earnings (Loss) Before Income Taxes

$

40,839



$

15,641



$

(3,065)



53,415



Interest Expense

3,919



(960)



776



3,735



Depreciation

1,534



13,637



161



15,332



Amortization

5,420



3,242



145



8,807



EBITDA

$

51,712



$

31,560



$

(1,983)



$

81,289



Restructuring Expenses



537





537



Acquisition Transaction and Transition Costs



646





646



Adjusted EBITDA

$

51,712



$

32,743



$

(1,983)



$

82,472







(1)

Taxes are calculated on a consolidated basis and are not identifiable by Company segments.

 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Nine Months Segment EBITDA

(In thousands)





(Unaudited)



Nine Months Ended



September 30, 2019



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings







$

138,529



Income Taxes1







40,263



Earnings (Loss) Before Income Taxes

$

167,267



$

18,658



$

(7,133)



178,792



Interest Expense

6,874



3,773



2,600



13,247



Depreciation

5,996



45,030



596



51,622



Amortization

16,262



11,100



435



27,797



EBITDA

$

196,399



$

78,561



$

(3,502)



$

271,458



Restructuring Expenses



37,535





37,535



Acquisition Transaction and Transition Costs



635





635



Adjusted EBITDA

$

196,399



$

116,731



$

(3,502)



$

309,628















(Unaudited)



Nine Months Ended



September 30, 2018



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings







$

134,467



Income Taxes1







35,680



Earnings (Loss) Before Income Taxes

$

120,393



$

56,417



$

(6,663)



170,147



Interest Expense

12,543



(2,993)



2,318



11,868



Depreciation

4,533



39,792



660



44,985



Amortization

16,262



7,048



435



23,745



EBITDA

$

153,731



$

100,264



$

(3,250)



$

250,745



Restructuring Expenses (Reversals), Net



571



(10)



561



Impairment of Investment and Related Expenses



21,625





21,625



Acquisition Transaction and Transition Costs



646





646



Adjusted EBITDA

$

153,731



$

123,106



$

(3,260)



$

273,577







(1)

Taxes are calculated on a consolidated basis and are not identifiable by Company segments.

 

Reconciliation of 2019 Current Outlook for Adjusted EBITDA

(In thousands)





Fiscal Year 2019 Ranges



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Estimated Net Earnings







$201,800 - $210,800

Taxes1







62,000 - 65,000

Projected Earnings Before Taxes

$237,000 - $242,000

$37,300 - $42,300

$(10,500) - $(8,500)

263,800 - 275,800

Interest Expense

9,000

5,300

3,500

17,800

Depreciation

8,000

60,200

1,000

69,200

Amortization

21,000

14,000

1,000

36,000

Projected EBITDA

275,000 - 280,000

116,800 - 121,800

(5,000) - (3,000)

386,800 - 398,800

Projected Other Adjustments, Net2

38,200

38,200

Projected Adjusted EBITDA

$275,000 - $280,000

$155,000 - $160,000

$(5,000) - $(3,000)

$425,000 - $437,000





(1)

Taxes are calculated on a consolidated basis and are not identifiable by Company divisions.

(2)

Projected Other Adjustments include the non-GAAP charges related to the Aaron's Business restructuring.

 

Reconciliation of 2019 Previous Outlook for Adjusted EBITDA

(In thousands)





Fiscal Year 2019 Ranges



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Estimated Net Earnings







$208,200 - $224,700

Taxes1







63,500 - 69,000

Projected Earnings Before Taxes

$237,000 - $247,000

$45,200 - $55,200

$(10,500) - $(8,500)

271,700 - 293,700

Interest Expense

9,000

6,000

3,500

18,500

Depreciation

8,000

62,500

1,000

71,500

Amortization

21,000

14,000

1,000

36,000

Projected EBITDA

275,000 - 285,000

127,700 - 137,700

(5,000) - (3,000)

397,700 - 419,700

Projected Other Adjustments, Net2

32,300

32,300

Projected Adjusted EBITDA

$275,000 - $285,000

$160,000 - $170,000

$(5,000) - $(3,000)

$430,000 - $452,000





(1)

Taxes are calculated on a consolidated basis and are not identifiable by Company divisions.

(2)

Projected Other Adjustments include the non-GAAP charges related to the Aaron's Business restructuring.

 

Reconciliation of 2019 Original Outlook for Adjusted EBITDA

(In thousands)





Fiscal Year 2019 Ranges



Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Estimated Net Earnings







$210,300 - $231,000

Taxes1







64,700 - 71,000

Projected Earnings Before Taxes

$216,500 - $231,500

$68,000 - $78,000

$(9,500) - $(7,500)

275,000 - 302,000

Interest Expense

13,500

2,500

3,500

19,500

Depreciation

8,000

66,000

1,500

75,000

Amortization

22,000

10,000

32,000

Projected EBITDA

260,000 - 275,000

146,500 - 156,500

(5,000) - (3,000)

401,500 - 428,500

Projected Other Adjustments, Net2

13,500

13,500

Projected Adjusted EBITDA

$260,000 - $275,000

$160,000 - $170,000

$(5,000) - $(3,000)

$415,000 - $442,000





(1)

Taxes are calculated on a consolidated basis and are not identifiable by Company divisions.

(2)

Projected Other Adjustments include the non-GAAP charges related to the Aaron's Business restructuring.

 

Reconciliation of 2019 Current Outlook for Earnings Per Share

Assuming Dilution to Non-GAAP Earnings Per Share Assuming Dilution





Fiscal Year 2019 Range



Low

High

Projected Earnings Per Share Assuming Dilution

$

2.95



$

3.05



Add Projected Intangible Amortization Expense1

0.38



0.38



Add Sum of Other Adjustments2

0.42



0.42



Projected Non-GAAP Earnings Per Share Assuming Dilution

$

3.75



$

3.85







(1)

Includes projected amortization expense related to the acquisition of Progressive Leasing and the franchisee acquisitions.

(2)

Includes the projected non-GAAP charges related to the Aaron's Business restructuring.

 

Reconciliation of 2019 Previous Outlook for Earnings Per Share

Assuming Dilution to Non-GAAP Earnings Per Share Assuming Dilution





Fiscal Year 2019 Range



Low

High

Projected Earnings Per Share Assuming Dilution

$

3.11



$

3.26



Add Projected Intangible Amortization Expense1

0.38



0.38



Add Sum of Other Adjustments2

0.36



0.36



Projected Non-GAAP Earnings Per Share Assuming Dilution

$

3.85



$

4.00







(1)

Includes projected amortization expense related to the acquisition of Progressive Leasing and the franchisee acquisitions.

(2)

Includes the projected non-GAAP charges related to the Aaron's Business restructuring.

 

Reconciliation of 2019 Original Outlook for Earnings Per Share

Assuming Dilution to Non-GAAP Earnings Per Share Assuming Dilution





Fiscal Year 2019 Range



Low

High

Projected Earnings Per Share Assuming Dilution

$

3.15



$

3.35



Add Projected Intangible Amortization Expense1

0.35



0.35



Add Sum of Other Adjustments2

0.15



0.15



Projected Non-GAAP Earnings Per Share Assuming Dilution

$

3.65



$

3.85







(1)

Includes projected amortization expense related to the acquisition of Progressive Leasing and the franchisee acquisitions.

(2)

Includes the projected non-GAAP charges related to the Aaron's Business restructuring.

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/aarons-inc-reports-third-quarter-revenue-and-earnings-300951091.html

SOURCE Aaron's, Inc.

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