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Aaron's, Inc. Reports Strong Second Quarter Revenue and Earnings - Raises Outlook for 2019

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ATLANTA, July 25, 2019 /PRNewswire/ -- Aaron's, Inc. (NYSE:AAN), a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three months ended June 30, 2019.

Aaron's Inc. Logo

"We are pleased to report strong second quarter results, achieving meaningful revenue, Adjusted EBITDA and Non-GAAP diluted EPS growth," said John Robinson, Chief Executive Officer.  "Progressive performed at a high level, continuing its trend of growing revenues and profits through increasing invoice volume. At the same time, we continue to invest in the business to support strong expected growth with our existing partners and retailers in our pipeline. The Aaron's Business reported same-store revenues up 0.1%, a 190 basis point improvement over the prior year. We are encouraged by the progress being made in the Aaron's Business and continue to invest to improve our omnichannel platform," concluded Mr. Robinson.

Consolidated Results

For the second quarter of 2019, consolidated revenues were $968.1 million compared with $927.9 million for the second quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842 related to lease accounting, revenues increased $90.3 million, or 10.3%, compared to the prior year period.  The increase in consolidated revenues was primarily due to the increase in revenues at Progressive and the contribution from 152 franchised locations acquired by the Aaron's Business in 2018, partially offset by the closure of Aaron's stores in the first half of 2019.

Net earnings for the second quarter of 2019 were $42.7 million compared to $38.5 million in the prior year period. Net earnings in the second quarter of 2019 included approximately $18.7 million in pretax charges primarily related to the closure of approximately 70 company-owned Aaron's stores, the majority of which were underperforming stores closed by the end of the second quarter.  Adjusted EBITDA for the Company was $107.4 million for the second quarter of 2019, compared with $97.0 million for the same period in 2018, an increase of $10.4 million, or 10.7%, due primarily to the strong growth in our Progressive segment as well as a $3.6 million insurance recovery from hurricane losses reported in 2017. As a percentage of revenues, Adjusted EBITDA was 11.1% in the second quarter of 2019 and 2018 when calculated on a basis consistent with the 2019 adoption of ASC 842.

Diluted earnings per share for the second quarter of 2019 were $0.62 compared with $0.54 in the year ago period. On a non-GAAP basis, diluted earnings per share were $0.93 in the second quarter of 2019 compared with $0.84 for the same quarter in 2018, an increase of $0.09 or 10.7%.

The Company generated $244.6 million in cash from operations during the six months ended June 30, 2019 and ended the second quarter with $100.2 million in cash, compared with a cash balance of $15.3 million at the end of 2018. During the second quarter, the company repurchased 242,860 shares for $14.4 million at an average purchase price of $59.35 per share.

Progressive Leasing Segment Results

Progressive Leasing's revenues in the second quarter of 2019 were $516.3 million compared to reported revenues of $483.7 million in the second quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842, revenues increased $82.7 million or 19.1%. Invoice volume increased 20.4% in the quarter, driven by a 23.4% increase in invoice volume per active door, partially offset by a 2.5% decrease in active doors to approximately 19,800. The decrease in active door count was primarily due to a reduction in locations in our mattress and mobile phone verticals, which was partially offset by additions in other verticals. Progressive Leasing had 909,000 customers at June 30, 2019, a 19.9% increase from June 30, 2018.

Earnings before income taxes for the second quarter of 2019 were $58.4 million. EBITDA for the second quarter of 2019 was $68.2 million compared with $55.8 million for the same period of 2018, an increase of 22.3%.  As a percentage of revenues, EBITDA was 13.2% for the second quarter of 2019, an increase of 30 basis points compared to the second 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 to support expected revenue growth and anticipated pipeline conversion.

The provision for lease merchandise write-offs was 7.6% of revenues in the second quarter of 2019, compared with 7.5% 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 second quarter of 2019, total revenues for the Aaron's Business increased 1.9% to $443.2 million from $435.0 million in the second quarter of 2018. The increase was primarily due to the contributions from 152 franchised locations acquired throughout 2018, partially offset by the closure of 151 underperforming stores in the first half of 2019. Same-store revenues were up 0.1% in the second quarter of 2019, an improvement of 190 basis points from the second quarter of 2018, continuing the trend of improvement experienced throughout 2018. Customer count on a same-store basis was down 4.3% during the second quarter of 2019 compared to the same period in 2018. Company-operated Aaron's stores had 984,000 customers at June 30, 2019, a 2.9% increase from June 30, 2018.

Lease revenue and fees for the three months ended June 30, 2019 increased 8.0% compared with the same period in 2018.  Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 36.4% for the second 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 second quarter of 2019 were $0.1 million. Adjusted EBITDA for the three months ended June 30, 2019 was $39.7 million including a $3.6 million insurance recovery from hurricane losses reported in 2017. This compares to $42.4 million for the same period in 2018, a decrease of $2.7 million or 6.4%, due primarily to the timing of 2019 marketing expenses. As a percentage of revenues, Adjusted EBITDA decreased 80 basis points to 8.9% for the three months ended June 30, 2019, compared with 9.7% for the same period last year.

Write-offs for damaged, lost or unsaleable merchandise were 5.6% of revenues in the second quarter of 2019, compared with 4.0% for the same period last year.  Contributing to the increase in write-offs was an increase in promotional offerings, higher ticket leases, store closure activity during the first half of 2019, and an increasing mix of e-commerce as a percent of revenue.

At June 30, 2019, the Aaron's Business had 1,171 Company-operated stores and 357 franchised stores.

Significant Components of Revenue and Franchise Performance

Consolidated lease revenues and fees for the three months ended June 30, 2019 increased 14.0% 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 29.0% in the second 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 $108.0 million for the three months ended June 30, 2019, a decrease of 31.7% from the same period for the prior year.  Same-store revenues for franchised stores increased 1.2% and same-store customer counts declined 2.7% for the second quarter of 2019 compared with the same quarter in 2018.  Franchised stores had 254,000 customers at the end of the second 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

(In thousands, except per share amounts)

Low

High

Low

High

Aaron's Inc. - Total Revenues

$

3,905,000


$

4,065,000


$

3,905,000


$

4,065,000


Aaron's Inc. - Adjusted EBITDA

430,000


452,000


415,000


442,000


Aaron's Inc. - Diluted EPS

3.11


3.26


3.15


3.35


Aaron's Inc. - Diluted Non-GAAP EPS

3.85


4.00


3.65


3.85


Aaron's Inc. - Capital Expenditures

100,000


120,000


100,000


120,000







Progressive - Total Revenues

2,100,000


2,175,000


2,100,000


2,175,000


Progressive - EBITDA

275,000


285,000


260,000


275,000







Aaron's Business - Total Revenues

1,775,000


1,855,000


1,775,000


1,855,000


Aaron's Business - Adjusted EBITDA

160,000


170,000


160,000


170,000


Aaron's Business - Annual Same Store Revenues

0.0%


2.0%


0.0%


2.0%







DAMI - Total Revenues

30,000


35,000


30,000


35,000


DAMI - Adjusted EBITDA

(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 Thursday, July 25, 2019, at 8:30 a.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. (NYSE: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 "continue," "expect," "believe," "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, 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 M&A activities do 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 bad debt expense 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: the strength of our lease-to-own businesses; the results of our investments in the Aaron's Business and Progressive Leasing; the results of our business transformation initiatives in the Aaron's Business; revenue growth and pipeline conversions for Progressive Leasing; same store sales for the Aaron's Business and the updated 2019 fiscal year Outlook set forth in this press release, for the Company on a consolidated basis, and for Progressive Leasing, the Aaron's Business and DAMI. 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)

 Six Months Ended


June 30,

June 30,


2019

2018

2019

2018

Revenues:





Lease Revenues and Fees

$

907,565


$

845,938


$

1,851,722


$

1,716,005


Retail Sales

8,898


6,592


21,707


15,108


Non-Retail Sales

34,124


53,661


71,105


106,891


Franchise Royalties and Fees

8,605


12,125


17,812


24,987


Interest and Fees on Loans Receivable

8,610


9,208


17,256


18,750


Other

339


335


642


927


Total

$

968,141


$

927,859


$

1,980,244


$

1,882,668







Costs and Expenses:





Depreciation of Lease Merchandise

474,868


415,414


975,688


855,422


Retail Cost of Sales

5,651


4,156


14,283


9,818


Non-Retail Cost of Sales

28,948


47,068


58,144


95,088


Operating Expenses

383,576


388,337


770,792


778,569


Restructuring Expenses (Reversals), Net

18,738


(882)


32,019


24


Other Operating Income, Net

(3,486)


(165)


(4,383)


(248)


Total

$

908,295


$

853,928


$

1,846,543


$

1,738,673







Operating Profit

59,846


73,931


133,701


143,995


Interest Income

944


154


1,045


356


Interest Expense

(4,300)


(3,807)


(9,256)


(8,133)


Impairment of Investment


(20,098)



(20,098)


Other Non-Operating Income (Expense), Net

329


(200)


1,637


612


Earnings Before Income Tax Expense

$

56,819


$

49,980


$

127,127


$

116,732







Income Tax Expense

14,169


11,479


28,399


25,985


Net Earnings

$

42,650


$

38,501


$

98,728


$

90,747







Earnings Per Share

$

0.63


$

0.55


$

1.46


$

1.30


Earnings Per Share Assuming Dilution

$

0.62


$

0.54


$

1.44


$

1.27







Weighted Average Shares Outstanding

67,687


69,645


67,492


69,875


Weighted Average Shares Outstanding Assuming Dilution

68,793


70,837


68,784


71,428


 

Aaron's, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)



(Unaudited)



June 30, 2019


December 31, 2018


ASSETS:





Cash and Cash Equivalents

$

100,242



$

15,278



Accounts Receivable (net of allowances of $63,000 in 2019 and $62,704 in 2018)

85,257



98,159



Lease Merchandise (net of accumulated depreciation and allowances of $855,365 in 2019 and $816,928 in 2018)

1,292,724



1,318,470



Loans Receivable (net of allowances and unamortized fees of $18,947 in 2019 and $19,941 in 2018)

69,974



76,153



Property, Plant and Equipment at Cost (net of accumulated depreciation of $300,983 in 2019 and $284,287 in 2018)

233,073



229,492



Operating Lease Right-of-Use Assets

338,805





Goodwill

736,202



733,170



Other Intangibles (net of accumulated amortization of $147,440 in 2019 and $130,116 in 2018)

207,066



228,600



Income Tax Receivable

11,921



29,148



Prepaid Expenses and Other Assets

104,934



98,222



Total Assets

$

3,180,198



$

2,826,692



LIABILITIES & SHAREHOLDERS' EQUITY:





Accounts Payable and Accrued Expenses

$

226,913



$

293,153



Deferred Income Taxes Payable

288,291



267,500



Customer Deposits and Advance Payments

80,680



80,579



Operating Lease Liabilities

386,989





Debt

347,767



424,752



Total Liabilities

1,330,640



1,065,984



SHAREHOLDERS' EQUITY:





Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at June 30, 2019 and December 31, 2018; Shares Issued: 90,752,123 at June 30, 2019 and December 31, 2018

45,376



45,376



Additional Paid-in Capital

277,533



278,922



Retained Earnings

2,101,915



2,005,344



Accumulated Other Comprehensive Loss

(45)



(1,087)








Less: Treasury Shares at Cost





Common Stock: 23,204,626 Shares at June 30, 2019 and 23,567,979 at December 31, 2018

(575,221)



(567,847)



Total Shareholders' Equity

1,849,558



1,760,708



Total Liabilities and Shareholders' Equity

$

3,180,198



2,826,692



 

Aaron's, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


(Unaudited)

Six Months Ended

 June 30,

(In Thousands)

2019


2018

OPERATING ACTIVITIES:




Net Earnings

$

98,728



$

90,747


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




Depreciation of Lease Merchandise

975,688



855,422


Other Depreciation and Amortization

53,862



44,591


Accounts Receivable Provision

137,611



113,077


Provision for Credit Losses on Loans Receivable

9,223



9,540


Stock-Based Compensation

14,231



15,143


Deferred Income Taxes

19,928



39,684


Impairment of Assets

26,267



20,098


Non-Cash Lease Expense

58,073




Other Changes, Net

(3,390)



(1,076)


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




Additions to Lease Merchandise

(1,141,863)



(1,034,838)


Book Value of Lease Merchandise Sold or Disposed

196,219



199,846


Accounts Receivable

(126,112)



(97,385)


Prepaid Expenses and Other Assets

(6,847)



(7,965)


Income Tax Receivable

17,227



54,242


Operating Lease Liabilities

(62,541)




Accounts Payable and Accrued Expenses

(21,465)



(36,165)


Customer Deposits and Advance Payments

(200)



1,819


Cash Provided by Operating Activities

244,639



266,780


INVESTING ACTIVITIES:




Investments in Loans Receivable

(29,506)



(31,797)


Proceeds from Loans Receivable

27,720



30,150


Proceeds from Investments



666


Outflows on Purchases of Property, Plant and Equipment

(48,059)



(32,785)


Proceeds from Property, Plant and Equipment

1,425



4,349


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

(7,612)



(14,401)


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

755



318


Cash Used in Investing Activities

(55,277)



(43,500)


FINANCING ACTIVITIES:




Repayments on Revolving Facility, Net

(16,000)




Repayments on Debt

(61,465)



(96,173)


Dividends Paid

(4,717)



(2,111)


Acquisition of Treasury Stock

(14,414)



(68,432)


Issuance of Stock Under Stock Option Plans

5,056



4,134


Shares Withheld for Tax Payments

(12,977)



(17,282)


Debt Issuance Costs



(55)


Cash Used in Financing Activities

(104,517)



(179,919)


EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

119



(75)


Increase in Cash and Cash Equivalents

84,964



43,286


Cash and Cash Equivalents at Beginning of Period

15,278



51,037


Cash and Cash Equivalents at End of Period

$

100,242



$

94,323


 

Aaron's, Inc. and Subsidiaries

Quarterly Revenues by Segment

(In thousands)



(Unaudited)


Three Months Ended


June 30, 2019


Progressive Leasing1

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

516,333


$

391,232


$


$

907,565


Retail Sales


8,898



8,898


Non-Retail Sales


34,124



34,124


Franchise Royalties and Fees


8,605



8,605


Interest and Fees on Loans Receivable



8,610


8,610


Other


339



339


Total Revenues

$

516,333


$

443,198


$

8,610


$

968,141



1 For the three months ended June 30, 2019, Progressive Leasing incurred bad debt expense of $59,374 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


June 30, 2018


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

483,666


$

362,272


$


$

845,938


Retail Sales


6,592



6,592


Non-Retail Sales


53,661



53,661


Franchise Royalties and Fees


12,125



12,125


Interest and Fees on Loans Receivable



9,208


9,208


Other


335



335


Total Revenues

$

483,666


$

434,985


$

9,208


$

927,859


Progressive Bad Debt Expense

50,036




50,036


Total Revenues, net of Progressive Bad Debt Expense1

$

433,630


$

434,985


$

9,208


$

877,823



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

 

Aaron's, Inc. and Subsidiaries

Six Months Revenues by Segment

(In thousands)



(Unaudited)


Six Months Ended


June 30, 2019


Progressive Leasing1

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

1,039,734


$

811,988


$


$

1,851,722


Retail Sales


21,707



21,707


Non-Retail Sales


71,105



71,105


Franchise Royalties and Fees


17,812



17,812


Interest and Fees on Loans Receivable



17,256


17,256


Other


642



642


Total Revenues

$

1,039,734


$

923,254


$

17,256


$

1,980,244



1 For the six months ended June 30, 2019, Progressive Leasing incurred bad debt expense of $115,444 which was recorded as a reduction to Lease Revenues and Fees as a result of the Company's adoption of ASC 842, Leases.



(Unaudited)


Six Months Ended


June 30, 2018


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

970,183


$

745,822


$


$

1,716,005


Retail Sales


15,108



15,108


Non-Retail Sales


106,891



106,891


Franchise Royalties and Fees


24,987



24,987


Interest and Fees on Loans Receivable



18,750


18,750


Other


927



927


Total Revenues

$

970,183


$

893,735


$

18,750


$

1,882,668


Progressive Bad Debt Expense

96,561




96,561


Total Revenues, net of Progressive Bad Debt Expense1

$

873,622


$

893,735


$

18,750


$

1,786,107



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 second quarter of 2019 each exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $4.0 million in amortization expense resulting from franchisee acquisitions, $0.2 million in acquisition transaction and transition costs related to franchisee acquisitions and $18.7 million in restructuring charges. For the first six months of 2019 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $10.8 million in Progressive Leasing-related intangible amortization expense, $8.0 million in amortization expense resulting from franchisee acquisitions, $0.3 million in acquisition transaction and transition costs related to franchisee acquisitions and $32.0 million in restructuring charges. Non-GAAP net earnings and non-GAAP diluted earnings per share for the second quarter of 2018 exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $1.2 million in amortization expense resulting from franchisee acquisitions, $0.9 million in net restructuring charge reversals and $21.6 million of charges related to the full impairment of the Company's PerfectHome Investment and the related expenses incurred. For the first six months of 2018 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $10.8 million in Progressive Leasing-related intangible amortization expense, $2.4 million in amortization expense resulting from franchisee acquisitions, $24.0 thousand in restructuring charges, $0.2 million in tax effects related to a Tax Act adjustment 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 six months ended June 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 June 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.

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.  Due to the growth of our originated credit card loan portfolio after our October 2015 acquisition of DAMI, we believe pre-provision, pre-tax loss helps investors to assess DAMI's operating performance until such time as the credit card portfolio reaches levels which management believes will be normal and recurring.  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)

 Six Months Ended


June 30,


June 30,


2019

2018


2019

2018

Net Earnings

$

42,650


$

38,501



$

98,728


$

90,747


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

4,069


4,176



8,420


8,429


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

2,971


914



6,216


1,868


Add Restructuring Expense (Reversal), net (5)(6)

14,065


(679)



24,866


19


Add Acquisition Transaction and Transition Costs(7)

150




243



Impairment of Investment and Related Expenses(8)


16,658




16,811


Tax Act Adjustments





193


Non-GAAP Net Earnings

$

63,905


$

59,570



$

138,473


$

118,067








Earnings Per Share Assuming Dilution

$

0.62


$

0.54



$

1.44


$

1.27


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

0.06


0.06



0.12


0.12


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

0.04


0.01



0.09


0.03


Add Restructuring Expense, net(5)(6)

0.20


(0.01)



0.36



Add Acquisition Transaction and Transition Costs(7)






Impairment of Investment and Related Expenses(8)


0.24




0.24


Tax Act Adjustments






Non-GAAP Earnings Per Share Assuming Dilution(9)

$

0.93


$

0.84



$

2.01


$

1.65








Weighted Average Shares Outstanding Assuming Dilution

68,793


70,837



68,784


71,428



(1)  Net of taxes of $1,352 and $2,422 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.

(2)  Net of taxes of $1,245 and $2,413 for the three and six months ended June 30, 2018 calculated using the effective tax rate for the respective periods.

(3)  Net of taxes of $987 and $1,788 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.

(4)  Net of taxes of $272 and $535 for the three and six months ended June 30, 2018 calculated using the effective tax rate for the respective periods.

(5)  Net of taxes of $4,673 and $7,153 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.

(6)  Net of taxes of $(203) and $5 for the three and six months ended June 30, 2018 calculated using the effective tax rate for the respective periods.

(7)  Net of taxes of $50 and $70 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.

(8)  Net of taxes of $4,967 and $4,814 for the three and six months ended June 30, 2018 calculated using the effective tax rate for the respective periods.

(9)  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)

 Six Months Ended


June 30,

June 30,


2019

2018

2019

2018

Loss Before Income Taxes

$

(1,725)


$

(2,292)


$

(4,393)


$

(3,598)


Adjustment to Increase (Decrease) Allowance for Loan Losses During Period

420


887


(187)


132


Pre-tax, Pre-provision Loss

$

(1,305)


$

(1,405)


$

(4,580)


$

(3,466)


 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)



(Unaudited)


Three Months Ended


June 30, 2019


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings




$

42,650


Income Taxes1




14,169


Earnings (Loss) Before Income Taxes

58,406


138


(1,725)


56,819


Interest Expense

2,242


1,209


849


4,300


Depreciation

2,160


15,077


201


17,438


Amortization

5,421


4,296


145


9,862


EBITDA

$

68,229


$

20,720


$

(530)


$

88,419


Restructuring Expenses


18,738



18,738


Acquisition Transaction and Transition Costs


200



200


Adjusted EBITDA

$

68,229


$

39,658


$

(530)


$

107,357




(Unaudited)


Three Months Ended


June 30, 2018


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings




$

38,501


Income Taxes1




11,479


Earnings (Loss) Before Income Taxes

44,575


7,697


(2,292)


49,980


Interest Expense

4,249


(1,210)


768


3,807


Depreciation

1,531


13,069


257


14,857


Amortization

5,421


2,053


145


7,619


EBITDA

$

55,776


$

21,609


$

(1,122)


$

76,263


Restructuring Reversals, Net


(872)


(10)


(882)


Impairment of Investment and Related Expenses


21,625



21,625


Adjusted EBITDA

$

55,776


$

42,362


$

(1,132)


$

97,006



(1)  Taxes are calculated on a consolidated basis and are not identifiable by company segments.

 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Six Months Segment EBITDA

(In thousands)



(Unaudited)


Six Months Ended


June 30, 2019


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings




$

98,728


Income Taxes1




28,399


Earnings (Loss) Before Income Taxes

113,794


17,726


(4,393)


127,127


Interest Expense

4,964


2,563


1,729


9,256


Depreciation

3,947


29,665


391


34,003


Amortization

10,842


8,727


290


19,859


EBITDA

$

133,547


$

58,681


$

(1,983)


$

190,245


Restructuring Expenses


32,019



32,019


Acquisition Transaction and Transition Costs


313



313


Adjusted EBITDA

$

133,547


$

91,013


$

(1,983)


$

222,577








(Unaudited)


Six Months Ended


June 30, 2018


Progressive Leasing

Aaron's Business

DAMI

Consolidated Total

Net Earnings




$

90,747


Income Taxes1




25,985


Earnings (Loss) Before Income Taxes

79,554


40,776


(3,598)


116,732


Interest Expense

8,624


(2,033)


1,542


8,133


Depreciation

2,999


26,155


499


29,653


Amortization

10,842


3,806


290


14,938


EBITDA

$

102,019


$

68,704


$

(1,267)


$

169,456


Restructuring Expenses (Reversals), Net


34


(10)


24


Impairment of Investment and Related Expenses


21,625



21,625


Adjusted EBITDA

$

102,019


$

90,363


$

(1,277)


$

191,105



(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

$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 Previous 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

$

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 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

$

3.15


$

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.

 

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SOURCE Aaron's, Inc.

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