Aaron's, Inc. Reports Second Quarter 2018 Results

  • Total Revenues $927.9 Million, Diluted EPS $0.54
  • Non-GAAP Diluted EPS $0.84; Up 24%
  • Progressive Leasing Revenues Up 29%; Invoice Volume Up 25%
  • Aaron's Business Lease Revenues and Fees Up 5.1%
  • Reaffirms 2018 Annual Guidance

ATLANTA - July 26, 2018 // PRNewswire // - Aaron's, Inc. (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three and six months ended June 30, 2018.

"The second quarter built on the strong results we are realizing from our strategic investments," said John Robinson, Chief Executive Officer. "We served a record number of customers across our platforms, achieved a double-digit gain in consolidated revenue and increased adjusted EBITDA compared to the prior year. We're encouraged by our momentum as we enter the second half and believe we remain on track to achieve our financial objectives for the year."

"Progressive delivered another quarter of outstanding revenue and profit growth," continued Mr. Robinson. "The team continues to optimize performance across a large base of existing retail doors which is positively impacting revenue and profitability. Progressive's lease pools are performing in line with our expectations, and we're excited about our pipeline of potential retail partners."

"The Aaron's Business continued to see improvement in a number of key metrics in the quarter, notably, higher year-over-year recurring revenue written into the lease portfolio and expanding lease margins. In addition, we're encouraged by the progress of our business transformation initiatives and we continue to invest to improve our omnichannel platform."

"During the quarter, we returned $50 million of capital to shareholders through share repurchases and ended the quarter with $94 million in cash and net debt to capitalization of 8.9%. Early in the third quarter, we strengthened our omnichannel business with the acquisition of several Aaron's franchisees across a number of attractive markets. After these acquisitions, we remain conservatively capitalized with ample liquidity to support our strategic objectives," concluded Mr. Robinson.

Financial Summary

Aaron's, Inc. (the "Company") conducts its operations through three primary businesses: 1) Progressive Leasing's virtual lease-to-own business ("Progressive Leasing"); 2) Aaron's branded Company-operated and franchised lease-to-own stores, our Aarons.com e-commerce platform and Woodhaven, the Company's furniture manufacturing operations (collectively, the "Aaron's Business"); and 3) Dent-A-Med, Inc. ("DAMI"), our second-look financing business.

For the second quarter of 2018, Company revenues were $927.9 million compared with $815.6 million for the second quarter of 2017. Net earnings were $38.5 million compared with $36.3 million in the prior year period. Diluted earnings per share were $0.54 compared with $0.51 a year ago. The effective tax rate for the second quarter of 2018 was 23.0% compared with 36.2% for the prior year period, primarily due to the lower tax rates provided under the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

On a non-GAAP basis, net earnings for the second quarter of 2018 were $59.6 million compared with $48.5 million for the same period in 2017, and non-GAAP earnings per share assuming dilution were $0.84 in the second quarter of 2018 compared with $0.68 for the same quarter in 2017.

For the second quarter of 2018, non-GAAP net earnings and non-GAAP diluted earnings per share exclude the effects of amortization expense resulting from our 2014 acquisition of Progressive Leasing and one of the 2017 franchisee acquisitions, a reversal of restructuring charges for the Aaron's Business and charges and expenses related to the full impairment of the Company's investment in PerfectHome. The Company invested in PerfectHome, a U.K. rent-to-own business in 2011. In July 2018, PerfectHome entered into the U.K.'s insolvency process and was subsequently acquired by its senior secured lender. As a result, the Company believes it will not receive any further payments on its subordinated secured notes investment and recorded a full impairment and related expenses of approximately $22 million in the second quarter. For the second quarter of 2017, non-GAAP earnings results exclude the effects of Progressive Leasing amortization and Aaron's Business and DAMI restructuring charges.

Adjusted EBITDA for the Company, which excludes the charges and adjustments mentioned above, was $97.0 million for the second quarter of 2018, compared with $95.7 million for the same period in 2017. See "Use of Non-GAAP Financial Information" and the related non-GAAP reconciliation accompanying this press release.

During the first six months of 2018, revenues increased 13.4% to $1.9 billion compared with $1.7 billion for the prior year period. Net earnings were $90.7 million versus $89.6 million for the first six months last year. Diluted earnings per share were $1.27 compared with $1.24 for the first six month period in 2017. The effective tax rate for first six months of 2018 was 22.3% compared with 35.8% for 2017.

On a non-GAAP basis, net earnings for the first six months of 2018 were $118.1 million compared with $106.3 million for the same period in 2017, and non-GAAP earnings per share assuming dilution were $1.65 compared with $1.48 for the same six month period in 2017.

Non-GAAP net earnings and non-GAAP diluted earnings per share for 2018 exclude the effects of amortization expense resulting from our 2014 acquisition of Progressive Leasing and one of the 2017 franchisee acquisitions, restructuring charges for the Aaron's Business, tax effects related to a Tax Act adjustment, and charges and expenses related to the full impairment of the Company's investment in PerfectHome. Non-GAAP earnings results for 2017 exclude the effects of Progressive Leasing amortization and Aaron's Business and DAMI restructuring charges. See "Use of Non-GAAP Financial Information" and the related non-GAAP reconciliation accompanying this press release.

Adjusted EBITDA for the Company, which excludes the charges and adjustments mentioned above, was $191.1 million for the six months ended June 30, 2018 compared with $205.1 million for the same period in 2017.

The Company generated $266.8 million in cash from operations during the six months ended June 30, 2018 and ended the second quarter with $94.3 million in cash, compared with a cash balance of $51.0 million at the end of 2017. The increase in cash is due primarily to cash from operations offset by common stock repurchases and an aggregate of $96.2 million of debt amortization. The common stock repurchased during the second quarter of 2018 totaled 1,233,670 shares for $50.0 million. The Company has authorization to purchase an additional $431.6 million of its common stock.

Progressive Leasing Results

Progressive Leasing's revenues in the second quarter of 2018 increased 29.5% to $483.7 million from $373.5 million in the second quarter of 2017. Progressive Leasing's revenues in the first six months of 2018 increased 31.2% to $970.2 million from $739.6 million for the same period of 2017. Invoice volume increased 24.7% in the quarter, driven by a 17.6% increase in invoice volume per active door and a 6% increase in active doors, to approximately 20,000. Progressive Leasing had 758,000 customers at June 30, 2018, a 17.3% increase from June 30, 2017.

Earnings before income taxes for Progressive Leasing were $44.6 million and $79.6 million for the three and six months ended June 30, 2018, compared with $38.2 million and $74.0 million for the same periods a year ago. EBITDA for the second quarter and first six months of 2018 was $55.8 million and $102.0 million, respectively, compared with $50.1 million and $98.6 million for the same periods of 2017. As a percentage of revenues, EBITDA was 11.5% and 10.5%, respectively, for the second quarter and first six months of 2018 compared with 13.4% and 13.3% for the same periods in 2017. The provision for lease merchandise write-offs was 6.7% of revenues in the second quarter of 2018, compared with 5.5% in the same period of 2017. Bad debt expense as a percentage of revenues in the second quarter of 2018 was 10.3% compared with 9.7% in the same period of 2017.

The Aaron's Business Results

For the second quarter of 2018, total revenues for the Aaron's Business increased 0.3% to $435.0 million from $433.6 million in the second quarter of 2017. Revenues for the first six months of 2018 decreased 1.1% to $893.7 million compared with $903.9 million from the same period a year ago.

Lease revenue and fees for the three and six months ended June 30, 2018 increased 5.1% and 3.3% compared with the same periods in 2017. Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 22.9% and 23.1% for the three and six month periods ended June 30, 2018 compared with the same periods of the prior year. The decline is attributed primarily to the reduction in non-retail sales resulting from the franchisee acquisitions completed in fiscal years 2017 and 2018.

Earnings before income taxes for the Aaron's Business were $7.7 million and $40.8 million for the three and six months ended June 30, 2018, compared with $21.5 million and $70.1 million for the same periods a year ago. The decrease was primarily due to charges related to the full impairment of the Company's investment in PerfectHome and increased operating expenses related to franchisee acquisitions completed over the prior twelve months and investments in business transformation initiatives. Adjusted EBITDA for the three and six months ended June 30, 2018 was $42.4 million and $90.4 million compared with $46.7 million and $107.9 million for the same periods in 2017. As a percentage of revenues, Adjusted EBITDA was 9.7% and 10.1% for the three and six months ended June 30, 2018, respectively, compared with 10.8% and 11.9% for the same periods last year. Write-offs for damaged, lost or unsaleable merchandise were 4.0% of revenues in the second quarter of 2018 compared with 3.6% for the same period last year.

Same store revenues (revenues for Company-operated stores open for the entirety of the second quarter of 2018 and 2017) decreased 1.8% during the second quarter of 2018, compared with the second quarter of 2017. Customer count on a same store basis was down 4.3% during the second quarter of 2018. Company-operated Aaron's stores had 956,000 customers at June 30, 2018, a 2.6% increase from 2017.

At June 30, 2018, the Aaron's Business had 1,179 Company-operated stores and 530 franchised stores. During the second quarter of 2018, the Company acquired three franchised stores and consolidated six Company-operated stores. Additionally, no franchised stores opened and two franchised stores closed. During July 2018, the Company acquired 90 Aaron's-branded franchised stores from three franchisees for an aggregated purchase price of $126.8 million. The acquisitions are expected to benefit the Company's omnichannel platform through added scale, strengthened presence in certain geographic markets, and enhanced operational control to execute our business transformation initiatives.

DAMI Results

DAMI's revenues for the three and six months ended June 30, 2018 were $9.2 million and $18.8 million versus $8.5 million and $16.7 million for the same periods of 2017. DAMI's loss before income taxes was $2.3 million and $3.6 million for the three and six months ended June 30, 2018, compared with a loss before income taxes of $2.7 million and $4.5 million for the same periods in 2017. DAMI's pre-tax, pre-provision loss was $1.4 million and $3.5 million for the three and six months ended June 30, 2018 compared with $0.9 million and $2.1 million for the same periods a year ago.

Pre-tax, pre-provision loss is a non-GAAP measure that represents loss before income taxes, adjusted so that loan charge-offs and recoveries are recognized in earnings as they occur by excluding the effect on earnings of changes to management's provision for estimated future loan losses. See "Use of Non-GAAP Financial Information" and the related non-GAAP reconciliation accompanying this press release for more information regarding the calculation of pre-tax, pre-provision loss.

Significant Components of Revenue

Consolidated lease revenues and fees for the three and six months ended June 30, 2018 increased 17.8% and 17.4%, respectively, over the same prior year periods. Franchise royalties and fees decreased 5.5% in the second quarter of 2018 and 7.5% for the first six months of 2018, compared with the same periods a year ago. The decrease in franchise royalties and fees was the combined result of the lower number of franchised stores and decreases in revenues generated by the Company's franchisees. Franchisee revenues totaled $158.1 million in the six months ended June 30, 2018, a decrease of 23.6% from the same period for the prior year. Same store revenues for franchised stores were down 2.7% and same store customer counts were down 4.5% for the second quarter of 2018 compared with the same quarter in 2017. Franchised stores had 386,000 customers at the end of the second quarter of 2018. Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company. With the exception of the same store metrics, the year-over-year comparisons presented above are not adjusted to reflect the purchase of 123 franchised store locations whose results are included in the franchisee data for the six months ended June 30, 2017 period.

2018 Outlook

The Company is reaffirming the 2018 guidance it provided in its February 15, 2018 press release and its subsequent update on April 26, 2018.

Conference Call and Webcast

The Company will hold a conference call to discuss its quarterly results on Thursday, July 26, 2018, at 8:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's Investor Relations website, investor.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, a virtual lease-to-own company, provides lease-purchase solutions through more than 20,000 retail locations in 46 states. In addition, the Aaron's Business engages in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories through its 1,709 Company-operated and franchised stores in 47 states 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 "believe," "guidance," "outlook," "expect," "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, 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 our recent franchisee acquisitions, including the risk that the financial performance from those acquisitions does not meet expectations, the business performance of our franchisees and our relationships with our franchisees; 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, 2017. Statements in this release that are "forward-looking" include without limitation statements regarding: our expectations regarding our initiatives to drive innovation and improve our customers' experiences at both the Aaron's Business and Progressive Leasing; the results of our strategic investments, including our acquisition of franchisees; our financial objectives; our expectations regarding revenue and earnings growth due to our investments in the Aaron's Business and Progressive Leasing; whether those investments will strengthen our long-term competitive position; our ability to invest in our operations and in opportunities to promote growth; returning capital to our shareholders; the performance of the Progressive lease portfolio and expectations regarding innovation initiatives at Progressive, including further enhancements to its decisioning process; the outcome of the transformation initiatives for the Aaron's Business; the Company's capital strategy; the Company's projected results and the 2018 Guidance for the Company on a consolidated basis, and for Progressive Leasing, the Aaron's Business and DAMI, individually. 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,

   

2018

2017

2018

2017

Revenues:

         

Lease Revenues and Fees

 

$

845,938

 

$

718,089

 

$

1,716,005

 

$

1,461,711

 

Retail Sales

 

6,592

 

6,106

 

15,108

 

14,884

 

Non-Retail Sales

 

53,661

 

69,602

 

106,891

 

138,929

 

Franchise Royalties and Fees

 

12,125

 

12,824

 

24,987

 

27,025

 

Interest and Fees on Loans Receivable

 

9,208

 

8,532

 

18,750

 

16,733

 

Other

 

335

 

491

 

927

 

916

 

Total

 

$

927,859

 

$

815,644

 

$

1,882,668

 

$

1,660,198

 
           

Costs and Expenses:

         

Depreciation of Lease Merchandise

 

415,414

 

345,398

 

855,422

 

707,396

 

Retail Cost of Sales

 

4,156

 

3,940

 

9,818

 

9,331

 

Non-Retail Cost of Sales

 

47,068

 

61,818

 

95,088

 

123,903

 

Operating Expenses

 

388,337

 

330,548

 

778,569

 

659,373

 

Restructuring (Reversals) Expenses, Net

 

(882)

 

13,445

 

24

 

13,772

 

Other Operating Income, Net

 

(165)

 

(511)

 

(248)

 

(1,072)

 

Total

 

$

853,928

 

$

754,638

 

$

1,738,673

 

$

1,512,703

 
           

Operating Profit

 

73,931

 

61,006

 

143,995

 

147,495

 

Interest Income

 

154

 

378

 

356

 

1,352

 

Interest Expense

 

(3,807)

 

(5,552)

 

(8,133)

 

(11,367)

 

Impairment of Investment

 

(20,098)

 

 

(20,098)

 

 

Other Non-Operating (Expense) Income, Net

 

(200)

 

1,163

 

612

 

2,138

 

Earnings Before Income Tax Expense

 

$

49,980

 

$

56,995

 

$

116,732

 

$

139,618

 
           

Income Tax Expense

 

11,479

 

20,660

 

25,985

 

49,983

 

Net Earnings

 

$

38,501

 

$

36,335

 

$

90,747

 

$

89,635

 
           

Earnings Per Share

 

$

0.55

 

$

0.51

 

$

1.30

 

$

1.26

 

Earnings Per Share Assuming Dilution

 

$

0.54

 

$

0.51

 

$

1.27

 

$

1.24

 
           

Weighted Average Shares Outstanding

 

69,645

 

70,686

 

69,875

 

71,001

 

Weighted Average Shares Outstanding Assuming Dilution

 

70,837

 

71,697

 

71,428

 

72,040

 

 

Selected Balance Sheet Data

(In thousands)

 
   

(Unaudited)

 
   

June 30, 2018

 

December 31, 2017

 
           

Cash and Cash Equivalents

 

$

94,323

   

$

51,037

   

Investments

 

   

20,385

   

Accounts Receivable, Net

 

84,309

   

99,887

   

Lease Merchandise, Net

 

1,137,428

   

1,152,135

   

Loans Receivable, Net

 

79,688

   

86,112

   

Property, Plant and Equipment, Net

 

206,984

   

207,687

   

Other Assets, Net

 

1,016,218

   

1,075,021

   
           

Total Assets

 

$

2,618,950

   

$

2,692,264

   
           

Debt

 

272,941

   

368,798

   
           

Total Liabilities

 

874,137

   

964,260

   

Shareholders' Equity

 

1,744,813

   

1,728,004

   
           

Total Liabilities and Shareholders' Equity

 

$

2,618,950

   

$

2,692,264

   

 

Selected Cash Flow Data

(In thousands)

 
   

(Unaudited)
 Six Months Ended

   

June 30,

   

2018

 

2017

         

Cash Provided by Operating Activities

 

$

266,780

   

$

115,608

 

Cash Used in Investing Activities

 

(43,500)

   

(25,644)

 

Cash Used in Financing Activities

 

(179,919)

   

(138,247)

 

Effect of Exchange Rate Changes on Cash & Cash Equivalents

 

(75)

   

57

 

Increase (Decrease) in Cash and Cash Equivalents

 

43,286

   

(48,226)

 

Cash and Cash Equivalents at Beginning of Period

 

51,037

   

308,561

 

Cash and Cash Equivalents at End of Period

 

$

94,323

   

$

260,335

 

 

Aaron's, Inc. and Subsidiaries

Quarterly Revenues by Segment

(In thousands)

 
 

(Unaudited)

 

Three Months Ended

 

June 30, 2018

 

Progressive Leasing

The 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

 
 

$

483,666

 

$

434,985

 

$

9,208

 

$

927,859

 
 
 
 

(Unaudited)

 

Three Months Ended

 

June 30, 2017

 

Progressive Leasing

The Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

373,499

 

$

344,590

 

$

 

$

718,089

 

Retail Sales

 

6,106

 

 

6,106

 

Non-Retail Sales

 

69,602

 

 

69,602

 

Franchise Royalties and Fees

 

12,824

 

 

12,824

 

Interest and Fees on Loans Receivable

 

 

8,532

 

8,532

 

Other

 

491

 

 

491

 
 

$

373,499

 

$

433,613

 

$

8,532

 

$

815,644

 

 

Aaron's, Inc. and Subsidiaries

Six Months Revenues by Segment

(In thousands)

 
 

(Unaudited)

 

Six Months Ended

 

June 30, 2018

 

Progressive Leasing

The 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

 
 

$

970,183

 

$

893,735

 

$

18,750

 

$

1,882,668

 
 
 
 

(Unaudited)

 

Six Months Ended

 

June 30, 2017

 

Progressive Leasing

The Aaron's Business

DAMI

Consolidated Total

Lease Revenues and Fees

$

739,614

 

$

722,097

 

$

 

$

1,461,711

 

Retail Sales

 

14,884

 

 

14,884

 

Non-Retail Sales

 

138,929

 

 

138,929

 

Franchise Royalties and Fees

 

27,025

 

 

27,025

 

Interest and Fees on Loans Receivable

 

 

16,733

 

16,733

 

Other

 

916

 

 

916

 
 

$

739,614

 

$

903,851

 

$

16,733

 

$

1,660,198

 

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 2018 each exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $1.2 million in amortization expense resulting from one of the 2017 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 one of the 2017 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 Perfect Home Investment and the related expenses incurred.  Non-GAAP net earnings and non-GAAP diluted earnings per share for the second quarter of 2017 exclude $5.6 million in Progressive Leasing-related intangible amortization expense and $13.4 million in restructuring charges.  For the first six months of 2017 Non-GAAP net earnings and non-GAAP diluted earnings per share exclude $12.2 million in Progressive Leasing-related intangible amortization expense and $13.8 million in restructuring charges.

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.

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 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 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,

 

2018

2017

 

2018

2017

Net Earnings

$

38,501

 

$

36,335

   

$

90,747

 

$

89,635

 

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

4,176

 

3,564

   

8,429

 

7,818

 

Add Franchisee-Related Intangible Amortization Expense(3)

914

 

   

1,868

 

 

Add Restructuring (Reversal) Expense, net (4)(5)

(679)

 

8,571

   

19

 

8,842

 

Impairment of Investment and Related Expenses(6)

16,658

     

16,811

   

Add Tax Act Adjustment

 

   

193

 

 

Non-GAAP Net Earnings

$

59,570

 

$

48,470

   

$

118,067

 

$

106,295

 
           

Earnings Per Share Assuming Dilution

$

0.54

 

$

0.51

   

$

1.27

 

$

1.24

 

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

0.06

 

0.05

   

0.12

 

0.11

 

Add Franchisee-Related Intangible Amortization Expense(3)

0.01

 

   

0.03

 

 

Add Restructuring (Reversal) Expense, net(4)(5)

(0.01)

 

0.12

   

 

0.13

 

Impairment of Investment and Related Expenses(6)

0.24

 

   

0.24

   

Add Tax Act Adjustment

 

   

 

 

Non-GAAP Earnings Per Share Assuming Dilution(7)

$

0.84

 

$

0.68

   

$

1.65

 

$

1.48

 
           

Weighted Average Shares Outstanding Assuming Dilution

70,837

 

71,697

   

71,428

 

72,040

 

(1)

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.

(2)

Net of taxes of $2,026 and $4,359 for the three and six months ended June 30, 2017 calculated using the effective tax rate for the respective periods.

(3)

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

(4)

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

(5)

Net of taxes of $4,874 and $4,930 for the three and six months ended June 30, 2017 calculated using the effective tax rate for the respective periods.

(6)

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.

(7)

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,

 

2018

2017

2018

2017

Loss Before Income Taxes

$

(2,292)

 

$

(2,695)

 

$

(3,598)

 

$

(4,460)

 

Adjustment to Increase Allowance for Loan Losses During Period

887

 

1,798

 

132

 

2,389

 

Pre-tax, Pre-provision Loss

$

(1,405)

 

$

(897)

 

$

(3,466)

 

$

(2,071)

 

 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)

 
 

(Unaudited)

 

Three Months Ended

 

June 30, 2018

 

Progressive Leasing

The 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

 

Impairment of Investment and Related Expenses

 

21,625

 

 

21,625

 

Restructuring Reversals, Net

 

(872)

 

(10)

 

(882)

 

Adjusted EBITDA

$

55,776

 

$

42,362

 

$

(1,132)

 

$

97,006

 
 
 
 

(Unaudited)

 

Three Months Ended

 

June 30, 2017

 

Progressive Leasing

The Aaron's Business

DAMI

Consolidated Total

Net Earnings

     

$

36,335

 

Income Taxes1

     

20,660

 

Earnings (Loss) Before Income Taxes

38,240

 

21,450

 

(2,695)

 

56,995

 

Interest Expense

4,698

 

(287)

 

1,141

 

5,552

 

Depreciation

1,542

 

11,676

 

157

 

13,375

 

Amortization

5,590

 

552

 

145

 

6,287

 

EBITDA

$

50,070

 

$

33,391

 

$

(1,252)

 

$

82,209

 

Restructuring Expenses

 

13,297

 

148

 

13,445

 

Adjusted EBITDA

$

50,070

 

$

46,688

 

$

(1,104)

 

$

95,654

 

(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, 2018

 

Progressive Leasing

The 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

 

Impairment of Investment and Related Expenses

 

21,625

 

 

21,625

 

Restructuring Expenses (Reversals), Net

 

34

 

(10)

 

24

 

Adjusted EBITDA

$

102,019

 

$

90,363

 

$

(1,277)

 

$

191,105

 
         
   
 

(Unaudited)

 

Six Months Ended

 

June 30, 2017

 

Progressive Leasing

The Aaron's Business

DAMI

Consolidated Total

Net Earnings

     

$

89,635

 

Income Taxes1

     

49,983

 

Earnings (Loss) Before Income Taxes

73,998

 

70,080

 

(4,460)

 

139,618

 

Interest Expense

9,461

 

(357)

 

2,263

 

11,367

 

Depreciation

2,935

 

23,553

 

300

 

26,788

 

Amortization

12,177

 

1,047

 

290

 

13,514

 

EBITDA

$

98,571

 

$

94,323

 

$

(1,607)

 

$

191,287

 

Restructuring Expenses

 

13,534

 

238

 

13,772

 

Adjusted EBITDA

$

98,571

 

$

107,857

 

$

(1,369)

 

$

205,059

 

(1)

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

Contacts:

Kelly Wall
Aaron's, Inc.
VP Finance
Investor Relations & Treasury
678.402.3399
Kelly.Wall@aarons.com

Jeff Black
SCR Partners
615.760.3679
JBlack@scr-ir.com

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/aarons-inc-reports-second-quarter-2018-results-300686842.html

SOURCE Aaron's, Inc.

###

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