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

  • Revenues of $964 Million; Non-GAAP Revenues Up 8.4%
  • Diluted EPS $0.58; Non-GAAP Diluted EPS $0.73, Up 5.8%
  • Progressive Earnings Before Taxes of $53.5 million; EBITDA Up 21.5%
  • Aaron's Business Grows Revenue Written by 13.7%; E-com Channel Up 49.8%

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

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

Consolidated Results

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

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

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

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

Progressive Leasing Segment Results

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

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

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

The Aaron's Business Segment Results

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

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

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

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

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

Significant Components of Revenue and Franchise Performance

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

2019 Outlook

   

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. (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 "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.

Contacts:

Michael P. Dickerson
Aaron's, Inc.
Vice President
Corporate Communications & Investor Relations
678.402.3950
Mike.Dickerson@Aarons.com

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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