Aaron's Holdings Reports Record Third Quarter Revenues and Earnings
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Aaron's Holdings Reports Record Third Quarter Revenues and Earnings

  • Third Quarter Revenues of $1.05 Billion, up 9.2%
  • Diluted EPS $1.60; Non-GAAP Diluted EPS $1.80, up 147%
  • Progressive Revenues of $601 Million, up 13.7%
  • Aaron's Business Revenues up 3.4%; Same Store Revenues up 7.3%
  • Spin Transaction Expected to be Completed During the Fourth Quarter

ATLANTA, Oct. 29, 2020 // PRNewswire // - Aaron's Holdings Company, Inc. (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three months ended September 30, 2020.

"We are pleased to announce record third quarter revenues and earnings. Progressive Leasing and the Aaron's Business continued to perform well during this period of uncertainty caused by the ongoing pandemic. I am proud of our teams for executing at such a high level during the quarter despite supply chain disruptions, changing consumer behavior and ongoing retail restrictions in certain markets. Our team has done an outstanding job effectively managing our business in a very challenging environment," said John Robinson, Chief Executive Officer at Aaron's Holdings Company, Inc. "Regarding our previously announced separation, we believe the Company is on track to complete the transaction during the fourth quarter."

Consolidated Results

For the third quarter of 2020, consolidated revenues were $1.05 billion compared with $963.8 million for the third quarter of 2019, an increase of 9.2%. The increase in consolidated revenues was due to continued strength in customer payment activity across our businesses, which the Company believes is partially a result of various government stimulus programs enacted in response to the COVID-19 pandemic.

Net earnings for the third quarter of 2020 were $109.3 million compared to net earnings of $39.8 million in the prior year period. Net earnings in the third quarter of 2020 included $8.3 million in pre-tax spin-related separation charges and $4.0 million in pre-tax restructuring charges. Net earnings in the third quarter of 2019 included $5.5 million in pre-tax restructuring charges.

Adjusted EBITDA for the Company was $178.3 million for the third quarter of 2020, compared with $87.1 million for the same period in 2019, an increase of $91.3 million, or 104.8%. As a percentage of revenues, adjusted EBITDA was 16.9% in the third quarter of 2020 compared with 9.0% for the same period in 2019.

Diluted earnings per share for the third quarter of 2020 were $1.60 compared with diluted earnings per share of $0.58 in the year ago period. On a non-GAAP basis, diluted earnings per share were $1.80 in the third quarter of 2020. This compares with non-GAAP diluted earnings per share of $0.73 for the same quarter in 2019, an increase of $1.07 or 147%.

The Company generated $551.8 million in cash from operations during the nine months ended September 30, 2020 and ended the third quarter with $470.2 million in cash, compared with a cash balance of $57.8 million at the end of 2019. Total available liquidity was $956.3 million as of September 30, 2020.

Progressive Leasing Segment Results

Progressive Leasing's revenues in the third quarter of 2020 increased 13.7% to $601.1 million compared to $528.9 million in the third quarter of 2019. Third quarter invoice volume increased 3.4%, with improving customer demand partially offset by shortages of available products in many of its retail partners, primarily in the furniture, electronics and appliance categories. Invoice volume per active door was up 3.0% and active doors were up 0.4% to approximately 20,000. Progressive Leasing had 892,000 customers at September 30, 2020, a 1.9% decrease from September 30, 2019 primarily as a result of higher than prior year early lease buyout activity.

Earnings before income taxes for the third quarter of 2020 were $103.8 million compared to $53.5 million in the prior year period. Earnings before income taxes for the third quarter of 2020 included $1.8 million in spin-related separation charges. Adjusted EBITDA for the third quarter of 2020 was $115.2 million compared with $62.9 million for the same period of 2019, an increase of 83.4%. As a percentage of revenues, adjusted EBITDA was 19.2% for the third quarter of 2020, an increase of 730 basis points compared to the third quarter of 2019. The margin improvement was due primarily to strong portfolio performance and operating expense control.

The provision for lease merchandise write-offs was 2.1% of revenues in the third quarter of 2020 compared with 7.7% in the same period of 2019. The decrease in the provision for lease merchandise write-offs as a percent of revenues was due primarily to strong customer payment activity and the positive impact of more conservative decisioning implemented at the onset of the COVID pandemic.

The Aaron's Business Segment Results

For the third quarter of 2020, total revenues for the Aaron's Business increased 3.4% to $441.0 million from $426.3 million in the third quarter of 2019. The increase was due to strong customer payment activity and higher merchandise sales to our franchisees, partially offset by a reduction of 134 stores during the 15-month period ended September 30, 2020. Same-store revenues increased 7.3% due primarily to strong customer payment activity. Customer count on a same-store basis was down 3.7% during the third quarter of 2020 compared to the same period in 2019. Company-operated Aaron's stores had 902,000 customers at September 30, 2020, an 8.3% decrease from September 30, 2019. At September 30, 2020, the Aaron's Business had 1,086 Company-operated stores and 308 franchised stores compared to 1,163 and 341 company-operated and franchised stores, respectively, at the end of the prior year period.

Lease revenue and fees for the three months ended September 30, 2020 increased 1.7% compared with the same period in 2019. Retail sales increased 53.1% compared with the same period in 2019. Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, increased 12.0% for the third quarter of 2020 compared with the prior year period.

Earnings before income taxes for the third quarter of 2020 were $39.8 million, which includes the impact of $6.5 million in spin-related separation charges and $4.0 million in restructuring charges. Adjusted EBITDA for the three months ended September 30, 2020 was $65.1 million compared to $25.7 million for the same period in 2019, an increase of $39.4 million or 153.1%. As a percentage of revenues, adjusted EBITDA was 14.8% in the third quarter of 2020 compared to 6.0% in the prior year quarter. The increase in adjusted EBITDA was due primarily to strong customer payment activity and lower merchandise write-offs, partially offset by the impact of a slightly lower portfolio balance entering the third quarter as compared to the same period in the prior year.

The provision for lease merchandise write-offs was 2.4% of revenues in the third quarter of 2020, compared with 7.4% for the same period last year. Contributing to the year-over-year improvement in write-offs was strong customer payment activity, in both our store and e-commerce channels.

Significant Components of Revenue and Franchise Performance

Consolidated lease revenues and fees for the three months ended September 30, 2020 increased 8.7% over the prior year period. Franchise royalties and fees were flat in the third quarter of 2020 compared with the same period a year ago. Franchisee revenues totaled $101.2 million for the three months ended September 30, 2020, a decrease of 2.2% from the prior year period. Same-store revenues for franchised stores increased 5.8% and same-store customer counts declined 5.8% for the third quarter of 2020 compared with the same quarter in 2019. Franchised stores had 210,000 customers at the end of the third quarter of 2020. Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company.

2020 Outlook

For the fourth quarter, we expect consolidated revenues between $1.025 billion and $1.045 billion and Non-GAAP Diluted Earnings Per Share of between $1.20 and $1.30. This outlook assumes no significant deterioration in the current retail environment or in the state of the U.S. economy as compared to its current condition and a gradual improvement in global supply chain conditions. Estimated fourth quarter Non-GAAP Diluted Earnings Per Share assumes no reduction in the COVID-specific reserves established at the end of the first quarter of 2020.

Reconciliation of Non-GAAP Items

 

Q4 2020 Range

 

Low

High

Projected Earnings Per Share Assuming Dilution

$

1.14

 

$

1.24

 

Add: Projected Intangible Amortization Expense

0.06

 

0.06

 

Projected Non-GAAP Earnings Per Share Assuming Dilution

$

1.20

 

$

1.30

 

Conference Call and Webcast

The Company will hold a conference call to discuss its quarterly results on Thursday, October 29, 2020, at 10:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's investor relations website. The webcast will be archived for playback at that same site.

About Aaron's Holdings Company, Inc.

Headquartered in Atlanta, Aaron's Holdings Company, Inc. (NYSE: AAN), is a leading omnichannel provider of lease-purchase solutions. Progressive Leasing provides lease-purchase solutions through more than 20,000 retail and e-commerce partner locations in 46 states and the District of Columbia. The Aaron's Business engages in the sales and lease ownership and specialty retailing of furniture, home appliances, consumer electronics and accessories through its approximately 1,400 Company-operated and franchised stores in 47 states, Puerto Rico and Canada, as well as its e-commerce platform, Aarons. Vive Financial provides a variety of second-look credit products that are originated through federally-insured banks. For more information, visit the website, Aarons, ProgLeasing, and ViveCard.

"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 "expected", "believe", "outlook" and similar terminology. These risks and uncertainties include factors such as (i) the impact of the COVID-19 pandemic and related measures taken by governmental or regulatory authorities to combat the pandemic, and whether additional government stimulus payments or supplemental unemployment benefits will be approved, and the nature, amount and timing of any such payments or benefits, including the impact of the pandemic and such measures on: (a) demand for the lease-to-own products offered by our Progressive Leasing and Aaron's Business segments, (b) Progressive Leasing's retail partners, (c) our customers, including their ability and willingness to satisfy their obligations under their lease agreements, (d) our suppliers' ability to provide us with the merchandise we need to obtain from them, (e) our employees and labor needs, including our ability to adequately staff our operations, (f) our financial and operational performance, and (g) our liquidity; (ii) uncertainties as to the timing of the separation and whether it will be completed; (iii) the possibility that various closing conditions for the separation may not be satisfied; (iv) failure of the separation to qualify for the expected tax treatment; (v) the risk that the Aaron's and Progressive businesses will not be separated successfully or such separation may be more difficult, time-consuming and/or costly than expected; (vi) the possibility that the operational, strategic and shareholder value creation opportunities from the separation may not be achieved; (vii) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our businesses; (viii) the effects on our business and reputation resulting from Progressive's announced settlement and related consent order with the FTC, including the risk of losing existing retail partners or being unable to establish new partnerships with additional retailers, and of any follow-on regulatory and/or civil litigation arising therefrom; (ix) other types of legal and regulatory proceedings and investigations, including those related to customer privacy, third party and employee fraud and information security; (x) the risks associated with our business transformation strategy for our Aaron's Business not being successful, including our e-commerce and real estate repositioning and optimization initiatives (including the risk that the costs associated with these initiatives exceeds our expectations); (xi) risks associated with the challenges faced by our Aaron's Business, including the commoditization of consumer electronics and the high fixed-cost operating model of the Aaron's Business; (xii) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and on-line retailers and other competitors; (xiii) financial challenges faced by our franchisees, which we believe may be exacerbated by the COVID-19 pandemic and related governmental or regulatory measures to combat the pandemic; (xiv) increases in lease merchandise write-offs for our Aaron's Business and increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments for Progressive Leasing, especially in light of the COVID-19 pandemic; 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, 2019 and in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. Statements in this press release that are "forward-looking" include without limitation statements about (i) the strength of our businesses during the ongoing economic uncertainty caused by the COVID pandemic, (ii) the expected timing for the completion of our previously announced spin transaction and our ability to complete it; and (iii) our outlook for our consolidated financial performance for the fourth quarter of 2020. 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 Holdings Company, 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,

   

2020

2019

2020

2019

Revenues:

         

Lease Revenues and Fees

 

$

985,287

 

$

906,776

 

$

3,003,187

 

$

2,758,498

 

Retail Sales

 

13,553

 

8,854

 

37,104

 

30,561

 

Non-Retail Sales

 

34,820

 

31,085

 

94,710

 

102,190

 

Franchise Royalties and Fees

 

8,079

 

8,087

 

18,168

 

25,899

 

Interest and Fees on Loans Receivable

 

10,233

 

8,687

 

29,555

 

25,943

 

Other

 

325

 

319

 

966

 

961

 

Total

 

1,052,297

 

963,808

 

3,183,690

 

2,944,052

 
           

Costs and Expenses:

         

Depreciation of Lease Merchandise

 

527,883

 

489,199

 

1,672,841

 

1,464,887

 

Retail Cost of Sales

 

7,793

 

5,742

 

23,720

 

20,025

 

Non-Retail Cost of Sales

 

29,109

 

24,913

 

82,006

 

83,057

 

Operating Expenses

 

342,896

 

383,264

 

1,099,716

 

1,154,056

 

Restructuring Expenses, Net

 

4,041

 

5,516

 

33,318

 

37,535

 

Legal and Regulatory Expense, Net of Recoveries

 

(835)

 

 

(835)

 

 

Impairment of Goodwill

 

 

 

446,893

 

 

Other Operating Income, Net

 

(202)

 

(329)

 

(128)

 

(4,712)

 

Total

 

910,685

 

908,305

 

3,357,531

 

2,754,848

 
           

Operating Profit (Loss)

 

141,612

 

55,503

 

(173,841)

 

189,204

 

Interest Income

 

141

 

360

 

560

 

1,405

 

Interest Expense

 

(1,973)

 

(3,991)

 

(8,625)

 

(13,247)

 

Other Non-Operating Income (Expense), Net

 

557

 

(207)

 

327

 

1,430

 

Earnings (Loss) Before Income Tax Expense

 

140,337

 

51,665

 

(181,579)

 

178,792

 
           

Income Tax Expense (Benefit)

 

30,992

 

11,864

 

(79,296)

 

40,263

 

Net Earnings (Loss)

 

$

109,345

 

$

39,801

 

$

(102,283)

 

$

138,529

 
           

Earnings (Loss) Per Share

 

$

1.62

 

$

0.59

 

$

(1.52)

 

$

2.05

 

Earnings (Loss) Per Share Assuming Dilution

 

$

1.60

 

$

0.58

 

$

(1.52)

 

$

2.02

 
           

Weighted Average Shares Outstanding

 

67,398

 

67,400

 

67,107

 

67,461

 

Weighted Average Shares Outstanding Assuming Dilution

 

68,155

 

68,652

 

67,107

 

68,739

 

Aaron's Holdings Company, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 
   

(Unaudited)

     
   

September 30, 2020

 

December 31, 2019

 

ASSETS:

         

Cash and Cash Equivalents

 

$

470,170

   

$

57,755

   

Accounts Receivable (net of allowances of $59,428 in 2020 and $76,293 in 2019)

 

86,721

   

104,159

   

Lease Merchandise (net of accumulated depreciation and allowances of $874,238 in 2020 and $896,056 in 2019)

 

1,185,662

   

1,433,417

   

Loans Receivable (net of allowances and unamortized fees of $43,770 in 2020 and $21,134 in 2019)

 

67,596

   

75,253

   

Property, Plant and Equipment at Cost (net of accumulated depreciation of $336,029 in 2020 and $311,252 in 2019)

 

222,636

   

237,666

   

Operating Lease Right-of-Use Assets

 

269,645

   

329,211

   

Goodwill

 

291,446

   

736,582

   

Other Intangibles (net of accumulated amortization of $170,803 in 2020 and $151,932 in 2019)

 

169,368

   

190,796

   

Income Tax Receivable

 

9,510

   

18,690

   

Prepaid Expenses and Other Assets

 

112,178

   

114,271

   

Total Assets

 

$

2,884,932

   

$

3,297,800

   

LIABILITIES & SHAREHOLDERS' EQUITY:

         

Accounts Payable and Accrued Expenses

 

$

320,016

   

$

272,816

   

Accrued Regulatory Expense

 

   

175,000

   

Deferred Income Taxes Payable

 

231,151

   

310,395

   

Customer Deposits and Advance Payments

 

90,085

   

91,914

   

Operating Lease Liabilities

 

319,875

   

369,386

   

Debt

 

285,123

   

341,030

   

Total Liabilities

 

1,246,250

   

1,560,541

   

SHAREHOLDERS' EQUITY:

         

Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at September 30, 2020 and December 31, 2019; Shares Issued: 90,752,123 at September 30, 2020 and December 31, 2019

 

45,376

   

45,376

   

Additional Paid-in Capital

 

299,418

   

290,229

   

Retained Earnings

 

1,912,494

   

2,029,613

   

Accumulated Other Comprehensive Loss

 

(1,244)

   

(19)

   
           

Less: Treasury Shares at Cost

         

Common Stock: 23,613,045 Shares at September 30, 2020 and 24,034,053 at December 31, 2019

 

(617,362)

   

(627,940)

   

Total Shareholders' Equity

 

1,638,682

   

1,737,259

   

Total Liabilities and Shareholders' Equity

 

$

2,884,932

   

$

3,297,800

   

Aaron's Holdings Company, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

(Unaudited)

Nine Months Ended
September 30,

(In Thousands)

2020

 

2019

OPERATING ACTIVITIES:

     

Net Earnings

$

(102,283)

   

$

138,529

 

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

     

Depreciation of Lease Merchandise

1,672,841

   

1,464,887

 

Other Depreciation and Amortization

74,683

   

79,419

 

Accounts Receivable Provision

201,198

   

228,608

 

Provision for Credit Losses on Loans Receivable

23,761

   

15,291

 

Stock-Based Compensation

21,378

   

20,261

 

Deferred Income Tax (Benefit) Expense

(76,885)

   

28,747

 

Impairment of Goodwill and Other Assets

469,782

   

29,031

 

Non Cash Lease Expense

75,589

   

86,367

 

Other Changes, Net

5,529

   

3,423

 

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

     

Additions to Lease Merchandise

(1,687,483)

   

(1,723,385)

 

Book Value of Lease Merchandise Sold or Disposed

263,007

   

298,904

 

Accounts Receivable

(183,807)

   

(225,372)

 

Prepaid Expenses and Other Assets

(1,381)

   

(19,642)

 

Income Tax Receivable

9,180

   

13,217

 

Operating Lease Liabilities

(85,073)

   

(91,333)

 

Accounts Payable and Accrued Expenses

48,851

   

5,762

 

Accrued Regulatory Expense

(175,000)

   

 

Customer Deposits and Advance Payments

(2,041)

   

(1,954)

 

Cash Provided by Operating Activities

551,846

   

350,760

 

INVESTING ACTIVITIES:

     

Investments in Loans Receivable

(73,208)

   

(49,311)

 

Proceeds from Loans Receivable

50,154

   

40,423

 

Outflows on Purchases of Property, Plant and Equipment

(50,867)

   

(67,049)

 

Proceeds from Disposition of Property, Plant and Equipment

3,829

   

2,805

 

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

(2,874)

   

(12,873)

 

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

359

   

2,813

 

Cash Used in Investing Activities

(72,607)

   

(83,192)

 

FINANCING ACTIVITIES:

     

Repayments on Revolving Facility, Net

   

(16,000)

 

Proceeds from Debt

5,625

   

 

Repayments on Debt

(61,515)

   

(62,317)

 

Dividends Paid

(8,035)

   

(7,086)

 

Acquisition of Treasury Stock

   

(39,422)

 

Issuance of Stock Under Stock Option Plans

9,876

   

5,115

 

Shares Withheld for Tax Payments

(11,734)

   

(12,977)

 

Debt Issuance Costs

(1,020)

   

 

Cash Used in Financing Activities

(66,803)

   

(132,687)

 

 Effect of Exchange Rate Changes on Cash & Cash Equivalents

(21)

   

102

 

Increase in Cash and Cash Equivalents

412,415

   

134,983

 

Cash and Cash Equivalents at Beginning of Period

57,755

   

15,278

 

Cash and Cash Equivalents at End of Period

$

470,170

   

$

150,261

 

Aaron's Holdings Company, Inc. and Subsidiaries

Quarterly Revenues by Segment

(In thousands)

 
 

(Unaudited)

 

Three Months Ended

 

September 30, 2020

 

Progressive Leasing

Aaron's Business

Vive

Consolidated Total

Lease Revenues and Fees

$

601,105

 

$

384,182

 

$

 

$

985,287

 

Retail Sales

 

13,553

 

 

13,553

 

Non-Retail Sales

 

34,820

 

 

34,820

 

Franchise Royalties and Fees

 

8,079

 

 

8,079

 

Interest and Fees on Loans Receivable

 

 

10,233

 

10,233

 

Other

 

325

 

 

325

 

Total Revenues

$

601,105

 

$

440,959

 

$

10,233

 

$

1,052,297

 
   
   
   
 

(Unaudited)

 

Three Months Ended

 

September 30, 2019

 

Progressive Leasing

Aaron's Business

Vive

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

 

Aaron's Holdings Company, Inc. and Subsidiaries

Nine Months Revenues by Segment

(In thousands)

 
 

(Unaudited)

 

Nine Months Ended

 

September 30, 2020

 

Progressive Leasing

Aaron's Business

Vive

Consolidated Total

Lease Revenues and Fees

$

1,849,388

 

$

1,153,799

 

$

 

$

3,003,187

 

Retail Sales

 

37,104

 

 

37,104

 

Non-Retail Sales

 

94,710

 

 

94,710

 

Franchise Royalties and Fees

 

18,168

 

 

18,168

 

Interest and Fees on Loans Receivable

 

 

29,555

 

29,555

 

Other

 

966

 

 

966

 

Total Revenues

$

1,849,388

 

$

1,304,747

 

$

29,555

 

$

3,183,690

 
   
   
   
 

(Unaudited)

 

Nine Months Ended

 

September 30, 2019

 

Progressive Leasing

Aaron's Business

Vive

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

 

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 2020 exclude Progressive Leasing-related intangible amortization expense and insurance reimbursements for certain legal costs, as well as certain Aaron's Business charges including amortization expense resulting from franchisee acquisitions, restructuring charges, early termination charges incurred to terminate a sales and marketing agreement, goodwill impairment charges, legal, accounting and personnel expenses incurred in conjunction with the Company's implementation of a holding company structure and the planned separation and distribution of the Aaron's Business into a separate company, and an income tax benefit resulting from the revaluation of a net operating loss carryback. Non-GAAP net earnings and non-GAAP diluted earnings per share for 2019 exclude Progressive Leasing-related intangible amortization expense, certain Aaron's Business charges including amortization expense resulting from franchisee acquisitions, acquisition transaction and transition costs related to franchisee acquisitions and restructuring charges. The amounts for these after-tax non-GAAP adjustments, which are calculated using estimated tax rates which are commensurate with non-GAAP pre-tax earnings, can be found in the Reconciliation of Net Earnings and Earnings Per Share Assuming Dilution to non-GAAP Net Earnings and Earnings Per Share Assuming Dilution table in this press release.

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. The amounts for these pre-tax non-GAAP adjustments can be found in the Quarterly Segment EBITDA tables in this press release.

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 provide 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 or transactions that have variability and volatility of the amount.  This measure may be useful to an investor in evaluating the underlying operating performance of our business.

EBITDA and adjusted EBITDA also provide 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 Vive, 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 Vive's underlying operational performance for the period. Management uses this measure as one of its bases for strategic planning and forecasting for Vive.  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, 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 (Loss) and Earnings (Loss) 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,

 

2020

2019

 

2020

2019

Net Earnings (Loss)

$

109,345

 

$

39,801

   

$

(102,283)

 

$

138,529

 

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

3,943

 

4,175

   

12,325

 

12,600

 

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

1,066

 

1,593

   

3,398

 

7,803

 

Add: Restructuring Expenses, net (5)(6)

2,940

 

4,250

   

25,252

 

29,082

 

Add: Acquisition Transaction and Transition Costs(7)

 

248

   

 

492

 

Add: Sales and Marketing Early Contract Termination Fees(8)

 

   

11,113

 

 

Add: Separation Costs(9)

6,019

 

   

8,182

 

 

Add: Impairment of Goodwill(10)

 

   

338,698

 

 

Less: Legal and Regulatory, net of Recoveries(11)

(607)

 

   

(633)

 

 

Less: NOL Carryback Revaluation

 

   

(35,540)

 

 

Non-GAAP Net Earnings

$

122,706

 

$

50,067

   

$

260,512

 

$

188,506

 
           

Earnings (Loss) Per Share Assuming Dilution(10)

$

1.60

 

$

0.58

   

$

(1.52)

 

$

2.02

 

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

 

0.02

   

0.05

 

0.11

 

Add: Restructuring Expenses, net(5)(6)

0.04

 

0.06

   

0.37

 

0.42

 

Add: Acquisition Transaction and Transition Costs(7)

 

   

 

0.01

 

Add: Sales and Marketing Early Contract Termination Fees(8)

 

   

0.16

 

 

Add: Separation Costs(9)

0.09

 

   

0.12

 

 

Add: Impairment of Goodwill(10)

 

   

4.99

 

 

Less: Legal and Regulatory, net of Recoveries(11)

(0.01)

 

   

(0.01)

 

 

Less: NOL Carryback Revaluation

 

   

(0.52)

 

 
           

Non-GAAP Earnings Per Share Assuming Dilution(12)(13)

$

1.80

 

$

0.73

   

$

3.84

 

$

2.74

 
           

Weighted Average Shares Outstanding Assuming Dilution

68,155

 

68,652

   

67,849

 

68,739

 

(1)

Net of taxes of $1,477 and $3,937 for the three and nine months ended September 30, 2020 calculated using the estimated tax rates of 27.3% and 24.2% for the respective periods.

(2)

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.

(3)

Net of taxes of $400 and $1,086 for the three and nine months ended September 30, 2020 calculated using the estimated tax rates of 27.3% and 24.2% for the respective periods.

(4)

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.

(5)

Net of taxes of $1,101 and $8,066 for the three and nine months ended September 30, 2020 calculated using the estimated tax rates of 27.3% and 24.2% for the respective periods.

(6)

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.

(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 $3,550 for the nine months ended September 30, 2020 calculated using the estimated tax rate of 24.2% for the respective periods.

(9)

Net of taxes of $2,255 and $2,614 for the three and nine months ended September 30, 2020 calculated using the estimated tax rates of 27.3% and 24.2% for the respective periods.

(10)

Net of taxes of $108,195 for the nine months ended September 30, 2020 calculated using the estimated tax rate of 24.2% for the period.

(11)

Net of taxes of $228 and $202 for the three and nine months ended September 30, 2020 calculated using the estimated tax rates of 27.3% and 24.2% for the respective periods.

(12)

For the nine months ended September 30, 2020, the GAAP Weighted Average Shares Outstanding Assuming Dilution was 67,107 and the Non-GAAP Weighted Average Shares Outstanding Assuming Dilution was 67,849.

(13)

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

Vive Pre-tax, Pre-provision Earnings (Loss)

(In thousands)

 
 

(Unaudited) 
 Three Months Ended

(Unaudited) 
 Nine Months Ended

 

September 30,

September 30,

 

2020

2019

2020

2019

Loss Before Income Taxes

$

(3,306)

 

$

(2,740)

 

$

(10,675)

 

$

(7,133)

 

Adjustment to Increase Allowance for Loan Losses During Period

4,722

 

1,271

 

11,041

 

1,084

 

Pre-tax, Pre-provision Earnings (Loss)

$

1,416

 

$

(1,469)

 

$

366

 

$

(6,049)

 

Aaron's Holdings Company, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)

 
 

(Unaudited)

 

Three Months Ended

 

September 30, 2020

 

Progressive Leasing

Aaron's Business

Vive

Consolidated Total

Net Earnings

     

$

109,345

 

Income Taxes1

     

30,992

 

Earnings (Loss) Before Income Taxes

$

103,835

 

$

39,808

 

$

(3,306)

 

140,337

 

Interest Expense

2,847

 

(1,833)

 

959

 

1,973

 

Depreciation

2,208

 

14,920

 

196

 

17,324

 

Amortization

5,420

 

1,640

 

145

 

7,205

 

EBITDA

$

114,310

 

$

54,535

 

$

(2,006)

 

$

166,839

 

Separation Costs

1,765

 

6,509

 

 

8,274

 

Legal and Regulatory Expense, Net of Recoveries

(835)

 

 

 

(835)

 

Restructuring Expenses

 

4,041

 

 

4,041

 

Adjusted EBITDA

$

115,240

 

$

65,085

 

$

(2,006)

 

$

178,319

 
 
 

(Unaudited)

 

Three Months Ended

 

September 30, 2019

 

Progressive Leasing

Aaron's Business

Vive

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

 

(1)

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

Aaron's Holdings Company, Inc. and Subsidiaries

Non-GAAP Financial Information

Nine Months Segment EBITDA

(In thousands)

 
 

(Unaudited)

 

Nine Months Ended

 

September 30, 2020

 

Progressive Leasing

Aaron's Business

Vive

Consolidated Total

Net Earnings

     

$

(102,283)

 

Income Tax Benefit1

     

(79,296)

 

Earnings (Loss) Before Income Taxes

$

222,636

 

$

(393,540)

 

$

(10,675)

 

(181,579)

 

Interest Expense

9,866

 

(4,043)

 

2,802

 

8,625

 

Depreciation

6,508

 

45,741

 

623

 

52,872

 

Amortization

16,262

 

5,114

 

435

 

21,811

 

EBITDA

$

255,272

 

$

(346,728)

 

$

(6,815)

 

$

(98,271)

 

Restructuring Expenses

 

33,318

 

 

33,318

 

Sales and Marketing Early Termination Fees

 

14,663

 

 

14,663

 

Separation Costs

1,765

 

9,031

 

 

10,796

 

Legal and Regulatory Expense, Net of Recoveries

(835)

 

 

 

(835)

 

Impairment of Goodwill

 

446,893

 

 

446,893

 

Adjusted EBITDA

$

256,202

 

$

157,177

 

$

(6,815)

 

$

406,564

 
         
 

(Unaudited)

 

Nine Months Ended

 

September 30, 2019

 

Progressive Leasing

Aaron's Business

Vive

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, Net

 

37,535

 

 

37,535

 

Acquisition Transaction and Transition Costs

 

635

 

 

635

 

Adjusted EBITDA

$

196,399

 

$

116,731

 

$

(3,502)

 

$

309,628

 

(1)

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

SOURCE Aaron's, Inc.

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