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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.

Aaron's Inc. Logo

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

Consolidated Results

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

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

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

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

Progressive Leasing Segment Results

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

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

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

The Aaron's Business Segment Results

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

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

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

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

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

Significant Components of Revenue and Franchise Performance

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

2019 Outlook



Current Outlook1

Previous Outlook

Original Outlook

(In thousands, except per share amounts)


Low

High

Low

High

Low

High

Aaron's Inc. - Total Revenues


$

3,905,000


$

4,010,000


$

3,905,000


$

4,065,000


$

3,905,000


$

4,065,000


Aaron's Inc. - Adjusted EBITDA


425,000


437,000


430,000


452,000


415,000


442,000


Aaron's Inc. - Diluted EPS


2.95


3.05


3.11


3.26


3.15


3.35


Aaron's Inc. - Diluted Non-GAAP EPS


3.75


3.85


3.85


4.00


3.65


3.85


Aaron's Inc. - Capital Expenditures


90,000


100,000


100,000


120,000


100,000


120,000










Progressive - Total Revenues


2,100,000


2,150,000


2,100,000


2,175,000


2,100,000


2,175,000


Progressive - EBITDA


275,000


280,000


275,000


285,000


260,000


275,000










Aaron's Business - Total Revenues


1,775,000


1,825,000


1,775,000


1,855,000


1,775,000


1,855,000


Aaron's Business - Adjusted EBITDA


155,000


160,000


160,000


170,000


160,000


170,000


Aaron's Business - Annual Same-Store Revenues


(1.0%)


1.0%


0.0%


2.0%


0.0%


2.0%










DAMI - Total Revenues


30,000


35,000


30,000


35,000


30,000


35,000


DAMI - Adjusted EBITDA


(5,000)


(3,000)


(5,000)


(3,000)


(5,000)


(3,000)




1

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

Conference Call and Webcast

The Company will hold a conference call to discuss its quarterly results on Monday, November 4, at 5:00 p.m. Eastern Time.  The public is invited to listen to the conference call by webcast accessible through the Investor Relations section of the Company's website, aarons.com.  The webcast will be archived for playback at that same site.

About Aaron's, Inc.

Headquartered in Atlanta, Aaron's, Inc. (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.

 

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SOURCE Aaron's, Inc.

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