ATLANTA, Oct. 25, 2018
/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,
2018.
"This quarter demonstrates the strength of our model as we
achieved solid growth in both revenue and earnings while we
continued to invest in the future growth of our business," said
John Robinson, Chief Executive
Officer.
"Progressive achieved 32% EBITDA growth on a 27% increase in
revenue, driven by strong invoice volume growth, consistent
portfolio performance, and well-managed expenses. In addition, the
team continues to execute on the conversion of our robust retail
partner pipeline," continued Mr. Robinson.
"The Aaron's Business delivered improved same store revenue
performance in the quarter, and year-over-year recurring revenue
written into the portfolio was positive for the third consecutive
quarter. I am proud of the team as they balanced the onboarding of
90 newly acquired franchised stores with the advancement of our
business transformation. We continue to be encouraged by the
improvements we are seeing in the business and the results of these
initiatives," concluded Mr. Robinson.
Consolidated Results
For the third quarter of 2018, consolidated revenues were
$953.1 million compared with
$838.9 million for the third quarter
of 2017, an increase of $114.2
million or 13.6%. Importantly, the Aaron's Business same
store revenues were flat for the third quarter, which was a
continuation of the improving trend in same store revenues
experienced throughout 2018. The increase in consolidated revenues
was primarily due to the 26.6% increase in revenues at Progressive
and the addition of 90 franchised locations acquired by the Aaron's
Business early in the third quarter of 2018.
Net earnings for the third quarter were $43.7 million compared to $25.3 million in the prior year period, an
increase of $18.4 million or
72.5%. Adjusted EBITDA for the Company was $82.5 million for the third quarter of 2018,
compared with $67.7 million for the
same period in 2017, an increase of $14.8
million, or 21.8%. See "Use of Non-GAAP Financial
Information" and the related non-GAAP reconciliation accompanying
this press release.
Diluted earnings per share for the third quarter of 2018 were
$0.62 compared with $0.35 a year ago, an increase of $0.27 or 77.1%. On a non-GAAP basis, earnings per
share assuming dilution were $0.69 in
the third quarter of 2018 compared with $0.43 for the same quarter in 2017, an increase
of $0.26 or 60.5%. As a
reminder, third quarter 2017 results included the total estimated
impact of both Hurricanes Harvey and Irma, which was in the range
of $0.06 to $0.08 per share on a fully diluted basis.
The Company generated $363.0
million in cash from operations during the nine months ended
September 30, 2018 and ended the third quarter with
$35.0 million in cash, compared with
a cash balance of $51.0 million at
the end of 2017. During the quarter, the company used
$127.1 million for the acquisition of
90 franchised locations. Also during the quarter, the Company
returned $33.6 million to
shareholders through the payment of dividends as well as the
repurchase of common stock totaling 675,552 shares for $31.6 million, or an average price of
$46.72. The Company has
authorization to purchase an additional $400.0 million of its common stock.
Amendments to Term Loan Agreement and Franchisee Loan
Facility
On October 23, 2018, the Company
amended its revolving credit facility and term loan agreement
primarily to increase the term loan by $137.5 million, to $225.0
million. The Company intends to use the incremental
borrowings for general corporate and working capital purposes. The
Company also amended its franchise loan facility to reduce the
total commitment amount from $85.0
million to $55.0 million, and
extend the maturity date to October 23, 2019.
Progressive Leasing Segment Results
Progressive Leasing's revenues in the third quarter of 2018
increased 26.6% to $504.4 million
from $398.3 million in the third
quarter of 2017. Invoice volume increased 26.0% in the
quarter, driven by a 21.4% increase in invoice volume per active
door and a 3.8% increase in active doors to approximately
20,000. Progressive Leasing had 808,000 customers at
September 30, 2018, a 19.7% increase from September 30,
2017.
EBITDA for the third quarter of 2018 was $51.7 million compared with $39.3 million for the same period of 2017, an
increase of 31.6%. As a percentage of revenues, EBITDA was
10.3% for the third quarter of 2018 compared with 9.9% for the same
period in 2017. The provision for lease merchandise
write-offs was 6.8% of revenues in the third quarter of 2018,
compared with 6.2% in the same period of 2017. Bad debt
expense as a percentage of revenues remained consistent at 12.7%
for both third quarter periods. For the full year 2018, we expect
both bad debt expense and write-offs to be within the previously
guided ranges of 10% to 12% and 5% to 7%, respectively.
The Aaron's Business Segment Results
For the third quarter of 2018, total revenues for the Aaron's
Business increased 1.7% to $439.2
million from $431.7 million in
the third quarter of 2017. The increase was primarily due to the
acquisition of 90 franchised locations early in the third quarter
of 2018. Same store revenues were flat in the third quarter of
2018, continuing the trend of improvement experienced throughout
2018. The Company expects that same store revenues will turn
positive in the fourth quarter of 2018. Customer count on a
same store basis was down 5.3% during the third quarter of
2018. Company-operated Aaron's stores had 989,000 customers
at September 30, 2018, a 0.3%
increase from September 30, 2017.
Lease revenue and fees for the three months ended
September 30, 2018 increased 5.4% compared with the same
period in 2017. Non-retail sales, which primarily consist of
merchandise sales to the Company's franchisees, decreased 21.4% for
the three-month period ended September 30, 2018 compared with
the same period of the prior year. The decline is attributed
primarily to the franchise acquisitions completed in 2017 and
2018.
Adjusted EBITDA for the three months ended September 30,
2018 was $32.7 million compared with
$30.8 million for the same period in
2017, an increase of $2.0 million or
6.3%. As a percentage of revenues, Adjusted EBITDA was 7.5% for the
three months ended September 30, 2018 compared with 7.1% for
the same period last year.
Write-offs for damaged, lost or unsaleable merchandise were 5.4%
of revenues in the third quarter of 2018 compared with 5.2% for the
same period last year.
At September 30, 2018, the Aaron's Business had 1,267
Company-operated stores and 432 franchised stores. During the
third quarter of 2018, the Company acquired 90 franchised stores
and consolidated two Company-operated stores. Additionally,
during the quarter, no new franchised stores opened, six franchised
stores closed and three franchised stores were sold to a third
party.
Significant Components of Revenue
Consolidated lease revenues and fees for the three months ended
September 30, 2018 increased 16.6% over the same prior year
period. Franchise royalties and fees decreased 8.9% in the
third quarter of 2018 compared with the same period a year
ago. The decrease in franchise royalties and fees was the
combined result of the lower number of franchised stores and
decreases in revenues generated by the Company's franchisees.
Franchise revenues totaled $129.0
million for the three months ended September 30, 2018,
a decrease of 27.6% from the same period for the prior year.
Same store revenues for franchised stores were down 3.1% and same
store customer counts were down 3.5% for the third quarter of 2018
compared with the same quarter in 2017. Franchised stores had
306,000 customers at the end of the third quarter of 2018.
Revenues and customers of franchisees are not revenues and
customers of the Aaron's Business or the Company.
2018 Outlook
The Company is reaffirming and tightening its segment and
consolidated 2018 annual outlook.
|
|
Current
Outlook
|
Previous
Outlook
|
(In thousands,
except per share amounts)
|
|
Low
|
High
|
Low
|
High
|
Aaron's Inc. - Total
Revenues
|
|
$
|
3,795,000
|
|
$
|
3,855,000
|
|
$
|
3,680,000
|
|
$
|
3,890,000
|
|
Aaron's Inc. -
Adjusted EBITDA
|
|
382,500
|
|
395,500
|
|
380,000
|
|
413,000
|
|
Aaron's Inc. -
Diluted EPS
|
|
2.75
|
|
2.90
|
|
2.90
|
|
3.20
|
|
Aaron's Inc. -
Diluted Non-GAAP EPS
|
|
3.30
|
|
3.45
|
|
3.20
|
|
3.50
|
|
Aaron's Inc. -
Capital Expenditures
|
|
70,000
|
|
80,000
|
|
70,000
|
|
90,000
|
|
|
|
|
|
|
|
Aaron's Business -
Total Revenues
|
|
1,775,000
|
|
1,800,000
|
|
1,700,000
|
|
1,800,000
|
|
Aaron's Business -
Adjusted EBITDA
|
|
170,000
|
|
175,000
|
|
170,000
|
|
185,000
|
|
Aaron's Business -
Annual Same Store Revenues
|
|
(2.0)%
|
(1.0)%
|
(4.0)%
|
(1.0)%
|
|
|
|
|
|
|
Progressive - Total
Revenues
|
|
1,985,000
|
|
2,015,000
|
|
1,950,000
|
|
2,050,000
|
|
Progressive -
EBITDA
|
|
217,500
|
|
222,500
|
|
215,000
|
|
230,000
|
|
|
|
|
|
|
|
DAMI - Total
Revenues
|
|
35,000
|
|
40,000
|
|
30,000
|
|
40,000
|
|
DAMI - Adjusted
EBITDA
|
|
(5,000)
|
|
(2,000)
|
|
(5,000)
|
|
(2,000)
|
|
Conference Call and Webcast
The Company will hold a conference call to discuss its quarterly
results on Thursday, October 25, 2018, at 8:30 a.m. Eastern Time. The public is
invited to listen to the conference call by webcast accessible
through the Investor Relations section of the Company's website,
aarons.com. The webcast will be archived for playback at that same
site.
About Aaron's, Inc.
Headquartered in Atlanta,
Aaron's, Inc. (NYSE: AAN), is a leading omnichannel provider of
lease-purchase solutions. Progressive Leasing provides
lease-purchase solutions through more than 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
1,699 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 "believe," "guidance,"
"outlook," "expect," "will," "expectations," and "trends" and
similar terminology. These risks and uncertainties include
factors such as changes in general economic conditions,
competition, pricing, legal and regulatory proceedings and
investigations, customer privacy, information security, customer
demand, the execution and results of our strategy and expense
reduction and store closure and consolidation initiatives
(including the risk that the costs associated with these
initiatives exceeds expectations), risks related to our recent
franchisee acquisitions, including the risk that the financial
performance from those acquisitions does not meet expectations, the
business performance of our franchisees and our relationships with
our franchisees; risks related to Progressive Leasing's "virtual"
lease-to-own business, the outcome of Progressive Leasing's pilot
or test programs with various retailers and the results of
Progressive Leasing's efforts to expand its relationships with
existing retailer partners and establish new partnerships with
additional retailers, increases in lease merchandise write-offs and
bad debt expense associated with Progressive Leasing's growth in
doors and customers and changes in product mix, and the other risks
and uncertainties discussed under "Risk Factors" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Statements in this release
that are "forward-looking" include without limitation statements
about: our expectations regarding the strength of our lease-to-own
businesses; the results of our strategic investments, including our
acquisition of franchisees; our financial objectives; our
expectations regarding revenue and earnings growth due to our
investments in the Aaron's Business and Progressive Leasing;
whether those investments will strengthen our long-term competitive
position; our ability to invest in our operations and in
opportunities to promote growth; returning capital to our
shareholders; the performance of the Progressive lease portfolio
and expectations regarding the retail partner pipeline for
Progressive; the outcome of the transformation initiatives for the
Aaron's Business; the Company's projected results and the 2018
Guidance/Outlook set forth in this press release for the Company on
a consolidated basis, and for Progressive Leasing, the Aaron's
Business and DAMI, individually. You are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date of this press release. Except as
required by law, the Company undertakes no obligation to update
these forward-looking statements to reflect subsequent events or
circumstances after the date of this press release.
Aaron's, Inc. and
Subsidiaries Consolidated Statements of
Earnings (In thousands, except per share
amounts)
|
|
|
|
|
|
|
(Unaudited)
Three Months Ended
|
(Unaudited)
Nine Months Ended
|
|
|
September
30,
|
September
30,
|
|
|
2018
|
2017
|
2018
|
2017
|
Revenues:
|
|
|
|
|
|
Lease Revenues and
Fees
|
|
$
|
880,871
|
|
$
|
755,318
|
|
$
|
2,596,876
|
|
$
|
2,217,029
|
|
Retail
Sales
|
|
7,620
|
|
6,274
|
|
22,728
|
|
21,158
|
|
Non-Retail
Sales
|
|
44,368
|
|
56,443
|
|
151,259
|
|
195,372
|
|
Franchise Royalties
and Fees
|
|
10,153
|
|
11,140
|
|
35,140
|
|
38,165
|
|
Interest and Fees on
Loans Receivable
|
|
9,508
|
|
8,936
|
|
28,258
|
|
25,669
|
|
Other
|
|
551
|
|
772
|
|
1,478
|
|
1,688
|
|
Total
|
|
$
|
953,071
|
|
$
|
838,883
|
|
$
|
2,835,739
|
|
$
|
2,499,081
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
Depreciation of Lease
Merchandise
|
|
434,593
|
|
365,576
|
|
1,290,015
|
|
1,072,972
|
|
Retail Cost of
Sales
|
|
4,877
|
|
4,380
|
|
14,695
|
|
13,711
|
|
Non-Retail Cost of
Sales
|
|
35,214
|
|
50,750
|
|
130,302
|
|
174,653
|
|
Operating
Expenses
|
|
420,602
|
|
374,157
|
|
1,199,171
|
|
1,033,530
|
|
Restructuring
Expenses, Net
|
|
537
|
|
845
|
|
561
|
|
14,617
|
|
Other Operating
(Income) Expense, Net
|
|
(38)
|
|
486
|
|
(286)
|
|
(586)
|
|
Total
|
|
$
|
895,785
|
|
$
|
796,194
|
|
$
|
2,634,458
|
|
$
|
2,308,897
|
|
|
|
|
|
|
|
Operating
Profit
|
|
57,286
|
|
42,689
|
|
201,281
|
|
190,184
|
|
Interest
Income
|
|
18
|
|
344
|
|
374
|
|
1,696
|
|
Interest
Expense
|
|
(3,735)
|
|
(4,707)
|
|
(11,868)
|
|
(16,074)
|
|
Impairment of
Investment
|
|
—
|
|
—
|
|
(20,098)
|
|
—
|
|
Other Non-Operating
(Expense) Income, Net
|
|
(154)
|
|
895
|
|
458
|
|
3,033
|
|
Earnings Before
Income Tax Expense
|
|
$
|
53,415
|
|
$
|
39,221
|
|
$
|
170,147
|
|
$
|
178,839
|
|
|
|
|
|
|
|
Income Tax
Expense
|
|
9,695
|
|
13,880
|
|
35,680
|
|
63,863
|
|
Net
Earnings
|
|
$
|
43,720
|
|
$
|
25,341
|
|
$
|
134,467
|
|
$
|
114,976
|
|
|
|
|
|
|
|
Earnings Per
Share
|
|
$
|
0.64
|
|
$
|
0.36
|
|
$
|
1.93
|
|
$
|
1.62
|
|
Earnings Per Share
Assuming Dilution
|
|
$
|
0.62
|
|
$
|
0.35
|
|
$
|
1.89
|
|
$
|
1.60
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding
|
|
68,819
|
|
70,746
|
|
69,521
|
|
70,914
|
|
Weighted Average
Shares Outstanding Assuming Dilution
|
|
70,139
|
|
72,095
|
|
70,996
|
|
72,057
|
|
Selected Balance
Sheet Data (In thousands)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents
|
|
$
|
34,986
|
|
|
$
|
51,037
|
|
|
Investments
|
|
—
|
|
|
20,385
|
|
|
Accounts Receivable,
Net
|
|
92,311
|
|
|
99,887
|
|
|
Lease Merchandise,
Net
|
|
1,196,812
|
|
|
1,152,135
|
|
|
Loans Receivable,
Net
|
|
78,062
|
|
|
86,112
|
|
|
Property, Plant and
Equipment, Net
|
|
216,337
|
|
|
207,687
|
|
|
Other Assets,
Net
|
|
1,080,390
|
|
|
1,075,021
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,698,898
|
|
|
$
|
2,692,264
|
|
|
|
|
|
|
|
|
Debt
|
|
297,340
|
|
|
368,798
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
935,392
|
|
|
964,260
|
|
|
Shareholders'
Equity
|
|
1,763,506
|
|
|
1,728,004
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders' Equity
|
|
$
|
2,698,898
|
|
|
$
|
2,692,264
|
|
|
Selected Cash Flow
Data (In thousands)
|
|
|
|
|
|
(Unaudited)
Nine Months Ended
|
|
|
September
30,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Cash Provided by
Operating Activities
|
|
$
|
362,995
|
|
|
$
|
180,273
|
|
Cash Used in
Investing Activities
|
|
(192,345)
|
|
|
(185,784)
|
|
Cash Used in
Financing Activities
|
|
(186,700)
|
|
|
(176,899)
|
|
Effect of Exchange
Rate Changes on Cash & Cash Equivalents
|
|
(1)
|
|
|
102
|
|
Decrease in Cash and
Cash Equivalents
|
|
(16,051)
|
|
|
(182,308)
|
|
Cash and Cash
Equivalents at Beginning of Period
|
|
51,037
|
|
|
308,561
|
|
Cash and Cash
Equivalents at End of Period
|
|
$
|
34,986
|
|
|
$
|
126,253
|
|
Aaron's, Inc. and
Subsidiaries Quarterly Revenues by Segment (In
thousands)
|
|
|
|
(Unaudited)
|
|
Three Months
Ended
|
|
September 30,
2018
|
|
Progressive
Leasing
|
The 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
|
|
|
$
|
504,407
|
|
$
|
439,156
|
|
$
|
9,508
|
|
$
|
953,071
|
|
|
|
|
(Unaudited)
|
|
Three Months
Ended
|
|
September 30,
2017
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Lease Revenues and
Fees
|
$
|
398,282
|
|
$
|
357,036
|
|
$
|
—
|
|
$
|
755,318
|
|
Retail
Sales
|
—
|
|
6,274
|
|
—
|
|
6,274
|
|
Non-Retail
Sales
|
—
|
|
56,443
|
|
—
|
|
56,443
|
|
Franchise Royalties
and Fees
|
—
|
|
11,140
|
|
—
|
|
11,140
|
|
Interest and Fees on
Loans Receivable
|
—
|
|
—
|
|
8,936
|
|
8,936
|
|
Other
|
—
|
|
772
|
|
—
|
|
772
|
|
|
$
|
398,282
|
|
$
|
431,665
|
|
$
|
8,936
|
|
$
|
838,883
|
|
Aaron's, Inc. and
Subsidiaries Nine Months Revenues by
Segment (In thousands)
|
|
|
|
(Unaudited)
|
|
Nine Months
Ended
|
|
September 30,
2018
|
|
Progressive
Leasing
|
The 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
|
|
|
$
|
1,474,590
|
|
$
|
1,332,891
|
|
$
|
28,258
|
|
$
|
2,835,739
|
|
|
|
|
(Unaudited)
|
|
Nine Months
Ended
|
|
September 30,
2017
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Lease Revenues and
Fees
|
$
|
1,137,896
|
|
$
|
1,079,133
|
|
$
|
—
|
|
$
|
2,217,029
|
|
Retail
Sales
|
—
|
|
21,158
|
|
—
|
|
21,158
|
|
Non-Retail
Sales
|
—
|
|
195,372
|
|
—
|
|
195,372
|
|
Franchise Royalties
and Fees
|
—
|
|
38,165
|
|
—
|
|
38,165
|
|
Interest and Fees on
Loans Receivable
|
—
|
|
—
|
|
25,669
|
|
25,669
|
|
Other
|
—
|
|
1,688
|
|
—
|
|
1,688
|
|
|
$
|
1,137,896
|
|
$
|
1,335,516
|
|
$
|
25,669
|
|
$
|
2,499,081
|
|
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 2018
each 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 Perfect
Home Investment and the related expenses incurred. Non-GAAP
net earnings and non-GAAP diluted earnings per share for the third
quarter of 2017 exclude $5.4 million
in Progressive Leasing-related intangible amortization expense,
$1.0 million in amortization expense
resulting from franchisee acquisitions, $2.0
million in acquisition transaction and transition costs
related to the franchisee acquisition and $0.8 million in restructuring charges. For
the first nine months of 2017 Non-GAAP net earnings and non-GAAP
diluted earnings per share exclude $17.6
million in Progressive Leasing-related intangible
amortization expense, $1.0 million in
amortization expense resulting from franchisee acquisitions,
$2.0 million in acquisition
transaction and transition costs related to the franchisee
acquisition and $14.6 million in
restructuring charges.
The EBITDA and Adjusted EBITDA figures presented in this press
release are calculated as the Company's earnings before interest
expense, depreciation on property, plant and equipment,
amortization of intangible assets and income taxes. Adjusted
EBITDA also excludes the other adjustments described in the
calculation of non-GAAP net earnings above.
Management believes that non-GAAP net earnings, non-GAAP diluted
earnings per share, EBITDA and Adjusted EBITDA provide relevant and
useful information, and are widely used by analysts, investors and
competitors in our industry as well as by our management in
assessing both consolidated and business unit performance.
Non-GAAP net earnings and non-GAAP diluted earnings provides
management and investors with an understanding of the results from
the primary operations of our business by excluding the effects of
certain items that generally arose from larger, one-time
transactions that are not reflective of the ordinary earnings
activity of our operations. This measure may be useful to an
investor in evaluating the underlying operating performance of our
business.
EBITDA and Adjusted EBITDA also provides management and
investors with an understanding of one aspect of earnings before
the impact of investing and financing charges and income
taxes. These measures may be useful to an investor in
evaluating our operating performance and liquidity because the
measures:
- Are widely used by investors to measure a company's operating
performance without regard to items excluded from the calculation
of such measure, which can vary substantially from company to
company depending upon accounting methods, book value of assets,
capital structure and the method by which assets were acquired,
among other factors.
- Are a financial measurement that is used by rating agencies,
lenders and other parties to evaluate our creditworthiness.
- Are used by our management for various purposes, including as a
measure of performance of our operating entities and as a basis for
strategic planning and forecasting.
Finally, this press release presents pre-tax, pre-provision loss
for DAMI, which is also a supplemental measure not calculated in
accordance with GAAP. Management believes this measure is
useful because it gives management and investors an additional,
supplemental metric to assess DAMI's underlying operational
performance for the period. Due to the growth of our
originated credit card loan portfolio after our October 2015 acquisition of DAMI, we believe
pre-provision, pre-tax loss helps investors to assess DAMI's
operating performance until such time as the credit card portfolio
reaches levels which management believes will be normal and
recurring. Management uses this measure as one of its bases
for strategic planning and forecasting for DAMI. Our use of
pre-provision, pre-tax loss may not be comparable to similar
measures disclosed by other companies, because not all companies
and analysts calculate these measures in the same manner.
Non-GAAP financial measures, however, should not be used as a
substitute for, or considered superior to, measures of financial
performance prepared in accordance with GAAP, such as the Company's
GAAP basis net earnings and diluted earnings per share and the GAAP
earnings before income taxes of the Company's segments, which are
also presented in the press release. Further, we caution
investors that amounts presented in accordance with our definitions
of non-GAAP net earnings, non-GAAP diluted earnings per share,
EBITDA, Adjusted EBITDA and pre-tax, pre-provision loss may not be
comparable to similar measures disclosed by other companies,
because not all companies and analysts calculate these measures in
the same manner.
Reconciliation of
Net Earnings and Earnings Per Share Assuming Dilution to
Non-GAAP Net Earnings and Earnings Per Share Assuming
Dilution (In thousands, except per share)
|
|
|
|
|
|
(Unaudited)
Three Months Ended
|
|
(Unaudited)
Nine Months Ended
|
|
September
30,
|
|
September
30,
|
|
2018
|
2017
|
|
2018
|
2017
|
Net
Earnings
|
$
|
43,720
|
|
$
|
25,341
|
|
|
$
|
134,467
|
|
$
|
114,976
|
|
Add Progressive
Leasing-Related Intangible Amortization Expense
(1)(2)
|
4,186
|
|
3,503
|
|
|
12,616
|
|
11,314
|
|
Add
Franchisee-Related Intangible Amortization
Expense(3)(4)
|
2,288
|
|
673
|
|
|
4,163
|
|
670
|
|
Add Restructuring
Expense, net (5)(6)
|
415
|
|
546
|
|
|
435
|
|
9,397
|
|
Add Acquisition
Transaction and Transition Costs(7)(8)
|
499
|
|
1,275
|
|
|
501
|
|
1,268
|
|
Impairment of
Investment and Related Expenses(9)
|
—
|
|
—
|
|
|
16,777
|
|
—
|
|
Tax Act
Adjustments
|
(2,466)
|
|
—
|
|
|
(2,273)
|
|
—
|
|
Non-GAAP Net
Earnings
|
$
|
48,642
|
|
$
|
31,338
|
|
|
$
|
166,686
|
|
$
|
137,625
|
|
|
|
|
|
|
|
Earnings Per Share
Assuming Dilution
|
$
|
0.62
|
|
$
|
0.35
|
|
|
$
|
1.89
|
|
$
|
1.60
|
|
Add Progressive
Leasing-Related Intangible Amortization Expense
(1)(2)
|
0.06
|
|
0.05
|
|
|
0.18
|
|
0.16
|
|
Add
Franchisee-Related Intangible Amortization
Expense(3)(4)
|
0.03
|
|
0.01
|
|
|
0.06
|
|
0.01
|
|
Add Restructuring
Expense, net(5)(6)
|
0.01
|
|
0.01
|
|
|
0.01
|
|
0.13
|
|
Add Acquisition
Transaction and Transition Costs(7)(8)
|
0.01
|
|
0.02
|
|
|
0.01
|
|
0.02
|
|
Impairment of
Investment and Related Expenses(9)
|
—
|
|
—
|
|
|
0.24
|
|
—
|
|
Tax Act
Adjustments
|
(0.04)
|
|
—
|
|
|
(0.03)
|
|
—
|
|
Non-GAAP Earnings Per
Share Assuming Dilution(10)
|
$
|
0.69
|
|
$
|
0.43
|
|
|
$
|
2.35
|
|
$
|
1.91
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding Assuming Dilution
|
70,139
|
|
72,095
|
|
|
70,996
|
|
72,057
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
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.
|
(2)
|
Net of taxes of
$1,918 and $6,284 for the three and nine months ended
September 30, 2017 calculated using the effective tax rate for
the respective periods.
|
(3)
|
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.
|
(4)
|
Net of taxes of $369
and $372 for the three and nine months ended September 30,
2017 calculated using the effective tax rate for the respective
periods.
|
(5)
|
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.
|
(6)
|
Net of taxes of $299
and $5,220 for the three and nine months ended September 30,
2017 calculated using the effective tax rate for the respective
periods.
|
(7)
|
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.
|
(8)
|
Net of taxes of $698
and $705 for the three and nine months ended September 30,
2017 calculated using the effective tax rate for the respective
periods.
|
(9)
|
Net of taxes of
$4,848 for the nine months ended September 30, 2018 calculated
using the estimated tax rates of 22.42% for the respective
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,
|
|
2018
|
2017
|
2018
|
2017
|
Loss Before Income
Taxes
|
$
|
(3,065)
|
|
$
|
(3,997)
|
|
$
|
(6,663)
|
|
$
|
(8,457)
|
|
Adjustment to
Increase Allowance for Loan Losses During Period
|
1,552
|
|
1,449
|
|
1,684
|
|
3,838
|
|
Pre-tax,
Pre-provision Loss
|
$
|
(1,513)
|
|
$
|
(2,548)
|
|
$
|
(4,979)
|
|
$
|
(4,619)
|
|
Aaron's, Inc. and
Subsidiaries Non-GAAP Financial
Information Quarterly Segment EBITDA (In
thousands)
|
|
|
|
(Unaudited)
|
|
Three Months
Ended
|
|
September 30,
2018
|
|
Progressive
Leasing
|
The 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
|
|
|
|
(Unaudited)
|
|
Three Months
Ended
|
|
September 30,
2017
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Net
Earnings
|
|
|
|
$
|
25,341
|
|
Income
Taxes1
|
|
|
|
13,880
|
|
Earnings (Loss)
Before Income Taxes
|
27,734
|
|
15,484
|
|
(3,997)
|
|
39,221
|
|
Interest
Expense
|
4,562
|
|
(1,124)
|
|
1,269
|
|
4,707
|
|
Depreciation
|
1,587
|
|
12,166
|
|
179
|
|
13,932
|
|
Amortization
|
5,421
|
|
1,474
|
|
145
|
|
7,040
|
|
EBITDA
|
$
|
39,304
|
|
$
|
28,000
|
|
$
|
(2,404)
|
|
$
|
64,900
|
|
Restructuring
Expenses
|
—
|
|
819
|
|
26
|
|
845
|
|
Acquisition
Transaction and Transition Costs
|
—
|
|
1,973
|
|
—
|
|
1,973
|
|
Adjusted
EBITDA
|
$
|
39,304
|
|
$
|
30,792
|
|
$
|
(2,378)
|
|
$
|
67,718
|
|
|
|
(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,
2018
|
|
Progressive
Leasing
|
The 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
|
|
Impairment of
Investment and Related
Expenses
|
—
|
|
21,625
|
|
—
|
|
21,625
|
|
Restructuring
Expenses (Reversals), Net
|
—
|
|
571
|
|
(10)
|
|
561
|
|
Acquisition
Transaction and Transition Costs
|
—
|
|
646
|
|
—
|
|
646
|
|
Adjusted
EBITDA
|
$
|
153,731
|
|
$
|
123,106
|
|
$
|
(3,260)
|
|
$
|
273,577
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Nine Months
Ended
|
|
September 30,
2017
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Net
Earnings
|
|
|
|
$
|
114,976
|
|
Income
Taxes1
|
|
|
|
63,863
|
|
Earnings (Loss)
Before Income Taxes
|
101,732
|
|
85,564
|
|
(8,457)
|
|
178,839
|
|
Interest
Expense
|
14,023
|
|
(1,481)
|
|
3,532
|
|
16,074
|
|
Depreciation
|
4,522
|
|
35,719
|
|
479
|
|
40,720
|
|
Amortization
|
17,598
|
|
2,521
|
|
435
|
|
20,554
|
|
EBITDA
|
$
|
137,875
|
|
$
|
122,323
|
|
$
|
(4,011)
|
|
$
|
256,187
|
|
Restructuring
Expenses
|
—
|
|
14,353
|
|
264
|
|
14,617
|
|
Acquisition
Transaction and Transition Costs
|
—
|
|
1,973
|
|
—
|
|
1,973
|
|
Adjusted
EBITDA
|
$
|
137,875
|
|
$
|
138,649
|
|
$
|
(3,747)
|
|
$
|
272,777
|
|
|
|
(1)
|
Taxes are calculated
on a consolidated basis and are not identifiable by company
segments.
|
Reconciliation of
2018 Current Outlook for Adjusted EBITDA (In
thousands)
|
|
|
|
Fiscal Year 2018
Ranges
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Estimated Net
Earnings
|
—
|
—
|
—
|
$196,100 -
$206,100
|
Taxes1
|
—
|
—
|
—
|
56,000 -
59,000
|
Projected Earnings
Before Taxes
|
$179,800 -
$184,800
|
$81,500 -
$86,500
|
$(9,200) -
$(6,200)
|
252,100 -
265,100
|
Interest
Expense
|
9,700
|
1,500
|
3,400
|
14,600
|
Depreciation
|
6,000
|
54,000
|
800
|
60,800
|
Amortization
|
22,000
|
10,000
|
—
|
32,000
|
Projected
EBITDA
|
$217,500 -
$222,500
|
$147,000 -
$152,000
|
$(5,000) -
$(2,000)
|
$359,500 -
$372,500
|
Projected Other
Adjustments, Net2
|
—
|
23,000
|
—
|
23,000
|
Projected Adjusted
EBITDA
|
$217,500 -
$222,500
|
$170,000 -
$175,000
|
$(5,000) -
$(2,000)
|
$382,500 -
$395,500
|
|
|
(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, the impairment of the PerfectHome
investment and related expenses and one-time charges related to the
franchisee acquisitions.
|
Reconciliation of
2018 Previous Outlook for EBITDA (In
thousands)
|
|
|
|
Fiscal Year 2018
Ranges
|
|
Progressive
Leasing
|
The Aaron's
Business
|
DAMI
|
Consolidated
Total
|
Estimated Net
Earnings
|
—
|
—
|
—
|
$209,000 -
$234,000
|
Taxes1
|
—
|
—
|
—
|
68,000 -
76,000
|
Projected Earnings
Before Taxes
|
$175,000 -
$190,000
|
$112,000 -
$127,000
|
$(10,000) -
$(7,000)
|
277,000 -
310,000
|
Interest
Expense
|
10,000
|
—
|
3,500
|
13,500
|
Depreciation
|
8,000
|
51,000
|
1,500
|
60,500
|
Amortization
|
22,000
|
7,000
|
—
|
29,000
|
Projected
EBITDA
|
$215,000 -
$230,000
|
$170,000 -
$185,000
|
$(5,000) -
$(2,000)
|
$380,000 -
$413,000
|
|
|
(1)
|
Taxes are calculated
on a consolidated basis and are not identifiable by company
divisions.
|
Reconciliation of
2018 Current Outlook for Earnings Per Share Assuming
Dilution to Non-GAAP Earnings Per Share Assuming
Dilution
|
|
|
|
Fiscal Year 2018
Range
|
|
Low
|
High
|
Projected Earnings
Per Share Assuming Dilution
|
$
|
2.75
|
|
$
|
2.90
|
|
Add Projected
Intangible Amortization Expense1
|
0.30
|
|
0.30
|
|
Add Sum of Other
Adjustments2
|
0.25
|
|
0.25
|
|
Projected Non-GAAP
Earnings Per Share Assuming Dilution
|
$
|
3.30
|
|
$
|
3.45
|
|
|
|
(1)
|
Includes projected
intangible amortization related to the acquisition of Progressive
Leasing and franchisee acquisitions.
|
(2)
|
Other Adjustments
include the non-GAAP charges related to the Aaron's Business
restructuring, impairment of the PerfectHome investment and related
expenses, Tax Act adjustments and estimated one-time charges
related to the franchisee acquisitions.
|
Reconciliation of
2018 Previous Outlook for Earnings Per Share Assuming
Dilution to Non-GAAP Earnings Per Share Assuming
Dilution
|
|
|
|
Fiscal Year 2018
Range
|
|
Low
|
High
|
Projected Earnings
Per Share Assuming Dilution
|
$
|
2.90
|
|
$
|
3.20
|
|
Add Projected
Intangible Amortization Expenses1
|
0.30
|
|
0.30
|
|
Projected Non-GAAP
Earnings Per Share Assuming Dilution
|
$
|
3.20
|
|
$
|
3.50
|
|
|
|
(1)
|
Includes projected
intangible amortization related to the acquisition of Progressive
Leasing and the franchisee acquisition.
|
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SOURCE Aaron's, Inc.