Form 8-K AARON'S INC For: Jul 29
Exhibit 10.1
July 28, 2020
Ryan K. Woodley
Progressive Finance Holdings, LLC
256 W. Data Drive
Draper, Utah 84020
Re: New Role Going Forward
Dear Ryan:
As we have discussed, the purpose of this letter agreement is to set forth our mutual agreement regarding the terms and conditions of your new role with Progressive Finance Holdings, LLC, its subsidiaries and related entities (“Progressive”). Please review this letter carefully and, if you are in agreement with the terms contained herein, please sign and return it to John Karr.
1. New Role and Term.
(a) You will resign from all offices of Progressive (including, but not limited to, the Chief Executive Officer position) effective as of July 30, 2020 (your “Resignation Date”).
(b) For a 12-month period beginning on July 31, 2020 you will be on garden leave (the “Garden Leave Period”) and during the Garden Leave Period you will provide such limited services to Progressive as it may reasonably request, provided that such services are limited to coaching, consulting and assisting in the onboarding of your replacement and assisting in any resolved, pending or future legal or regulatory matters involving Progressive. For the avoidance of doubt, during the Garden Leave Period, you shall not be considered an officer of Progressive and therefore shall have no control, operational, oversight or other policy-making functions. You will be reimbursed for all reasonable business expenses you incur during the Garden Leave Period in accordance with Progressive’s expense reimbursement policies. During the Garden Leave Period, you will not be discouraged or prohibited from seeking employment with, or being employed by, any other entity; provided, however, that any such employment, and your actions in connection therewith, are consistent with the restrictive covenants you have entered into in connection with this letter agreement and any other agreement between you and Progressive and/or its affiliates.
2. Compensation and Benefits.
(a) During the Garden Leave Period and subject to compliance with the terms of this letter, you will be paid at the rate of $200,000 annually in substantially equal regular periodic payments in accordance with Progressive’s regular payroll process, less all applicable withholdings and deductions.
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Exhibit 10.1
(b) Your participation in Progressive’s benefits plans will continue during the Garden Leave Period in accordance with the terms of such plans. Participation in all benefit plans of Progressive will end on the last day of your employment in accordance with the terms of such plans.
(c) Your annual cash incentive award for 2020, if any, will be paid on a pro rata basis (based on your Resignation Date) as promptly as practicable after the Compensation Committee determines whether the applicable performance metrics were met for the full 2020 fiscal year, which typically occurs within 90-days of year-end.
(d) Schedule 1 attached hereto correctly sets forth all of your rights and interests, including the vested amounts, in the equity or equity-based awards previously granted to you under Progressive’s incentive plans. Such awards will be administered in accordance with their respective plan and award documents, provided, however, that (i) for purposes of such awards, you will be deemed to not have experienced a termination of employment any time prior to August 1, 2021, such that you shall vest in all awards that are scheduled to vest prior to such date, (ii) for purposes of all stock option award agreements, you will have the right to exercise vested options until October 1, 2021, and (iii) the amount of your March 6, 2020 performance-based award that you will be eligible to earn will be calculated pro rata (based on your Resignation Date) on the date the Compensation Committee determines whether the applicable performance metrics for calendar year 2020 were met (for such purpose, your award will be treated in the same manner as those held by members of the Progressive executive team with respect to determinations of achievement of applicable performance metrics). The timing of settlement of all awards subject to continued vesting under clause (i) of the preceding sentence shall be unchanged and shall continue to be governed by the applicable award agreements.
3. Indemnification Agreement and Other Agreements. This letter sets forth the entire agreement between you and Progressive pertaining to the subject matter hereof. This letter supersedes all prior agreements addressing severance or separation pay or benefits between you and Progressive, including your Severance and Change-in-Control Agreement dated February 27, 2019. For the avoidance of doubt, this letter does not abrogate, limit, supersede or otherwise impair any of the terms or conditions of your Indemnification Agreement, dated October 16, 2019, attached hereto as Exhibit A. Similarly, this letter does not abrogate, limit, supersede or otherwise impair any of Progressive’s rights or any of your post-employment obligations under any confidentiality, trade secrets, non-compete or other similar agreements.
4. General Release. Notwithstanding anything contained in this letter to the contrary, Progressive’s obligations hereunder are subject to the satisfaction of the following conditions: (a) you execute and deliver to Progressive no later than 21 calendar days after your Resignation Date and after the end of the Garden Leave Period the general release attached hereto as Exhibit B (the “Release Agreement”); (b) you do not revoke either of the Release Agreements within seven calendar days after their respective executions; and (c) each of the Release Agreements becomes effective and irrevocable in accordance with its terms.
5. Governing Law. This letter will be construed in accordance with the laws of the State of Utah without regard to choice or conflict of law principles. The language of all parts of
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Exhibit 10.1
this letter will be construed as a whole, according to its fair meaning, and not strictly for or against either party.
6. No Reliance. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this letter.
7. Assignment. Your rights and benefits under this letter are personal to you and therefore (a) no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; and (b) you may not delegate your duties or obligations hereunder. This letter shall inure to the benefit of and be binding upon Progressive and its successors and assigns.
8. Counterparts. This letter may be executed in several counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.
[Remainder of page intentionally left blank.]
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Exhibit 10.1
Ryan, I appreciate your loyal service leading Progressive and our many years of friendship. We wish you and your family all the best.
Sincerely,
AARON’S, INC.
/s/ John W. Robinson III
John W. Robinson III
President and Chief Executive Officer
AGREED TO:
/s/ Ryan K. Woodley_______________________
Ryan K. Woodley
Date: July 28, 2020________________
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EXHIBIT 99.1
| Contact: | Aaron’s, Inc. | |||||||
| Michael P. Dickerson | ||||||||
| Vice President, Corporate Communications & Investor Relations | ||||||||
| 678.402.3590 | ||||||||
| Mike.Dickerson@Aarons.com | ||||||||
Aaron’s, Inc. Reports Second Quarter Revenue and Earnings
•Revenues of $1.0 Billion, up 6.4%
•Diluted EPS $1.01; Non-GAAP Diluted EPS $1.18, up 27.4%
•Progressive Record Revenues up 14.2%
•Aaron's Business Same Store Revenues up 1.4%
ATLANTA, July 29, 2020 - Aaron’s, Inc. (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three months ended June 30, 2020.
“The Company’s second quarter results significantly exceeded our expectations as we managed the business through the uncertainty caused by the COVID-19 pandemic. Progressive's results were favorably impacted by improving invoice growth throughout the quarter, operating expense management and strong customer payment activity. Similarly, the Aaron's Business second quarter financial strength is the result of strong customer payment activity, lower write-offs, and operating expense management. We continue to maintain a conservatively capitalized balance sheet and have experienced strong year-to-date operating cash flow. Overall, I am very pleased with our second quarter results and would like to express my deepest gratitude to our team members across all of our businesses for their dedication during these challenging times," said John Robinson, Chief Executive Officer of Aaron's, Inc.
Consolidated Results
For the second quarter of 2020, consolidated revenues were $1.03 billion compared with $968.1 million for the second quarter of 2019, an increase of 6.4%. The increase in consolidated revenues was due to an increase in revenues at Progressive partially offset by lower revenues in the Aaron's Business.
Net earnings for the second quarter of 2020 were $68.4 million compared to net earnings of $42.7 million in the prior year period. Net earnings in the second quarter of 2020 and 2019 included $7.0 million and $18.7 million, respectively, in pre-tax restructuring charges.
Adjusted EBITDA for the Company was $129.8 million for the second quarter of 2020, compared with $107.4 million for the same period in 2019, an increase of $22.4 million, or 20.9%. As a percentage of revenues, Adjusted EBITDA was 12.6% in the second quarter of 2020 compared with 11.1% for the same period in 2019.
Diluted earnings per share for the second quarter of 2020 were $1.01 compared with diluted earnings per share of $0.62 in the year ago period. On a non-GAAP basis, diluted earnings per share were $1.18 in the second quarter of 2020. This compares with non-GAAP earnings per share of $0.93 for the same quarter in 2019, an increase of $0.25 or 26.9%.
The Company generated $360.8 million in cash from operations during the six months ended June 30, 2020 and ended the second quarter with $313.1 million in cash, compared with a cash balance of $57.8 million at the end of 2019. Total available liquidity was approximately $800 million at June 30, 2020.
Progressive Leasing Segment Results
Progressive Leasing’s revenues in the second quarter of 2020 increased 14.2% to a record $589.7 million compared to $516.3 million in the second quarter of 2019. Second quarter invoice volume decreased 2.2% due primarily to the COVID-related closure of many retail partner locations, which have recently begun to reopen. Invoice volume per active door was up 1.7% while active doors were down 3.9% to approximately 19,000. Progressive Leasing had 902,000 customers at June 30, 2020, a 0.8% decrease from June 30, 2019.
Earnings before income taxes for the second quarter of 2020 were $59.8 million compared to $58.4 million in the prior year period. EBITDA for the second quarter of 2020 was $70.7 million compared with $68.2 million for the same period of 2019, an increase of 3.6%. As a percentage of revenues, EBITDA was 12.0% for the second quarter of 2020, a decrease of 120 basis points compared to the second quarter of 2019. Lower SG&A expenses and merchandise write-offs were more than offset by lower year-over-year gross margins resulting from higher 90-day buyout activity in the second quarter.
The provision for lease merchandise write-offs was 6.1% of revenues in the second quarter of 2020 compared with 7.6% in the same period of 2019. The decrease in the provision for lease merchandise write-offs was due primarily to strong customer payment activity and more conservative decisioning.
The Aaron’s Business Segment Results
For the second quarter of 2020, total revenues for the Aaron’s Business decreased 2.8% to $431.0 million from $443.2 million in the second quarter of 2019. The decrease was primarily due to the net reduction of 185 stores during the 15-month period ended June 30, 2020, a lower lease portfolio balance entering the quarter, and the temporary impact of COVID-related showroom closures during the second quarter of 2020, partially offset by strong customer payment activity. Same-store revenues were up 1.4% due primarily to strong customer payment activity including early buyout revenue and retail sales and continued growth in e-commerce revenue. Customer count on a same-store basis was down 6.5% during the second quarter of 2020 compared to the same period in 2019. Company-operated Aaron’s stores had 898,000 customers at June 30, 2020, an 8.7% decrease from June 30, 2019.
Lease revenue and fees for the three months ended June 30, 2020 decreased 2.8% compared with the same period in 2019. Non-retail sales, which primarily consist of merchandise sales to the Company’s franchisees, decreased 3.2% for the second quarter of 2020 compared with the same period of the prior year.
Earnings before income taxes for the second quarter of 2020 were $32.0 million which includes the impact of $7.0 million in restructuring charges. Adjusted EBITDA for the three months ended June 30, 2020 was $57.1 million, compared to $39.7 million for the same period in 2019, an increase of $17.4 million or 44.0%. The increase in adjusted EBITDA was due primarily to strong customer payment activity, improved merchandise write-offs and lower SG&A expenses, partially offset by the impact of a lower portfolio balance entering the second quarter and the temporary impact of COVID related showroom closures during the second quarter of 2020.
The provision for lease merchandise write-offs was 3.7% of revenues in the second quarter of 2020, compared with 5.6% for the same period last year. Contributing to the year-over-year improvement in write-offs was strong customer payment activity, both in-store and on Aarons.com.
At June 30, 2020, the Aaron’s Business had 1,098 Company-operated stores and 316 franchised stores.
Significant Components of Revenue and Franchise Performance
Consolidated lease revenues and fees for the three months ended June 30, 2020 increased 6.9% over the same period of the prior year. Franchise royalties and fees decreased 60.9% in the second quarter of 2020 compared with the same period a year ago. That decrease resulted from the temporary suspension of franchise royalty fees from early March until late May, as part of the COVID-19 relief the Aaron's Business offered franchisees, and a lower number of franchised stores. Franchisee revenues totaled $104.2 million for the three months ended June 30, 2020, a decrease of 3.5% from the same period for the prior year. Same-store revenues for franchised stores increased 6.6% and same-store customer counts declined 7.6% for the second quarter of 2020 compared with the same quarter in 2019. Franchised stores had 216,000 customers at the end of the second 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 third quarter, we expect consolidated revenues between $950 million and $975 million and Non-GAAP Diluted Earnings Per Share of between $0.80 and $0.90. This outlook assumes no significant deterioration in the current retail environment, some level of continuing government stimulus, and a gradual improvement in global supply chain conditions.
Reconciliation of Non-GAAP Items
| Q3 2020 Range | ||||||||
| Low | High | |||||||
| Projected Earnings Per Share Assuming Dilution | $ | 0.74 | $ | 0.84 | ||||
| Add: Projected Intangible Amortization Expense | 0.06 | 0.06 | ||||||
| Projected Non-GAAP Earnings Per Share Assuming Dilution | $ | 0.80 | $ | 0.90 | ||||
Conference Call and Webcast
The Company will hold a conference call to discuss its quarterly results on Wednesday, July 29, 2020, at 8:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's investor relations website, investor.aarons.com. The webcast will be archived for playback at that same site.
About Aaron’s, Inc.
Headquartered in Atlanta, Aaron’s, Inc. (NYSE: AAN), is a leading omnichannel provider of lease-purchase solutions. Progressive Leasing provides lease-purchase solutions through more than 19,000 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.com. Vive Financial ("Vive", formerly Dent-A-Med, Inc.), 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 ViveCard.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 "continue", "expect", "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) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our businesses; (iii) 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; (iv) other types of legal and regulatory proceedings and investigations, including those related to customer privacy, third party and employee fraud and information security; (v) 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); (vi) 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; (vii) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and on-line retailers and other competitors; (viii) 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; (ix) 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 March 31, 2020. Statements in this press release that are “forward-looking” include without limitation statements about (i) the strength of our balance sheet and our liquidity; and (ii) our outlook for our consolidated financial performance for the third 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, Inc. and Subsidiaries
Consolidated Statements of Earnings
(In thousands, except per share amounts)
| (Unaudited) Three Months Ended | (Unaudited) Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Revenues: | |||||||||||||||||
| Lease Revenues and Fees | $ | 969,987 | $ | 907,565 | $ | 2,017,900 | $ | 1,851,722 | |||||||||
| Retail Sales | 14,020 | 8,898 | 23,551 | 21,707 | |||||||||||||
| Non-Retail Sales | 33,044 | 34,124 | 59,890 | 71,105 | |||||||||||||
| Franchise Royalties and Fees | 3,365 | 8,605 | 10,089 | 17,812 | |||||||||||||
| Interest and Fees on Loans Receivable | 9,414 | 8,610 | 19,322 | 17,256 | |||||||||||||
| Other | 289 | 339 | 641 | 642 | |||||||||||||
| Total | 1,030,119 | 968,141 | 2,131,393 | 1,980,244 | |||||||||||||
| Costs and Expenses: | |||||||||||||||||
| Depreciation of Lease Merchandise | 547,551 | 474,868 | 1,144,958 | 975,688 | |||||||||||||
| Retail Cost of Sales | 9,065 | 5,651 | 15,927 | 14,283 | |||||||||||||
| Non-Retail Cost of Sales | 29,316 | 28,948 | 52,897 | 58,144 | |||||||||||||
| Operating Expenses | 343,850 | 383,576 | 756,820 | 770,792 | |||||||||||||
| Restructuring Expenses, Net | 6,991 | 18,738 | 29,277 | 32,019 | |||||||||||||
| Impairment of Goodwill | — | — | 446,893 | — | |||||||||||||
| Other Operating (Income) Expense, Net | (96) | (3,486) | 74 | (4,383) | |||||||||||||
| Total | 936,677 | 908,295 | 2,446,846 | 1,846,543 | |||||||||||||
| Operating Profit (Loss) | 93,442 | 59,846 | (315,453) | 133,701 | |||||||||||||
| Interest Income | 227 | 944 | 419 | 1,045 | |||||||||||||
| Interest Expense | (2,853) | (4,300) | (6,652) | (9,256) | |||||||||||||
| Other Non-Operating Income (Expense), Net | 1,721 | 329 | (230) | 1,637 | |||||||||||||
| Earnings (Loss) Before Income Tax Expense | 92,537 | 56,819 | (321,916) | 127,127 | |||||||||||||
| Income Tax Expense (Benefit) | 24,160 | 14,169 | (110,288) | 28,399 | |||||||||||||
| Net Earnings (Loss) | $ | 68,377 | $ | 42,650 | $ | (211,628) | $ | 98,728 | |||||||||
| Earnings (Loss) Per Share | $ | 1.02 | $ | 0.63 | $ | (3.16) | $ | 1.46 | |||||||||
| Earnings (Loss) Per Share Assuming Dilution | $ | 1.01 | $ | 0.62 | $ | (3.16) | $ | 1.44 | |||||||||
| Weighted Average Shares Outstanding | 67,097 | 67,687 | 66,959 | 67,492 | |||||||||||||
| Weighted Average Shares Outstanding Assuming Dilution | 67,523 | 68,793 | 66,959 | 68,784 | |||||||||||||
Aaron’s, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
| (Unaudited) | |||||||||||||||||
| June 30, 2020 | December 31, 2019 | ||||||||||||||||
| ASSETS: | |||||||||||||||||
| Cash and Cash Equivalents | $ | 313,057 | $ | 57,755 | |||||||||||||
| Accounts Receivable (net of allowances of $73,294 in 2020 and $76,293 in 2019) | 79,933 | 104,159 | |||||||||||||||
| Lease Merchandise (net of accumulated depreciation and allowances of $878,259 in 2020 and $896,056 in 2019) | 1,119,640 | 1,433,417 | |||||||||||||||
| Loans Receivable (net of allowances and unamortized fees of $37,649 in 2020 and $21,134 in 2019) | 58,870 | 75,253 | |||||||||||||||
| Property, Plant and Equipment at Cost (net of accumulated depreciation of $326,340 in 2020 and $311,252 in 2019) | 228,088 | 237,666 | |||||||||||||||
| Operating Lease Right-of-Use Assets | 279,802 | 329,211 | |||||||||||||||
| Goodwill | 288,801 | 736,582 | |||||||||||||||
| Other Intangibles (net of accumulated amortization of $164,324 in 2020 and $151,932 in 2019) | 176,104 | 190,796 | |||||||||||||||
| Income Tax Receivable | 57,487 | 18,690 | |||||||||||||||
| Prepaid Expenses and Other Assets | 113,920 | 114,271 | |||||||||||||||
| Total Assets | $ | 2,715,702 | $ | 3,297,800 | |||||||||||||
| LIABILITIES & SHAREHOLDERS’ EQUITY: | |||||||||||||||||
| Accounts Payable and Accrued Expenses | $ | 249,182 | $ | 272,816 | |||||||||||||
| Accrued Regulatory Expense | — | 175,000 | |||||||||||||||
| Deferred Income Taxes Payable | 234,380 | 310,395 | |||||||||||||||
| Customer Deposits and Advance Payments | 89,435 | 91,914 | |||||||||||||||
| Operating Lease Liabilities | 335,705 | 369,386 | |||||||||||||||
| Debt | 285,801 | 341,030 | |||||||||||||||
| Total Liabilities | 1,194,503 | 1,560,541 | |||||||||||||||
| SHAREHOLDERS' EQUITY: | |||||||||||||||||
| Common Stock, Par Value $0.50 Per Share: Authorized: 225,000,000 Shares at June 30, 2020 and December 31, 2019; Shares Issued: 90,752,123 at June 30, 2020 and December 31, 2019 | 45,376 | 45,376 | |||||||||||||||
| Additional Paid-in Capital | 290,653 | 290,229 | |||||||||||||||
| Retained Earnings | 1,805,869 | 2,029,613 | |||||||||||||||
| Accumulated Other Comprehensive Loss | (1,442) | (19) | |||||||||||||||
| Less: Treasury Shares at Cost | |||||||||||||||||
| Common Stock: 23,613,045 Shares at June 30, 2020 and 24,034,053 at December 31, 2019 | (619,257) | (627,940) | |||||||||||||||
| Total Shareholders’ Equity | 1,521,199 | 1,737,259 | |||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 2,715,702 | $ | 3,297,800 | |||||||||||||
Aaron’s, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| (Unaudited) | Six Months Ended June 30, | ||||||||||
| (In Thousands) | 2020 | 2019 | |||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net (Loss) Earnings | $ | (211,628) | $ | 98,728 | |||||||
| Adjustments to Reconcile Net (Loss) Earnings to Cash Provided by Operating Activities: | |||||||||||
| Depreciation of Lease Merchandise | 1,144,958 | 975,688 | |||||||||
| Other Depreciation and Amortization | 50,154 | 53,862 | |||||||||
| Accounts Receivable Provision | 158,587 | 137,611 | |||||||||
| Provision for Credit Losses on Loans Receivable | 16,150 | 9,223 | |||||||||
| Stock-Based Compensation | 12,487 | 14,231 | |||||||||
| Deferred Income Taxes | (73,656) | 19,928 | |||||||||
| Impairment of Goodwill and Other Assets | 468,634 | 26,267 | |||||||||
| Non-Cash Lease Expense | 50,638 | 58,073 | |||||||||
| Other Changes, Net | 5,109 | (3,390) | |||||||||
| Changes in Operating Assets and Liabilities, Net of Effects of Acquisitions and Dispositions: | |||||||||||
| Additions to Lease Merchandise | (1,032,977) | (1,141,863) | |||||||||
| Book Value of Lease Merchandise Sold or Disposed | 201,058 | 196,219 | |||||||||
| Accounts Receivable | (134,467) | (126,112) | |||||||||
| Prepaid Expenses and Other Assets | (4,711) | (6,847) | |||||||||
| Income Tax Receivable | (38,797) | 17,227 | |||||||||
| Operating Lease Liabilities | (53,544) | (62,541) | |||||||||
| Accounts Payable and Accrued Expenses | (19,713) | (21,465) | |||||||||
| Accrued Regulatory Expense | (175,000) | — | |||||||||
| Customer Deposits and Advance Payments | (2,527) | (200) | |||||||||
| Cash Provided by Operating Activities | 360,755 | 244,639 | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Investments in Loans Receivable | (39,986) | (29,506) | |||||||||
| Proceeds from Loans Receivable | 32,248 | 27,720 | |||||||||
| Outflows on Purchases of Property, Plant and Equipment | (33,885) | (48,059) | |||||||||
| Proceeds from Property, Plant and Equipment | 2,220 | 1,425 | |||||||||
| Outflows on Acquisitions of Businesses and Customer Agreements, Net of Cash Acquired | (1,209) | (7,612) | |||||||||
| Proceeds from Dispositions of Businesses and Customer Agreements, Net of Cash Disposed | 359 | 755 | |||||||||
| Cash Used in Investing Activities | (40,253) | (55,277) | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Repayments on Revolving Facility, Net | — | (16,000) | |||||||||
| Proceeds from Debt | 5,625 | — | |||||||||
| Repayments on Debt | (60,748) | (61,465) | |||||||||
| Dividends Paid | (5,351) | (4,717) | |||||||||
| Acquisition of Treasury Stock | — | (14,414) | |||||||||
| Issuance of Stock Under Stock Option Plans | 2,250 | 5,056 | |||||||||
| Shares Withheld for Tax Payments | (5,877) | (12,977) | |||||||||
| Debt Issuance Costs | (1,020) | — | |||||||||
| Cash Used in Financing Activities | (65,121) | (104,517) | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (79) | 119 | |||||||||
| Increase in Cash and Cash Equivalents | 255,302 | 84,964 | |||||||||
| Cash and Cash Equivalents at Beginning of Period | 57,755 | 15,278 | |||||||||
| Cash and Cash Equivalents at End of Period | $ | 313,057 | $ | 100,242 | |||||||
Aaron’s, Inc. and Subsidiaries
Quarterly Revenues by Segment
(In thousands)
| (Unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| June 30, 2020 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Lease Revenues and Fees | $ | 589,749 | $ | 380,238 | $ | — | $ | 969,987 | ||||||
| Retail Sales | — | 14,020 | — | 14,020 | ||||||||||
| Non-Retail Sales | — | 33,044 | — | 33,044 | ||||||||||
| Franchise Royalties and Fees | — | 3,365 | — | 3,365 | ||||||||||
| Interest and Fees on Loans Receivable | — | — | 9,414 | 9,414 | ||||||||||
| Other | — | 289 | — | 289 | ||||||||||
| Total Revenues | $ | 589,749 | $ | 430,956 | $ | 9,414 | $ | 1,030,119 | ||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| June 30, 2019 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Lease Revenues and Fees | $ | 516,333 | $ | 391,232 | $ | — | $ | 907,565 | ||||||
| Retail Sales | — | 8,898 | — | 8,898 | ||||||||||
| Non-Retail Sales | — | 34,124 | — | 34,124 | ||||||||||
| Franchise Royalties and Fees | — | 8,605 | — | 8,605 | ||||||||||
| Interest and Fees on Loans Receivable | — | — | 8,610 | 8,610 | ||||||||||
| Other | — | 339 | — | 339 | ||||||||||
| Total Revenues | $ | 516,333 | $ | 443,198 | $ | 8,610 | $ | 968,141 | ||||||
Aaron’s, Inc. and Subsidiaries
Six Months Revenues by Segment
(In thousands)
| (Unaudited) | ||||||||||||||
| Six Months Ended | ||||||||||||||
| June 30, 2020 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Lease Revenues and Fees | $ | 1,248,283 | $ | 769,617 | $ | — | $ | 2,017,900 | ||||||
| Retail Sales | — | 23,551 | — | 23,551 | ||||||||||
| Non-Retail Sales | — | 59,890 | — | 59,890 | ||||||||||
| Franchise Royalties and Fees | — | 10,089 | — | 10,089 | ||||||||||
| Interest and Fees on Loans Receivable | — | — | 19,322 | 19,322 | ||||||||||
| Other | — | 641 | — | 641 | ||||||||||
| Total Revenues | $ | 1,248,283 | $ | 863,788 | $ | 19,322 | $ | 2,131,393 | ||||||
| (Unaudited) | ||||||||||||||
| Six Months Ended | ||||||||||||||
| June 30, 2019 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Lease Revenues and Fees | $ | 1,039,734 | $ | 811,988 | $ | — | $ | 1,851,722 | ||||||
| Retail Sales | — | 21,707 | — | 21,707 | ||||||||||
| Non-Retail Sales | — | 71,105 | — | 71,105 | ||||||||||
| Franchise Royalties and Fees | — | 17,812 | — | 17,812 | ||||||||||
| Interest and Fees on Loans Receivable | — | — | 17,256 | 17,256 | ||||||||||
| Other | — | 642 | — | 642 | ||||||||||
| Total Revenues | $ | 1,039,734 | $ | 923,254 | $ | 17,256 | $ | 1,980,244 | ||||||
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 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 and accounting fees incurred in conjunction with the Company's implementation of a Holding Company structure 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) Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Net Earnings (Loss) | $ | 68,377 | $ | 42,650 | $ | (211,628) | $ | 98,728 | |||||||||
Add: Progressive Leasing-Related Intangible Amortization Expense (1)(2) | 4,260 | 4,069 | 8,229 | 8,420 | |||||||||||||
Add: Franchisee-Related Intangible Amortization Expense(3)(4) | 1,130 | 2,971 | 2,291 | 6,216 | |||||||||||||
Add: Restructuring Expenses, net (5)(6) | 5,494 | 14,065 | 22,221 | 24,866 | |||||||||||||
Add: Acquisition Transaction and Transition Costs(7) | — | 150 | — | 243 | |||||||||||||
Add: Sales and Marketing Early Contract Termination Fees(8) | — | — | 11,129 | — | |||||||||||||
Add: Holding Company Legal and Accounting Fees(9) | 1,982 | — | 1,914 | — | |||||||||||||
Add: Impairment of Goodwill(10) | — | — | 339,191 | — | |||||||||||||
| Less: NOL Carryback Revaluation | (1,350) | — | (35,540) | — | |||||||||||||
| Non-GAAP Net Earnings | $ | 79,893 | $ | 63,905 | $ | 137,807 | $ | 138,473 | |||||||||
Earnings (Loss) Per Share Assuming Dilution(10) | $ | 1.01 | $ | 0.62 | $ | (3.16) | $ | 1.44 | |||||||||
Add: Progressive Leasing-Related Intangible Amortization Expense (1)(2) | 0.06 | 0.06 | 0.12 | 0.12 | |||||||||||||
Add: Franchisee-Related Intangible Amortization Expense(3)(4) | 0.02 | 0.04 | 0.03 | 0.09 | |||||||||||||
Add: Restructuring Expenses, net(5)(6) | 0.08 | 0.20 | 0.33 | 0.36 | |||||||||||||
Add: Acquisition Transaction and Transition Costs(7) | — | — | — | — | |||||||||||||
Add: Sales and Marketing Early Contract Termination Fees(8) | — | — | 0.16 | — | |||||||||||||
Add: Holding Company Legal and Accounting Fees(9) | 0.03 | — | 0.03 | — | |||||||||||||
Add: Impairment of Goodwill(10) | — | — | 5.01 | — | |||||||||||||
| Less: NOL Carryback Revaluation | (0.02) | — | (0.53) | — | |||||||||||||
Non-GAAP Earnings Per Share Assuming Dilution(11)(12) | $ | 1.18 | $ | 0.93 | $ | 2.04 | $ | 2.01 | |||||||||
| Weighted Average Shares Outstanding Assuming Dilution | 67,523 | 68,793 | 67,694 | 68,784 | |||||||||||||
(1)Net of taxes of $1,161 and $2,613 for the three and six months ended June 30, 2020 calculated using the estimated tax rates of 21.4% and 24.1% for the respective periods.
(2)Net of taxes of $1,352 and $2,422 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.
(3)Net of taxes of $308 and $727 for the three and six months ended June 30, 2020 calculated using the estimated tax rates of 21.4% and 24.1% for the respective periods.
(4)Net of taxes of $987 and $1,788 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.
(5)Net of taxes of $1,497 and $7,056 for the three and six months ended June 30, 2020 calculated using the estimated tax rates of 21.4% and 24.1% for the respective periods.
(6)Net of taxes of $4,673 and $7,153 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.
(7)Net of taxes of $50 and $70 for the three and six months ended June 30, 2019 calculated using the effective tax rate for the respective periods.
(8)Net of taxes of $3,534 for the six months ended June 30, 2020 calculated using the estimated tax rate of 24.1% for the respective periods.
(9)Net of taxes of $540 and $608 for the three and six months ended June 30, 2020 calculated using the estimated tax rates of 21.4% and 24.1% for the respective periods.
(10)Net of taxes of $107,702 for the six months ended June 30, 2020 calculated using the estimated tax rate of 24.1% for the period.
(11)For the six months ended June 30, 2020, the GAAP Weighted Average Shares Outstanding Assuming Dilution was 66,959 and the Non-GAAP Weighted Average Shares Outstanding Assuming Dilution was 67,694.
(12)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 Loss
(In thousands)
| (Unaudited) Three Months Ended | (Unaudited) Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| Earnings (Loss) Before Income Taxes | $ | 714 | $ | (1,725) | $ | (7,369) | $ | (4,393) | ||||||
| Adjustment to (Decrease) Increase Allowance for Loan Losses During Period | (901) | 420 | 6,319 | (187) | ||||||||||
| Pre-tax, Pre-provision Loss | $ | (187) | $ | (1,305) | $ | (1,050) | $ | (4,580) | ||||||
Aaron’s, Inc. and Subsidiaries
Non-GAAP Financial Information
Quarterly Segment EBITDA
(In thousands)
| (Unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| June 30, 2020 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Net Income | $ | 68,377 | ||||||||||||
Income Taxes1 | 24,160 | |||||||||||||
Earnings Before Income Taxes | $ | 59,814 | $ | 32,009 | $ | 714 | 92,537 | |||||||
Interest Expense | 3,299 | (1,358) | 912 | 2,853 | ||||||||||
| Depreciation | 2,179 | 15,300 | 210 | 17,689 | ||||||||||
| Amortization | 5,421 | 1,632 | 145 | 7,198 | ||||||||||
| EBITDA | $ | 70,713 | $ | 47,583 | $ | 1,981 | $ | 120,277 | ||||||
| Holding Company Legal and Accounting Fees | — | 2,522 | — | 2,522 | ||||||||||
| Restructuring Expenses | — | 6,991 | — | 6,991 | ||||||||||
| Adjusted EBITDA | $ | 70,713 | $ | 57,096 | $ | 1,981 | $ | 129,790 | ||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| June 30, 2019 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Net Earnings | $ | 42,650 | ||||||||||||
Income Taxes1 | 14,169 | |||||||||||||
Earnings (Loss) Before Income Taxes | $ | 58,406 | $ | 138 | $ | (1,725) | 56,819 | |||||||
| Interest Expense | 2,242 | 1,209 | 849 | 4,300 | ||||||||||
| Depreciation | 2,160 | 15,077 | 201 | 17,438 | ||||||||||
| Amortization | 5,421 | 4,296 | 145 | 9,862 | ||||||||||
| EBITDA | $ | 68,229 | $ | 20,720 | $ | (530) | $ | 88,419 | ||||||
| Restructuring Expenses | — | 18,738 | — | 18,738 | ||||||||||
| Acquisition Transaction and Transition Costs | — | 200 | — | 200 | ||||||||||
| Adjusted EBITDA | $ | 68,229 | $ | 39,658 | $ | (530) | $ | 107,357 | ||||||
(1)Taxes are calculated on a consolidated basis and are not identifiable by Company segments.
Aaron’s, Inc. and Subsidiaries
Non-GAAP Financial Information
Six Months Segment EBITDA
(In thousands)
| (Unaudited) | ||||||||||||||
| Six Months Ended | ||||||||||||||
| June 30, 2020 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Net Loss | $ | (211,628) | ||||||||||||
Income Tax Benefit1 | (110,288) | |||||||||||||
Earnings (Loss) Before Income Taxes | $ | 118,801 | $ | (433,348) | $ | (7,369) | (321,916) | |||||||
Interest Expense | 7,019 | (2,210) | 1,843 | 6,652 | ||||||||||
| Depreciation | 4,300 | 30,821 | 427 | 35,548 | ||||||||||
| Amortization | 10,842 | 3,474 | 290 | 14,606 | ||||||||||
| EBITDA | $ | 140,962 | $ | (401,263) | $ | (4,809) | $ | (265,110) | ||||||
Restructuring Expenses | — | 29,277 | — | 29,277 | ||||||||||
| Sales and Marketing Early Termination Fees | — | 14,663 | — | 14,663 | ||||||||||
| Holding Company Legal and Accounting Fees | — | 2,522 | — | 2,522 | ||||||||||
| Impairment of Goodwill | — | 446,893 | — | 446,893 | ||||||||||
| Adjusted EBITDA | $ | 140,962 | $ | 92,092 | $ | (4,809) | $ | 228,245 | ||||||
| (Unaudited) | ||||||||||||||
| Six Months Ended | ||||||||||||||
| June 30, 2019 | ||||||||||||||
| Progressive Leasing | Aaron’s Business | Vive | Consolidated Total | |||||||||||
| Net Earnings | $ | 98,728 | ||||||||||||
Income Taxes1 | 28,399 | |||||||||||||
Earnings (Loss) Before Income Taxes | $ | 113,794 | $ | 17,726 | $ | (4,393) | 127,127 | |||||||
| Interest Expense | 4,964 | 2,563 | 1,729 | 9,256 | ||||||||||
| Depreciation | 3,947 | 29,665 | 391 | 34,003 | ||||||||||
| Amortization | 10,842 | 8,727 | 290 | 19,859 | ||||||||||
| EBITDA | $ | 133,547 | $ | 58,681 | $ | (1,983) | $ | 190,245 | ||||||
Restructuring Expenses, Net | — | 32,019 | — | 32,019 | ||||||||||
| Acquisition Transaction and Transition Costs | — | 313 | — | 313 | ||||||||||
| Adjusted EBITDA | $ | 133,547 | $ | 91,013 | $ | (1,983) | $ | 222,577 | ||||||
(1) Taxes are calculated on a consolidated basis and are not identifiable by Company segments.
EXHIBIT 99.2
Aaron’s, Inc. Announces Intent to Separate into Two Public Companies
Separation Expected to Sharpen Strategic Focus and Operational Execution
and Deliver Long-Term Shareholder Value
Steve Michaels Named CEO of Progressive; Douglas Lindsay Named CEO of Aaron’s Business
Company to Host Conference Call Today at 8:30 a.m. ET
ATLANTA, July 29, 2020 – Aaron's, Inc. (the “Company”) (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, today announced that it intends to separate into two independent, publicly-traded companies: Progressive Leasing (“Progressive”) and the Aaron’s Business (“Aaron’s”). Both companies are expected to benefit from improved strategic focus, market-leading positions, strong free cash flow generation and well-capitalized balance sheets, enabling each to unlock substantial value creation opportunities. The separation is planned as a tax-free spin-off of Aaron’s to the Company’s shareholders and is expected to be completed by the end of the year.
“I’m proud that we have built two strong businesses, both of which are well-positioned for long-term success as independent companies,” said John Robinson, President and Chief Executive Officer of Aaron’s, Inc. “The Board and management team believe that separating Progressive and Aaron’s will enhance long-term shareholder value and is the next logical step in the evolution of our organization.”
The proposed transaction will create two highly focused companies:
Progressive: With approximately $2.2 billion of revenue in 2019, Progressive will be comprised of the Company’s current Progressive business segment as well as Vive Financial. As a standalone company, Progressive will be well-positioned for continued strong growth by:
•Investing in innovative technologies
•Growing existing retail partnerships
•Attracting new retail partner opportunities in a large addressable market
•Maintaining an attractive financial profile driven by a capital-efficient business model in a high-growth market
Aaron’s: With approximately $1.8 billion of revenue in 2019, Aaron’s will be comprised of approximately 1,400 company-operated and franchised stores in 47 U.S. states and Canada, the e-commerce platform Aarons.com, and Woodhaven Furniture Industries (“Woodhaven”). As an established leader in the lease-to-own industry, Aaron’s will be well-positioned to:
•Execute its strategic priorities, including its real estate repositioning and digitally-enabled omnichannel strategies
•Provide compelling customer value proposition driven by competitive pricing, high approval rates and local servicing advantages
•Maintain an attractive financial profile including future earnings growth and positive free cash flow
EXHIBIT 99.2
Leadership and Governance
Steve Michaels, the Company’s Chief Financial Officer and President of Strategic Operations, has been appointed Chief Executive Officer of the Company’s Progressive Leasing business segment, effective July 31, 2020, succeeding Ryan Woodley. Mr. Michaels has been instrumental in building and positioning the Company for long-term success. Importantly, he led the 2014 acquisition of Progressive and has worked closely with that team for the last several years. Mr. Woodley will serve as an advisor to Progressive to ensure a seamless transition.
Blake Wakefield, President and Chief Revenue Officer of the Progressive Leasing business segment, who has been instrumental in the growth of Progressive Leasing and the development of its retail partner portfolio, will continue to serve in that capacity. Both Messrs. Michaels and Wakefield will continue to serve in their respective capacities following completion of the separation.
Also, effective July 31, 2020, Douglas Lindsay, President of the Company’s Aaron’s Business segment, will become Chief Executive Officer of the Aaron’s Business, and Steve Olsen, Chief Operating Officer of the Aaron’s Business, will become President of the Aaron’s Business. Messrs. Lindsay and Olsen have been the primary architects of the Aaron’s Business transformation, including its merchandising, real estate and technology strategies. Both Messrs. Lindsay and Olsen will continue to serve in their respective capacities following completion of the separation.
John Robinson, President and Chief Executive Officer of Aaron’s, Inc., will continue in his current role and will oversee the separation. He is expected to depart from his day-to-day role at the Company upon the earlier of completing the separation or December 31, 2020 and is expected to serve as Chairman of Aaron’s. Ray Robinson, who currently serves as the Company’s Chairman, is expected to serve as Chairman of Progressive following the separation.
Kelly Wall, Senior Vice President of Finance and Treasurer of Aaron’s, Inc., will serve as Interim Chief Financial Officer of the Company until the separation has been completed.
“I am pleased to have Steve and Douglas lead Progressive and Aaron’s to ensure the continued innovation, growth and value creation of these two great businesses,” said John Robinson. “Their experience and expertise have been critical to me over the last several years. I look forward to working with them as we complete the separation and continuing to work with Douglas in my role as Chairman of Aaron’s after the separation.”
Mr. Robinson continued, “On behalf of the Board and management team, I would like to thank Ryan Woodley for his outstanding leadership of Progressive over the past five years and his willingness to continue to serve in an advisory capacity during this transition. During his tenure as CEO, Progressive has quadrupled in size and generated remarkable growth for our Company. Without his contributions, this value-creating opportunity would not have been possible. We wish Ryan and his family all the best and appreciate his continuing support of Progressive.”
Additional management team and board member appointments for both companies will be announced prior to the separation.
Until the planned separation has been completed, the Company expects to continue to pay its regular quarterly cash dividend. Each business will set its own dividend policy following the separation.
EXHIBIT 99.2
Transaction Details
The transaction is expected to be completed by the end of 2020, subject to customary closing conditions, including final approval from the Company’s Board of Directors, receipt of a tax opinion of legal counsel with respect to the tax-free nature of the separation, and effectiveness of a Form 10 registration statement to be filed with the U.S. Securities and Exchange Commission. The Company may, at any time and for any reason until the proposed separation has been completed, determine not to consummate the separation or to modify or change its terms.
Advisors
Goldman Sachs & Co. LLC is acting as financial advisor and King & Spalding LLP is acting as legal advisor to the Company.
Aaron’s, Inc. Second Quarter Earnings
In a separate press release issued today, Aaron’s, Inc. also announced financial results for the second quarter ended June 30, 2020.
Conference Call and Webcast
The Company will host a conference call with members of the management team to discuss the transaction and its second quarter earnings on July 29, 2020, at 8:30 a.m. Eastern Time. Members of the investment community are invited to join the conference call by dialing 844-802-2444 (U.S.) or 412-317-5137 (International) and requesting to join the Aaron’s, Inc call. In addition, the call will be available by webcast, accessible through the Aaron’s Investor Relations page at http://investor.aarons.com/. The webcast will be archived for playback on 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 and the District of Columbia, including e-commerce merchants. 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 and Canada, as well as its e-commerce platform, Aarons.com. Vive Financial, provides a variety of near-prime credit products that are originated through federally-insured banks. For more information, visit investor.aarons.com, Aarons.com, ProgLeasing.com, and ViveCard.com.
EXHIBIT 99.2
Forward-Looking Statements
Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release 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 “intends,” “expected,” “planned,” "will,” “positioned,” and similar terminology. These risks and uncertainties include factors such as (a) uncertainties as to the timing of the separation and whether it will be completed; (b) the possibility that various closing conditions for the separation may not be satisfied; (c) failure of the separation to qualify for the expected tax treatment; (d) 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; (e) the possibility that the operational, strategic and shareholder value creation opportunities from the separation may not be achieved; (f) the effects on our business from the COVID-19 pandemic, including its impact on our revenue and overall financial performance and the manner in which we are able to conduct our operations; (g) increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments in light of the impact of the COVID-19 pandemic; and (h) 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 March 31, 2020. Statements in this press release that are "forward-looking" include without limitation statements regarding the planned separation of the Aaron’s and Progressive businesses, the timing of any such separation, the expected benefits of the separation, and the future performance of the Aaron’s and Progressive businesses if the separation is completed. 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.
Contact
Aaron’s, Inc.
Michael P. Dickerson
Vice President, Corporate Communications & Investor Relations
678-402-3590
Mike.Dickerson@aarons.com
Exhibit 99.3 Announces Intent to Separate Into Two Public Companies July 29, 2020
SAFE HARBOR STATEMENT Forward-Looking Statements Statement under the Private Securities Litigation Reform Act of 1995: Statements in this presentation 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 “intends,” “expected,” “planned,” "will,” “positioned,” and similar terminology. These risks and uncertainties include factors such as (a) uncertainties as to the timing of the separation and whether it will be completed; (b) the possibility that various closing conditions for the separation may not be satisfied; (c) failure of the separation to qualify for the expected tax treatment; (d) the risk that the Aaron's Business and Progressive Leasing will not be separated successfully or such separation may be more difficult, time-consuming and/or costly than expected; (e) the possibility that the operational, strategic and shareholder value creation opportunities from the separation may not be achieved; (f) the effects on our business from the COVID-19 pandemic, including its impact on our revenue and overall financial performance and the manner in which we are able to conduct our operations; (g) increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments in light of the impact of the COVID-19 pandemic; and (h) the other risks and uncertainties discussed under "Risk Factors" in Aaron's, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Aaron's, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. Statements in this presentation that are "forward-looking" include without limitation statements regarding the planned separation of the Aaron's Business and Progressive Leasing, the timing of any such separation, the expected benefits of the separation, and the future performance of the Aaron's Business and Progressive Leasing if the separation is completed. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Except as required by law, Aaron's, Inc. undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this presentation. Non-GAAP Financial Information This presentation includes non-GAAP financial measures, such as adjusted EBITDA and free cash flow, that exclude certain items we do not consider reflective of our cash operations and core business performance. We believe that the presentation of these non-GAAP financial measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. These non-GAAP financial measures should be considered in context with our GAAP financial results. A reconciliation of each non- GAAP financial measure presented to the nearest equivalent GAAP financial measure appears in the appendix to this presentation. 2
OVERVIEW Intends to Separate into Two Independent, Highly-Focused Publicly-Traded Companies Comprised of ~1,400 company-operated and Comprised of Progressive Leasing and Vive Financial franchised stores in 47 U.S. States & Canada, the e- commerce platform Aarons.com, & Woodhaven Furniture Industries Partners With HEADQUARTERS 2019 REVENUE HEADQUARTERS 2019 REVENUE 1.2 Million Thousands of Retail DRAPER, UT $2.2B ATLANTA, GA $1.8B Customers Partners 3
PROGRESSIVE AT A GLANCE Key 2019 Highlights** Select Merchant Partnerships $2.2 Billion $269 Million $1.8 Billion Invoice* Revenue Adj. EBITDA 20.2% Growth 19.6% Growth 23.2% Growth* Adj. EBITDA Margin of Write-offs* 1.1 Million Customers 12.4% 7.2% of Net Revenue 22.4% Growth Key Investment Highlights Retail Partner Categories* – FY 2019 Other 1 Strong Value Proposition: Provides access to quality merchandise at leading Jewelry 2% retailers, through a simple and easy-to-use process with competitive pricing 16% Visibility into Lease Portfolio: Supported by advanced algorithms, additional 2 predictive metrics, and a short average portfolio duration of seven months Mobile Phones 12% Furniture Significant Opportunity in New and Existing Doors: Strong growth in new 53% 3 doors and continued growth in existing doors driven by increased penetration Automobile 7% Robust Pipeline: Expected future growth with many national and regional 4 retail partners across Progressive’s core verticals Mattresses 10% Source: Aaron’s, Inc. 10-K dated February 20, 2020 * Progressive Leasing business segment only; Retail Partner Category % represents Progressive Leasing revenue attributable to different retail partner categories. 4 ** - See Appendix for reconciliation of Non-GAAP financial measures
PROGRESSIVE LEADERSHIP TEAM • Named Chief Financial Officer and President of Strategic Operations of Aaron’s, Inc. in February of 2016 STEVE MICHAELS • Oversees several key business functions including analytics, business development and manufacturing • Previously served as Aaron’s President from April 2014 until February 2016, and in that role successfully developed and Chief Executive Officer implemented strategies to strengthen the Aaron’s Business and launch the Aaron’s e-commerce business • Holds a BS degree in Finance from the University of Florida and an MBA from Georgia State University • Named President and Chief Revenue Officer in January of 2015 following the Progressive acquisition by Aaron’s BLAKE WAKEFIELD • Joined Progressive in February of 2013 as the Senior Vice President of Sales and Marketing President & Chief • Prior to Progressive, served as the Sr. Director of Sales and Marketing in the Americas and EMEA for Seagate Technology Revenue Officer • Holds a Bachelor of Science degree in Marketing and International Business from Brigham Young University, and a Master of Business Administration degree from Portland State University • Board Director of Aaron’s, Inc. since 2002, and Non-executive Chairman since 2014 • Held several executive positions at AT&T from 1968-2003, including President of the Southern Region RAY ROBINSON • Extensive technology, banking, communications, strategic and executive leadership and marketing experience, as well as Chairman of the Board experience serving as a public company director • Holds a Bachelor of Science degree in Finance and Economics and a Master of Business Administration in Finance from the University of Denver Full management teams and boards for both companies will be provided in the months leading up to the separation 5
AARON’S AT A GLANCE Aaron’s offers a compelling customer value proposition and an attractive, recurring revenue business model Key 2019 Highlights* Strategic Priorities Utilize technology to simplify and digitize the customer experience $1.8 Billion $166 Million SSR of 0%, Revenue Adj. EBITDA 136 bps Improvement Optimize store footprint, generating substantial cash flow and a more efficient cost structure E-comm Lease 1.2 Million Vertically Integrated Originations Up 51% Customers Furniture Manufacturing Continue to strengthen the Aaron’s brand Key Investment Highlights Key Product Categories (% 2019 Revenue) Furniture (44%) Home Appliances (27%) 1 Large customer opportunity comprising ~30% of the U.S. population Compelling customer value proposition driven by competitive pricing, high 2 approval rates and local service advantages Digitally-enabled, omni-channel strategy that provides an integrated online and 3 in-store experience Consumer Electronics1 (20%) Computers (6%) 4 Opportunity to grow earnings by executing strategic priorities Expect attractive financial profile driven by strong cash generation with 5 substantial capital available to return to shareholders * - See Appendix for reconciliation of Non-GAAP financial measures 6 1 Consumer Electronics includes televisions, gaming and audio.
AARON’S BUSINESS LEADERSHIP TEAM • Served as Aaron’s Business President of Sales & Lease Ownership since February 2016 • More than 20 years of experience leading companies in the financial services and real estate industries DOUGLAS LINDSAY • Former CFO and COO of Ace Cash Express Chief Executive Officer • Holds an M.B.A. from the Cox School of Business at Southern Methodist University and a B.S. in Business Administration and Accounting from Washington and Lee University • Served as Aaron’s Business COO of Sales & Lease Ownership since May 2020 • Joined the company in December 2016 as the Chief Merchandising and Supply Chain Officer and was promoted to the Chief Transformation Officer in 2019 STEVE OLSEN • More than 23 years of experience in leadership positions at multiple retailers including, Total Wine & More, Orchard Supply President Hardware and Office Depot • Started his career with Accenture leading strategy consulting engagements across many retailers • Holds a B.A. in Organizational Behavior and Management and History from Brown University • CEO and member of the Aaron’s, Inc. Board of Directors since November 2014 JOHN ROBINSON • Holds a Bachelor of Arts degree from Washington & Lee University, and an MBA from the Tuck School of Business at Dartmouth Chairman of the Board College Full management teams and boards for both companies will be provided in the months leading up to the separation 7
PATHWAY TO COMPLETION Transaction Planned as a tax-free spin-off of the Aaron’s Business to the Company’s shareholders Structure Financial Until the separation is complete, Aaron’s, Inc. expects to continue to pay its regular quarterly cash dividend Implications Each company will set its own capital allocation policies after completion of the separation Expected to be completed by the end of 2020, subject to customary closing conditions, including: Timing and Effectiveness of a Form 10 registration statement to be filed with the U.S. SEC Other Matters Receipt of a tax opinion of legal counsel with respect to the tax-free nature of the separation Final approval from the Company’s Board of Directors 8
2019 FINANCIALS Progressive ($ millions) Aaron's Business Consolidated + Vive Full presentations Total Revenues $ 2,163 $ 1,784 $ 3,947 detailing balance sheets and financial and operational YoY Growth 19.6% -0.5% 9.6% characteristics for both companies will be provided prior to separation Adjusted EBITDA* $ 269 $ 166 $ 435 Adjusted EBITDA Margin* 12.4% 9.3% 11.0% * - See Appendix for reconciliation of Non-GAAP financial measures 9
APPENDIX
Reconciliation of Non-GAAP Items: 2018 - 2019 REVENUE BY SEGMENT ($ 000s) Progressive + Vive Aaron's Business Consolidated Year Ending December 31, 2019 Lease Revenues and Fees $ 2,128,133 $ 1,570,358 $ 3,698,491 Retail Sales - 38,474 38,474 Non-Retail Sales - 140,950 140,950 Franchise Royalties and Fees - 33,432 33,432 Interest and Fees on Loans Receivable 35,046 - 35,046 Other - 1,263 1,263 Total Revenues $ 2,163,179 $ 1,784,477 $ 3,947,656 YoY Growth 19.6% (0.5%) 9.6% Year Ending December 31, 2018 Lease Revenues and Fees $ 1,998,981 $ 1,507,437 $ 3,506,418 Retail Sales - 31,271 31,271 Non-Retail Sales - 207,262 207,262 Franchise Royalties and Fees - 44,815 44,815 Interest and Fees on Loans Receivable 37,318 - 37,318 Other - 1,839 1,839 Total Revenues $ 2,036,299 $ 1,792,624 $ 3,828,923 Progressive Bad Debt Expense 227,813 - 227,813 Total Revenues, net of Progressive Bad Debt Expense (1) $ 1,808,486 $ 1,792,624 $ 3,601,110 (1) “Total Revenues, net of Progressive Bad Debt Expense” for 2018 are a supplemental measure of our performance that are not calculated in accordance with GAAP in place during 2018. The non-GAAP measures assumes that Progressive bad debt expense is recorded as a reduction to lease revenues and fees instead of within operating expenses in 2018 to provide comparability with the financial results we reported beginning in 2019 when ASC 842 became effective and we began reporting Progressive's bad debt expense as a reduction to lease revenues and fees. See Use of Non-GAAP Financial Information within Item 7 of the Company's Form 10-K filed on Feburary 20, 2020 for further details. 11
Reconciliation of Non-GAAP Items: 2018 - 2019 ADJUSTED EBITDA RECONCILIATION ($ 000s) Progressive + Vive Aaron's Business Consolidated Year Ending December 31, 2019 Net Earnings $ 31,472 Income Taxes (1) 61,316 Earnings Before Income Taxes $ 46,057 $ 46,731 $ 92,788 Interest Expense 12,099 4,868 16,967 Depreciation 9,089 60,415 69,504 Amortization 22,263 13,294 35,557 EBITDA $ 89,508 $ 125,308 $ 214,816 Restructuring Expense - 39,990 39,990 Acquisition Transaction and Transition Costs - 735 735 Legal and Regulatory Expenses 179,261 - 179,261 Adjusted EBITDA $ 268,769 $ 166,033 $ 434,802 Adjusted EBITDA Margin 12.4% 9.3% 11.0% Year Ending December 31, 2018 Net Earnings $ 196,210 Income Taxes (1) 55,994 Earnings Before Income Taxes $ 167,521 $ 84,683 $ 252,204 Interest Expense 19,384 (2,944) 16,440 Depreciation 7,143 54,022 61,165 Amortization 22,263 10,722 32,985 EBITDA $ 216,311 $ 146,483 $ 362,794 Restructuring Expense (Reversals), Net (10) 1,115 1,105 Acquisition Transaction and Transition Costs - 21,625 21,625 Legal and Regulatory Expenses - 1,490 1,490 Gain on Sale of Building (775) - (775) Adjusted EBITDA $ 215,526 $ 170,713 $ 386,239 Adjusted EBITDA Margin 11.9% 9.5% 10.7% (1) Taxes are calculated on a consolidated basis and are not identified by Company segments. 12
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