Aaron's, Inc., a leading omnichannel provider of lease-purchase solutions, announced financial results for the three months ended December 31, 2018.

"Our revenue and earnings growth in the fourth quarter capped off a strong 2018 for the Company," said John Robinson, Chief Executive Officer. "Progressive achieved 31% EBITDA growth on a 22% increase in revenue, while continuing to invest in infrastructure and technology to support and grow a robust pipeline of potential retail partners," continued Mr. Robinson.

"The Aaron's Business achieved significant improvement in same store revenue trends from the fourth quarter of 2017. Recurring revenue written into the portfolio was positive for the fourth consecutive quarter, and lease margin increased over year ago levels. I am proud of the team as they delivered these improvements while making continued investments in the business and integrating the franchised locations acquired in 2018. We are pleased with our progress during the year and expect to continue transforming the business in 2019," Mr. Robinson said.

Consolidated Results

For the fourth quarter of 2018, consolidated revenues were $993.2 million compared with $884.6 million for the fourth quarter of 2017, an increase of $108.6 million or 12.3%. The increase in consolidated revenues was primarily due to the 22.4% increase in revenues at Progressive and the addition of 152 franchised locations acquired by the Aaron's Business in 2018.

Net earnings for the fourth quarter of 2018 were $61.7 million compared to $177.6 million in the prior year period, a decrease of $115.8 million or 65.2%. This decrease is due to a fourth quarter 2017 net benefit of $137.1 million to recognize the effects of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

Adjusted EBITDA for the Company was $112.7 million for the fourth quarter of 2018, compared with $89.9 million for the same period in 2017, an increase of $22.8 million, or 25.3%, due primarily to the strong growth in our Progressive segment. As a percentage of revenues, adjusted EBITDA improved 110 basis points to 11.3% in the fourth quarter of 2018 compared to 10.2% in the fourth quarter of 2017, as a result of expanding gross margins and leveraging of operating expenses. See "Use of Non-GAAP Financial Information" and the related non-GAAP reconciliation accompanying this press release.

Diluted earnings per share for the fourth quarter of 2018 were $0.89 compared with $2.46 a year ago, a decrease of $1.57 or 63.8%. This decrease is due to the fourth quarter 2017 net benefit of $137.1 million to recognize the effects of the Tax Act.

On a non-GAAP basis, earnings per share assuming dilution were $1.02 in the fourth quarter of 2018 compared with $0.65 for the same quarter in 2017, an increase of $0.37 or 56.9%.

During the fourth quarter of 2018, the Company used $48.8 million for the acquisition of 49 franchised locations. Also during the quarter, the Company returned $70.8 million to shareholders through the payment of dividends as well as the repurchase of common stock totaling 1,448,946 shares for $68.7 million, or an average price per share of $47.42.  The Company has authorization to purchase an additional $331.3 million of its common stock.

Progressive Leasing Segment Results

Progressive Leasing's revenues in the fourth quarter of 2018 increased 22.4% to a record $524.4 million from $428.5 million in the fourth quarter of 2017.  Invoice volume increased 14.1% in the quarter, driven by an 11.6% increase in invoice volume per active door and a 2.2% increase in active doors to approximately 20,000.  Progressive Leasing had 876,000 customers at December 31, 2018, an 18.4% increase from December 31, 2017.

Earnings before income taxes for the fourth quarter of 2018 were $54.6 million. EBITDA for the fourth quarter of 2018 was $65.5 million compared with $50.0 million for the same period of 2017, an increase of 31.2%.  As a percentage of revenues, EBITDA improved 80 basis points to 12.5% for the fourth quarter of 2018 compared with 11.7% for the same period in 2017.  Leased merchandise write-offs were 5.1% of revenues in the fourth quarter of 2018, compared with 5.4% in the same period of 2017.  Bad debt expense as a percentage of revenues was 12.8% in the fourth quarter of 2018 compared with 12.1% in the same period of 2017, resulting in a full year bad debt percentage of 11.4%, within the 10% to 12% target range we have previously disclosed.

The Aaron's Business Segment Results

For the fourth quarter of 2018, total revenues for the Aaron's Business increased 2.9% to $459.7 million from $446.9 million in the fourth quarter of 2017. The increase was primarily due to the acquisition of 152 franchised locations in 2018. Same store revenues were down 0.5% in the fourth quarter of 2018. The decline in same store revenue is partially due to the lower up-front payments resulting from increased holiday promotional activity, which increased recurring revenue written into the portfolio and should benefit same store revenue growth in 2019. Customer count on a same store basis was down 5.0% during the fourth quarter of 2018.  Company-operated Aaron's stores had 1,038,000 customers at December 31, 2018, a 5.6% increase from December 31, 2017.

Lease revenue and fees for the three months ended December 31, 2018 increased 8.6% compared with the same period in 2017.  Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 25.2% for the fourth quarter compared with the same period of the prior year.  The decline is attributed primarily to the franchise acquisitions completed in 2018.

Earnings before income taxes for the fourth quarter of 2018 were $28.3 million. Adjusted EBITDA for the three months ended December 31, 2018 was $47.6 million compared with $41.4 million for the same period in 2017, an increase of $6.2 million or 15.1%. As a percentage of revenues, Adjusted EBITDA improved 110 basis points to 10.4% for the three months ended December 31, 2018 compared with 9.3% for the same period last year.

Write-offs for damaged, lost or unsaleable merchandise were 5.1% of revenues in the fourth quarter of 2018 compared with 4.2% for the same period last year. Higher promotional activity drove improvements in traffic trends, ticket size and growth of the portfolio in the fourth quarter, but also resulted in an expected increase in write-offs.

At December 31, 2018, the Aaron's Business had 1,312 Company-operated stores and 377 franchised stores.  During the fourth quarter of 2018, the Company acquired 49 franchised stores and consolidated four Company-operated stores.  Additionally, during the quarter, four franchised stores closed and two franchised stores were sold to a third party.

Significant Components of Revenue

Consolidated lease revenues and fees for the three months ended December 31, 2018 increased 16.1% over the same period of the prior year.  Franchise royalties and fees decreased 4.3% in the fourth quarter of 2018 compared with the same period a year ago.  The decrease in franchise royalties and fees was the result of the lower number of franchised stores.  Franchise revenues totaled $117.0 million for the three months ended December 31, 2018, a decrease of 27.8% from the same period for the prior year.  Same store revenues for franchised stores were up 3.1% and same store customer counts were down 2.2% for the fourth quarter of 2018 compared with the same quarter in 2017.  Franchised stores had 277,000 customers at the end of the fourth quarter of 2018.  Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company.

2019 Outlook

2019 Outlook revenues for the Progressive business segment have been adjusted for the impact of ASU 2016-02 Leases ("ASC 842"), which will be adopted in the first quarter of 2019.