Aaron's, Inc., a leading omnichannel provider of lease-purchase solutions, 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.