Aaron's, Inc. (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, announced financial results for the three months ended December 31, 2019.

"Aaron's finished the year on a positive note with record annual revenues, adjusted EBITDA and non-GAAP EPS. Progressive's invoice growth accelerated significantly in the fourth quarter, up 34.4% compared to the prior year.  In addition, collections performance at the Aaron's Business improved significantly during the quarter, contributing to positive same-store revenues and strong adjusted EBITDA," said John Robinson, Chief Executive Officer.

"Finally, I'm pleased to report that Progressive has reached an agreement in principle with the staff of the FTC regarding the Civil Investigative Demand Progressive received in July 2018.  Under the proposed agreement, which requires final approval by FTC Commissioners and the U.S. District Court for the Northern District of Georgia, Progressive will make a payment of $175 million and enhance certain compliance-related activities, including monitoring, disclosure and reporting requirements.  We have agreed to settle this matter to avoid the distraction and uncertainty caused by protracted litigation and allow Progressive to remain focused on providing competitive, flexible and affordable purchase options to credit-challenged consumers," Mr. Robinson concluded.

Consolidated Results

For the fourth quarter of 2019, consolidated revenues were $1.0 billion compared with $993.2 million for the fourth quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842 related to lease accounting, revenues increased $77.5 million, or 8.4%, compared to the prior year period.  The increase in consolidated revenues was primarily due to increases in revenues at Progressive and the revenue contribution from franchised locations acquired by the Aaron's Business in 2018, partially offset by the closure of Aaron's stores during 2019.

The Company reported a net loss for the fourth quarter of 2019 of $107.1 million compared to net earnings of $61.7 million in the prior year period. The net loss in the fourth quarter of 2019 included $179 million of charges related to the Progressive FTC settlement and $2.5 million in pre-tax restructuring charges.  Adjusted EBITDA for the Company was $125.2 million for the fourth quarter of 2019, compared with $112.7 million for the same period in 2018, an increase of $12.5 million, or 11.1%. As a percentage of revenues, adjusted EBITDA was 12.5% in the fourth quarter of 2019 compared with 12.2% for the same period in 2018 when calculated on a basis consistent with the 2019 adoption of ASC 842. Adjusted EBITDA in the fourth quarter of 2019 includes $5.6 million of gains in the Aaron's Business related to real estate sales.

Diluted losses per share for the fourth quarter of 2019 were $1.60 compared with diluted earnings per share of $0.89 in the year ago period. On a non-GAAP basis, diluted earnings per share were $1.15 in the fourth quarter of 2019 compared with $1.02 for the same quarter in 2018, an increase of $0.13 or 12.7%.

The Company generated $317.2 million in cash from operations during the twelve months ended December 31, 2019 and ended the fourth quarter with $57.8 million in cash, compared with a cash balance of $15.3 million at the end of 2018. During the fourth quarter, the Company repurchased 513,900 shares of its common stock for $29.8 million at an average purchase price of $58.05 per share.

Progressive Leasing Segment Results

Progressive Leasing reported record revenues in the fourth quarter of 2019 of $559.5 million compared to reported revenues of $524.4 million in the fourth quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842, revenues increased $102.2 million or 22.3%. Fourth quarter invoice volume increased 34.4% compared to the prior year quarter, driven by a 23.3% increase in invoice volume per active door and a 9.0% increase in active doors to approximately 22,000. The increase in active door count was primarily due to the addition of new national retail partner locations in the fourth quarter, partially offset by a reduction in locations in our mattress and mobile phone verticals in previous quarters. Progressive Leasing had 1,072,000 customers at December 31, 2019, a 22.4% increase from December 31, 2018.

Losses before income taxes for the fourth quarter of 2019 were $111.6 million, as a result of a $179 million pre-tax charge related to the tentative settlement of the FTC matter. Adjusted EBITDA for the fourth quarter of 2019 was $77.1 million compared with EBITDA of $65.5 million for the same period of 2018, an increase of 17.6%.  This increase was due primarily to strong revenue growth, partially offset by slightly higher than expected onboarding costs for national retailers and a year over year increase in write-offs.

As a percentage of revenues, adjusted EBITDA was 13.8% for the fourth quarter of 2019, a decrease of 50 basis points compared to the fourth quarter of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842.

The provision for lease merchandise write-offs was 6.6% of revenues in the fourth quarter of 2019 compared with 5.8% in the same period of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842, and well within our annual target range of 6% to 8% of revenues. The increase in write-offs was a result of accelerating invoice growth in the quarter which drove an increase in the impairment reserve on leased assets.

The Aaron's Business Segment Results

For the fourth quarter of 2019, total revenues for the Aaron's Business decreased 5.4% to $435.0 million from $459.7 million in the fourth quarter of 2018. The decrease was primarily due to the net reduction of 145 stores during 2019, the expected attrition of revenue from prior year store mergers and lower collections, partially offset by the positive contributions from 152 franchised locations acquired throughout 2018. Same-store revenues were up 0.4% in the fourth quarter of 2019, an improvement of 95 basis points from the fourth quarter of 2018. Contributing to the fourth quarter increase in same store revenues was the favorable impact of improved sequential collections as well at the continuing increase in e-commerce recurring revenues written, which was up 35.3% in the fourth quarter. For the full year, same store revenues were flat, an improvement of 143 basis points from 2018. Customer count on a same-store basis was down 4.8% during the fourth quarter of 2019 compared to the same period in 2018. Company-operated Aaron's stores had 946,000 customers at December 31, 2019, an 8.9% decrease from December 31, 2018.

Lease revenue and fees for the three months ended December 31, 2019 decreased 1.2% compared with the same period in 2018.  Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 30.8% for the fourth quarter of 2019 compared with the same period of the prior year.  The decline is attributable primarily to the franchisee acquisitions completed in 2018.

Earnings before income taxes for the fourth quarter of 2019 were $28.1 million, and adjusted EBITDA was $49.3 million, an increase of $1.7 million or 3.6% compared to the same period in 2018. The increase in adjusted EBITDA was due primarily to a recovery in collections performance, expense management, and gains from real estate sales.

The provision for lease merchandise write-offs was 7.3% of revenues in the fourth quarter of 2019, compared with 5.1% for the same period last year.  Contributing to the increase in write-offs was the reduction in collection performance in the third quarter that resulted from the implementation of our new sales program, store closure activity during the first half of 2019, and an increasing mix of e-commerce as a percent of revenue.

At December 31, 2019, the Aaron's Business had 1,167 Company-operated stores and 335 franchised stores.

Significant Components of Revenue and Franchise Performance

Consolidated lease revenues and fees for the three months ended December 31, 2019 increased 11.6% over the same period of the prior year, calculated on a basis consistent with the 2019 adoption of ASC 842.  Franchise royalties and fees decreased 22.1% in the fourth quarter of 2019 compared with the same period a year ago, primarily as a result of the lower number of franchised stores.  Franchise revenues totaled $101.2 million for the three months ended December 31, 2019, a decrease of 13.5% from the same period for the prior year.  For franchised stores, same-store revenues decreased 1.2% and same-store customer counts declined 4.9% for the fourth quarter of 2019 compared with the same quarter in 2018.  Franchised stores had 239,000 customers at the end of the fourth quarter of 2019.  Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company.

2020 Outlook