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
- 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.
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OVERVIEW
Intends to Separate into Two Independent, Highly-Focused
Publicly-Traded Companies
Comprised of Progressive Leasing and Vive Financial
HEADQUARTERS | 2019 REVENUE | Partners With |
Thousands of Retail | ||
DRAPER, UT | $2.2B | |
Partners | ||
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Comprised of ~1,400 company-operated and
franchised stores in 47 U.S. States & Canada, the e-
commerce platform Aarons.com, & Woodhaven
Furniture Industries
HEADQUARTERS | 2019 REVENUE | 1.2 Million |
ATLANTA, GA | $1.8B | Customers |
PROGRESSIVE AT A GLANCE
Key 2019 Highlights**
$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 | 1.1 Million Customers | Write-offs* |
12.4% | 7.2% of Net Revenue | |
22.4% Growth | ||
Key Investment Highlights
- Strong Value Proposition: Provides access to quality merchandise at leading retailers, through a simple and easy-to-use process with competitive pricing
- Visibility into Lease Portfolio: Supported by advanced algorithms, additional predictive metrics, and a short average portfolio duration of seven months
- Significant Opportunity in New and Existing Doors: Strong growth in new doors and continued growth in existing doors driven by increased penetration
- Robust Pipeline: Expected future growth with many national and regional retail partners across Progressive's core verticals
Select Merchant Partnerships
Retail Partner Categories* - FY 2019
Other
Jewelry 2%
16%
Mobile Phones
12%Furniture
53%
Automobile
7%
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
STEVE MICHAELS Chief Executive Officer
BLAKE WAKEFIELD
President & Chief
Revenue Officer
RAY ROBINSON
Chairman of the Board
- Named Chief Financial Officer and President of Strategic Operations of Aaron's, Inc. in February of 2016
- 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 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
- Joined Progressive in February of 2013 as the Senior Vice President of Sales and Marketing
- Prior to Progressive, served as the Sr. Director of Sales and Marketing in the Americas and EMEA for Seagate Technology
- 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
- Extensive technology, banking, communications, strategic and executive leadership and marketing experience, as well as 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
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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 |
$1.8 Billion | $166 Million | SSR of 0%, |
Revenue | Adj. EBITDA | 136 bps Improvement |
E-comm Lease | 1.2 Million | Vertically Integrated |
Originations Up 51% | Customers | Furniture Manufacturing |
Key Investment Highlights
- Large customer opportunity comprising ~30% of the U.S. population
- Compelling customer value proposition driven by competitive pricing, high approval rates and local service advantages
- Digitally-enabled,omni-channel strategy that provides an integrated online and in-store experience
- Opportunity to grow earnings by executing strategic priorities
- Expect attractive financial profile driven by strong cash generation with substantial capital available to return to shareholders
Utilize technology to simplify and digitize the customer experience
Optimize store footprint, generating substantial cash flow and a more efficient
cost structure
Continue to strengthen the Aaron's brand
Key Product Categories (% 2019 Revenue)
Furniture (44%) | Home Appliances (27%) |
Consumer Electronics1 (20%) | Computers (6%) |
6 | * - See Appendix for reconciliation of Non-GAAP financial measures |
1 Consumer Electronics includes televisions, gaming and audio. |
AARON'S BUSINESS LEADERSHIP TEAM
DOUGLAS LINDSAY
Chief Executive Officer
STEVE OLSEN
President
JOHN ROBINSON
Chairman of the Board
- 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
- Former CFO and COO of Ace Cash Express
- 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
- More than 23 years of experience in leadership positions at multiple retailers including, Total Wine & More, Orchard Supply 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
- Holds a Bachelor of Arts degree from Washington & Lee University, and an MBA from the Tuck School of Business at Dartmouth College
Full management teams and boards for both companies will be provided in the months leading up to the separation
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PATHWAY TO COMPLETION
Transaction | Planned as a tax-freespin-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 |
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2019 FINANCIALS
($ millions) | Progressive | Aaron's Business | Consolidated |
+ Vive | |||
Total Revenues | $ 2,163 | $ 1,784 | $ 3,947 |
YoY Growth | 19.6% | -0.5% | 9.6% |
Adjusted EBITDA* | $ 269 | $ 166 | $ 435 |
Adjusted EBITDA Margin* | 12.4% | 9.3% | 11.0% |
* - See Appendix for reconciliation of Non-GAAP financial measures
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Full presentations detailing balance sheets and financial and operational characteristics for both companies will be provided prior to separation
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 |
- "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.
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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% |
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(1) Taxes are calculated on a consolidated basis and are not identified by Company segments.
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Aaron's Inc. published this content on 29 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 July 2020 12:20:01 UTC