UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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| Item 7.01. | Regulation FD Disclosure |
Aaron’s Holdings Company, Inc. (the “Company”) and The Aaron’s Company, Inc. (“Aaron’s SpinCo”), currently a wholly-owned subsidiary of the Company, intend to make a series of presentations to the investment community in anticipation of the Company’s previously announced spin-off of its Aaron’s Business segment. The slides to be used in connection with such presentations are furnished as Exhibit 99.1 and Exhibit 99.2 to this Current Report on Form 8-K and are incorporated herein by reference.
The information contained in this Current Report on Form 8-K (including the exhibits hereto) is being furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the U.S. Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any registration statement or other document filed under the U.S. Securities Act of 1933, as amended, except as otherwise expressly stated in such filing.
| Item 9.01. | Financial Statements and Exhibits |
(d) Exhibits
| Exhibit |
Description of Exhibit | |
| 99.1 | Presentation Slides of Aaron’s Holdings Company, Inc., dated November 2020 | |
| 99.2 | Presentation Slides of The Aaron’s Company, Inc., dated November 18, 2020 | |
| 104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AARON’S HOLDINGS COMPANY, INC. | ||||||
| By: | /s/ C. Kelly Wall | |||||
| C. Kelly Wall | ||||||
| Interim Chief Financial Officer | ||||||
| Date: November 18, 2020 | ||||||
Investor Presentation November 2020 Exhibit 99.1
Safe Harbor Statement Statements in this presentation 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. 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 by us to combat the impact of the pandemic on our business, including the impact of the pandemic and such measures on: (a) demand for the lease-to-own products offered by us, (b) increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments, (c) our retail partners, (d) our customers, including their ability and willingness to satisfy their obligations under their lease agreements, (e) our retailers’ ability to restock adequate merchandise, (f) our associates (g) our labor needs, including our ability to adequately staff our operations, (h) our revenue and overall financial performance, and (i) the manner in which we are able to conduct our operations; (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 our 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) uncertainties as to the timing of the separation of the Aaron’s business from our business; (vi) the risk that the separation of the Aaron’s business from our business will not be completed successfully, or that the separation may be more difficult, time-consuming and/or costly than expected; (vii) the possibility that various closing conditions for the separation may not be satisfied; (viii) the possibility that the operational, strategic and shareholder value creation opportunities from the separation can be achieved; (ix) the failure of the separation to qualify for the expected tax treatment; (x) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and on-line retailers and other competitors; (xii) weakening general market and economic conditions, especially as they may affect retail sales, unemployment and consumer confidence or spending levels; (xiii) cybersecurity breaches, disruptions or failures in our information technology systems and our failure to protect the security of personal information about our customers; (xiv) our ability to attract and retain key personnel; (xv) compliance with, or violation of, laws and regulations, including consumer protection laws; (xvi) our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure; (xvii) our ability to improve operations and realize cost savings; (xviii) our ability to access capital markets or raise capital, if needed; (xix) our ability to protect our intellectual property and other material proprietary rights; (xx) changes in our services or products; (xxi) our ability to acquire and integrate businesses, and to realize the projected results of acquisitions; (xxii) negative reputational and financial impacts resulting from future acquisitions or strategic transactions; (xxiii) restrictions contained in our debt agreements; and (xxiv) the other risks and uncertainties discussed under "Risk Factors" in the Aaron’s, Inc., Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in the Aaron’s, Inc., Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “should”, “intend,” “belief,” “estimate,” “plan,” “target,” “project,” “likely,” “will,” “forecast,” “outlook,” and similar terminology. Statements in this presentation that are “forward-looking” include without limitation statements about our expectations and goals regarding: our ability to continue providing our essential products to our customers; our operating advantages; our economic advantages; growing our business, including its revenue and EBITDA; our capital allocation; visibility into the performance of our lease portfolios and our financial performance; opportunities in new and existing doors and the retailer pipeline; estimated 2020 results of operations, including estimated revenue, EBITDA, adjusted EBITDA and free cash flow; and our balance sheet and liquidity. 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, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this presentation. This presentation contains financial information in a format not in accordance with generally accepted accounting principles in the United States (“GAAP”). Management believes that presentation of these non-GAAP items is useful because it gives investors supplemental information to evaluate and compare the underlying operating performance from period to period. Non-GAAP financial measures, however, should not be used as a substitute for, or be considered superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure is included in the appendices to this presentation. Please refer to our prior earnings releases on Forms 8-K dated February 18, 2016, February 17, 2017, February 15, 2018, February 14, 2019, February 20, 2020, May 7, 2020, July 29, 2020 and September 10, 2020 provided in the Investor Relations section of our website for further information on our use of non-GAAP financial measures. PROG Holdings, Inc
Today’s Presenters Joined Aaron’s, Inc. in 1995 and held various roles in finance, operations, and strategy Served as Chief Financial Officer & President of Strategic Operations at Aaron’s since Feb 2016 MBA from Georgia State University More than 25 years’ finance and strategic operations experience Steve Michaels Chief Executive Officer Joined Progressive Leasing in 2012 as Controller Promoted to SVP of Finance in 2016, responsible for all financial functions including accounting, audit, and treasury MS Accounting from Brigham Young University More than 17 years’ financial management and corporate strategy experience Joined Progressive Leasing in Feb 2013 as VP of Sales & Marketing Following the acquisition by Aaron’s, assumed the role of President & Chief Revenue Officer in Jan of 2015 MBA from Portland State University More than 25 years’ sales, marketing, and operations experience Media & Investor contact: John A Baugh, CFA, VP of Investor Relations john.baugh@progleasing.com | 385-351-1390 Blake Wakefield President Brian Garner Chief Financial Officer PROG Holdings, Inc
Spin-off Transaction Summary In July 2020, Aaron’s, Inc. announced plans to separate Progressive Leasing from Aaron’s in a tax-free spin-off. The resulting structure from the spin transaction will be two separate public companies. The Spinco (“The Aaron’s Company, Inc.”) and the Remainco which will be renamed to (”PROG Holdings, Inc.”). NYSE: PRG Overview Listing Distribution PROG Holdings, Inc
Who Are We? Since pioneering virtual lease-to-own in 1999, Progressive Leasing continues to be the leading point-of-sale lease-to-own solution in the United States. We provide innovative purchase options and flexible payment terms for credit-challenged customers to purchase big ticket items at leading national and local retailers. Our virtual, technology-based platform offers immediate decisioning at the point-of-sale, integrating seamlessly with brick & mortar and Ecommerce retail platforms. Our lease payment options are transparent and competitive, and our investments in technology and people provide our retail partners and consumers unparalleled service and support. PROG Holdings, Inc
Large addressable market, broadly underserved Key Investment Highlights 1 PROG Holdings, Inc Profitable, high growth, asset light business model Proprietary, AI/machine-learning-based decisioning maximizes approval rates, while delivering consistent portfolio performance 2 Secure, scalable technology platform, deeply integrated with Retail Partners 3 Robust marketing and customer care programs to attract new customers and drive repeat business 4
Our customers know what they want. We help them get it. “I’ve used Progressive Leasing for 3 major purchases so far. They are no-hassle, smooth and quick to use. The approval process was not cumbersome or taxing. Every time I’ve had to call the solution center they were helpful and pleasant. I don’t have any bad experiences, frustrations or negative feedback to write about. I bought my stuff, paid it off, and I’m happy. I’ll continue to use them.” - Floria O. PROG Holdings, Inc
Our Core Customer Generational Breakdown $3,300 median monthly income 39 average age 60% female and 40% male 66% rent and 33% own PROG Holdings, Inc Skews young, and getting younger Key Highlights Source: Company customer data
The Customer Experience – How it Works Available online and in-store with select leading retailers Apply for a Lease Decisions are issued immediately upon submission of application. Instant Decisioning Customers take items home same day or arrange for delivery. Take Items Home Flexible, auto payments managed by the customer via phone, online, or mobile app Simple, Automatic Payments “Simple and fast. It literally took less than 5 minutes for the whole process.” -Chuck D. PROG Holdings, Inc
Progressive at a Glance A Winning Formula of Sustained Growth and Consistent Portfolio Performance “[Progressive Leasing] has been bringing new customers to [our] stores — as well as some who haven’t been to them in a while.” “Progressive Leasing drives sales and it’s all incremental.” – CEO, leading national electronics retailer – CFO, leading national furniture retailer Source: Management estimates 1Represents 2020 estimate. 2Targeted lease merchandise write-offs as a % of revenue. Estimates include both Progressive Leasing and Vive Financial. 2020E Revenue1 $2.475-2.5B 5 Year CAGR 21.7% PROG Holdings, Inc Write-offs2 6-8% 2020E EBITDA1 $337-342MM 5 Year CAGR 26.9% ~ ~
Progressive at a Glance Select Major Retail Partners Expected to be integrated into all major retail partners’ online checkout experience by the end of 2021 Source: Internal company records 12020 YTD through October Key Merchandise Categories PROG Holdings, Inc
Total Addressable Market Progressive Leasing $2.4B Current VLTO Market Size $7B VLTO TAM $30-40 Billion Near-term Opportunity $23-$33 Billion untapped potential New customers New retailers Mid-term & Long-term Opportunity New products to address underserved customer and retailer needs New markets PROG Holdings, Inc Source: Management estimates
40% of US Population is Near or Below Prime U.S. FICO Score Distribution Addressable market approximates 1/3rd of U.S. population Total addressable dollars for virtual lease-to-own (LTO) estimated to be $30-$40bn Recent additions of Best Buy and Lowe’s illustrates broadening demand for LTO, and retailer recognition of Progressive Leasing's leadership Source: Company website Harris Poll for Career Builder 2017 and FICO Banking Analysis https://www.experian.com/blogs/ask-experian/research/subprime-study/ PROG Holdings, Inc
Progressive’s Decisioning Process Continuous optimization in decisioning flow Rapid experimentation ensures we always have empirical data to calibrate and improve our algorithms Regular review cycles of business logic, models, thresholds, etc. ensure we stay abreast of the retail marketplace, competiton, and the macroeconomy Decisioning logic and algorithms are tailored to the needs of our largest retailers Pricing Personalization Approval Amount models ML risk models Machine learning (ML) fraud filters Our decisioning data set is huge and unparalleled – true competitive advantage Largest virtual LTO provider in the country with extensive database of customers Over 5MM leases with detailed credit history and mature lease performance data Proprietary, cutting-edge AI/machine learning (ML) algorithms Industry-leading data science team designing custom decisioning algorithms with modern ML technology Sophisticated gradient boosting, ensembling, and distributed computing capability Decisions happen instantaneously 97% of decisions are completely automated Median decision time of 5.7 seconds Application Retailer/vertical performance Known fraud attributes Customer history Credit reports PROG Holdings, Inc
How We Grow Drive higher retail partners with robust pipeline Drive new customers to retail partners through direct-to-consumer marketing efforts Large database of customers creates marketing opportunity through targeted outreach Technology driven innovation increases speed and ease of use for consumers and retailers Continue to add invoice volume at existing retailers PROG Holdings, Inc
Financials
High Growth with Consistent Margins CAGR ~21.7% Revenue1 (Millions) Adj. EBITDA1 (Millions) CAGR ~26.9% Margins 13.3% 12.7% 11.9% 12.4% 13.6-13.7% Source: Aaron's, Inc. SEC filings, Management estimates 1Includes both Progressive Leasing and Vive Financial results. PROG Holdings, Inc
Strong Free Cash Flow Profile Free Cash Flow1 (Millions) Source: Aaron's, Inc. SEC filings 1Defined as cash flow from operating activities minus cash used in investing activities, before tax. Includes both Progressive Leasing and Vive Financial results. PROG Holdings, Inc Invoice Growth % 12% 29% 21% 22%
Efficient Capital Business Model ROIC1 Lease Portfolio Turnover2 Source: Aaron's, Inc. SEC filings, Management estimates 1Return on Invested capital is net operating profit after tax divided by Progressive and Vive's segment equity, plus third party and intercompany debt, minus cash. 2Total lease depreciation, plus provision for lease merchandise write-off, divided by average gross leased assets. PROG Holdings, Inc
Capital Allocation and Liquidity Framework Maintain a strong liquidity position Committed revolving credit facility of $350 million Post-spin net cash position of $50-70 million Maintain low leverage with plans to grow EBITDA and generate free cash flow Capital light business model allows for future growth with little to no leverage Reinvest in the business Fund working capital needs Modest capital requirements Consider M&A investments that broaden future product offering Return excess cash to shareholders via dividends and/or share buybacks Liquidity Leverage Capital Allocation Priorities PROG Holdings, Inc
Financial Profile and Outlook PROG Holdings, Inc Revenue Adj. EBITDA1 $2.163MM $2.575-$2.675B $2.475-$2.5B $268.8MM $305-323MM $337-342MM 2019 Feb 2020 Outlook 2020E 1Refer to Non-GAAP reconciliation in Appendix. Includes both Progressive Leasing and Vive Financial.
Large addressable market, broadly underserved Key Investment Highlights 1 PROG Holdings, Inc Profitable, high growth, asset light business model Proprietary, AI/machine-learning-based decisioning maximizes approval rates, while delivering consistent portfolio performance 2 Secure, scalable technology platform, deeply integrated with Retail Partners 3 Robust marketing and customer care programs to attract new customers and drive repeat business 4
Appendix
Board & Governance Ray Robinson Chairman Aaron’s, Inc. (Board Chairman) AT&T (Former President Southern Region) Douglas C. Curling Compensation Chair Aaron’s, Inc. (Director) New Kent Capital & New Kent Consulting LLC (Managing Partner) Cynthia N. Day Audit Chair Aaron’s, Inc. (Director) Citizens Bancshares Corporation and Citizens Trust Bank (CEO & Director) Steven A. Michaels Progressive CEO Aaron’s, Inc. (Former CFO & President of Strategic Operations) Kathy T. Betty Nominating and Governance Chair Aaron’s, Inc. (Director) Atlanta Dream – WNBA (Former Owner & CEO) The Tradewind Group (Founder) Curtis L. Doman Aaron’s, Inc. (Director) Progressive Leasing (Co-founder & Chief Innovation Officer) PROG Holdings, Inc
Our Commitment To Employees, Compliance & Community Diverse talent: 49% female, 41% people of color CEO chairs Diversity & Inclusion Council; Employee-led Resource Groups include Black Inclusion Group and Women In Leadership Progressive Leasing Code of Conduct 24/7 Anonymous Hotline for Employee Complaints Commitment to dedicate 1% of pre-tax profit to charity Supporting our local chapters of Big Brothers Big Sisters, Utah Food Bank, St. Vincent de Paul Homeless Center, and Boys & Girls Clubs of America, among others Employees Compliance Community Recognition by Impact Magazine’s “The Who’s Who of Black Utah” Third consecutive year of UT Business Magazine’s Best Companies to Work For List Recognized by Women in Tech Council for the 2020 Women’s Shatter Award for efforts focused on investing in Women Utah Business Magazine’s Fast 50 award for fastest growing 50 companies (2018, 2019, 2020) Glassdoor’s Best Companies to Work for (2018) Recognition & Awards PROG Holdings, Inc
Use of Non-GAAP financial measures This presentation includes information that does not conform to U.S. GAAP and are considered non-GAAP measures. Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, return on invested capital, and 2016-2018 revenues are supplemental measures of our performance that are not calculated in accordance with U.S. GAAP. Management believes that these non-GAAP measures best reflect the historical performance of the Progressive and Vive segments of Aaron's, Inc. during the periods presented and provide more relevant and meaningful information to investors as they provide insight with respect to ongoing operating results of PROG Holdings, Inc. after the spinoff of the Aaron's Business segment and provides a more useful comparison of year-over-year results. These non-GAAP measures supplement the Aaron's, Inc U.S. GAAP measures for the Progressive Leasing and Vive segments and should not be viewed as an alternative to the U.S. GAAP measures of performance. Furthermore, these non-GAAP measures should not be viewed as an alternative to the U.S. GAAP continuing operations historical performance measures of PROG Holdings, Inc. after adjustments for discontinued operations for the spinoff of the Aaron's Business segment. We caution investors that amounts presented in accordance with our definitions of non-GAAP measures may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner. The non-GAAP amounts presented herein were derived from the historical operating results of the Progressive Leasing and Vive segments of Aaron's, Inc and subsidiaries consolidated results. This data should be read in conjunction with the Aaron's, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 and the Aaron's, Inc. Quarterly Repot on Form 10-Q for the quarter ended September 30, 2020. Definitions Revenues presented herein for 2018, 2017, and 2016 are a supplemental measure of our performance that are not calculated in accordance with U.S. GAAP in place for 2018, 2017, and 2016. 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 for 2018, 2017, and 2016 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. The EBITDA and adjusted EBITDA figures presented herein are calculated as the aggregation of the Progressive Leasing and Vive segments earnings before (i) interest expense, (ii) depreciation on property, plant and equipment, (iii) amortization of intangible assets and (iv) income taxes. Adjusted EBITDA also excludes the following Significant Items: (i) separation costs associated with our planned spin-off of the Aaron's Business segment, (ii) the FTC legal and regulatory loss and related expenses, net of insurance recoveries, (iii) gain on the sale of Vive's former corporate office building, and (iv) charges related to severance and relocation costs associated with Vive restructuring activities. Adjusted EBITDA margins is calculated as adjusted EBITDA divided by Revenues. Free cash flow presented herein are calculated as the aggregation of Progressive Leasing and Vive segments net cash flows provided by operating activities less net cash flows used in investing activities. Aaron's, Inc. historical income tax payments (refunds) were calculated on a consolidated basis and are not identifiable by segments. Net cash flows provided by operating activities used to calculate free cash flow herein exclude cash income tax payments (refunds). Therefore, net cash flows provided by operating activities for continuing operations following the discontinued operations adjustments for the spinoff of the Aaron's Business segment may be materially different than amounts used to calculate free cash flow herein. Return on invested capital herein are calculated as the Progressive Leasing and Vive Net Operating Profit dividend by Invested Capital. Net Operating Profit is calculated as Progressive Leasing and Vive's segment earnings excluding Significant Items note above, net of tax. Invested capital is calculated as Progressive Leasing and Vive's intercompany payable to Aaron's, Inc., third party debt, segment equity, less cash. The return on invested capital for these periods may be materially different than return on invested capital for PROG Holdings, Inc. following the discontinued operations adjustments for the spinoff of the Aaron's Business segment. PROG Holdings, Inc Use and Definition of Non-GAAP financial measures
Reconciliation of Non-GAAP: Revenue PROG Holdings, Inc (1) “Total Revenues, net of Progressive Bad Debt Expense” assumes that Progressive bad debt expense is recorded as a reduction to lease revenues and fees instead of within operating expenses for 2018, 2017, and 2016 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.
28 Reconciliation of Non-GAAP: Adjusted EBITDA and EBITDA margin PROG Holdings, Inc (1) Taxes are calculated on a consolidated basis and are not identifiable by Company segments. (2) Depreciation expense on property, plant and equipment only.
Reconciliation of Non-GAAP: Free cash flow PROG Holdings, Inc (1) Consolidated Aaron's, Inc. cash income tax payments (refunds) are not identifiable by segment and are included in the Aaron's Business segment cash provided by operating activities. Consolidated cash income tax payments (refunds) were $(0.7), $(63.8), $98.3, and $(54.3) million in the years ended December 31, 2019, 2018, 2017, and 2016, respectively.
30 Reconciliation of Non-GAAP: Return on invested capital PROG Holdings, Inc (1) Taxes are calculated on a consolidated basis and are not identifiable by Company segments. Management believes 25% is reasonable estimate of a non-GAAP income tax rate. (2) Invested capital is calculated as Progressive & Vive segment intercompany payable, plus third party debt, plus intercompany equity, less cash.
Thank You
Exhibit 99.2
As used in this presentation, “we,” “us,” “our,” “our Company” and “the Company” refer to The Aaron’s Company, Inc. Statements in this presentation 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. 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 by us to combat the impact of the pandemic on our business, including the impact of the pandemic and such measures on: (a) demand for the lease-to-own products offered by us, (b) increases in lease merchandise write-offs and the provision for returns and uncollectible renewal payments, (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 associates (f) our labor needs, including our ability to adequately staff our operations, (g) our revenue and overall financial performance, and (h) the manner in which we are able to conduct our operations; (ii) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our business; (iii) other types of legal and regulatory proceedings and investigations, including those related to customer privacy, third party and employee fraud and information security; (iv) our strategic plan, including our real estate repositioning and consolidation components of that plan, failing to deliver the benefits and outcomes we expect, with respect to improving our business in particular, and/or being more costly to implement than we had planned; (v) risks associated with the challenges faced by our Company, including the commoditization of consumer electronics and the high fixed-cost operating model of our Company; (vi) uncertainties as to the timing of the separation of our business from those of Progressive; (vii) the risk that the separation of our business from those of Progressive will not be completed successfully, or that the separation may be more difficult, time-consuming and/or costly than expected; (viii) the possibility that various closing conditions for the separation may not be satisfied; (ix) the possibility that the operational, strategic and shareholder value creation opportunities from the separation cannot be achieved; (x) the failure of the separation to qualify for the expected tax treatment; (xi) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and on-line retailers and other competitors; (xii) 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; (xiii) weakening general market and economic conditions, especially as they may affect retail sales, unemployment and consumer confidence or spending levels; (xiv) cybersecurity breaches, disruptions or failures in our information technology systems and our failure to protect the security of personal information about our customers; (xv) our ability to attract and retain key personnel; (xvi) compliance with, or violation of, laws and regulations, including consumer protection laws; (xvii) our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure; (xviii) our ability to improve operations and realize cost savings; (xix) our ability to access capital markets or raise capital, if needed; (xx) our ability to protect our intellectual property and other material proprietary rights; (xxi) changes in our services or products; (xxii) our ability to acquire and integrate businesses, and to realize the projected results of acquisitions; (xxiii) negative reputational and financial impacts resulting from future acquisitions or strategic transactions; (xiv) restrictions contained in our debt agreements; (xxv) our ability to execute the procedural and operational changes and systems necessary to successfully implement our centralized decisioning initiative, and the risk that our centralized customer lease decisioning will not be as effective or accurate as the decentralized, store-based decisioning process we historically used in our business; and (xxvi) the other risks and uncertainties discussed under “Risk Factors” in our Information Statement included as an exhibit to the Form 10 filed by the Company with the SEC. Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “should”, “intend,” “belief,” “estimate,” “plan,” “target,” “project,” “likely,” “will,” “forecast,” “outlook,” and similar terminology. Statements in this presentation that are “forward-looking” include statements about our operating and economic advantages, and the benefits we expect to obtain from them; revenue and cash flow visibility; the strength of our balance sheet and our liquidity; the sustainability of our growth platforms; our capital allocation priorities and strategies; our ability to execute our growth strategy and business transformation initiatives, and the benefits we expect therefrom; our 2021 and medium term outlooks; and the planned separation of the Aaron's Business and Progressive Leasing business segments, the timing of any such separation, the expected benefits of the separation, and the future performance of our Company 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, we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this presentation. This presentation contains financial information in a format not in accordance with generally accepted accounting principles in the United States (“GAAP”). Please see the appendix to this presentation for a definition of certain key performance indicators, such as same store revenues, and non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin and free cash flow, shown in this presentation. Management believes that presentation of these non-GAAP and other financial measures are useful because it gives investors supplemental information to evaluate and compare the underlying operating performance from period to period. Non-GAAP financial measures, however, should not be used as a substitute for, or be considered superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure is included in the appendices to this presentation. Please refer to our Information Statement included as an exhibit to the Form 10 filed by the Company with the SEC for further information on our use of non-GAAP financial measures. Safe Harbor Statement & Use of Non-GAAP Information
Agenda Financial Profile and Outlook Investment Highlights Strategic Priorities 1 2 Company Overview 4 3
Media and Investor Contact: Michael Dickerson, Vice President, Corporate Communications & Investor Relations mike.dickerson@aarons.com | (678) 402-3590 Douglas Lindsay Chief Executive Officer Served as President of the Aaron’s Business since February 2016 Prior to Aaron’s, served as CFO and COO of Ace Cash Express More than 25 years of experience leading companies in financial services and real estate industries Steve Olsen President Joined Aaron’s, Inc. in December 2016 as Chief Merchandising and Supply Chain Officer Promoted to Chief Transformation Officer in 2019 and subsequently to COO of the Aaron’s Business in 2020 More than 24 years of experience in retail leadership Kelly Wall Chief Financial Officer Served as Aaron’s, Inc. SVP of Finance and Treasurer since February 2017 Prior to Aaron’s, served as CFO of CNG Holdings, SVP of Finance for TMX Finance and was a managing director at Bank of America Merrill Lynch More than 25 years of finance and operations experience Today’s Presenters & Aaron’s Management Team
The Aaron’s Company Overview Source: Company Filings 1 All figures reflect Form 10 financials 2 Upholstered furniture and bedding only 3 As of 12/31/19 4 Other product categories comprise 3% of revenue 5 Consumer Electronics includes televisions, gaming and audio Geographic Footprint3 Key Product Categories (% Revenue)4 17 AK 2 AL 46 AR 22 AZ 31 CA 40 CO 17 FL 92 GA 83 IA 14 ID 9 IL 36 IN 37 KS 14 KY 33 LA 45 MI 36 MO 31 MS 30 MT 8 NC 83 ND 6 NE 8 NH 5 NJ 13 NM 21 NV 6 NY 33 OH 69 OK 26 OR 26 PA 60 RI 2 SC 38 SD 3 TN 48 TX 179 UT 4 VA 41 VT 3 WA 23 WV 14 WY 8 CT 12 DE 5 MA 16 MD 15 ME 6 Omni-Channel Rent-to-Own Model 65 Year Track Record (Founded 1955) 2.1+ Million Unique Customers Annually $1.8 Billion Revenue $165 Million Adj. EBITDA $106 Million Free Cash Flow Woodhaven Furniture Manufacturing (40% of Volume)2 Consumer Electronics5 (20%) Furniture (44%) Computers (6%) Home Appliances (27%) Key Highlights (2019 Financial Results)1 1,167 Company Stores 335 Franchise Stores 47 States, Canada & Puerto Rico 706 Markets 16 Fulfillment Centers 24/7 Shopping Aarons.com Aaron’s offers a compelling customer value proposition through an attractive, recurring-revenue business model
Key Investment Highlights Large, resilient customer base representing ~30% of the U.S. population Compelling customer value proposition driven by competitive pricing, high approval rates, and best-in-class customer service Digitally-enabled, omni-channel strategy that provides an integrated online and in-store experience Expect to grow earnings, expand margins, and generate strong free cash flow by optimizing store footprint and executing a digital-first strategy Debt-free balance sheet with significant available liquidity
Transformation Has Positioned Aaron’s for Growth Highly decentralized operating model Early-stage E-commerce platform 100% manual lease origination decisioning in stores Manual payment process with majority of payments occurring in stores Opportunities for refinement in merchandising, pricing and supply chain Over the last 5 years, we have made investments and operational changes to drive long-term growth and value creation Legacy real estate strategy and store design Standardized operating policies and processes E-com represented 13% of revenue in Q3 ‘20 and is expected to continue to grow revenue share 95% agreements processed through centralized decisioning 70%+ of payments occur remotely Improvements in average ticket, wholesale costs, and lease margin Data-driven market strategy with attractive new store concepts Pre-Transformation Today
Enhance people’s lives by providing easy access to high-quality products through affordable lease and purchase options Mission Simplify and Digitize the Customer Experience Align Store Footprint to Customer Opportunity Strategic Priorities Aaron’s Mission Guides Our Strategic Priorities Promote the Aaron’s Value Proposition
Aaron’s Offers a Compelling Customer Value Proposition Wholesale inventory costs Lease term flexibility Re-lease returned merchandise Low Monthly Payments Competitive Total Cost of Ownership Low customer acquisition costs Product return capabilities Advanced decisioning High Approval Rates Advanced proprietary decisioning algorithms Large repository of customer performance data Relationship-based local account servicing Same or Next Day Delivery Last mile capabilities Integrated supply chain Locally available inventory Customer Lifecycle Management Focus on customers achieving ownership High repeat business Advanced technology platforms Compelling value proposition supported by advanced omni-channel capabilities and existing infrastructure
Service, Repairs, & Collections Warehousing & Reverse Logistics Hard-to-replicate market footprint, logistics infrastructure, and dynamic store operating model create a competitive advantage Store Footprint Provides Foundation for Value Proposition Fast Delivery & Setup Shop Online or In Showroom Aaron’s stores are a distributed network of showrooms and servicing hubs embedded in our local communities
Leverage digital technology to streamline all key touchpoints in the customer journey Digitize the Journey Put the Customer in Control Accelerate Omni-channel Provide the customer with increased flexibility and choice in all aspects of their experience Add capabilities that provide a seamless shopping and servicing experience across all channels Proprietary technology platforms position us to reduce customer friction, lower cost-to-serve, and expand our competitive advantage Digital-First Strategy Enhances the Customer Experience
Agile and Flexible Decisioning improves lease pool performance and labor efficiency Model adjustments can be made instantly across all channels National rollout completed in Q2 2020 enables optimization of decisioning across all markets Creates significant differentiation between other direct-to-consumer (“DTC”) peers Available Chainwide Optimizes Profitability Competitive Advantage Allows for seamless online, mobile, or in-store approval process Omni-channel Capable Centralized Lease Decisioning Enhances Operating Model
Aarons.com is an Industry Leading E-Commerce Platform E-Com Revenue Growth YoY New, Younger Customers… Aarons.com customers are 5 years younger than in-store 55% of Aarons.com customers have never shopped at Aaron’s before E-Com % of Lease Revenue Website Traffic (millions) Seamless Customer Experience End-to-end technology platform allows the customer to shop, qualify, start a lease, and schedule delivery Access to in-store and in-warehouse merchandise, as well as additional offerings direct from well-known national suppliers Online capabilities work seamlessly across smartphones, tablets, and computers Fully Transactional Broad Selection Mobile First Note: LTM is 12-month period ending 9/30/20 5.3% 6.7% 9.0% 11.4% 24.4 25.2 27.9 33.5 30.7% 24.7% 39.2% 42.0%
New Concept Stores Improve Customer Experience Easy-to-navigate, larger showrooms highlight expanded assortment Innovative operating model and technology enhance customer experience Value-engineered buildouts modernize the Aaron’s brand Analytics-driven market strategy aligns store footprint with our customer opportunity
Site selection is driven by data analytics and insights into where customers live, work, and shop Recurring revenue model produces compelling real estate consolidation opportunities A A A A A A A A 1 2 3 4 Illustrative Case Study Proposed Site Existing Stores 10 Miles 5 Miles 1 2 4 3 Illustrative Case Study Proposed Site Existing Store 10 Miles 5 Miles Real Estate Strategy Leads to Fewer, More Profitable Stores Plan to reduce our store count 20% – 30% over the next 5 years Expect increased capital efficiency, improved unit economics, and strong free cash flow A Company Store Count 1 Represents the midpoint of our expected 20% - 30% reduction 1
Historical Financial Performance1 1 All figures reflect Form 10 financials 2 LTM is 12-month period ending 9/30/20 3 Includes Company-operated and franchise stores Revenue ($ millions) Total Store Count3 Same Store Revenues Adjusted EBITDA ($ millions) YoY Growth N/A 0.7% (0.6%) (2.5%) Margin 2 2 2 Net Change (138) (37) (185) (110) 10.1% 9.4% 9.3% 11.9%
Strong and Flexible Balance Sheet Liquidity at Spin Date2 ~$300M Capital Position at Spin Date1 Cash: $40M - $50M Debt: $0 1 Debt excludes capitalized leases of $1.2M 2 Liquidity includes $250M revolving credit facility 3 Subject to Board approval Expected Annual Dividend3 $10M - $15M We are committed to managing our balance sheet conservatively to provide the Company financial flexibility
Larger per-store portfolio Fewer stores Return to normalized collections Modest improvement in write-offs from historic levels Standalone public company costs Normalized labor expenses Strong profitability Working capital benefit from store closures Capex spend of $70M - $80M Adjusted EBITDA Margin Free Cash Flow1 Revenues Attractive profitability and cash flow generation expected in 2021 2021 Outlook 1 After capex and before impact of any dividends that may be approved by Board $1.6B - $1.7B 9% - 10% $70M – $80M
Adjusted EBITDA Margin Free Cash Flow1 Revenues 1 After capex and before impact of any dividends that may be approved by Board Initial decline followed by low single digit growth Margin expanding to 11.5% – 12.5% $60M – $90M per year 2021 – 2025 Outlook Strategy expected to drive improving profitability and capital efficiency Store count reduced 20% - 30% Higher revenue per-store Continued E-commerce growth Better portfolio performance Higher per-store volume drives positive operating leverage Improving margins Lower working capital Modest capex
A strong culture of compliance is foundational to our business Commitment to Regulatory Compliance Invest in seasoned regulatory and compliance teams and systems Conduct organization-wide ongoing training to support compliance programs Actively monitor and audit key risk areas and recommend compliance-related operating improvements Compensate management for achievement of compliance goals
Committed to the Environment, Our Communities, and Strong Corporate Governance Environmental Adopted waste-reduction programs resulting in recycling ~10 million pounds of materials annually Implemented comprehensive waste audit program at furniture manufacturing facilities Reduced amount of materials manufacturing facilities sent to landfills Social In 2021, completing significant funding and other resources to Boys & Girls Club of America; working on new multi-year commitment Provide financial support and internship programs to students of Morehouse College Sponsor Cristo Rey Atlanta Jesuit High School and provides employment opportunities for Cristo Rey students Partner with Warrick Dunn Charities’ Homes for the Holidays program, which celebrates single parents experiencing homeownership for the first time Governance Highest possible governance score from ISS (2020 Aaron’s, Inc.) Excellent internal and external pay parity, 97.6% shareholder support for 2020 Say on Pay referendum (2020 Aaron’s, Inc.) Committed to diversity at all levels of management and Board of Directors
Key Investment Highlights Large, resilient customer base representing ~30% of the U.S. population Compelling customer value proposition driven by competitive pricing, high approval rates, and best-in-class customer service Digitally-enabled, omni-channel strategy that provides an integrated online and in-store experience Expect to grow earnings, expand margins, and generate strong free cash flow by optimizing our store footprint and executing a digital-first strategy Debt-free balance sheet with significant available liquidity
Thank You
Appendix
Note: Expect to add additional Board members after completion of the spin. Board / Governance John W. Robinson III Chairman Aaron’s, Inc. (CEO & Board Member) Progressive (Former CEO) TMX (Former President & COO) Joined Board in November 2014 Kelly Barrett Home Depot (Former SVP of Home Services) Cousins Property, Inc. (Former CFO) Joined Board in May 2019 Walt Ehmer Waffle House (President & CEO) Joined Board in May 2016 Hubert Harris, Jr. Invesco North America (Former CEO) Joined Board in August 2012 Douglas Lindsay The Aaron’s Company, Inc. (CEO) Ace Cash Express (Former CFO & COO) Will join Board upon completion of spin transaction
We report our financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial information. These 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 our GAAP basis results. Further, we caution investors that amounts presented in accordance with our definitions of non-GAAP adjusted EBITDA, adjusted EBITDA Margin, same store revenues, and free cash flow may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner. We encourage investors to review our financial statements and other information filed with the SEC) in conjunction with the information included in this presentation. A reconciliation of the non-GAAP measures to the corresponding amounts prepared in accordance with GAAP appears in the tables of the Appendix of this presentation. The reconciliations provide additional information as to the items and amounts that have been excluded from the adjusted non-GAAP measures. Non-GAAP adjusted EBITDA and adjusted EBITDA margin are supplemental measures of our performance that are not calculated in accordance with generally accepted accounting principles in the United States. The adjusted EBITDA figures presented in this presentation are calculated as earnings before interest expense, depreciation on property, plant and equipment, amortization of intangible assets and income taxes. Adjusted EBITDA also excludes the adjustments described in the reconciliation of GAAP net earnings and adjusted EBITDA included in the appendix of this presentation. Adjusted EBITDA Margin is calculated by dividing adjusted EBITDA by revenues. Management believes that the adjusted EBITDA and adjusted EBITDA margin metrics 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 our performance. Furthermore, adjusted EBITDA provides management and investors with an understanding of the results from the primary operations of our business by excluding the effects of certain items 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. Free cash flow is a non-GAAP financial measure that represents cash flow from operations (a GAAP measure) less capital expenditures. Management believes free cash flow is a useful measure of liquidity and an additional basis for assessing The Aaron’s Company’s ability to fund future business transformation initiatives and, subject to the approval of its Board, returns of capital to its shareholders. Same store revenues is a key performance indicator calculated by comparing store revenues for the twelve months ended December 31, 2019 to revenues for the comparable period in 2018 for all stores open for the entire 24-month period ended December 31, 2019, excluding stores that received lease agreements from other acquired, closed or merged stores. We believe that this is a useful metric as it demonstrates the growth of our stores yet excludes operational anomalies such as acquisitions, closures and merges that may otherwise impact the comparability of our store performance. When we provide forward looking expectations of adjusted EBITDA, adjusted EBITDA margin, and free cash flow, a reconciliation of differences between the non-GAAP expectations and the corresponding GAAP measures generally are not available without unreasonable effort due to high variability, complexity, and limited visibility as to items that would be excluded from the GAAP measure in the relevant future period such as restructuring charges related to our business transformation initiatives, including real estate repositioning, and other operational costs we may incur in connection with, and after, becoming a separate, publicly traded company, including, for example, additional personnel costs that we may not have fully anticipated. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results. Use and Definitions of Non-GAAP and Other Financial Measures
Reconciliation to Adjusted EBITDA Note: All figures reflect Form 10 financials
Reconciliation of Adjusted EBITDA to Free Cash Flow Note: All figures reflect Form 10 financials