The Aaron's Company, Inc. Reports Second Quarter 2022 Financial Results, Updates Full Year Outlook

• Consolidated revenues were $610.4 million, up 30.6%, benefiting from BrandsMart acquisition
• Strong performance from Aaron's e-commerce channel and GenNext stores
• Losses per share were $0.17; Non-GAAP earnings per share were $0.79, adjusted primarily for acquisition-related items
• Net losses were $5.3 million; Non-GAAP net earnings were $24.8 million
• Consolidated adjusted EBITDA was $48.1 million, down 26.4%, as high inflation pressured lower-income consumers
• Updates full year adjusted EBITDA outlook to $150 million to $170 million

ATLANTA, July 25, 2022 /PRNewswire/ -- The Aaron's Company, Inc. (NYSE: AAN), a leading, technology-enabled, omnichannel provider of lease-to-own and retail purchase solutions, today announced financial results for the second quarter ended June 30, 2022. This quarter is the Company's first report on a consolidated basis, incorporating results from BrandsMart U.S.A., acquired April 1, 2022.

"With the acquisition of BrandsMart U.S.A., consolidated revenues increased in the second quarter, and we are encouraged by the performance of this new business segment," said Douglas Lindsay, Chief Executive Officer of The Aaron's Company, Inc. "In the Aaron's Business, customer demand and payment activity progressively worsened through the quarter as high inflation impacted the lower-income consumer. In response to these challenging market conditions, we are leveraging our centralized lease decisioning and digital servicing platforms to maintain relationships with our customers and strengthening actions to control costs."

"We continue to strategically invest in our growing e-commerce channel, our high-performing GenNext store program, and the value creation opportunities available through the BrandsMart acquisition," Lindsay added. "Together with our strong balance sheet and liquidity, we believe these investments enable us to continue delivering a market leading value proposition to a large and increasingly diversified customer base that will expand our market share and position us for future growth."

Second Quarter 2022 Financial Highlights

The Aaron's Company, Inc. (the "Company") conducts its operations through two primary operating business segments: 1) the Aaron's Business segment, which includes, Company-operated Aaron's stores, the Aarons.com e-commerce platform, Aaron's franchise operations, BrandsMart Leasing, a lease-to-own solution offered to customers of BrandsMart U.S.A., and Woodhaven, a furniture manufacturing operation (collectively, the "Aaron's Business"); and 2) the BrandsMart segment, which includes, BrandsMart U.S.A. retail stores and the Brandsmartusa.com e-commerce platform (collectively, "BrandsMart"). The financial and operating results for the BrandsMart segment do not include BrandsMart Leasing and neither business segment results include unallocated corporate expenses. Additionally, the Company's financial and operating results for the second quarter of 2022 include the results of operations of BrandsMart subsequent to the April 1, 2022 acquisition, while financial and operating results for all periods prior to the April 1, 2022 acquisition do not include BrandsMart. For all periods presented, the Company has retroactively adjusted disclosures to align with the new reportable segments.

Consolidated Results

The Company's total revenues were $610.4 million in the second quarter of 2022 compared with $467.5 million for the second quarter of 2021. Net losses were $5.3 million for the second quarter of 2022 compared with net earnings of $33.0 million in the prior year period. Net losses for the second quarter of 2022 include the effects of a one-time, non-cash charge for a fair value adjustment to merchandise inventories of $23.0 million, BrandsMart acquisition-related costs of $8.0 million, restructuring charges of $5.6 million, acquisition-related intangible amortization expense of $2.8 million, and separation costs of $0.2 million. These charges were partially offset by a net tax benefit of $4.8 million related to a remeasurement of the Company's deferred state tax balances in conjunction with the BrandsMart acquisition. Net earnings in the second quarter of 2021 included restructuring charges of $1.8 million and separation costs of $1.2 million.

Adjusted EBITDA was $48.1 million in the second quarter of 2022, a decrease of 26.4% compared to the second quarter of 2021. As a percentage of total consolidated revenues, adjusted EBITDA was 7.9% in the second quarter of 2022 compared with 14.0% in the prior year second quarter. The declines in adjusted EBITDA and adjusted EBITDA margin were primarily due to lower lease renewal rates, higher provision for lease merchandise write-offs, and higher other operating expenses, partially offset by lower personnel costs in the Aaron's Business. The decline in adjusted EBITDA was also offset by $10.5 million of adjusted EBITDA generated from the BrandsMart acquisition.

Diluted losses per share were $0.17 in the second quarter of 2022 compared with diluted earnings per share of $0.95 in the second quarter of 2021. On a non-GAAP basis, diluted earnings per share were $0.79 for the second quarter of 2022 compared with $1.05 in the second quarter of 2021.

Aaron's Business Segment Results

Total revenues for the Aaron's Business were $430.2 million in the second quarter of 2022, a decrease of 8.0% compared to the second quarter of 2021, primarily due to lower lease revenues and retail sales. The lower lease revenues were primarily attributable to lower lease renewal rates and lower exercise of early purchase options. At the end of the second quarter of 2022 our overall lease portfolio size was $130.8 million, a decrease of 1.5% compared to the end of the second quarter of 2021. The lease renewal rate for the second quarter of 2022 was 88.5%, compared to 92.4% in the government stimulus-aided second quarter of 2021. E-commerce revenues increased 4.0% in the second quarter of 2022 compared to the same period in 2021 and represented 15.4% of lease revenues. During the quarter, the Aaron's Business opened 36 GenNext locations, bringing the total to 171 GenNext stores, or 16.1% of total Company-operated Aaron's stores. Lease originations in GenNext stores open less than one year continued growing at a rate of more than 20 percentage points higher than our average legacy stores.

Same store revenues decreased 6.7% as compared to the second quarter of 2021. The decrease was primarily driven by a lower lease renewal rate, lower exercise of early purchase options, and a reduction in retail sales. These factors were partially offset by a larger average same-store lease portfolio size during the quarter.

For the Aaron's Business, earnings before income taxes for the second quarter of 2022 were $29.5 million compared to $61.7 million in the second quarter of 2021.

Adjusted EBITDA for the Aaron's Business was $48.0 million in the second quarter of 2022, a decrease of 38.9% compared to the second quarter of 2021. As a percentage of total revenues for the Aaron's Business, adjusted EBITDA was 11.2% in the second quarter of 2022 compared with 16.8% in the prior year second quarter. The declines in adjusted EBITDA and adjusted EBITDA margin for the Aaron's Business were primarily due to lower lease renewal rates and higher provision for lease merchandise write-offs compared to the government stimulus-aided levels in the second quarter of 2021. Lease merchandise write-offs were 5.7% in the second quarter of 2022, as compared to 2.9% in the second quarter of 2021. Adjusted EBITDA was also impacted by higher other operating expenses offset by lower personnel costs.

BrandsMart Segment Second Quarter Results

The Company's consolidated financial and operating results for all periods prior to the April 1, 2022 acquisition do not include BrandsMart and therefore have not been addressed in the discussion below.

Total revenues for BrandsMart were $181.4 million in the second quarter of 2022. Losses before income taxes for the second quarter of 2022 were $15.9 million. Losses before income taxes in the second quarter of 2022 include a one-time $23.0 million non-cash charge related to a fair value adjustment of the acquired merchandise inventories.

Adjusted EBITDA was $10.5 million in the second quarter, and as a percentage of total revenues for the BrandsMart segment, adjusted EBITDA was 5.8%.

Second Quarter Share Repurchase Program and Dividend Activity

During the second quarter of 2022, the Company repurchased 254,216 shares of Aaron's common stock for a total purchase price of approximately $5.3 million. The total shares outstanding as of June 30, 2022 were 30,777,065, compared to 33,093,668 as of June 30, 2021. The remaining authorized share repurchase amount was $135.8 million as of June 30, 2022. In addition, the Board declared a quarterly cash dividend of $0.1125 per share which was paid to shareholders of record on July 5, 2022.

Updated Full Year 2022 Outlook

The Company has updated its full year 2022 outlook to reflect expectations that continued high inflation and related macroeconomic factors will adversely impact customer demand, lease portfolio size, lease renewal rates, the provision for lease merchandise write-offs, and Company expenses. For the full year 2022, we now expect consolidated total revenues between $2.19 billion and $2.27 billion, adjusted EBITDA between $150.0 million and $170.0 million, and non-GAAP earnings per share between $1.75 and $2.15.

The Company assumes depreciation and amortization of $85.0 million to $90.0 million, and a diluted weighted average share count of approximately 31.5 million shares.

Conference Call and Webcast

The Company will hold a conference call to discuss its quarterly results on July 26, 2022, at 8:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's investor relations website, investor.aarons.com.

About The Aaron's Company Inc.

Headquartered in Atlanta, The Aaron's Company, Inc. (NYSE: AAN) is a leading, technology-enabled, omnichannel provider of lease-to-own and retail purchase solutions of appliances, electronics, furniture, and other home goods across its brands: Aaron's, BrandsMart U.S.A., BrandsMart Leasing, and Woodhaven. Aaron's offers a direct-to-consumer lease-to-own solution through its approximately 1,300 Company-operated and franchised stores in 47 states and Canada, as well as its e-commerce platform. BrandsMart U.S.A. is one of the leading appliance retailers in the country with ten retail stores in Florida and Georgia. BrandsMart Leasing offers lease-to-own solutions to customers of BrandsMart U.S.A. Woodhaven is our furniture manufacturing division. For more information, visit investor.aarons.com, aarons.com, and brandsmartusa.com.

Forward-Looking Statements

Statements in this news release 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.  Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as "remain," "believe," "outlook," "expect," "assume," "assumed," and similar terminology.  These risks and uncertainties include factors such as (i) factors impacting consumer spending, including the current inflationary environment and general macroeconomic conditions; (ii) any ongoing impact of the COVID-19 pandemic due to new variants or efficacy and rate of vaccinations, as well as related measures taken by governmental or regulatory authorities to combat the pandemic (iii) the possibility that the operational, strategic and shareholder value creation opportunities expected from the separation and spin-off of the Aaron's Business into what is now The Aaron's Company, Inc. may not be achieved in a timely manner, or at all; (iv) the failure of that separation to qualify for the expected tax treatment; (v) the risk that the Company may fail to realize the benefits expected from the acquisition of BrandsMart U.S.A., including projected synergies; (vi) risks related to the disruption of management time from ongoing business operations due to the acquisition; (vii) failure to promptly and effectively integrate the BrandsMart U.S.A. acquisition; (viii) the effect of the acquisition on our operating results and businesses and on the ability of Aaron's and BrandsMart to retain and hire key personnel or maintain relationships with suppliers; (ix) changes in the enforcement and interpretation of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our business; (x) legal and regulatory proceedings and investigations, including those related to consumer protection laws and regulations, customer privacy, third party and employee fraud, and information security; (xi) the risks associated with our strategy and strategic priorities not being successful, including our e-commerce and real estate repositioning and optimization initiatives or being more costly than anticipated; (xii) risks associated with the challenges faced by our business, including the commoditization of consumer electronics, our high fixed-cost operating model and the ongoing labor shortage; (xiii) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and online retailers and other competitors; (xiv) financial challenges faced by our franchisees; (xv) increases in lease merchandise write-offs, and the potential limited duration and impact of government stimulus and other government payments made by Federal and State governments to counteract the economic impact of the pandemic; (xvi) the availability and prices of supply chain resources, including products and transportation; (xvii) business disruptions due to political or economic instability due to the ongoing conflict between Russia and Ukraine; and (xviii) the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Statements in this press release that are "forward-looking" include without limitation statements about: (i) the execution of our key strategic priorities; (ii) the growth and other benefits we expect from executing those priorities; (iii) our 2022 financial performance outlook; (iv) the Company's goals, plans, expectations, and projections regarding the expected benefits of the BrandsMart acquisition; and (v) the expected impact on our 2022 financial performance of additional rounds of government stimulus payments. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this press release.

Use of Non-GAAP Financial Information:

Non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and adjusted EBITDA are supplemental measures of our performance that are not calculated in accordance with generally accepted accounting principles in the United States ("GAAP").  Non-GAAP net earnings and non-GAAP diluted earnings per share for 2022 exclude certain charges including amortization expense resulting from acquisitions, restructuring charges, separation costs associated with the separation and distribution transaction that resulted in our spin-off into a separate publicly-traded company, acquisition-related costs, and a one-time, non-cash charge for a fair value adjustment to merchandise inventories. Non-GAAP net earnings and non-GAAP diluted earnings per share for 2021 exclude certain charges including amortization expense resulting from acquisitions, restructuring charges and separation costs associated with the separation and distribution transaction that resulted in our spin-off into a separate publicly-traded company. The amounts for these pre-tax non-GAAP adjustments, which are tax-effected using estimated tax rates which are commensurate with non-GAAP pre-tax earnings, can be found in the Reconciliation of Net (Loss) Earnings and (Loss) Earnings Per Share Assuming Dilution to Non-GAAP Net Earnings and Non-GAAP Earnings Per Share Assuming Dilution table in this press release.

The EBITDA and adjusted EBITDA figures presented in this press release are calculated as the Company's (loss) earnings before interest expense, depreciation on property, plant and equipment, amortization of intangible assets and income taxes. Adjusted EBITDA also excludes the other adjustments described in the calculation of non-GAAP net earnings above. Adjusted EBITDA margin is defined as EBITDA as a percentage of revenue. The amounts for these pre-tax non-GAAP adjustments can be found in the Quarterly EBITDA table in this press release.

Management believes that non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and Adjusted EBITDA 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 both consolidated and business unit performance.

Non-GAAP net earnings and non-GAAP diluted earnings per share provide management and investors with an understanding of the results from the primary operations of our business by excluding the effects of certain items that generally arose from larger, one-time transactions 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.

EBITDA and Adjusted EBITDA also provide management and investors with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes.  These measures may be useful to an investor in evaluating our operating performance and liquidity because the measures:

• Are widely used by investors to measure a company's operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending upon accounting methods, book value of assets, capital structure and the method by which assets were acquired, among other factors.
• Are a financial measurement that is used by rating agencies, lenders and other parties to evaluate our creditworthiness.
• Are used by our management for various purposes, including as a measure of performance of our operating entities and as a basis for strategic planning and forecasting.

The Free Cash Flow figures presented in this press release and in the press release dated April 25, 2022 are calculated as the Company's cash flows provided by operating activities, adjusted for acquisition-related transaction costs and proceeds from real estate transactions, less capital expenditures. Management believes that Free Cash Flow is an important measure of liquidity provides relevant and useful information, and are widely used by analysts, investors and competitors in our industry as well as by our management in assessing liquidity.

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 the Company's GAAP basis net earnings and diluted earnings per share, the Company's GAAP revenues and earnings before income taxes and GAAP cash from operating activities, which are also presented in the press release.  Further, we caution investors that amounts presented in accordance with our definitions of non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA, adjusted EBITDA 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.

SOURCE The Aaron's Company, Inc.