UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________ FORM 10-Q ________________________________ ___________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-39681 ________________________________ ...

Part I [Business](index=5&type=section&id=ITEM%201.%20BUSINESS) The company is an omni-channel lease-to-own provider of home goods, executing a strategic plan including the acquisition of BrandsMart - The Aaron's Company is a technology-enabled, omni-channel provider of lease-to-own (LTO) and purchase solutions for home goods, operating through a network of approximately 1,300 company-operated and franchised stores and the Aarons.com e-commerce platform[12](index=12&type=chunk) - On February 23, 2022, the company agreed to acquire BrandsMart U.S.A. for approximately **$230 million in cash**, a transaction expected to close in Q2 2022, aiming to expand product selection and payment options[13](index=13&type=chunk) - The company's strategic plan focuses on four core priorities: aligning its store footprint with its 'GenNext' concept, simplifying and digitizing the customer experience, promoting its value proposition, and advancing ESG initiatives[15](index=15&type=chunk) Store Count as of December 31, 2021 | Store Type | Count | | :--- | :--- | | Company-operated stores | 1,074 | | Independently-owned franchised stores | 236 | | **Total Stores** | **1,310** | Revenue by Merchandise Category (2019-2021) | Merchandise Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Furniture | 43% | 44% | 44% | | Home appliances | 31% | 29% | 27% | | Electronics | 23% | 24% | 26% | | Other | 3% | 3% | 3% | - Recurring revenue from contracted lease payments constituted approximately **89% of the company's total revenue** for the year ended December 31, 2021[21](index=21&type=chunk) [Risk Factors](index=19&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces material risks from the COVID-19 pandemic, regulatory scrutiny, operational challenges, and its separation from PROG Holdings - **COVID-19 Risks:** The pandemic may continue to materially affect business operations, financial condition, and cash flow due to potential new virus variants, governmental restrictions, supply chain disruptions, and impacts on labor availability and costs[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - **Regulatory and Legal Risks:** The company faces increased focus from federal (FTC) and state regulators on the LTO industry, potentially leading to new laws, pricing restrictions, fines, and significant compliance costs[61](index=61&type=chunk)[62](index=62&type=chunk) - **Business and Strategic Risks:** Challenges include the successful integration of the BrandsMart acquisition, execution of the strategic plan, intense competition from various retail and financing sources, and managing inventory to meet changing consumer demand[53](index=53&type=chunk)[72](index=72&type=chunk)[74](index=74&type=chunk) - **Cybersecurity and Technology Risks:** A failure to protect the security of customer and employee personal information from cyberattacks could result in significant costs, litigation, and reputational damage[69](index=69&type=chunk)[71](index=71&type=chunk) - **Inflation Risk:** An inflationary environment could adversely impact business through increased labor, raw material, and logistics costs, and could also lead to lower lease volumes if prices accelerate[65](index=65&type=chunk) - **Separation Risks:** As a company with a limited history of operating independently from PROG Holdings, historical financial data may not be indicative of future results, and the company faces costs of operating as a standalone public entity[86](index=86&type=chunk)[87](index=87&type=chunk) [Unresolved Staff Comments](index=38&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved comments from SEC staff - None[96](index=96&type=chunk) [Properties](index=38&type=section&id=ITEM%202.%20PROPERTIES) The company leases most retail and corporate facilities and owns its furniture manufacturing plants - The company leases most of its store-based operations, call center space, and corporate offices, with leases expiring at various times through 2033[97](index=97&type=chunk) Principal Facilities as of December 31, 2021 | Location | Primary Use and How Held | Sq. Ft. | | :--- | :--- | :--- | | Atlanta, Georgia | Executive/Administrative Offices – Leased | 74,000 | | Kennesaw, Georgia | Administrative Office – Leased | 37,000 | | Various properties in Georgia | Furniture Manufacturing, Warehouse, Admin – Primarily Owned | 738,000 | [Legal Proceedings](index=38&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in ordinary course legal matters and is cooperating with a California DFPI inquiry - The company does not currently believe that any outstanding legal proceedings will have a material adverse impact on its business, results of operations, or financial condition[99](index=99&type=chunk) - As of December 31, 2021, the company had accrued **$1.7 million** for pending legal matters, with a reasonably possible loss in excess of this accrual estimated between zero and **$3.0 million**[295](index=295&type=chunk) - In Q1 2021, Aaron's, LLC received a subpoena from the California Department of Financial Protection and Innovation (DFPI) regarding compliance with state consumer protection laws[296](index=296&type=chunk) [Mine Safety Disclosures](index=38&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section is not applicable to the company's operations - Not applicable[100](index=100&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's stock trades on the NYSE, it pays a quarterly dividend, and it actively repurchased shares in Q4 2021 - The company's common stock is listed on the NYSE under the symbol **'AAN'**, with 282 shareholders of record as of February 18, 2022[102](index=102&type=chunk) Share Repurchase Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2021 | 282,623 | 28.16 | | Nov 1 - Nov 30, 2021 | — | — | | Dec 1 - Dec 31, 2021 | 537,715 | 23.62 | | **Total Q4 2021** | **820,338** | **N/A** | - A **$150 million** share repurchase program was authorized in March 2021, with approximately **$46.9 million** remaining available as of December 31, 2021[103](index=103&type=chunk) [[Reserved]](index=40&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is not applicable - Not applicable[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Revenues grew 6.4% to $1.85 billion in 2021, with net earnings rebounding significantly due to the absence of a prior-year impairment charge Fiscal Year 2021 Financial Highlights vs. 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $1.85 billion | $1.73 billion | +6.4% | | Net Earnings (Loss) | $109.9 million | ($265.9 million) | nmf | | Diluted EPS (Loss) | $3.26 | ($7.85) | nmf | | Same Store Revenues | N/A | N/A | +9.3% | | E-commerce Revenue Growth | N/A | N/A | +20.1% | - The significant improvement in net earnings in 2021 was primarily due to the absence of the **$446.9 million goodwill impairment charge** recorded in 2020[119](index=119&type=chunk) - The provision for lease merchandise write-offs as a percentage of lease revenues and fees was **stable at 4.2%** for both 2021 and 2020[119](index=119&type=chunk) - The company returned **$113.1 million** to shareholders in 2021 through share repurchases and dividends[119](index=119&type=chunk) - As of December 31, 2021, the company had **$22.8 million in cash** and **$222.7 million of availability** under its revolving credit facility[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate fluctuation on its variable-rate debt and the pending LIBOR transition - The company is exposed to interest rate risk from its $250.0 million Revolving Facility, with **$10.0 million outstanding** under this facility as of December 31, 2021[166](index=166&type=chunk) - The company faces additional interest rate risk from the planned discontinuation of certain LIBOR rates, to which current borrowings are tied[166](index=166&type=chunk) - The company does not use significant market risk sensitive instruments for hedging or speculative purposes[166](index=166&type=chunk) [Financial Statements and Supplementary Data](index=59&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the audited financial statements, which received an unqualified opinion from Ernst & Young LLP - The independent auditor, Ernst & Young LLP, issued an **unqualified opinion** on the consolidated and combined financial statements[169](index=169&type=chunk) - The auditor also issued an **unqualified opinion on the effectiveness of the company's internal control** over financial reporting as of December 31, 2021[170](index=170&type=chunk)[179](index=179&type=chunk) - **Critical Audit Matters** identified by the auditor were the 'Estimated claims liabilities' and the 'Allowance for lease merchandise write-offs'[173](index=173&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$1,441,265** | **$1,353,457** | | Cash and Cash Equivalents | $22,832 | $76,123 | | Lease Merchandise, Net | $772,154 | $697,235 | | **Total Liabilities** | **$723,099** | **$642,132** | | Operating Lease Liabilities | $309,834 | $278,958 | | **Total Shareholders' Equity** | **$718,166** | **$711,325** | Consolidated Statement of Earnings Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$1,845,504** | **$1,734,919** | **$1,784,477** | | Gross Profit | $1,159,489 | $1,083,542 | $1,112,016 | | Operating Profit (Loss) | $145,749 | ($386,038) | $47,356 | | **Net Earnings (Loss)** | **$109,934** | **($265,912)** | **$28,099** | | Earnings (Loss) Per Share - Diluted | $3.26 | ($7.85) | $0.83 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=104&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no disagreements with its accountants on accounting or financial disclosure matters - None[339](index=339&type=chunk) [Controls and Procedures](index=104&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Based on an evaluation by management, the CEO and CFO concluded that the company's disclosure controls and procedures were **effective as of December 31, 2021**[340](index=340&type=chunk) - Management's report and the independent auditor's report both concluded that the company's internal control over financial reporting was **effective as of December 31, 2021**[341](index=341&type=chunk) - No material changes were made to the company's internal control over financial reporting during the fourth fiscal quarter of 2021[342](index=342&type=chunk) [Other Information](index=104&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information for this item - None[342](index=342&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=104&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This disclosure requirement is not applicable to the company - Not applicable[343](index=343&type=chunk) Part III [Directors, Executive Officers of the Registrant and Corporate Governance](index=105&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20OF%20THE%20REGISTRANT%20AND%20CORPORATE%20GOVERNANCE) Information on directors, officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - The required information is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of shareholders[345](index=345&type=chunk) - The company has adopted a code of business conduct and ethics for all directors, officers, and team members, available on its investor website[346](index=346&type=chunk) [Executive Compensation](index=105&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Details regarding executive compensation are incorporated by reference from the company's 2022 Proxy Statement - The required information regarding executive compensation is incorporated by reference from the company's Proxy Statement[347](index=347&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=105&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership is incorporated by reference from the company's 2022 Proxy Statement - The required information regarding security ownership is incorporated by reference from the company's Proxy Statement[348](index=348&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=105&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Details on related party transactions and director independence are incorporated by reference from the 2022 Proxy Statement - The required information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement[349](index=349&type=chunk) [Principal Accountant Fees and Services](index=105&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information on principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - The required information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement[350](index=350&type=chunk) Part IV [Exhibits, Financial Statements and Schedules](index=106&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENTS%20AND%20SCHEDULES) This section lists all financial statements, schedules, and exhibits filed as part of the annual report - The financial statements and the Report of Independent Registered Public Accounting Firm are located in Item 8 of this report[352](index=352&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the necessary information is already included in the financial statements or notes[353](index=353&type=chunk) - A detailed list of exhibits filed with the report is provided, including agreements related to the separation from PROG Holdings, debt facilities, and executive compensation plans[354](index=354&type=chunk)[357](index=357&type=chunk)[359](index=359&type=chunk)