The Aaron’s pany(AAN) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's Q1 2022 financial statements show decreased revenues and net earnings, stable assets, reduced liabilities, increased operating cash flow, and a significant post-quarter acquisition Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 (In Thousands) | December 31, 2021 (In Thousands) | | :--- | :--- | :--- | | Total Assets | $1,446,362 | $1,441,265 | | Cash and Cash Equivalents | $13,518 | $22,832 | | Lease Merchandise, Net | $769,018 | $772,154 | | Total Liabilities | $715,454 | $723,099 | | Debt | $0 | $10,000 | | Total Shareholders' Equity | $730,908 | $718,166 | Condensed Consolidated Statements of Earnings Highlights (Unaudited) | Account | Three Months Ended March 31, 2022 (In Thousands) | Three Months Ended March 31, 2021 (In Thousands) | | :--- | :--- | :--- | | Total Revenues | $456,082 | $481,054 | | Operating Profit | $30,182 | $48,591 | | Net Earnings | $21,532 | $36,323 | | Earnings Per Share (Diluted) | $0.68 | $1.04 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Activity | Three Months Ended March 31, 2022 (In Thousands) | Three Months Ended March 31, 2021 (In Thousands) | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $29,052 | $20,199 | | Cash Used in Investing Activities | ($17,063) | ($23,425) | | Cash Used in Financing Activities | ($21,321) | ($11,835) | | Decrease in Cash and Cash Equivalents | ($9,314) | ($15,059) | - On April 1, 2022, the Company completed the acquisition of BrandsMart U.S.A. for approximately $230 million in cash, expected to strengthen product offerings and provide enhanced payment options to BrandsMart customers[17][68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2022 revenue decrease to normalized lease renewal rates and fewer early purchase options, alongside increased write-offs, while highlighting the post-quarter BrandsMart acquisition and ongoing share repurchase program Q1 2022 vs Q1 2021 Financial Performance | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Revenues | $456.1M | $481.1M | -5.2% | | Same Store Revenues | - | - | -4.3% | | Net Earnings | $21.5M | $36.3M | -40.7% | | Diluted EPS | $0.68 | $1.04 | -34.6% | - The decrease in revenues was primarily driven by a 4.3% decrease in same store revenues, reflecting an expected normalization in the lease renewal rate (89.4% in Q1 2022 vs 92.5% in Q1 2021) and lower early purchase options following a stimulus-aided Q1 2021[83][84][85] - The provision for lease merchandise write-offs increased to 5.4% of lease revenues and fees, compared to 3.1% in the prior-year period, reflecting a normalization of customer payment activity from historically strong levels in 2021[83][97] - E-commerce revenues grew 3.9% year-over-year, accounting for 15.4% of total lease revenues and fees, up from 14.3% in Q1 2021[83][93] - Subsequent to the quarter end, on April 1, 2022, the company acquired BrandsMart U.S.A. and entered into a new credit facility consisting of a $175 million term loan and a $375 million revolving facility to finance the transaction[68][69][103] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on variable-rate debt, particularly future borrowings under the new SOFR-tied credit facility, with no outstanding borrowings as of March 31, 2022 - The company is exposed to interest rate risk through its variable-rate credit facilities, with future borrowings under the new Credit Facility tied to the Secured Overnight Financing Rate (SOFR), exposing the company to increased costs if interest rates rise[117] - As of March 31, 2022, the Company had no outstanding borrowings under its previous credit facility[117] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[119] - No changes in the Company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[120] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course legal proceedings, with management not expecting a material adverse impact, and an accrual of $1.7 million established for probable losses - The Company has accrued $1.7 million for pending legal and regulatory matters where losses are deemed probable and estimable[61] - 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, and the company is cooperating with the inquiry[62] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K have been reported - There are no material changes to the risk factors previously disclosed in the 2021 Annual Report[123] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 261,924 shares for $5.7 million, with the Board increasing the share repurchase authorization to $250 million and extending it through December 31, 2024 Share Repurchase Activity (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2022 | 0 | N/A | | Feb 1 - Feb 28, 2022 | 0 | N/A | | Mar 1 - Mar 31, 2022 | 261,924 | $21.84 | - On March 2, 2022, the Board increased the share repurchase authorization to $250.0 million from $150.0 million and extended the program to December 31, 2024, with $141.2 million remaining available for repurchase as of March 31, 2022[107][124] Defaults Upon Senior Securities None reported Mine Safety Disclosures None reported Other Information None reported Exhibits This section lists all exhibits filed with the Form 10-Q, including the BrandsMart acquisition agreements and required officer certifications - Key exhibits filed include the Stock Purchase Agreement for BrandsMart, the new Credit Agreement, the new Franchise Loan Facility Agreement, and officer certifications[127]