The Aaron’s pany(AAN) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for The Aaron's Company, Inc. as of September 30, 2021, including balance sheets, earnings, cash flows, and accompanying notes Condensed Consolidated Balance Sheets Total assets increased to $1.416 billion as of September 30, 2021, primarily due to higher lease merchandise, with liabilities and equity also rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $14,846 | $76,123 | | Lease Merchandise, Net | $775,012 | $697,235 | | Total Assets | $1,416,412 | $1,353,457 | | Total Liabilities | $694,882 | $642,132 | | Total Shareholders' Equity | $721,530 | $711,325 | Condensed Consolidated and Combined Statements of Earnings Q3 2021 revenues increased to $452.2 million, but net earnings decreased; nine-month net earnings swung to $93.6 million from a prior-year loss impacted by goodwill impairment Statements of Earnings Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $452,153 | $440,961 | $1,400,702 | $1,304,747 | | Operating Profit (Loss) | $33,218 | $41,356 | $125,860 | ($393,018) | | Net Earnings (Loss) | $24,348 | $32,613 | $93,646 | ($268,787) | | Diluted EPS | $0.73 | $0.96 | $2.74 | ($7.94) | Condensed Consolidated and Combined Statements of Cash Flows Cash from operations significantly decreased to $90.4 million for the nine months ended September 30, 2021, leading to a $61.3 million net cash decrease driven by share repurchases and dividends Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $90,394 | $337,238 | | Cash Used in Investing Activities | ($61,555) | ($44,406) | | Cash (Used in) Provided by Financing Activities | ($90,103) | $91,279 | | (Decrease) Increase in Cash | ($61,277) | $384,089 | Notes to Financial Statements Detailed notes explain accounting policies, financial results, spin-off basis, revenue recognition, restructuring programs, and commitments and contingencies - The company is a technology-enabled, omni-channel provider of lease-to-own (LTO) and purchase solutions, operating through approximately 1,300 stores and its e-commerce platform[21] - On November 30, 2020, the company completed its separation from its former parent, PROG Holdings, Inc., and became an independent, publicly traded company[20] Systemwide Store Count | Store Type | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Company-operated | 1,084 | 1,086 | | Franchised | 237 | 308 | | Total | 1,321 | 1,394 | - The company initiated a real estate repositioning and optimization restructuring program in Q1 2020, resulting in the closure, consolidation, or relocation of 126 company-operated stores through Q3 2021, with approximately 45 more stores identified for similar actions[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month 2021 financial performance, covering revenue growth, normalizing customer payments, write-offs, restructuring, liquidity, share repurchases, and dividends Results of Operations – Three Months Ended September 30, 2021 Q3 2021 revenues grew 2.5% to $452.2 million, but operating profit fell 19.7% and net earnings decreased 25.3%, mainly due to increased write-offs as customer payments normalized Q3 2021 vs Q3 2020 Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $452,153 | $440,961 | $11,192 | 2.5% | | Gross Profit | $284,642 | $279,564 | $5,078 | 1.8% | | Operating Profit | $33,218 | $41,356 | ($8,138) | (19.7%) | | Net Earnings | $24,348 | $32,613 | ($8,265) | (25.3%) | - Same-store revenues increased 4.6%, driven by a larger lease portfolio size, which was up 6.1% year-over-year to $99.6 million at quarter-end[103][105] - The provision for lease merchandise write-offs more than doubled to $19.8 million from $9.3 million in Q3 2020, as customer payment activity normalized from historically strong levels supported by government stimulus[103][122] - E-commerce revenues grew 13.3% and constituted 14.3% of total lease revenues and fees, up from 13.1% in the prior year[103][116] Results of Operations – Nine Months Ended September 30, 2021 Nine-month revenues increased 7.4% to $1.4 billion, with operating profit of $125.9 million reversing a prior-year loss of $393.0 million, driven by strong revenue growth and absence of goodwill impairment Nine Months 2021 vs 2020 Performance (in thousands) | Metric | 9 Months 2021 | 9 Months 2020 | Change ($) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,400,702 | $1,304,747 | $95,955 | | Gross Profit | $882,390 | $810,732 | $71,658 | | Operating Profit (Loss) | $125,860 | ($393,018) | $518,878 | | Net Earnings (Loss) | $93,646 | ($268,787) | $362,433 | - Same-store revenues increased 10.6%, contributing $79.9 million to revenue growth, driven by a larger lease portfolio and strong customer payment activity, partly due to government stimulus[129] - Restructuring expenses decreased significantly to $8.1 million from $33.3 million in the prior-year period[136] - The prior year's results included a $446.9 million goodwill impairment charge, which was not repeated in 2021[136] Liquidity and Capital Resources Cash and cash equivalents decreased by $61.3 million to $14.8 million for the nine months ended September 30, 2021, due to reduced operating cash flow and $90.1 million used in financing for repurchases and dividends - Cash provided by operating activities decreased to $90.4 million for the nine months ended Sep 30, 2021, down from $337.2 million in the prior year period, mainly due to higher lease merchandise purchases[143] - The company repurchased 2,751,474 shares for $82.4 million during the first nine months of 2021 under a $150.0 million authorization[140][146] - A quarterly dividend of $0.10 per share was approved in August 2021, with total dividend payments for the first nine months of 2021 amounting to $10.0 million[147] - As of September 30, 2021, the company had no outstanding borrowings under its revolving facility and was in compliance with all financial covenants[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuations on the variable-rate Revolving Credit Facility, with no outstanding borrowings as of September 30, 2021, minimizing immediate risk, and no derivative use - The company is exposed to interest rate risk through its Revolving Facility, where borrowings are indexed to LIBOR or the prime rate[155] - As of September 30, 2021, there were no outstanding borrowings under the Revolving Facility[155] Item 4. Controls and Procedures Management, including CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in 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[157] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[158] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management does not expect a material adverse impact on its financial position or results of operations - The company is party to various legal proceedings but does not expect them to have a material adverse impact on its business or financial results[160] Item 1A. Risk Factors No material changes to the risk factors affecting the company's business and financial results from those disclosed in its 2020 Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in the 2020 Annual Report were identified[161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's share repurchase activity for Q3 2021, with 1,333,264 shares repurchased under a $150.0 million authorization announced in March 2021 Share Repurchase Activity - Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 438,394 | $29.65 | | August 2021 | 408,180 | $28.06 | | September 2021 | 486,690 | $26.84 | | Q3 Total | 1,333,264 | - | - As of September 30, 2021, $67.6 million remained available for repurchase under the company's publicly announced plan[163] Item 5. Other Information No other information to report for this item - None[164] Item 6. Exhibits Lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and XBRL data files