Business context and reporting period
This is Aaron’s Holdings Company, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The filing is not issued under the name PROG Holdings, Inc.; it reports the combined company, including Progressive Leasing, Aaron’s Business, and Vive. On October 16, 2020, a new holding-company structure was finalized. The company planned to spin off Aaron’s Business, with completion expected before December 31, 2020.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1,052.3m | $963.8m | $3,183.7m | $2,944.1m |
| Operating profit (loss) | $141.6m | $55.5m | ($173.8m) | $189.2m |
| Net earnings (loss) | $109.3m | $39.8m | ($102.3m) | $138.5m |
| Diluted EPS | $1.60 | $0.58 | ($1.52) | $2.02 |
Q3 operating margin was approximately 13.5%, versus 5.8% a year earlier. Nine-month results included a $446.9m Aaron’s Business goodwill impairment, which drove the operating loss. The company recorded a $79.3m income tax benefit for the nine-month period, including $35.5m of CARES Act-related net tax benefits.
Revenue grew 9.2% in Q3. Progressive Leasing revenue increased 13.7% to $601.1m, with invoice volume up 3.4% to $435.3m. Aaron’s Business revenue increased 3.4% to $441.0m; same-store revenue rose 7.3%. Vive revenue was $10.2m, up 17.8%. For the nine months, Progressive Leasing revenue rose 17.9%, while Aaron’s Business revenue declined 3.3% and Vive revenue rose 13.9%.
Operating cash flow for the nine months was $551.8m, compared with $350.8m in 2019. Investing activities used $72.6m and financing activities used $66.8m. Cash increased to $470.2m at September 30 from $57.8m at year-end 2019. Debt was $285.1m, down from $341.0m; the company also reported $486.2m available under its revolving credit facility. Total liabilities were $1,246.3m and shareholders’ equity was $1,638.7m.
Material changes and unusual items
- Q3 revenue and earnings improved substantially year over year, supported by customer payment activity, early buyouts, and reduced lease merchandise write-offs. Management attributed some stronger payment trends to government stimulus and supplemental unemployment benefits.
- The nine-month loss reflects the $446.9m goodwill impairment, $33.3m of restructuring expense, and $14.1m Aaron’s Business sales-and-marketing agreement termination fee. The company also incurred $10.8m of separation costs.
- The $175m FTC settlement relating to Progressive Leasing was paid in April 2020; the related expense had been recorded in 2019. The company reported $835,000 of net legal and regulatory recoveries in the nine-month period.
- Operating cash benefited from strong collections, lower Aaron’s Business merchandise purchases, and $19.4m of net tax refunds. The company received an $84.4m federal tax refund in July from a CARES Act net operating loss carryback.
- Adopted CECL in 2020; the transition increased the opening loan-loss allowance by $9.5m and reduced retained earnings by $6.7m after tax. Vive’s loan-loss allowance was $35.4m at quarter-end, versus $14.9m at year-end 2019.
Outlook, risks, and contingencies
No formal earnings or revenue guidance is provided in the filing. Management expected to close or consolidate about 35 additional Aaron’s company-operated stores over the following three to six months, as part of a three-to-four-year store repositioning plan. Further restructuring charges were anticipated but not estimable.
Management cautioned that COVID-19 could affect customer payments, store and retail-partner operations, product availability, suppliers, staffing, liquidity, and cash flow. Supply shortages were affecting certain retail partners, while customer payment performance could weaken if government support ended without replacement. The company had offered customer payment deferrals, temporarily abated franchise royalties, and negotiated rent concessions. It warned that future operating performance and covenant compliance remained uncertain, although it was in compliance with debt covenants at September 30.
Additional exposures included $18.6m of maximum guaranteed franchisee debt obligations, with a $2.4m recorded liability; $248.6m of unconditionally cancellable unused Vive credit commitments; and pending legal matters. The company estimated reasonably possible losses beyond accruals at $0–$1.0m for specified matters, while noting some exposures could not be reasonably estimated. The proposed separation also carried execution, timing, tax-treatment, and cost risks.
Most important facts to verify
- Confirm the correct issuer and corporate scope: this filing is Aaron’s Holdings Company, Inc., with Progressive Leasing included, rather than a standalone PROG Holdings filing.
- Check the status and final terms of the planned Aaron’s Business spin-off, including tax treatment and allocation of assets, liabilities, and costs.
- Assess whether Q3’s stronger collections and lower write-offs persist after pandemic-era stimulus and unemployment support; review subsequent credit and lease-loss trends.
- Review liquidity and covenant headroom, the $60m senior notes due April 2021, and the stated $486.2m revolving availability.
- Monitor store closures, restructuring charges, product availability, franchisee guarantee exposure, and legal or regulatory developments.