Aarons Holdings Company, Inc.

Good morning. My name is Michelle, and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aarons Company fourth quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I will now turn the call over to Mr. Michael Dickerson, Vice President of Corporate Communications and Investor Relations for Aarons. You may begin your conference.

Thank you, and good morning, everyone. Welcome to the Aaron's Company fourth quarter 2020 earnings conference call. Joining me this morning are Douglas Lindsay, Aaron's chief executive officer, Steve Olson, Aaron's president, and Kelly Wall, Aaron's chief financial officer. Many of you have already seen a copy of our earnings release issued this morning. For those of you that have not, it is available on the investor relations section of our website at investor.aarons.com. During this call, certain statements we make will be forward-looking, including our financial performance outlook for 2021. Actual results in the future may be materially different than those discussed here. This could be due to a variety of factors, including, among other things, uncertainties associated with the duration and severity of the COVID-19 pandemic and related impact on the economy and supply chains. I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our earnings release. The Safe Harbor provision identifies risks that may cause actual results to differ materially from the content of our forward-looking statements. Also, please see our Form 10-K for the year ended December 31, 2020, and other periodic filings with the SEC for a description of the risks related to our business that may cause actual results to differ materially from our forward-looking statements. Listeners are cautioned not to place undue emphasis on forward-looking statements, and we undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance. Let me add one comment as it relates to our basis of presentation. For the month of December 2020, our results represent the consolidated statements of the company and its subsidiaries and is based on the financial position and results of operations as a standalone company. For all periods prior to December 1, 2020, combined financial statements include all revenue and costs directly attributable to the company and an allocation of expenses from our former parent related to certain corporate functions and actions. A more detailed explanation of our basis of presentation can be found in our Form 10-K file today. With that, Alan, I'll turn the call over to our CEO, Douglas Lindsay.

Thanks, Mike, and thank you for joining us today. First, let me take a moment to recognize all of our talented team members for their determination and commitment in 2020, which enabled Aarons to accelerate our key strategic priorities in a very challenging year. Our fantastic team members at our stores, distribution and service centers, Woodhaven manufacturing and store support center work tirelessly to provide products and services to our customers while accelerating our digital and real estate transformation. We overcame the challenges posed by the COVID-19 pandemic while continuing to meet the needs of our customers and safeguarding our team members. At the same time, we delivered annual revenues that exceeded our expectations for the year. and an adjusted EBITDA that was higher than we've generated in several years. In addition, during the year, our teams worked diligently to establish Aarons as a new standalone publicly traded company. The spinoff transaction closed on November 30th, 2020, and following the spend, we are well positioned with a strong balance sheet and cash flow profile to execute on our go-forward strategy. While some uncertainty remains regarding how the coronavirus may impact the economy or consumer behavior, I'm more energized and optimistic about our future than ever. Our business has never been more nimble, and we continue to make investments in technology, decisioning, e-commerce, and store operations that are yielding higher productivity and least portfolio performance. In the fourth quarter of 2020, same-store revenues rose 3.4% as compared to the prior year quarter, primarily due to strong customer payment activity, improving lease portfolio size, and higher retail sales. The fourth quarter was the sixth out of the last eight quarters with positive same store comps, with 2020 representing the first annual positive same store revenue growth since 2013. Additionally, we ended 2020 with a larger and healthier lease portfolio than we had at the beginning of the year. The larger portfolio size is a result of better collections, fewer product returns, and lower write-offs, which was enabled by improvements in operational execution, the rollout of centralized decisioning technology, and enhancements to our customer payments platform. We achieved this larger portfolio despite revenue written into the portfolio that was flat in the fourth quarter. Recall that our implementation of decisioning technology in the second quarter of 2020 effectively reduced new lease originations and therefore revenue written by 6% to 8%. Moving to our e-commerce channel, revenues grew 39% in the quarter and represented approximately 13% of total lease revenues compared to 10% in the fourth quarter of 2019. Thanks to the tremendous efforts of our team, traffic to our errands.com site continues to increase year over year, as our customers are increasingly going online in search of affordable products for their homes. In the fourth quarter, e-commerce traffic was up 29% compared to the fourth quarter of 2019. Despite the significant increase in traffic to errands.com, e-commerce recurring revenue written into the portfolio declined 1.2%, as compared to last year's fourth quarter due to both decisioning optimization and lower conversion of traffic. Conversion is not where we would expect it to be due to the inventory shortages resulting from the global supply chain disruption. However, our inventory position continues to modestly improve in the first quarter of 2021, which should lead to higher conversion rates. I'm encouraged by the progress of our e-commerce initiatives. including our evolving analytics and digital capabilities. Improvements in online customer acquisition, conversion, and decisioning are leading to margin growth and continued positive momentum in this important channel. In 2020, we also accelerated our strategy to consolidate, remodel, and reposition our store footprint with our new GenNext store concept, which includes enhanced showrooms, digital technologies, expanded product assortment, and improved brand imaging. As of the end of the year, we had 47 GenNext stores opened and have more than 60 additional stores in the 2021 pipeline. Our GenNext stores are performing well, delivering new lease volumes that are higher than the corporate averages and in line with our expectations. While the new stores still represent a small portion of our overall store count, We believe over time the execution of our GenNext store strategy will provide meaningful lift to our overall performance. Overall, I'm pleased with our full year of 2020 and fourth quarter results, and I'm encouraged about the future and our new chapter as a financially strong standalone public company. As we look to 2021, we remain focused on our key strategic initiatives of simplifying and digitizing the customer experience, aligning our store footprint to our customer opportunity, and promoting the ERIN's value proposition of low payments, high approval rates, and best-in-class service. I'll now turn the call over to our Chief Financial Officer, Kelly Wall, to discuss our financial results.