Aarons Holdings Company, Inc.

Good morning. My name is Elliot. I'll be your conference coordinator. Welcome to Aaron's Company Inc. First Quarter 2022 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. And I'd like to turn the call over to Keith Hancock, Senior Director of Corporate Affairs for Aaron's. You may begin your conference.

Thank you and good morning, everyone. Welcome to the Aaron's Company First Quarter 2022 Earnings Conference Call. Joining me this morning are Douglas Lindsay, our Chief Executive Officer, Steve Olson, our President, and Kelly Wall, our Chief Financial Officer. After our prepared remarks, we will open the call for questions. Many of you have already seen a copy of our earnings release issued last evening. For those of you that have not, it is available on the Investor Relations section of our website at investor.ehrens.com. During this call, certain statements we make will be forward looking, including forward looking statements related to our financial performance outlook for 2022. 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 31st, 2021 and other subsequent periodic filings with the SEC for a description of the risk related to our business that may cause actual results to differ materially from our forward-looking statements. On today's call, we will be referring to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, non-GAAP EPS, and free cash flow. 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 in our earnings release and the supplemental investor presentation posted to our website. With that, I will now turn the call over to our CEO, Douglas Lindsay. Douglas Lindsay Thanks, Keith.

Good morning, everyone, and thank you for joining us today. I'm pleased to report a strong start to 2022 and continued positive momentum at the Ahrens Company. In the first quarter, we delivered financial results consistent with our expectations for the quarter, and we remain on track with the 2022 outlook we provided for the Ahrens core business and our February 23rd earnings release. I'm proud of all of our team members in the field, our store support center, and at our Woodhaven manufacturing facilities who work hard every day to continue to innovate within our business. Through their efforts, we were able to deliver results consistent with our expectations and to continue to invest in our strategic initiatives despite the challenging economic environment. In addition, I'm thrilled to report that we completed the previously announced acquisition of Brandsmart USA on April 1st, 2022. We believe Brandsmart enhances our ability to execute on our mission of providing consumers with easy access to high-quality products through affordable lease and retail purchase options. I will share additional insights related to the BrandsMart acquisition after we discuss the Aaron's Core business. Regarding the Aaron's Core business, we delivered results consistent with our expectations for the quarter. On a two-year basis, same-store revenues were up 9.6%. In addition, we ended the quarter with a larger lease portfolio than the same period in 2021, which we achieved despite volatility in consumer demand in the quarter. Also in the quarter, we experienced expected normalization in customer payment activity, which resulted in lower lease renewal rates and higher write-offs. As we look ahead to the remainder of 2022, we are also navigating the challenging economic environment facing the market. including ongoing inflationary pressures, the uncertainty arising from geopolitical conflict and a complex supply chain. Despite the volatile economic environment, I remain confident in our outlook for the year and our ability to optimize performance using the many levers inherent in our direct-to-consumer model. We believe our customer value proposition is compelling and gives us a competitive advantage. Over the last several years, we have significantly transformed the Aaron's core business with the goal of continuing to provide an exceptional customer and team member experience while also driving greater productivity in our operating model. To achieve this transformation, we made significant investments in promoting the Aaron's value proposition, digitizing all aspects of the customer lifecycle and optimizing our store footprint. As a result, our brand awareness in the first quarter reached the highest level since 2018. Our enhanced e-commerce platform continues to grow, attracting a new and younger customer. Our digital payment platforms offer increasing flexibility and convenience to our customers. Our centralized decisioning platform enables an increasingly predictable lease portfolio. and our more than 135 GenNext stores continue to outperform our legacy stores. I'd like to expand further on a few of these growth initiatives. First, our fast-growing e-commerce channel remains a key revenue driver and an area of strategic focus, with e-commerce revenues representing 15.4% of lease revenues in the first quarter. This is the largest contribution of e-commerce revenues to total lease revenues since launching Aarons.com. We are attracting more customers to our website, improving conversion rates, and enhancing the customer experience. We more than doubled our online product assortment in the last year. And importantly, we have meaningfully accelerated the speed with which we are able to introduce new products to our e-commerce channel. We expect to leverage these capabilities to drive growth in our business by expanding our marketplace. offering a broader product catalog to our Aarons lease-to-own customers. Complementing our investment in digital channels, our GenNext store concept continues to deliver a superior customer experience and drive meaningful financial performance. In the first quarter of 2022, lease originations in our GenNext stores opened less than one year, continue to grow at a rate of more than 20 percentage points higher than our average legacy stores. Following the opening of 19 new GenNext locations in the first quarter, our 135 company-operated GenNext stores accounted for more than 13% of lease and retail revenues. We remain committed to the GenNext strategy and currently plan to add more than 80 additional GenNext stores this year. For a total of approximately 100 GenNext locations in 2022. We continue to innovate here at Aarons, and the business transformations we have implemented are yielding great results. We are excited to apply the assets and capabilities we have built to our newest platform for accelerated growth, BrandSmart USA. As discussed in our last earnings call, we believe the acquisition of BrandSmart will provide meaningful value creation opportunities. We continue to expect this transaction to deliver a variety of strategic and financial benefits. It broadens our customer reach and significantly expands our total addressable market. It leverages Aaron's strengths to create an in-house lease-to-own solution. It significantly increases the product assortment available to Aaron's customers. And the transaction also yields significant purchasing power and cost synergies. We are operating Aarons and BrandSmart as separate lines of business, each operating under their current brand. The BrandSmart business reports into our president, Steve Olson. Steve and his team are already hard at work integrating BrandSmart into the Aarons family and executing on our strategic initiatives. Our initial efforts are focused on capturing the synergies for the transaction, as well as making investments in the BrandSmart business to position it for future growth and to enable it to operate effectively as part of a public company. We have already begun work on the implementation of an in-house lease-to-own solution for BrandSmart customers, which we expect to launch in the second quarter of this year. We are also preparing to add some of the BrandSmart product catalog to errands.com by the end of the year and are beginning to assess procurement synergies between the two businesses. Finally, we have begun assessing optimal locations for new BrandSmart stores with the intent of opening one to two stores per year beginning in 2023. This is an exciting time for our company as we have new opportunities to drive long-term value for shareholders, create opportunities for our team members, and enhance our compelling value proposition. We continue to expect the combined company to deliver more than $3 billion in total annual revenues and more than $300 million in adjusted EBITDA by 2026. We look forward to reporting BrandSmart's second quarter performance in our next quarterly earnings release. Before I turn the call over to Kelly, let me reiterate how pleased I am with the progress we're making on our strategic initiatives. For both our Aaron's core business and BrandSmart, I remain confident we have the right team, the right strategy, and the right platforms to deliver long-term growth for all of our stakeholders. With that, I'll now turn the call over to Kelly Wall to discuss the details of our first quarter results and 2022 outlook.