Aarons Holdings Company, Inc.

Welcome to the Aaron's Company fourth quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's prepared remarks, there will be a question and answer session. Instructions will be provided at the time. Thank you. I'd like to hand the conference call over to Keith Hancock, Senior Director of Corporate Affairs for the Aaron's Company. Mr. Hancock, you may proceed.

Thank you and good morning, everyone. I'm Keith Hancock, Senior Director of Corporate Affairs at the Ahrens Company. Welcome to our fourth quarter and full year 2022 earnings conference call. Joining me today are Ahrens Chief Executive Officer Douglas Lindsay, President Steve Olson, and Chief Financial Officer Kelly Wall. After our prepared remarks, we will open the call for questions. Yesterday after the market closed, we posted our earnings release on the investor relations section of our website at investor.ahrens.com. We also posted a slide presentation that provides additional information about the fourth quarter and full year 2022 results, our full year 2023 outlook, and an update on our multi-year strategic plan. During today's call, certain statements we make may be forward-looking, including those related to our outlook for this year. For more information, including important cautionary notes about these forward-looking statements, please refer to the Safe Harbor provision that can be found at the end of the 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, 2022, and other 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. On today's call and in the release, we refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, non-GAAP EPS, and adjusted pre-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 on our website. With that, I will now turn the call over to our CEO, Douglas Lindsay. Thanks, Keith. Good morning, everyone.

Thank you for joining us today and for your interest in the Aarons Company. I'm pleased to report that our consolidated company results for the fourth quarter were in line with internal expectations for both revenue and adjusted earnings, and that we delivered both consolidated company and segment results for the full year 2022 that were within the revised outlook we provided on October 24th. While high inflation and other challenging economic conditions continued to impact our customers in the fourth quarter, We saw improvement in customer demand during the holiday season at both Aaron's and BrandSmart. Despite macroeconomic pressures, our teams have done a great job generating customer demand through well-executed marketing and merchandising strategies designed to increase our market share. Our top priority remains optimizing profitability in both businesses. In Aaron's business, we continue to benefit from ongoing investments in lease decisioning and digital payment and servicing platforms. For example, enhancements made to our lease decisioning model earlier in 2022 resulted in quarter-over-quarter improvements to lease merchandise write-offs. We expect those benefits to carry forward into 2023 as leases initiated under our Titan model begin to reflect a greater percentage of the total portfolio. We are also benefiting from execution of our cost reduction initiatives announced in Q3, and we expect to generate approximately $35 to $40 million in cost savings in 2023. In the quarter, we also made progress on execution of our strategic growth initiatives at both Aarons and BrandSmart. At Aarons, we remain focused on enhancing and growing our e-commerce business and on executing our real estate repositioning and market optimization program. At BrandSmart, we remain confident in our growth potential and are optimistic about capturing the synergies we announced last April with the acquisition. As we look ahead into 2023, Our outlook assumes that high inflation and other macroeconomic factors experienced in 2022 will continue to pressure customers across the credit spectrum. In both businesses, we expect continued softness in customer demand in the first half of the year for our core product categories of appliances, furniture, and electronics. And when our customers do shop, we expect they will continue to trade down to lower priced products. Our outlook reflects these challenging customer demand trends, as well as higher lease agreement payouts in the first half of the year, and the fact that our lease portfolio size was 7% lower at the beginning of 2023. Our outlook also reflects our expectations that the second half of the year will benefit from improved customer demand and payment activity, as well as ongoing cost reductions. As we look to 2023 and beyond, I'm excited to provide an update to our multi-year strategic plan, which is designed to grow revenue, reduce costs, and strengthen our operating margins. The three pillars of our updated strategic plan include, first, transforming the errands business through investments in market optimization, e-commerce, marketing initiatives, and enhancements to our lease decisioning and servicing platforms, all designed to increase our market share. Second, enhancing and growing BrandSmart through achieving our transaction synergies, opening new stores, and investing in e-commerce. And third, optimizing our cost structure through rationalizing our physical infrastructure and support functions. While we expect 2023 to be a reset year, we believe in the long-term strength of customer demand in both our lease-to-own and retail businesses. We are confident that our ongoing strategic investments will continue to enhance our distinct competitive advantages at both Aarons and BrandSmart. This will allow us to increase our market share and enable us to deliver long-term growth and meaningful shareholder returns. I will now turn the call over to Steve Olson.