Aarons Holdings Company, Inc.

Hello everyone and welcome to the Aaron's Company Inc Q4 2023 earnings conference call. We will begin shortly. If you'd like to register a question ready for the Q&A, please press star followed by one on your telephone keypads. Thank you for your patience. Thank you. Hello everyone and welcome to the Aaron's Company Inc Q4 2023 earnings conference call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I want to hand over to our host, Mark Levy, VP of Finance and Investor Relations, to begin. Mark, please go ahead.

Thank you, and good morning, everyone. Welcome to our fourth quarter and full year 2023 earnings conference call. Joining me today are Aaron's 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.ehren.com. We also posted a slide presentation that provides additional information about our fourth quarter and full year 2023 results and our full year 2024 outlook. 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. We plan to file our Form 10-K for the year ended December 31, 2023 later this week. On today's call, in the earnings release and in the supplemental investor presentation, We refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, non-GAAP net earnings, non-GAAP EPS, adjusted free cash flow, and net debt, 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, Mark. Good morning, everyone. Thank you for joining us and for your interest in the Aarons Company. Today, in addition to providing more detail on our fourth quarter and full year 2023 earnings, we'd like to discuss the strong actions we've taken and continue to take to drive demand, further reduce costs, and improve performance across the company. While the retail environment for consumer durables continues to experience headwinds, including elevated levels of inflation, low housing starts, and increased consumer debt, our lease to own business model remains resilient, and we continue to innovate to better serve our customers. We have recently enhanced our lease decisioning technology and customer acquisition programs, which are leading to an improved customer experience, higher conversion rates, and greater efficiencies in our business. Because of this, in the fourth quarter of 2023, we experienced growth in most of our major product categories at Aarons. These benefits are carrying over into the first quarter of 2024, and we expect them to continue over the course of the year. We have also continued to streamline our cost structure and delivered over $40 million of cost reductions in 2023, exceeding the high end of our target range. Today, we'll also provide our 2024 outlook and why, given the fundamental strengths of our business, we believe we are well positioned to deliver enhanced long-term value to shareholders. Now I'll turn to our consolidated financial performance and then cover each of the business segments. Consolidated company earnings for the fourth quarter were below our expectations primarily due to softer than expected demand at BrandSmart. For the full year 2023, we delivered consolidated company revenues in line with the revised outlook we provided on October 23rd. We consolidated adjusted earnings from approximately $4 million below the low end of our outlook range. We continue to maintain a strong balance sheet. reducing our net debt balance from $215 million at the end of 2022 to $135 million at the end of 2023, a reduction of over 37%. We also delivered strong adjusted free cash flow in 2023 that exceeded the high end of our revised outlook by approximately 28%. Now turning to the business segment. The Aarons business delivered revenues for the year that exceeded our revised outlook and adjusted earnings that were within our revised outlook. However, we ended the fourth quarter with our lease portfolio size down 7% year over year due to the ongoing challenging demand trends. Throughout 2023, we took actions to improve our lease decisioning technology, in-store operational procedures, and marketing programs. In the fourth quarter, we launched a new omni-channel lease decisioning and customer acquisition program that provides leasing power to e-commerce customers, allowing them to shop across whatever channel they prefer. This has resulted in higher conversion rate of lease applications. In the first eight weeks of 2024, we're seeing total lease merchandise deliveries up high single digits. And our e-commerce channel is up over 100% as compared to the prior year period. Our 2024 earnings outlook for the Aarons business reflects the benefits of our enhanced customer acquisition program, which is partially offsetting the impact of a lower lease portfolio size to start the year. We expect our lease portfolio size to grow sequentially beginning in the second quarter and to end the year up mid-single digits as compared to year-end 2023. Now turning to BrandSmart. BrandSmart continued to experience softness in customer demand during the fourth quarter due to lower customer traffic and continued trade down to lower priced products across our major product categories. As a result, BrandSmart ended the year with revenues and adjusted earnings below our revised outlook. Although demand is challenging, we remain confident in BrandSmart's compelling value proposition. strength of the brand, and potential to expand its market. Our full year 2024 outlook for BrandSmart assumes that high inflation and other macroeconomic factors experienced in 2023 will continue to put pressure on customer demand in the first half of the year, followed by improvements in demand in the second half of the year, primarily due to the anticipated rebound in our product categories. As we look to 2024 and beyond, I want to reiterate that our management team and board are highly engaged and committed to taking actions that will deliver additional value for shareholders. We continue to execute our strategy, including transforming the Aarons business and enhancing and growing BrandSmart. We also remain focused on streamlining our cost structure and generating greater efficiencies across both businesses. In the first quarter, we reduced our store support center personnel by approximately 15% and adjusted the compensation of our top executives to better align to company performance. We also plan to implement additional expense reduction initiatives throughout 2024. With the investments we've made to innovate our business and the strength of our balance sheet, We are better positioned than ever to drive long-term profitable growth at Aarons and BrandSmart. I will now turn the call over to Steve to speak about the operational performance of each business segment.