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Aaron's, Inc. (NYSE:AAN)

Q1 2014 Earnings Conference Call

April 25, 2014 10:00 am ET

Executives

Garet Hayes - Director of Public Relations

Ron Allen - Chief Executive Officer, Director

Gil Danielson - Chief Financial Officer, Executive Vice President

Steve Michaels - President

John Robinson - Executive Vice President

Analysts

Brad Thomas - KeyBanc

John Baugh - Stifel

David Vargas - Raymond James

Matt McCall - BB&T Capital Markets

Operator

Good morning. Welcome to the Aaron's, Inc First Quarter Earnings Conference Call. All lines will be muted during the presentation portions of the call, with an opportunity for questions-and-answers at the end.

Participating this morning are, Ron Allen, Chief Executive Officer of Aaron's, Gil Danielson, Executive Vice President and Chief Financial Officer, Steve Michaels, President and John Robinson, Chief Executive Officer of Progressive Finance and Executive Vice President of Aaron's.

At this time, I would like to introduce your host, Garet Hayes, Director of Aaron's Public Relations. You may proceed.

Garet Hayes

Thank you and good morning, everyone. Welcome to our conference to discuss Aaron's first quarter results.

The company's earnings release issued today and the related Form 8-K are available on the company's website, www.aaronsinc.com in the Investor Relations section. This broadcast will be archived for replay there as well.

Before the results are discussed, I would like to read the company's Safe Harbor statement. Except for the historical information, the matters discussed today are forward-looking statements of the company. As such, they will involve a number of risks and uncertainties, including factors such as changes in general economic conditions, competition, pricing, customer demand, litigation, and regulator investigations and other issues that could cause actual results to differ materially from such statements, including the risks and uncertainties discussed under Risk Factors, in the company's Annual Report on Form 10-K, for the fiscal year ended December 31, 2013.

Forward-looking statements including without limitation the Aaron's projected revenues, earnings and store openings for future periods and other statements under the heading Second Quarter and Full Year 2014 and 2015 Outlook, and statements regarding legal and regulatory accruals for loss contingencies.

I will now turn the call over to Mr. Ron Allen.

Ron Allen

Thank you, Garet. Good morning, everyone, and thanks for joining us today to discuss our first quarter results. As we advised in our April 15th press release Aaron's was adversely affected by continued macroeconomic headwinds, which impacted the entire RTO industry. Like many other retailers, we also experienced the adverse effects of weather this past quarter. This was a particular bad three months of weather much of our footprint and approximately 70% of our company-operated stores have been identified as having operations that were adversely impacted by the weather.

Let me be clear, we are not happy with these recent results and we are focused on improving performance on both, the immediate and long-term future. As we have done over the past year, we must continue to take an honest look and evaluate our business against the changing landscape and address the challenges and opportunities ahead.

In that regard, last week, we announced three key initiatives to support our new strategic direction. First, we announced the acquisition of Progressive Finance, the market leader in the high growth virtual RTO industry. Second, we announced a refocused effort on our core Aaron's business to drop cash flow and better returns for our shareholders. Third, we announced changes of the Aaron's leadership team and improved corporate governance initiatives. I'll go through each of these in more detail as I believe they are critically important to understanding our business going forward.

In May of last year, we began to look seriously at an opportunity to expand Aaron's offering into the rapidly growing virtual RTO market, which we believe has a market size of more than $20 billion, and through the acquisition of Progressive, who is the leader in the virtual RTO industry, we found what we believe is the best opportunity to expand into the market and status four our goal of continued growth for Aaron's.

Progressive strengthens Aaron's competitive position and provides our company with a viable growth engine and an industry leading partner. In addition to the Progressive acquisition, we also announced a new strategic vision for the future of Aaron's core business. We identified five key initiatives that will restore stability and enhance profitability in our core operations. These initiatives include a renewed focus on same-store revenue growth, refining and growing our own land platform, managing costs and improving margins, moderating new store growth and company-operated stores and continuing to strengthen and build the franchise network. Steve Michael will discuss these initiatives and more detail shortly.

Now speaking of Steve, in addition to the several other enhancements we made to Aaron's leadership team over the past 16 months, last week we further strengthened our management through two appointments. Steve, who has developed our strategic plan and has played a key role in the review of opportunities and the Progressive acquisition who is named President of Aaron's, John Robinson, who continues as CEO of Progressive Finance was also named Executive Vice President of Aaron's. Steve and John will be central to the future of Aaron's as well as instrumental in the overseeing the execution of our new strategic plan and the continued growth of Progressive.

We have also altered the reporting structure within our senior management team to better align with our growth opportunities, performance and results. I would like to reiterate how focused our entire company is on these initiatives. We believe, we have taken the proper steps over the past few years to not only resolve a number of legacy issues, but to position Aaron's on the path of long-term profitability and to maximizing shareholder value.

As part of this process, we have continued to reach out and gauge with our shareholders, franchisees and employees, all important stakeholders in our business. These conversations have been very beneficial and I am not pleased to announce that over the past two weeks, we have already received strong support from a number of our shareholders and franchisees.

We are certainly excited about the opportunities ahead, our strong leadership team and our ability to deliver sustained value to Aaron's shareholders. We recognize, there is a lot of work to be done as ready for the challenge.

Now I would like to turn the call over to Gil Danielson, who will provide an update on the first quarter. Gil?

Gil Danielson

Thanks, Ron. I will touch on a few of the financial results for the quarter. Revenues for the first quarter were $585.4 million, a 1% decrease from the $593 million for the first quarter of last year. Our franchisees collectively had revenues of $271.5 million for the first quarter, slightly lower than the same period a year ago.

However, please note that revenues of franchisees are not revenues of Aaron's, Inc. Lease revenues and fees were down 2% for the first quarter compared to the same period last year and non-retail sales, which are primarily sales of Lease Merchandise to our franchisees increased 1% for the quarter compared to the same period last year. That was the first increase we have had on those non-retail sales for several quarters.

Same-store revenue growth in the first quarter for company operated-stores decreased 2.1% compared to the same period last year and for stores over two years old, same-store revenues decreased 3.7%. Customer count on a same-store basis for company-operated stores was down 1.4% in the first quarter compared to the quarter last year. In addition, same-store revenues for franchisee stores were down 1% and customer count was down 1.8% for the quarter. Again, revenues and customers of franchisees are not revenues and customers of Aaron's.

Same-store revenues and customer growth were negatively impacted by the weather in the first quarter, the operations of approximately 70% of company-operated stores were adversely affected, including a significant number of store closings during the period as well as increased utility and maintenance expenses. We estimate that the negative impact of the weather conditions on revenue during the first quarter was in the range of $5.5 million to $6.5 million and EPS impact in the range of between $0.05 and $0.06 per share.

At the end of March Aaron's system had almost 1.7 million total customers, 1.1 million company-operated store customers and 590,000 of franchise customers. Net earnings for the quarter were $38.3 million compared to $51 million in last year's first quarter and diluted EPS for the first quarter was $0.53 compared to $0.67 last year.

Revenues in the HomeSmart division were $17.3 million in the first quarter, up 3% compared to $16.9 million a year ago. We are encouraged, HomeSmart recorded a small loss in the quarter, but we do expect that we see the trends and we do expect the division to be profitable for the remainder of 2014.

During the first quarter, we opened nine company-operated Aaron's sales and lease ownership stores, seven franchise stores and two company-operated HomeSmart stores. We also acquired one franchise store and sold five stores to franchisees during the quarter. Five company-operated stores and one franchise store were closed during the first quarter. Also in January of 2014, as we previously had announced, we sold our remaining rental stores, sold 27 company-operated RIMCO stores and the rights to five of our franchise RIMCO stores. At the end of March, we had 1,262 company-operated Aaron's stores, 784 franchise stores, 83 HomeSmart stores and we did have three franchise HomeSmart stores at the end of March also.

Total number of stores opened at the March was 2,132. Through the three months ended March 31st, there were area development agreements to open additional 13 franchise stores and the backlog of area development agreements outstanding is 154 stores. These stores are anticipated to open over the next several years.

Our revenue and earnings guidance reflects the April 15th announcement of the acquisition of Progressive Finance. Diluted earnings per share guidance is on an adjusted basis that excludes transaction related amortization and one-time fees and expenses. When we announced our results for the second quarter we will clarify the EPS calculation or have some primary allocations of how we will allocate the transaction related costs at that time.

For the second quarter, we expect revenues of approximately $675 million, fiscal year 2014 revenues in the range of $2.65 billion to $2.75 billion, second quarter and fiscal year 2014 adjusted diluted earnings per share in a range of $0.43 to $0.48 and $1.95 to $2.10, respectively. Fiscal year 2015 revenues in the range of $3.25 billion to $3.35 billion, fiscal year 2015 adjusted diluted earnings per share in the range of $2.55 to $2.80. Those are the main financial points I would like to point out in the quarter.

I will now turn the call to Steve Michaels, who will discuss our new initiative.

Steve Michaels

Thanks, Gil, and thank you, Ron, for your comments. I'm thrilled to take on this role. Having been at Aaron's for 19 years ,I can honestly say I've never been so excited about the company's future and I believe we have a terrific plan in place to effect change and drive results.

We continue to reshape and sharpen our focus on Aaron's core business and are progressing on five key initiatives to position Aaron's for long-term stability and profitability.

As Ron mentioned earlier, these initiatives are a renewed focus on same-store revenue growth, moderating new growth and with the targeting of high-growth areas, driving cost efficiency to recapture margin, refining and growing our online platform and strengthening and growing our franchisee network.

Our strategy to stabilize same-store revenue growth across the core business is founded on improve execution, merchandising and pricing initiatives and an enhanced marketing strategy. These initiatives will not only improve the in-store customer experience, but also drive new customers to all of our Aaron's stores.

We are also focused on improving the customer experience and have rolled out Aaron's new brand campaign to encourage our customers to own the life you want through Aaron's. Our recent commercials have received positive reviews, and while it's still early, we have seen positive trends in traffic in-store and on aarons.com.

As part of our focus on our core business, we have also adopted a disciplined approach to our operating model and new store growth. We expect to strategically open new company-operated stores in high potential areas, representing 2% to 3% store growth annually, which will be offset by the targeted store closures of underperforming stores, resulting in roughly a zero net new company-operated store openings.

Accordingly, we are structuring our operating expenses to align with our store growth expectations and anticipate realizing the benefits of these initiatives over the next 18 to 24 months. We believe that the targeted store closings which I just discussed, will result in annual savings of over $25 million by 2017.

We are also undertaking initiatives to manage our long-term SG&A, improve our inventory management and reduce write-offs by leveraging Progressive's technology. We also expect Progressive's technology to enhance the aarons.com, which we plan to launch in early 2015.

We believe the new aarons.com will be a significant growth engine Aaron's, better serving our existing customers while driving new customer traffic. Finally, we are dedicated to strengthening and growing our franchisee network, which will be enhanced with the new aarons.com and the addition of Progressive's technology. Aaron's and our franchisees will reach a different customer universe and we see exciting opportunities ahead.

Now I would like to turn the call over to John Robinson, who will review some of the advantages we see from Progressive. John?

John Robinson

Thank you very much, Steve. The virtual RTO market is very large and mostly untapped with invoice potential in excess of $20 billion a year. We believe Progressive is the largest virtual player in the U.S. and with our infrastructure and highly capable management team, we have the ability to grow progressive as part of Aaron's into a multibillion-dollar enterprise.

Our fast, easy process is attracted to retailers and consumers. Our system is technology-driven with virtually all decisions made instantly, allowing for a fast transaction at the point-of-sale. Our system does not require [amended] kiosk, which allows us to operate in a variety of retail format.

Our value proposition to customers is compelling. We provide our customers with access to products at retailers, where they would not otherwise have been able to shop. Our value proposition to retailers is equally compelling. By enabling new customers to shop in their stores, we help drive significant incremental same-store revenue for our retail partners typically in the range of 6% to 10% incremental sales volume.

We have had strong revenue growth from 2012 to 2013 and expected this to continue into 2014, where revenue opportunity is approximately $630 million to $650 million for the year. Q1 revenue was up 67% year-over-year and exceeded our Q1 plans. Year-to-date invoice volume is also well ahead of plan, which coupled with a substantial pipeline of new retailers, gives us a lot of confidence in our 2014 and 2015 projections.

We are confident in our estimates for 2014 and 2015 for both, revenue and EBITDA. We believe there are opportunities for margin expansion in a number of areas as the business continues to scale and we find opportunities for operational efficiencies. The success of our service-oriented philosophy and execution has resulted in great retail relationships. We could not be prouder to work with world-class retailers like Mattress Firm, Big Lots and Art Van.

With nearly 5,500 retail partners with approximately 15,000 locations, we have become integral to many of our retailers' growth strategies. We are pleased with the response we have received from our retail partners to the news of our combination with Aaron's, and believe our partnership with Aaron's will further enhance our ability to provide retailers with the very best RTO products and their stores.

Aaron's infrastructure gives us the ability to appeal to the unbanked and online customer further expanding our product for our retailers. Our retail partners will also benefit from Aaron's financial strength. It's a real positive to both, our current and potential retail partners that Aaron's has such a strong balance sheet and the financial scale to allow us to continue to grow our business.

Partnering with the strongest RTO operator in the U.S. is a significant benefit for our retailers. We are very excited about the opportunities available to us and believe that we are well positioned for success.

With that, I would like to turn it back to Ron.

Ron Allen

John, thank you. Before we start the question-and-answer portion of the call, I would like to take just a minute to address Vintage Capital and Starboard's interest in the company.

As you may know Vintage has withdrawn its unsolicited proposal to acquire Aaron's Vintage and Starboard have filed notice to nominate candidates to stand for election to the Aaron's Board of Directors at the upcoming Annual Meeting. However, the purpose of today's call us to discuss our first quarter results and our business and we thank you in advance for limiting your questions to this topic.

With that, we would like to open the call up for questions. Operator?

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). The first question comes from line of Brad Thomas with KeyBanc. Please proceed.

Brad Thomas - KeyBanc

Thanks. Good morning everybody.

Ron Allen

Good morning, Brad.

Brad Thomas - KeyBanc

I wanted to ask a question on the core Aaron's business and then a couple of questions on Progressive if I could. First, with respect to the core legacy Aaron's business, Ron, Gil, I was hoping if you could just give a little bit more color from a guidance perspective on what's baked into the new 2014 and the initial 2015 guidance.

Ron Allen

Yes. I mean, we kind of talk about same-store revenues. I mean, obviously, our revenues were down a couple of percent in the first quarter. It's kind of (Inaudible) quarterly for this year have anticipate that same-store revenues in the second quarter will be probably down on a comparable amount, but we see a tick up in third and fourth quarter.

For the year anticipate right now flat or maybe slightly down a little bit in the core business from the revenue side of the business. If you kind of look at the base fee and you kind of look at the other items in the model. Mean, the depreciation of percentage of lease revenues will be similar moving forward for the core business.

We do anticipate that the sales, the non-retail sales to our franchisees will continue to be positive for the remainder of the year and positive being positive being up from the previous year's quarter, but not hugely positive but certainly a much better situation that has happened over the last year when we actually had lost some of the revenue on shipments to the franchisees. That's pretty much it, Brad, from looking at '14.

Then looking on to '15 little bit, you know longer term obviously, but we would certainly anticipate in '15 that we will go back to positive same-store revenue growth in our core business. How much that will be? I mean, certainly this business is back to business to be in a 3% to 5% same-store revenue growth. We got some work to get there obviously, and with some of these initiatives that we talked about will certainly help, but that's kind of how we look at it and how we put together the forecast for '15.

Brad Thomas - KeyBanc

Great. Then of the $25 million of potential savings by 2017, how much of that do you think you might be able to generate in 2015 for example?

Ron Allen

Well, I mean, we are going to start working on a lot of that stuff and I think we will start seeing incremental improvement in this year in '14, but it will take some time at least some rolling into '15. We did say that I think - 18 months, we'll get some opportunity to receive. Do you want to?

Gil Danielson

I think from the store rationalization initiative, we've already begun that and it's a very detailed process obviously to look at the stores and our candidates for that and determine what the best ones are as it relates to the impact on the surrounding stores, the ability to retain those customers whether it would be in a surrounding store or being able to use technology to ensure success and the highest amount of retention of those customers, but we do think that there will be some significant benefits here in '15 and even a little impacted in the second half of '14.

Then there will be continued review of the store base in the out years as well. We haven't quantify what we think will be happening in '14 and '15, but it will ramp up in '15 and be fairly impactful approaching that number, the $25 million in '16 and '17.

Brad Thomas - KeyBanc

Great. Then a question for John on the financial outlook for Progressive, I mean, clearly the company has had a great track record. Can you just give us a sense on the revenue side? How much of the revenue is already in track based on account figure in the process rolling out with like a Big Lots this year versus how much of the revenue would need to come from accounts you have not yet signed?

John Robinson

Yes. I mean, the vast majority of '14 is locked in, because the reality for is, we are in test and rollouts with a number of retailers, but don't count on that in '14, because we've learned over time that it's really based on their schedule. There's always other initiative in their companies, so we have to kind of - we look to them to kind of give us the rollout plan, so we have been real conservative about baking in any pipeline in '14. We had pretty good clearing into '15 just because of the rollouts that are going on.

Brad Thomas - KeyBanc

Got you. On a same-store basis, what does the year two look like versus the year one that you are in and a retail partner?

Ron Allen

Usually there is a usually a significant ramp up in year two, because of the nature of the product being rolled out, in training their folks and getting comfort with the product and we have historically seen significant ramps in year two versus year one.

Brad Thomas - KeyBanc

Great. I will turn over to somebody else, but think you so much.

Operator

Next question comes from the line of John Baugh with Stifel. Please proceed.

John Baugh - Stifel

Good morning. I wanted to offer my congratulations on the purchase of Progressive. Looks like an interesting deal. I had a few questions. First, on the core business [analytical] model that you guys can run the tests the give-and-take on price and volume, a new part of the strategy is to raise prices. I am curious as to what level of detail you have run test just to sort of see how that will work and are you going to change term or adjust the monthly payment? Thank you.

Steve Michaels

Sure, John. This is Steve. We are going through all of that analysis and have started and continue on that process. As you know, the pricing strategy in our industry is very important, because it only affects your new, but it also affects your pre-leased, so we have done a lot of analysis as it relates to what the new price points would be and the impact on the pre-leased.

We think that we have or we know we have opportunities in certain categories to take some price increases and it actually help our pre-leased margins and we will be testing some of that and rolling it out, but for competitive reasons we obviously don't want to talk about exactly what we are going to do, but we are using data in a larger way than we ever have before to make sure that we are comfortable with what we are rolling out.

Ron Allen

John as you know, any increases are done on a prospective basis and piece some time we run it all through the system actually several years, so I think you will start seeing some improvements shortly on that.

John Baugh - Stifel

Okay. Were there any unusual? We talked about whether, but when we looked to Q1, and again the core business focus here, tax refund all the things that impact us, consumer, what were the puts and takes on that in Q1 year-over-year?

Ron Allen

As far as the - mean that the early payouts, and buyouts and things like that?

John Baugh - Stifel

Yes. I mean how did the tax refunds I believe were delayed last year? How did they play out? What were the macro headwinds? What did you see in EPOs this year versus last year?

Ron Allen

Yes. The tax refund season was certainly compressed this year. It was pretty much started in February and ended in February, which is a little different than the cycle in previous years and we did see less EPOs at the transaction level and the revenue level this year than we have in previous years, so that certainly impacted the same-store revenues as well. The customer continues, especially the lower end of that customer base continues to face the macro headwinds and then a couple that with the weather, we had some challenges.

John Baugh - Stifel

In terms of the accounts by month, did you see sequential improvement, deterioration. I think the weather was worst in January and February. I was curious if March or April have seen any shift in either the franchise or corporate customer count?

Ron Allen

Yes. Certainly, John, the weather was somewhat front-loaded in the first quarter. We did have another event in early March, but that wasn't as impactful as the January and February events, so the second half of March we have seen some optimistic things. I don't want to get ahead of ourselves, and certainly in April, we are seeing some decent customer delivery activity, so we are optimistic and we are making changes and focusing on it, but it's still a tough environment out there.

John Baugh - Stifel

Okay. Then just a couple of accounting-type question, Gil. Will you be reporting like a cash EPS number going forward or you are just going to do let the amortization fall where it is and those will be the earnings per share numbers we focus on?

Gil Danielson

Yes. What we are going to do, John, we are going to be determined how the intangibles will be allocated on a preliminary basis when we will report the second quarter numbers. We have still got some work to do to analyze that to make sure that's right. Then once we do that, we should be able to start reporting GAAP numbers on EPS, which will take into place the amortization that we will be occurring, could change a little bit as you get near to year end and actually finalize the numbers, but we will certainly let everybody know what the amortization on a preliminary basis will be in the numbers and come back to the GAAP EPS. The reason we do the non-GAAP - adjusted, we just haven't determined that yet.

John Baugh - Stifel

Okay. Will Progressive be segmented or not?

Ron Allen

They will be segmented. I mean, I do believe that we still have to determine how that's going to work, but they will be segmented how those disclosures are - they will be in quarters I do believe and in probably more we'll elaborate in the year-end 10-K.

Just for modeling purposes, I would like to say though, I mean, obviously this year Progressive came on board on April '14, I guess and so for the second quarter of this year, we will have Progressive revenues in our numbers on our reported GAAP numbers and for stub period and those Progressive revenues which are in our guidance that we estimate right now in a range of $125 million to $230 million that would be Progressive revenues for the second quarter. Then it is all fully baked in the numbers as we move forward.

John Baugh - Stifel

Great. Thank you for that color. Good luck.

Operator

The next question comes from the line of [Lori Champagne] with Canacord. Please proceed.

Unidentified Analyst

Good morning. On the revenue guidance again, just as a point of clarification, the revenue guidance for Q2 was a little light of us and I'm wondering if that's because the Progressive business is either more seasonal or has more new and kiosks that will just ramp up throughout the years, so if you can give us a sense of how you expect those revenues to track seasonally on a normalized basis. Also, could you talk about what's driving the huge growth in Progressive? I am aware that the Big Lots win, but are there other new clients this year? What's driving that huge growth?

John Robinson

Yes. This is John Robinson. On the growth side, we are certainly seeing growth from retailers like Big Lots. We have a sales force out there that focuses on regional accounts, so they have furniture Mattress guys, across a number of verticals that can be anywhere from 1 to 30 store chains. We are seeing a lot of growth in those areas in our region. They were also having good growth with larger retailers.

We are still having really, really strong growth with our existing, large retail partners, so we are seeing - we kind of benefit from a couple of things. A couple of our partners are doing very well, they are growing fast, so we benefit from that, so we are also continuing to see increased penetration from a percent of revenue perspective for them, so it's kind of across the board, but we looked at it.

We kind segment large retailers and small and we are seeing consistent growth across both, it's pretty consistent between the two, but we certainly expect great things out of our relationship with Big Lots. That's definitely driving big growth for us and that rollout is coming right now, so it's exciting for us.

Ron Allen

John, you might clarify that these are not kiosks.

John Robinson

Yes. We don't think of ourselves as a kiosk operator, so just to be clear, you can operate our system. In that case, it's integrated into the point-of-sale for the retailer, so there is no kiosk in a store. It's strictly operated to the point-of-sale or through a portal somewhere in the store. In some cases, it's through a mobile device, but it is not a kiosk. It's manned by any Progressive employees, which enables us to get into a lot of different formats from a retail perspective and at virtually no cost.

Unidentified Analyst

So, internally you call them portals rather than kiosks or what do you? What's the…

Ron Allen

We refer to them as stores, so we just think of it as how many doors or stores that we have and a little more complication there is, so from that perspective all doors aren't the same. Obviously, if we had a large footprint, furniture operator than like an Art Van, they have huge stores do tremendous volumes for location. That's very different than a single Mattress store for example, so we do huge volumes for large footprint stores per location and we might do much smaller in a smaller footprint, but we like them both, so they are both profitable for us.

Unidentified Analyst

John, should we think of your business as just generally more seasonal than Aaron's core business?

John Robinson

No. I don't have a good sense for their seasonality.

Ron Allen

A little seasonality, because you do have refunds.

John Robinson

They have the same seasonality you would expect to see from a credit challenged customer. I mean, first quarter, we do have that more early buyout kind of thing going on, but the reality of it is our growth has been so strong that's really masked seasonality.

Ron Allen

If you are modeling - that's year or two. I mean there is seasonality lesson to discuss, but the growth has been so dramatic and is planned to be so dramatic that it probably is not going to be a big, big factor in the total numbers.

Unidentified Analyst

Got it. Thank you.

Operator

The next question comes from the line of Bud Bugatch with Raymond James. Please proceed.

David Vargas - Raymond James

Good morning gentlemen. This David Vargas on for Bud. Thank you first off for taking my questions. I have a couple of housekeeping questions to start out and the first one is when can we expect a proxy statement with details surrounding who will be electing at the shareholder meeting and other items to come up during this during shareholder meeting?

Ron Allen

Dave, I don't exactly, but I think it's just a few days or so that's going to come up.

David Vargas - Raymond James

Okay. Just to clarify, you said you will be breaking out Progressive's business from Aaron's and that will start next quarter, correct?

Ron Allen

…that what those disclosures will be, we haven't determined that, but there will be some revenue numbers and some earnings numbers that will be disclosed I am sure in Progressive.

David Vargas - Raymond James

Okay. Thank you. In terms of a ticket price in the core Aaron's business in Q1, how was that from fourth quarter of last year? Was it roughly in that same range, 113 to 115 average ticket per month?

Ron Allen

No. I don't know what the average 115 came from.

Gil Danielson

There is about…

Ron Allen

$130.74 exactly in the first quarter of this year and it was up actually a little bit from the first quarter of March last year by $0.70 or something like that, but pretty stable headed over the last April. It actually have stable for about the last two years.

Gil Danielson

For production.

Ron Allen

Pretty much, Yes. 131.31.

David Vargas - Raymond James

Got it, and you check to see little bit of improvement in that as you implement some of these new initiatives in terms of optimizing our pricing structure throughout your stores?

Ron Allen

Yes. We do, David. We expect that we will see a little uplift both from a pricing standpoint and from a continued focus on bundling and agreements per customer, all those or should hope to - it will at least keep its cost, but we anticipate a little bit of an uptick there.

David Vargas - Raymond James

Okay. All right. Great. Thank you for taking my questions.

Ron Allen

Thank you.

Operator

Next question comes from the line of Matt McCall with BB&T Capital Markets. Please proceed.

Matt McCall - BB&T Capital Markets

Thank you. Good morning, everybody. There has been a few questions about the Progressive assumptions, but John, can you - I will ask maybe a little differently. Can you talk about the assumed retail partner additions assumed door growth, I think you have referenced last week an invoice volume number. I am just trying to understand what the assumptions are in the top.

I know you said '14 kind of locked in and the year two same-store sales good was good, but what are the assumptions that you are baking in to those projections?

Ron Allen

We do project our revenue based on invoice volume, which we think we have become pretty good at projecting, so for '14 we are looking at an invoice number in the kind of 515 at 540 range.

Matt McCall - BB&T Capital Markets

Those are what you from them?

Ron Allen

Yes, so that's exactly. That how much we are buying from the retailer, and then that translates pretty formulaic into revenue. I mean, it's all based on - so that invoice number is built from a door count that we project and I don't have those numbers with me off top of my head, but that's from a modeling perspective we absolutely look at doors and then we build up from those doors.

With our larger retailers, we kind of segment it to some extent like a Mattress Firm. We have a good since we work with them to kind of project our business to an extent to see what we can do with them, because it's very much a [go-only] thing for us and for guys like us.

Gil Danielson

It is pretty accurate modeling.

Ron Allen

Then for '15, the thing about our business, it's no different than as Aaron's is that if we add doors in Q4 that doesn't do a lot for us in '14 and we rollout plans in place now with a number of retailers and so for rolling door out in Q4 of '14, we are not getting much out of that in '14, but we will get the full year effect in '15, so that's why we get and any new door we are adding throughout this year, we get the full year effect in '15, so that's what give us the confidence that we are going to have the growth into '15.

Matt McCall - BB&T Capital Markets

Okay, so the invoice volume - so the pace of growth? Can we look at the pace of growth '14 versus '13 to give us an idea of what '15 is going to look like or, because you are going to add a big chunk of doors in late '14, it could actually accelerate or how should we think about it?

Ron Allen

Well, I mean we do have some projections out there based on historical numbers, but Progressive's we are planning to do this year in revenues and next year and we feel comfortable about those projections. You know, they are well thought out. We are actually off to a good start this year then we are actually running behind the projections a little bit for '14.

John Robinson

You are just talking about Aaron's.

Gil Danielson

We are really excited. We are up about 67% on a year-over-year basis, year-to-date and we look at it honestly down today versus last year and we are seeing very strong new door additions, so it is a very good feeling for us and give us a lot comfort in where we are going and if you look at our growth, the exciting part about it is we are talking to some retailers that can really accelerate that, but the timing of that we talk about our pipeline, we have a very large pipeline, but the timing of it is something that we are going to be conservative about projecting since we aren't always in control of the rollout given our retail partners. They control that.

Matt McCall - BB&T Capital Markets

Okay. Maybe again to you John. Can you talk about the margin progression? I know it's implied in the presentation last week, but can you talk about margin progression? Maybe your target margins those who move out three to five years for the Progressive business?

Ron Allen

Yes. I'll let Gil answer the target margin question, but what I can say is that, we believe the projections are conservative and we think there are opportunities obviously. There are opportunities for economies of scale in our business. There is operating leverage in our business and there are areas that we are improving, so we run a large call center operation in Utah and we are working on initiatives today that we believe will drive margin improvement there as well, so…

Gil Danielson

That's very levered as you know, Matt, and there is certainly plenty of opportunity I think to improve margins. I know there is, and if you look at two, three, four years, the revenue growth that is going to be there, I do believe you will see margins dramatically improve over the next few years. Also those projections do not including any synergies.

We haven't talked about that, but we think there is a quite a bit of synergies and a lot of value that Aaron's can bring to the Progressive and Progressive can bring to us that will certainly have a lot of bottom-line results. As we go through this year and then we get involved in this a little bit we will certainly be sharing a lot of those when we would see some real possible opportunities there.

Matt McCall - BB&T Capital Markets

Can you put any numbers to it? 300 basis points, 400 basis point and what's..

Ron Allen

On the synergies?

Matt McCall - BB&T Capital Markets

I am sorry, on the margin opportunity and I am going to ask the same question about what are you think Aaron's can go post all your changes?

Gil Danielson

Yes. I mean, over a long period, over three, four, five years, those margins are going to go up into double-digit area. I mean, up further than that, so that's that the lever of the business and as revenue grows, you will see margin improvement through Progressive.

I think certainly in Aaron's, we probably a little bit about Aaron's, the margin improvement there, the initiatives that Steve talked about and the opportunity have where there is price increases or store rationalization whatever, you'll see some margin. We anticipate we are going to have some margin improvement over the next year or even sooner, so kind of leave it there.

Matt McCall - BB&T Capital Markets

Okay. Thank you, Gil.

Operator

The next question is from the line of Bud Bugatch with Raymond James. Please proceed.

David Vargas - Raymond James

Hi, Guys. This is David again. A couple of more follow-up questions. In terms of the how many total doors Progressive has. How many doors you have up and running right now?

Ron Allen

Roughly 15,000. I mean, that was number looking back over the last year or so. I think that's…

Gil Danielson

Those are old doors group. Small door.

Ron Allen

Yes. I mean, it's hard to look at that honestly, because they can vary so much. Obviously bringing on a large footprint doors different than bringing on a smaller.

David Vargas - Raymond James

Do you have a breakout of what you quote size in large footprint door that's a portion at 15,000?

Gil Danielson

I don't know. Not readily available to anyone.

David Vargas - Raymond James

Okay. All right, and…

Ron Allen

We do have looking back, one thing you could look back at is. Yes. I was going to say, we have our merchants size, but that is probably not. We talk about in our investor presentations at we put up there invoice volume by merchants size, but that's more about a number of doors, so that can be a little different, but you can look.

Obviously, if you look at our vertical mix, you can assume a furniture door is larger than a mobile for example, we haven't broken that out really beyond that. Would it be possible to get, what was Progressive's Q2 revenue and EBITDA last year? Do you have that information?

Ron Allen

We don't have that right at the moment. It's substantially up this year than last year. I am sure.

Gil Danielson

I don't won't give you the wrong number, I know Q2 invoice volume were that 67% on invoice one is kind of what we track and that's probably the best year-over-year kind of comparison.

David Vargas - Raymond James

Okay. Going forward, do you plan on giving up for Progressive's results, do you plan on giving sort of a comp door type of guidance and results so that way we know how much the existing doors were doing versus what the new door contributed. Like you said, if you open up a new location in Q4 of '14, you are not getting as much out of it as you would for had it been open for an entire year.

Gil Danielson

Yes. I mean, obviously, we shouldn't have gone up. We are excited about Progressive, and I think there will be some lot of goods revenue and growth coming out of it. We haven't decided yet, David, how that's all going to play out, but between now and next earnings release we will have some data that I think everybody can kind of grab or hold to.

David Vargas - Raymond James

Okay. All right. Thanks again, guys.

Operator

There are currently no further questions coming from phone lines.

Ron Allen

Thank you again for joining us today. As you can tell with our acquisition of Progressive finance and our new strategic plan, we are certainly better positioned as a leader in our industry, better positioned to serve our customers and certainly better positioned to accelerate growth and drive shareholder value.

We certainly believe that Aaron's is on the right path for all of us and its members, of Aaron's and our shareholders, and we look forward to our next quarter report you. Thank you.

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