Executives
Gil Danielson – CFO
Garet Hayes – Media Relations
Ron Allen – Interim President and CEO
Kim Butler – COO
Analysts
Jack Stimac – BB&T Capital Markets
Arvind Bhatia – Sterne Agee
TJ McConville – Raymond James
Aaron's, Inc. (AAN) Departure of Chief Executive Officer Call November 7, 2011 9:00 AM ET
Operator
Good morning, and welcome to the Aaron’s Conference Call.
At this time, I would like to pass the conference over to your host, Gil Danielson. Thank you and have a great conference. You may proceed, Mr. Danielson.
Gil Danielson
Well, thank you for joining us today. Before we get started, I’m going to have Garet Hayes, who does Media Relations for the company to read our standard Safe Harbor statement that we do in front of every conference. Garet?
Garet Hayes
The company’s new release issued Friday, regarding the departure of Robin Loudermilk as Aaron’s President and Chief Executive Officer and the related Form 8-K are available on our website, aaronsinc.com in the Investor Relations section. And this webcast will be archived for replay there as well. With us today is Ron Allen, the company’s newly appointed Interim President and CEO; Kim Butler, COO; and Gil Danielson, CFO.
As it is our standard practice before we begin, 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 risk and uncertainties, including factors such as changes in general economic conditions, competition, pricing, customer demand, litigation, and other issues that could cause actual results to differ materially from such statements, including the risk and uncertainties discussed under Risk Factors in the company's 2010 Annual Report on the Form 10-K, including without limitation the company's projected revenues, earnings, and store openings, and store acquisitions, and disposition activity for future periods.
I will now turn the call over to Gil for a few comments.
Gil Danielson
Well, thank you. As our press release Friday stated, Robin has resigned his position as President and Chief Executive Officer of the company. Since the press release, I’ve had many calls regarding his resignation and the first question asked almost every time is of genuine concern over Robin’s health condition. The company and Robin certainly appreciate this concern and support.
I assure you that none of his medical issues are in any way life threatening. Robin has struggled with anxiety and other similar issues for years. With the increasing demands and stress of being CEO of a large and growing public company, he feels he would now rather invest his future time and intention on his health and his personal and family’s real estate business. Real estate has always been a passion for Robin, and we wish him the best of luck in the future.
From a personal standpoint, I have enjoyed working side-by-side with Robin for all these years in our interactions with the investment community. For those of you who know Robin, his family is very close to him, and he is especially proud for the accomplishments and well-being of his three children. His resignation will allow him to spend his time on what is most important to him.
As many of you know, Aaron’s has an experienced and long tenured management team in place throughout the organization and we’ve worked together successfully for years. We certainly see Ron as a viable leader who will work with our team as the company moves forward. As for the next step in this process as noted in the press release, a committee of the Board will begin to conduct a search for Aaron’s next permanent CEO.
I would now like to introduce Ron Allen as Aaron’s new Interim CEO. Ron was in Delta Airlines for 34 years and served as its Chairman and Chief Executive Officer from 1987 to 1997. Ron has been a very active and engaged member of Aaron’s Board of Directors for 14 years and has served on the company’s Audit Committee over this time. He brings a wealth of business experience to the CEO position.
Ron, I’d like to turn the call over to you for a few comments.
Ron Allen
Gil, thank you very much. I have enjoyed being a part of this team as a Board Member since 1997 and a long-term friend of Charlie Loudermilk’s. And, I’d say, I’m really honored to be in this role as an Interim Chief Executive Officer and President. I know that leadership quite well. I’m just excited about the future of this company, and to be a part of that now as its CEO is even more gratifying. So I look forward to the weeks and days ahead.
This is a very unique company. To have the Founder of this company still operating as Chairman of the Board and active is very unique. And, going forward, we want to build upon that legacy, we want to strengthen those basic foundations that have made this company so unique in this industry, and build on those going forward. So I look forward to being a part of that effort.
And, now, let me turn it over to a fellow Southwest DeKalb High School. You knew I will say that.
Ken Butler
Yes, I appreciate it.
Ron Allen
Ken Butler and I graduated from the same fine high school here in the South DeKalb County near Atlanta, Georgia. And, Ken, I’ll turn it over to you.
Ken Butler
Yes, at least you said we graduated, so that’s – well, we’re certainly sorry to see Robin go and we only wish him well. But we’re now extremely excited about Ron coming onboard and the experience in all those things that we feel like he can bring to the table. We have a very, very strong management team, over 20 Vice Presidents with over 20 experience industry a piece. So we're particularly excited about filling out the United States of America with the Aaron's model, we're excited about our expansion into Canada, the development of our HomeSmart model and RIMCO model, as well as the new European investment we made just a month ago.
So the future is bright at Aaron’s. I think it’s going to be even better with someone of Ron’s caliber coming in, in just looking at what we’re doing and kind of do a litmus test and hopefully bringing something to the party that it can only make us better in the future. So thank you, Ron. Gil.
Gil Danielson
Well, that’s our comments. We’ll certainly answer any questions that anybody – anyone may have.
Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from the line of Bradley Thomas of KeyBanc Capital Markets. Please proceed.
Jason – KeyBanc Capital Markets
Hi guys, this is actually Jason [ph] standing in for Brad today. Firstly, we want to send our best wishes to Robin, and also welcome Ron to the team. I guess, we’d like any insight that you can give on the search process as to – are you focusing more on internal or external candidates? And what’s kind of your target timeframe around when do you kind of liked to get this wrapped up?
Ron Allen
Well, I don’t think it’s a necessarily target timeframe at this moment. That committee is being informed by the Board. And we’ll both – look both inside and outside obviously.
Jason – KeyBanc Capital Markets
And does this move – kind of the uncertainty in the near term, does that change kind of the Board’s appetite for the growth initiatives in place or stock buybacks kind of be tempered a little bit?
Ron Allen
Those are decisions yet to be made. We’re pleased with the growth program in place and which we see a lot more growth ahead. So we don’t intend to change anything in that regard at this point, no.
Jason – KeyBanc Capital Markets
All right, that’s all we had. Thanks.
Operator
Thank you. Your next question comes from the line of Matt McCall, BB&T Capital Markets. Please proceed.
Jack Stimac – BB&T Capital Markets
Good morning, guys. This is Jack Stimac calling in for Matt today.
Gil Danielson
Hi Jack.
Ron Allen
Hi Jack.
Jack Stimac – BB&T Capital Markets
I’d like to say the same thing; we wish Robin the best, and Ron congratulations on becoming Interim CEO. I guess, just – maybe you could give us kind of the Board’s perspective on things, maybe the – kind of the view on European expansion, maybe Mexico. And then if you guys are – if there will be any change in strategy as far as the kind of the kiosk business in retailers.
Gil Danielson
We talked a little bit about that. Certainly the strategy of the business is going to continue. Obviously Aaron’s been tremendously successful for years and years and years as you all know in the basic strategies in the Sales & Lease Ownership source across the country. And that will continue. And our franchise program will continue certainly.
As far as the other initiatives in Mexico and the kiosks in the stores, we addressed those couple of weeks ago in our conference call on the earnings and that process hasn’t changed. I mean, certainly there is some opportunities – international opportunities that we are looking at and we have with the investment we made in the UK company. But all-in-all, really no change from what we’ve had discussed last quarter and in for the quarters beyond that.
Jack Stimac – BB&T Capital Markets
Okay. And, I guess, again kind of taking the opportunity to maybe get the Board’s view on things. Just taking to account kind of the lifecycle of the core lease ownership business and then tracking and maybe some of the growth that’s available through HomeSmart and any expansion you guys do, what do you guys view as the right amount of leverage on the balance sheet?
Gil Danielson
Well, we’ve always been very conservative from a leverage standpoint as you know through an uncertain times. We certainly have the financial resources, the cash, the ability to lever up more than we are. But our growth strategy has been – what it’s been the three or four years has kind of grown the store base around 7%, 8% a year, which is a slower growth rate than we’ve had in the past with a very, very healthy growth rate for a retailer. As you know, very few retailers in the country are growing at that rate.
We’ve got enough financial to generate enough cash flow that pretty well self-finance that growth rate as we stand now. So there is really not a whole lead to lever up or to anything to change the balance sheet at the moment. But as you all know, the real ability to grow the business rests on the management team to execute really at the operations level, the store level, and that’s an area we have to continue to work on. But we really feel that the growth we’re doing right now both in the Aaron’s stores and the HomeSmart stores and what we’ve done in the last couple of years is a comfortable growth rate. We’re developing management, pretty much self-finance it and move forward.
Jack Stimac – BB&T Capital Markets
All right, great. Thank you.
Operator
Thank you. Our next question comes from the line of Arvind Bhatia of Sterne Agee. Please proceed.
Arvind Bhatia – Sterne Agee
Yes, thank you. And, again, I would like to send our best wishes to Robin as well. One question we had was if you can update us on where his stockholdings are and what happens to stock option vesting, are there any one-time payments, anything like that that his departure will trigger?
Gil Danielson
That’s still in process. I mean I don’t – I see no – of his departure I’d see no P&L hit or any financial consequences of that in the future anything unusual.
Arvind Bhatia – Sterne Agee
Got you. And then one question for Ron. Again, I know you guys touched a little bit on this. But – and I know you haven’t had much time to think about this. But is there any one thing, one area that you would like to focus on more of your time Ron in the interim just like to kind of understand where you would spend more of your time.
Ron Allen
That’s a good question. It could be a steep learning curve here. Today, I’ve planned to get around to all of our line of facilities surrounding our general office operation. And going forward, I really want to focus on the people aspects of the business. And I have so much to learn and have more questions than answers at this point in time. But in leading a company, I’ve always found I worry about those questions I don’t know to ask. And over the next few days, I’d be learning more of which questions to ask and helping with my learning curve. But we certainly want to keep growing this business. It’s been a very successful formula. But in asking those questions, I think it’s a good refreshing time for the company to reexamine the various aspects of the business. But as Gil said, we grow at a solid formula and we don’t want to do anything to disrupt that.
Arvind Bhatia – Sterne Agee
Great. And one last one from me. I know Charlie is on the Board, is this going to change his involvement with the company at all one way or the other?
Ron Allen
No, Charlie is still the Chairman of the Board, and we will be communicating every day, every week.
Arvind Bhatia – Sterne Agee
Wonderful. Good luck, guys.
Ron Allen
Thank you very much.
Operator
Thank you. Our next question comes from the line of Budd Bugatch of Raymond James. Please proceed.
TJ McConville – Raymond James
Good morning, gentlemen. This is actually TJ McConville filling in for Budd. We’d like to add into the chorus of best wishes for Robin, and welcome Ron aboard.
Ron Allen
Thanks TJ, thanks very much.
TJ McConville – Raymond James
Sure. The questions that we had are to know the Board composition a little bit. Ron you were on the Audit Committee, I assume that will change now serving as the CEO. Any comments you could offer on to what the Board might look like in the coming couple of weeks and months?
Ron Allen
Well, we have a good solid Board. We just brought Cynthia Day, a new Board Member who is a financial expert. She runs Citizens Bank here at Atlanta. We’re very pleased to have Cynthia join the Board. And, I guess, one of the good things is I don’t have to serve on the Audit Committee. Going forward, I will be subject to review by the Audit Committee. But with John Schuerholz on the Board, who is the President of Atlanta Braves, and is a very good businessman; Leo Benatar has been on the Board quite sometime, he is a lead Director; Ray Robinson, who was with AT&T for many years, serves on the several other Boards, and he is an outstanding businessman and a quality person, as is David Kolb, who is Mohawk, I guess –
Gil Danielson
Yes, CEO of Mohawk for years.
Ron Allen
– for quite a few years. So we really have a strong Board. And, of course, Charlie serves as Chairman of that Board. This Board is really engaged now and that’s very positive to having a Board engaged. You don’t want the Board running the company, but you want them understanding the business and being engaged and being engaged with management. And we want to build on that going forward.
TJ McConville – Raymond James
Very good. And the other question was to some of the real estate strategy. I know while Robin was serving, he was very heavily involved in that side of the business. Any change there, it didn’t sound like it, but is there any change what the real estate strategy will be in the next couple of years?
Gil Danielson
Well, I don’t know TJ. We’ll have to review it and see it. It’s changed through the years. I mean in the short term though, we’ll have to just kind of see how it works out in the long term as with anything else.
Ron Allen
That’s one of those areas where I’ll have a lot of questions.
TJ McConville – Raymond James
Fair enough guys. Thanks taking the questions. Thanks a lot.
Gil Danielson
Thanks.
Operator
Thank you. There are no additional questions waiting from the phone lines.
Gil Danielson
OK. Well, thank you all for joining us today, and we appreciate it pretty much.
Ron Allen
Well, thanks particularly, for your expressions or concern for Robin.
Gil Danielson
Thank you.
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