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Aaron's Inc (AAN) Q3 2018 Earnings Conference Call Transcript


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Aaron's Inc (NYSE: AAN)
Q3 2018 Earnings Conference Call
Oct. 25, 2018 , 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Andrea and I will be your conference coordinator. At this time, I would like to welcome everyone to Aaron's, Inc. Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the call over to Mr. Michael Dickerson. You may begin your conference.

Michael Dickerson -- Vice President, Investor Relations

Thank you and good morning, everyone. Welcome to the Aaron's, Inc. third quarter 2018 earnings conference call. I'm Mike Dickerson, Vice President of Investor Relations.

Joining me this morning are John Robinson, Aaron's, Inc.'s President and Chief Executive Officer; Ryan Woodley, Chief Executive Officer of Progressive Leasing; Douglas Lindsay, President of the Aaron's Business; and Steve Michaels, Aaron's, Inc.'s Chief Financial Officer and President of Strategic Operations.

Many of you have already seen a copy of our earnings release issued this morning. For those of you who have not, it is available on the Investor relations section of our website, at aarons.com.

During this call, certain statements we make will be forward looking. 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 the 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, 2017, and subsequent filings with the SEC for a description of the risks related to our business that may cause the actual results to differ materially from our forward looking statements. Listeners are cautioned not to place undue emphasis on forward looking statements and we undertake no obligation to update any such statements.

On today's call, we will be referring to certain non-GAAP financial measures including EBITDA, adjusted EBITDA, non-GAAP net earnings and non-GAAP EPS, 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 with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows, and provides these measures to investors to help facilitate comparisons of operating results with prior periods, and to assist them in understanding the company's ongoing operational performance.

With that, I would now like to turn the call over to John Robinson.

John Robinson -- President and Chief Executive Officer

Thanks, Mike and thank you all for joining us today. I'm pleased with our third quarter results. Adjusted EBITDA increased 22% on a 14% gain in revenues as compared to the third quarter of 2017, and we're making progress on our strategic initiatives. Progressive's strong momentum continued with quarterly revenues exceeding $500 million for the first time and the Aaron's business benefited from investments to improve our omni-channel offering. Non-GAAP EPS was $0.69, an increase of 60% over the third quarter of 2017 and we believe we are on-track to achieve the performance targets we previously outlined for you.

We achieved these record third quarter results despite Hurricane Florence late in the third quarter. The damage to our assets was minimal, and I'm very proud of our teams' planning and execution throughout the event and its aftermath. There are many examples of our associates going above and beyond to assist those affected by the storm. And I want to extend a heartfelt thank you to everyone involved in that outreach.

Progressive continues to execute at a high level. The team is optimizing EBITDA growth as progressive makes additional investments to innovate its products to serve more customers, across our partners' stores and e-commerce platforms. We believe Progressive has significant growth opportunities and we're excited about the pipeline of potential retail partners we're working on for 2019 and beyond.

The Aaron's business increased both revenues and adjusted EBITDA and continued to improve its platform to address the large market opportunity for omni-channel lease-to-own. Aaron's business transformation initiatives are driving stronger financial performance and we continue to expect that same store revenues will turn positive in the fourth quarter. We are investing capital and resources to drive customer engagement and lower our cost to serve. We believe success in these areas will improve the customer experience for existing and new shoppers, including millennials where we are seeing stronger traction.

We ended the third quarter with $35 million in cash and net debt to adjusted EBITDA of less than one times. Throughout 2018, we have bought back 2.3 million shares including 676,000 shares in the third quarter and paid a regular quarterly dividend. For the first nine months of 2018, we returned a total of $104 million to shareholders through a combination of share repurchases and dividends, which we have paid for 31 consecutive years.

Our goal as always is to operate a model that helps our customers gain access to a wide range of high quality products in a transparent, flexible and affordable way. We plan to continue investing in our existing businesses to drive that outcome, and to look for additional opportunities to innovate in existing and adjacent markets using our unique set of assets and competencies. These include ongoing customer and retailer relationships, analytics and decisioning, customer and partner servicing platforms, last mile delivery and return capabilities in furniture manufacturing. In the absence of any significant acquisitions, we expect to maintain a conservative capital structure, while returning capital to shareholders.

I'll now turn it over to Ryan to discuss Progressive.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thanks, John. Progressive continues to execute on our strategy to drive profitable growth as we pursue a large and underserved market. Total revenues rose 27% in the quarter as compared to the third quarter of 2017 to a record $504 million. EBITDA increased just under 32%, driven primarily by operating expense leverage.

The strong revenue performance was driven by a 26% increase in invoice volume in the quarter, resulting from a 21% increase in invoice per active door and a 4% increase in the number of active doors. Invoice volume was again led by robust growth in the number of transactions per door. We are cycling strong new door additions from a year ago and we continue to make progress in increasing productivity across new and existing doors.

Gross margin was modestly lower year-over-year driven by a 90 day buyout activity. EBITDA was 10.3% of revenues versus 9.9% in the year ago period. We generated leverage in SG&A expenses despite making planned investments ahead of expected future revenue growth. As I mentioned last quarter, we believe we are well positioned to convert a large pipeline of potential new retail partners and have shown evidence of that in a strong rate of sustained growth in the quarter. Writeoffs were 6.8% of revenues and bad debt expense was flat with a year ago period, at 12.7%. We expect these metrics to remain well within our annual ranges of 5% to 7% and 10% to 12% respectively for the full year. As we look to the balance of 2018, we're encouraged by the sustained momentum in invoice volume and we're excited about our ability to continue driving strong growth as we innovate our product to best serve our customers and retail partners.

I'll now turn it over to Douglas for comments on the Aaron's business.

Douglas Lindsay -- President, Aaron's Business

Thanks, Ryan. The Aaron's business continue to make solid progress in the quarter. Same store revenues were flat, continuing the improving trend we've experienced throughout 2018. I'm proud of our teams and encouraged by the momentum we're seeing in the business. In Q3, we achieved the third consecutive quarterly increase in recurring revenue written into the portfolio, and the seventh consecutive quarter with improvement in lease margin.

We achieved these results despite somewhat higher write offs and slower customer traffic, while at the same time, onboarding 90 acquired franchise stores and preparing for and operating through Hurricane Florence. Total revenues increased 1.7% as compared to the third quarter of 2017, with lease revenues up 5.4% in the quarter. As mentioned in the press release, lease revenues were driven in part by the addition of franchise stores acquired early in the third quarter. Same store revenues benefited from a number of our business transformation initiatives including our new Aarons.com platform which was relaunched earlier this year.

E-commerce recurring revenue written into the portfolio was up almost 50% compared to the third quarter of 2017, driven primarily by increases in traffic, online conversion, and ticket. We expect that as we grow our e-commerce revenue, we can leverage our existing infrastructure of fulfillment centers, stores and last mile delivery and reverse logistics, which is a competitive advantage that we believe will enable us to continue to scale our e-commerce business profitably.

Adjusted EBITDA increased 6.3% and with 7.5% of revenues versus 7.1% in the year ago quarter. Adjusted EBITDA growth benefited from an increase in lease margin, partially offset by elevated write offs and investments related to our business transformation initiatives. Write offs were 5.4% of revenues versus 5.2% in the same period last year. Planned increases in the number and type for promotional offerings and higher ticket are responsible for a portion of the increase in write offs, as our changes we made to reduce overall labor hours which we believe negatively impacted our collections performance in the quarter.

As we look forward, we're encouraged by the underlying trends in our business. Our leading indicators remain positive for the third sequential quarter and we expect our business transformation initiatives will continue to drive improving performance.

I'll now turn it over to Steve for an update on the financials.

Steven Michaels -- Chief Financial Officer

Thanks, Douglas. Now I'll turn to some financial highlights for the quarter. Revenue for the third quarter of 2018 was $953.1 million, an increase of 13.6% over the same period a year ago. Adjusted EBITDA for the company was $82.5 million for the third quarter of this year compared to $67.7 million for the same period last year, an increase of $14.8 million or 21.8%. Diluted EPS on a non-GAAP basis for the quarter increased 60% to $0.69 in 2018 versus $0.43 in 2017.

As you will have seen from the earnings release, operating expenses increased $46 million versus the year ago quarter, a bit more than half of the dollar increase was driven by the expected year-over-year increase in bad debt expense and write offs at Progressive. Approximately two thirds of the remaining increase was driven by the addition of personnel, occupancy, delivery and selling costs from the franchise stores acquired by the Aaron's business. In the last 15 months, we have added a net 205 stores from franchise acquisitions. The balance of the increase is spread across investments in both our businesses, as well as, intangible amortization expense and legal fees resulting from our response to the previously disclosed FTC CIDs.

As of September 30, 2018, the company had $35 million of cash on hand compared with $51 million of cash at the end of 2017. Cash generated from operating activities was $363 million through the first nine months of 2018 compared with $180 million for the same period in 2017. The improvement was driven primarily by a $161 million change in cash, taxes paid between the two periods. Through normally scheduled amortization payments, we reduced our total debt by $95 million since the end of 2017. The company has no further scheduled debt repayment through the balance of 2018 . On October 23 2018, the company amended its revolving credit facility and term loan agreement to provide for a $225 million term loan, a borrowing increase of $137.5 million, which the company intends to use for general corporate and working capital purposes.

The company also amended its franchise loan facility to reduce the total commitment amount from $85 million to $55 million and extend the maturity to October 22, 2019. As both John and Douglas discussed, we acquired 90 franchise stores in July 2018 for approximately $127 million. We used the cash on hand and availability under our revolver to fund the acquisitions. We remain conservatively capitalized following the acquisitions and ended the third quarter with available liquidity of $400 million and net debt to adjusted EBITDA of less than one time. During the third quarter, the company purchased approximately 676,000 shares of common stock for $31.6 million, at an average price of approximately $46.72 per share. As of the end of the third quarter, the company has $400 million remaining under its share repurchase authorization.

As noted in the earnings release, we are tightening our annual outlook for 2018. You will note that we have guided to upper half of the revenue range for the Aaron's business and maintains a midpoint of the expected revenue range for Progressive. For the Aaron's business, we continue to expect positive same store revenues in the fourth quarter. We expect consolidated non-GAAP EPS in the range of $3.30 to $3.45. This update does not assume any additional share repurchases during the balance of 2018.

I'll now turn the call back over to John for some closing remarks.

John Robinson -- President and Chief Executive Officer

Thank you, Steve. We are pleased with our third quarter results and excited about the momentum we are seeing in our business. Our success is a direct result of the tireless efforts of our associates, franchisees and retail partners, who are committed to providing the best experience for our customers every day. Thank you all very much for your efforts.

As we have discussed, we believe there is a large unserved market and we are well-positioned to capitalize on this opportunity. While we've made great progress over the past few years, the market continues to move fast. So, we're more focused than ever on continuing to innovate our business to better serve our customers.

With that, I will turn it over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Bill Chappell of SunTrust. Please go ahead.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Thanks. Good morning.

John Robinson -- President and Chief Executive Officer

Good morning, Bill.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Can you just, I guess, help me understand where just on the quarterly profit, kind of where we, I guess, as the street missed it, because I mean it certainly came in a little bit below. And then, also just trying to understand on Progressive and maybe, it wasn't clear, why on the EBITDA standpoint, on the profit standpoint, you couldn't hit the previous high-end? Why that's being reigned in? Just trying to understand, is that onboarding of new customers, is that just other planned investments? Is any of that a surprise or just trying to understand kind of how you're looking at these, the -- especially going into the fourth quarter?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Yes, I'm happy to hit Progressive, Bill. Ryan here. We're obviously, pleased with the quarter. The revenue and EBITDA growths are obviously very strong and consistent with the strong growth that we've seen in the last several quarters now. I think as it relates to the narrowed outlook on the year, the story is it'd kind of flow through the P&L. Gross margin is may be a little bit tighter than we expected because of that 90-day buyout activity, SG&A, maybe a little bit more leveraged, operating leverage than we expected there, just because of the continued rate of strong growth. And then bad debt and write-offs pretty much in line with where we expect them to be, but we're not far off to the midpoint of the range there, and feel pretty good about where we're going to end up.

John Robinson -- President and Chief Executive Officer

Yes, I mean -- Bill, this is John. And I appreciate understanding the question, I think if you look at the Aaron's business too, I think traffic was soft, write-offs were higher and we had a lot of moving parts in the quarter, I mean, we had the onboarding in -- on the Aaron's Business. Specifically, we had 90 stores that we onboarded that were franchise acquisitions. We had a lot of work going on here, around here, preparing for the Hurricane Florence, which was -- got quite a bit of press and it was a big storm in its own right. And so, that just coupled with just running the business day-to-day and a lot of the levers we've been pulling, I think that all kind of goes into the pot along with the things that Ryan mentioned about that, that have resulted.

Then having said that, if you look at the outlook we provided for the year, which as you know, we just provided annual guidance, we feel like it's going to be a really solid year. We've got good momentum in all our businesses. We have a big market opportunity in front of us. And overall, if you just look at the work we're doing in both businesses, we're really optimistic about 2018 to continue to be.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. No, I appreciate the hurricane color. Ryan, just following up, there has been a fair amount of, I guess, commentary about new customers that possibly are coming online or tests that are going nationwide. Does that change or I guess, if you want to confirm anything, that would be helpful, but also, does that change any of the metrics or are these any lower margin or slower growth, or anything different we should be looking at as part of the guidance?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Yes, I'll say a couple of things on that. Obviously, pleased with the fact that, as you saw, we did onboard new partners in Q3. That tends, at this scale, at a base of 20,000 doors that tends to be the case every quarter, we pretty much end up launching, onboarding new partners in a quarter, adding new to the pipeline. And that was the case in Q3 as well, which is evidenced by the fact that we're able to grow those active doors even on such a large base. You saw the press release, we want to add about one relationship in particular, which we're very excited about. We're always bullish about what that pipeline would do for future growth.

We're pretty excited about what it looks like today. And we're investing ahead of that growth. So, we're generating leverage in spite of that in SG&A that we're essentially adding people and systems across almost every functional area in an effort to build the infrastructure required to scale effectively, and we continue to do that in Q3. And as we onboard new invoice volume, irrespective of where it comes from by channel, by partner vertical, we're attempting to maintain a threshold of profitability, and that has been the case and that'll be the case, going forward. But very pleased with how the year is shaping out.

William Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks so much.

John Robinson -- President and Chief Executive Officer

Thanks, Bill.

Operator

Our next question comes from John Baugh of Stifel. Please go ahead.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Thank you. Good morning. I guess, I'll ask a question on each side of the business. On the core store, if I'm right, the traffic is still negative year-over-year, the ticket is up nicely, and you've been making some investments to grow the business. And I don't want to get into 2019 guidance, but I'm just curious as to how we think about the margin structure of this business next year, if comps are flat-to-up next year, and the tickets up, that would imply the margin potential is better if the investments sort of flatten out or go down. Is there any color about how the profits of that business may trend over time?

Douglas Lindsay -- President, Aaron's Business

Okay, John, this is Douglas. Thanks for the question. Yes, I mean you're exactly right on the leading indicators and we're really positive about three consecutive quarters of revenue written to the portfolios. I mentioned in my comments, we also had some higher churn this quarter, which will carry forward and it's a portfolio business, so the leading indicators are important as is the churn that comes out of the portfolio.

Fortunately, we've seen margin expansion and good cost controls in the business. In this year, we expect that, that will continue for some time and that ticket will carry us into '19, however, as we work toward our planning. For next year, we'll be looking at our business transformation investments and assessing, which of those we want to accelerate and which of those we want to go deeper into the portfolio on in terms of testing and further validating. So, while we're happy with the underlying fundamentals, some of that investment is kind of on our radar and will be determined here over the next quarter.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay. And Douglas, staying on, you mentioned that I think, some -- a little bit of elevated write-offs and you mentioned some types of promotions and whatnot? Have you already altered that or I guess, I'm curious what if any competitive landscape has caused this or is that something you tried on your own and it just didn't work as planned or just any color there?

Douglas Lindsay -- President, Aaron's Business

Sure. Yeah and we mentioned this in part quarters, the -- most of it is self-inflicted. I would say, a good part of it is self-inflicted for the right reasons. We've mentioned before a promotional activity. So, as we're doing more of these low-dollar deliver promotions, we see an acceleration of charge-offs at a higher net book value in the portfolios sooner than our non-promotional periods. And we like that because it's driving higher lift through the overall promotion periods in terms of revenue. Although we're incurring a little bit more write-offs. We also are -- the merchandising strategy we've been employing is really driving a trade-up strategy, where ticket is increasing and actually when ticket increases, you have higher write-offs, the trade-off between those two has been a positive for us and we think we'll continue to make that trade off in term of an ROI going forward.

And the last thing is, I mentioned the labor costs as a reason. We are constantly tweaking our labor model. We've enjoyed some of the benefit of those savings. But in the quarter, I believe we may be cut a little too deep in labor and we're constantly assessing how we optimize labor, but still get the job done and collecting (ph) in our business. That's something we've created for and we've been staffing up in some of those tighter labor markets where we over created and we should see that creating itself in the fourth quarter. So that's something that's totally within our control and was somewhat self-inflicted.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay, thanks for that color. And then on the Progressive side right, is there any discernible impact from what's going on at that firm either in your results say, year-to-date or prospectively?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thanks for the question, John. We tend to not comment on specific accounts, but I realize our relationship there is pretty well known and there's been a decent amount of press coverage on the business. They are a great long-standing partner and as you know, we have very close relationships with the team there and have for quite some time. I think we continue to see growth in the partnership and I think that's attributable in large part to the combined effort of all teams to execute the program, all they do a great job of that. The store closures that were announced have been incorporated in the revised outlook that we provided today. We don't expect other material impact on the business. They're very great partner and we're looking forward to being a big part of their future growth.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Okay. And then finally -- and I appreciate not wanting to get into the specific accounts and all these things, but to orders and all these specific metrics you brought on overstock, I believe that we'll add very few doors, but potentially, a meaningful amount of invoice volume. You brought on segment, I think cons was fully rolled out. I guess I'm trying to get some sense with what you know and don't necessarily need to share with us but how the very short term next couple of quarters, how the metrics of door count and invoice volume might look based on what you added a year ago and how all those things are ramping? Thank you.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Yes, I appreciate the question. We're obviously very, very happy with those accounts, the invention that we've onboarded in the last year, they're all well run businesses that are executing very well on our program. You saw that we had a pretty high sustained rate of invoice per active door in the period, that's actually the highest level of productivity we've seen out of our existing doors in over a decade. Second, just the holiday season last year, which you'd expect obviously it being a holiday season and that's coming in spite of a pretty flat year-over-year approval rate and even slightly smaller ticket. So that's obviously what we're seeing drive strong rate of revenue growth. I expect that level of productivity to continue out of this mix of doors and that remains to be seen what new doors onboarded in future periods, will do on the platform but we're obviously pretty excited about what they can contribute. It's been a nice mix of doors and what we're pleased to see is that not only have they performed well but they've shown an ability to increase productivity over time, that's obviously a lot of hard work done by our partners and our team managing those relationships to produce that level of productivity, but we're happy with how that's playing out.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

And lastly, the 90 day comment, was something to do with the mix of business or the types of retail accounts, I just can't get in the sense, is that a permanent change or something that surprised you or no, because of the mix that's to be expected and will continue?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

As you know, the offer the 90 day feature has been around since the beginning. So we've seen wider variations in 90 day take rate and there's just a lot of variables that influence it. As you mentioned, there's -- obviously there's seasonality around tax season, pricing customer behavior, invoice mix and because there are so many drivers that tend to vary a bit from quarter-to-quarter, what we're seeing now is slightly elevated than what we had planned, but that's reflected in the revised outlook that we provided today. And as I said here today, I don't expect to see significant movement in that number. Let's put us in place to deliver the results that we kind of guided to previously.

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Great. Thank you and good luck.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thanks, John.

John Robinson -- President and Chief Executive Officer

Thanks, John.

Operator

Our next question comes from Brad Thomas of KeyBanc Capital Markets. Please go ahead.

Bradley Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Thanks. Good morning. Wanted to ask first on the Aaron's side of the business. Just talk a little bit more about the drivers of the same store sales and congratulations on moving into gross territory here, I mean I think it's been five years since we've seen a positive comp, added to the Aaron's business, so certainly very encouraging.

Douglas Lindsay -- President, Aaron's Business

Thank you.

Bradley Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

But I guess as you look forward Douglas, I wanted to follow up on John's question, the customer counts going down, you've done a great job of improving the merchandise, getting the customer to spend more. How much further can you raise that ticket or how can you get customers to keep agreements out longer? I guess, if you could just try and put -- give us more context about the sustainability of this growth that you're seeing?

Douglas Lindsay -- President, Aaron's Business

Sure. So I mean, I think there's two things, one we really enjoyed the ticket that growth has continued. We believe a lot of that ticket growth is overcoming some of these negative traffic patterns and will carry us in terms of comps into 2019. However, we can't risk, take it forever as you mentioned, and there's other things that have to happen in the business. And when I refer to investments, I mean, those are really well we're making it our investments. We started out with merchandising. How do we get a more relevant product assortment, how do we make sure that we've got pricing tiers that they're appealing to our customer and products that's appealing to our customer relative to retail.

We see the competitive set as being the broader retail market, not just the players whom rent on and we feel like we need to be competitive in that market and that's what we're working on. When you hear generally about business transformation, it's all about how do we improve the customer experience, at the same time, lowering costs to serve and in our case, we think lowering cost of serve is also enhancing customer experience with the things we're doing.

So longer term we're between product assortment, expanding our hours of operation, new store concepts, rebuilding this e-commerce platform that we have going, in centralizing and kind of modernizing a lot of our processes. We think it makes Aaron's more relevant. We've tested some of these concepts in small, store groupings and tested learning environments and we're seeing considerable wealth and we're optimizing those tests and we're rolling them out further to validate them. And so while tickets are going to carry us so far in 2019, we're hoping that some of these investments we make in the business will begin to turn the tides on customer traffic and the customer count decreases that you've been seeing over the last year.

Bradley Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

That's very helpful. Thank you, Douglas. And Ryan, if I can ask you on the aggressive side, the bad debts are up year-over-year -- well, not up year-over-year, this quarter, but on an annual basis, looks like they're tracking, to be up year-over-year in line with the way you target the business. I guess if we just step back, it feels like you guys had, had better success with your underwriting the last few years. You're now tracking more in line with the range. As we think ahead to next year, what direction if any do you think bad debt may move and does that mean that really the bad debt expense line starts to track more in line with sales and may be give you some better potential for margin expansion in 2019. I guess, if you could just help me connect some of the dots here, that'd be great?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thanks, Brad. I appreciate the commentary. I know you have all heard me say those things before about kind of what's driving those increases, but that's really the same message we've shared since we provided the guidance on -- in Q4 '17 which is, it was that expected, it's healthy expected shift in mix that we've kind of reiterated every quarter since then. So the year is playing out pretty spot on with what our expectations were, which is again reflected in our outlook that we've provided today. Obviously, we don't have anything to share on 2019, but as you look through the remainder of 2018, very much in line with what we expected and the story is the same for both bad debt and write-offs.

Bradley Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Great, thank you all so much.

Operator

My next question comes from Budd Bugatch of Raymond James. Please go ahead.

Budd Bugatch -- Raymond James -- Analyst

Good morning and thank you for taking my questions.

John Robinson -- President and Chief Executive Officer

Good morning, Budd.

Budd Bugatch -- Raymond James -- Analyst

I guess, I'd like think -- hi, John -- I'd like to step back just for a second and talk a little bit about seasonality and what's changed. I think Bill, mentioned we pretty much didn't get it at least in the seasonality right, may be you can just talk at a high level of how we should think about seasonality since you do only provide annual guidance?

John Robinson -- President and Chief Executive Officer

Yeah, I mean, Budd if this is John, I don't know if this is going to -- may be others can add in, but from a seasonality perspective, I mean we certainly -- from the business perspective, first quarter is unique because of tax season and fourth quarter is unique because of the demand driven there. This is an unusual year from a compared perspective because of the hurricane impact last year that we had, but we've tried to give a pretty good picture of what we think the year is going to look like and we still -- we feel like we're on track for that in terms of the quarters, we're just not giving any more guidance on that. But I don't think there's any other seasonal factors other than weather seems to continue to be a factor for us in the third quarter and that's just unpredictable.

Budd Bugatch -- Raymond James -- Analyst

Got you. Okay. Ryan, on the performance of the pools and the more recent pools, there has been some concern about the credit quality as the economy is taking some turns. Can you talk a little bit about the performance of the more recent pools? Is there anything there that surprises you or might be notable?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

I would just reiterate what I said before, apologize for the redundancy. But they are performing in line with what we expected. You know, the thing we like to call out when we're talking about the performance of lease pools, that really are quickly turned pool. So on an average, lease contractual term of 12 months to life is about seven months. So we continue to have good visibility in the performance of those pools. I think we're always investing in new metrics and analytics to identify earlier on in the life of the lease, what its ultimate performance will be and those indicators are pretty much in line with our expectations which, what's ultimately driving that debt and write offs, to be in line with what we expected on here. So I'm pleased with what we're seeing and again, this is kind of in line with the view of the year that we laid out when we provided that, we initially provided that outlook on that Q4 '17 call.

Anthony Chukumba -- Loop Capital Markets -- Analyst

And you talked about planned investments ahead of revenue, or anything more sequentially come in the next quarter or so that we might not have been able to factor into what we're looking at?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Not really, that just continues to be the story generally, we're just -- we always seem to have a voracious appetite for talent in trying to onboard good people in every functional area where we can find them. So our sixth consecutive quarter of growing faster than 25%. So we are always, it feels investing as quickly as we can on people and systems to support that growth.

John Robinson -- President and Chief Executive Officer

Yeah, I'll go -- Budd this is John, one thing I'll add to that which just goes back a bit to Bill's question at the beginning about the year as, we have a lot of moving parts in the Aaron's business and the progress of the business I think we get a little spoiled by the growth these guys deliver. But business of that scale growing that fast despite these guys are managing expenses as well as they have is super impressive to me and the fact that they're able to predict the business as well as they are super impressive. So I just want to make that point and also praise our team for doing such an outstanding job at that, because to grow at that rate, at that scale is really, really challenging and they've just done it in a consistent basis for a long time now, so, it's hard to do.

Budd Bugatch -- Raymond James -- Analyst

Understood and well appreciated, I think I am able understand that. Just for Douglas, just a quick one. Any new issues on store platform or the store population as it -- that you took some actions in the last year to reduce store platform. Where are we on that? Is there anything more that you're looking at as you get to understand the population better?

Douglas Lindsay -- President, Aaron's Business

Yes, I mean we're constantly looking at it, Budd, I mean, as part of our normal real estate process, as we look at the lease expirations to assess are we in the right place, do we need to relocate, what term do we need to put on the lease or do we need to close merge. As you know over the last two years, we've really addressed a lot of our close mergers within a five mile radius. But there are always going to be further opportunities as we look at changing performance in the portfolio. But just rest assured, we're looking at that all the time.

The other thing I want to mention is, obviously we have onboarded 90 franchise stores this quarter and we're constantly looking at kind of the franchise landscape, which is a little over 400 stores now and looking at deals opportunistically there. We're excited about these most recent franchise acquisitions, many of them, like our Out West, but they expand from Out West to Texas, up the East Coast and the integration of that has been a distraction for the team. But they've been putting a lot of hard work and we think that benefits long term with our omnichannel strategy and acquiring those markets is going to be great. So we're really excited about.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

And I'll add to that, Budd. There -- the team has done an awesome job on that and as Douglas said, the question we get asked and it's a great question. It's something we're trying to figure out is, we know our kind of direct-to-consumer Aaron's model has a great future and in a lot of these -- in these markets, we're in. The question is how many stores you're going to have, what are they going to look like, how do you go to market?

We know we need to have a very strong mobile platform, a very strong e-com platform generally and we believe we need to have a store presence in these markets and we're -- Douglas' team is doing a great work now in figuring out what does that need to look like in markets and we don't think it's one size fits all for all markets. We think metropolitan areas may be very different than more rural areas, but we think we'll have a model that will address all of them. And we're just in the process of figuring that out. And it's a multi-quarter, multi-year process and they are doing a great job of figuring that out while managing the business, very carefully as we go. So, that -- but that -- there's more to come on that is what I would say as we figured out.

Budd Bugatch -- Raymond James -- Analyst

Okay. Thank you very much. Good luck on the fourth quarter and the balance of the year.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thank you, Budd.

Douglas Lindsay -- President, Aaron's Business

Thank you.

Operator

Our next question comes from Kyle Joseph of Jefferies. Please go ahead.

Kyle Joseph -- Jefferies -- Analyst

Good morning guys and thanks for taking my questions. Apologies, I hopped on a little late, but if I missed this, but Ryan, if you wouldn't mind giving us sort of your quarterly update on the Progressive competitive environment?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

No, we haven't dealt with that question, yet. Yeah, I'm happy to answer it. Unfortunately, you won't find much new in my response and I apologize in advance for that. It remains a very competitive market as you know and as I mentioned on previous calls, there are literally dozens of competitors out there and it seems many continue to enter the market. The good thing is, it's a large market and I think that obviously is what continues to attract entrance to the market and we obviously benefit from having incomparable scale in the market and referenceable partner base and access to capital and all those other things. But that said, we don't know if it continues to be true that we don't win every opportunity. There's some aggressive pricing out there from folks who have less experience seeing these curves play out and 20 years of experience and knowing the leases puts us in a place we know when to play that game and when not to and we try to maintain that discipline with each new opportunity that we see. So broad strokes continues be very competitive and we continue to be price disciplined.

Kyle Joseph -- Jefferies -- Analyst

Got it and then just transitioning the credit, we've talked a lot about it both in -- in both segments, we're seeing -offs up a little bit and it sounds like a lot of that can be attributable to self-inflicted sort of things. That said, could you guys comment a little bit about the health of the underlying consumer, both in terms of demand as well as credit performance?

John Robinson -- President and Chief Executive Officer

Yes, Kyle this is John and I will say that we are seeing a very tight and strong job market out there. I think we see that on the hiring side. So I think it's as tight as I've ever seen it or as I can remember and wages are going up and you read about credit scores getting generally better. So if you just look at a macro level from a consumer health perspective, it certainly seems to be a strong environment for the consumer. We also have been through a period in my opinion of historic kind of liquidity, that's created tremendous options for customers and which is great and -- but it's also competitive for us. I think as you see rates rise or may be more some tightening there, which could be a tailwind for us. I don't think we've necessarily seen it yet, but hopefully, that will be something that could give us a little bit of a tailwind in the future.

But if -- as you mentioned, if you look at the performance in both of our businesses, we can attribute -- you never know exactly what causes change in write-offs, you don't know for sure. But we have very specific factors in both, that point us in the direction of understanding why we've seen increases and there were levers we pulled in the Aaron's Business and a lot of it on the Progressive side is retailer mix as we've discussed. So, I think that's the best we can give you.

Kyle Joseph -- Jefferies -- Analyst

No. That's helpful. Appreciate it. And then one last one from me, just Ryan, as we think about you guys rolling out on sort of a pure-play, e-commerce, retail partner, can you give us a sense of -- if there's any difference in how you roll out Progressive there? And sort of any different metrics you're looking at, in terms of that specific relationship?

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Yes, it is a bit of a different flow, as you can imagine, we're pretty excited about the early traction we have in that market, and obviously the long-term potential there, that's one solid proof case. The opportunity to expand the offering online. It will obviously look a little different, instead of a dialogue about taking Ups and POP and story, you are having a dialogue about pipe conversion and a bunch of digital metrics and our team is well-versed in those. And I think we'll be a great thought partner for these retail partners, as we grow their e-com businesses. I'm pretty excited about that market.

Kyle Joseph -- Jefferies -- Analyst

Got it. Thanks very much for answering my questions.

Douglas Lindsay -- President, Aaron's Business

Thanks, Kyle.

Operator

Our next question comes from Anthony Chukumba of Loop Capital Markets. Please go ahead.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Good morning and thanks for taking my questions. So, last year --

John Robinson -- President and Chief Executive Officer

Good morning.

Anthony Chukumba -- Loop Capital Markets -- Analyst

You did the FDI franchisee acquisition and then you did this most recent one, this quarter, the 90 franchisees. So I guess, I'm just wondering, is it reasonable to expect that you will be doing additional franchisee acquisitions, going forward? And also, does this signal any kind of shift in terms of your thinking about company-owned stores versus franchisees?

John Robinson -- President and Chief Executive Officer

Yes, Anthony, it's John, thanks for the question. And yes, you're right, we've may -- I think we've acquired 200 plus stores over the last 15 months or so and our mix is about 75% company, 25% franchise. We're not opening any new franchise markets and we have been acquiring franchise stores. So you know, I would expect that percentage of company stores to go up. We've talked about the fact that we have a long term -- long time horizon. We're excited about the market opportunity. We do think there are some advantages for us to control the markets from an innovation perspective and a risk control perspective.

Having said that, I will tell you, we just recently had our franchise -- Annual Franchise Association Meeting and we have some great franchisees. It's a big part of our business still and it's 400 plus stores. They are great partners, they are some great entrepreneurs who give us great ideas, keep our feet to the fire on innovating and getting better and we're going to continue to support them and they're going to continue to be a big part of our business.

To the extent there's opportunities for us to acquire more in attractive markets, I expect we will and we intend to do that over time. But as we've discussed in the past the -- there's only nine or 10 franchisees out there left that have more than 10 stores, I think, something like that. And so the ability to acquire at scale, there is just one or two left really that we could do that. And that's we're talking one or two, one with 50 stores and then beyond that, they get into the 20s kind of and so, the ability to do deals at large scale, it goes down over time as we get into having players with fewer stores. So my expectation is, our strategy on that is the same. My expectation is, we will acquire more, but you probably won't see it in chunks that you've seen it in the last 15 months.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Got it. That's very helpful. And then I just have one follow-up question. Steve, there was a question earlier about the competitive landscape in virtual and to owning, and you talked about there are lot of competitors out there. I guess my question is somewhat related, one of your largest competitors is probably going private and will be capital constrained and I was just wondering, is that an opportunity for Progressive?

John Robinson -- President and Chief Executive Officer

Yes. This is John. I'll take that. I mean the reality of it is, as Ryan said, we haven't seen any changes in the competitive market. I will say -- and so, it's super competitive and if you talk about the team of Progressive, I mean, it just feels very, very competitive. What I will say is, we've had the advantage and we continue to have the advantage of a great balance sheet, that's one of our assets that is real strategic for us on the Progressive side and we start talking to these larger retail partners, it's a real advantage for us to have the balance sheet that we have. And that's across the board.

I don't think there's any other competitor out there that has that. So, we believe that is an advantage for us and that will continue but in terms of any changes in the competitive landscape, we aren't anticipating any shift that would change our strategy. We're just going to keep trying to make our product better, keep providing great service to our customer and our retail partners and by doing that I mean, that's what these guys have been doing. We hope to continue to generate great results.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Got it. Thank you so much, and good luck with the fourth quarter.

John Robinson -- President and Chief Executive Officer

Great. Thank you.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Robinson for any closing remarks.

John Robinson -- President and Chief Executive Officer

Thank you very much for participating in our call. We look forward to updating you on our fourth quarter on our next call.

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 51 minutes

Call participants:

Michael Dickerson -- Vice President, Investor Relations

John Robinson -- President and Chief Executive Officer

Ryan Woodley -- Chief Executive Officer, Progressive Leasing

Douglas Lindsay -- President, Aaron's Business

Steven Michaels -- Chief Financial Officer

William Chappell -- SunTrust Robinson Humphrey -- Analyst

John Baugh -- Stifel, Nicolaus & Co., Inc. -- Analyst

Bradley Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Budd Bugatch -- Raymond James -- Analyst

Anthony Chukumba -- Loop Capital Markets -- Analyst

Kyle Joseph -- Jefferies -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see ourTerms and Conditionsfor additional details, including our Obligatory Capitalized Disclaimers of Liability.

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This article appears in: Personal Finance , Stocks
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