Okay, good afternoon, everyone. My name is Hoang, and I'm part of the Consumer Finance team at TD Cowen, and I'm the covering analyst for the lease-to-own sector. We're very excited today to have with us Aaron's CFO, Kelly Wall, and Head of Investor Relations, Marc Levee, for a discussion on the company. So a little bit of introduction. Aaron's is a major lease-to-own provider in the U.S., with a big presence in store-based lease-to-own through its network of almost 1,000 stores across the country. And the company also owns an appliance and consumer electronics retailer called BrandsMart. And the format of today's discussion will be a 30-minute fireside chat, and you can ask question by clicking on the Ask a Question button on your webcast screen, and it can ask that anonymously for you. So with that, welcome to our first conference, Kelly and Marc. Thank you, Hoang. Excited to have you guys here. Thank you. All right, so, why don't we dive straight in? Maybe, you know, could you give us, could you kick off with maybe, you know, maybe an update or overview on what you are seeing in your consumers? How are they behaving, you know, what's their current state of health? You know, maybe how are they behaving similar or differently versus last year? Yeah, what I'd say is that, you know, not much is really changed from what we had talked about on our last earnings call. You know, listen, the macroeconomic environment continues to be challenging, right? And at the same time, though, our consumer, right, the lease-to-own consumer, has continued to be quite resilient. So obviously, we're all aware that, you know, prices of groceries, you know, gas has gone up, right? Rent keeps going up. At the same time that we've seen that, though, we've not seen a material shift in customer payment activity, so it's hung in there, right, actually pretty well, I think, given the overall environment, and we think that that's a testament to, you know, our decisioning, right, and our efforts, kind of on that front, as well as the working with customers, as they may have issues kind of going forward. And again, the flexibility of the lease-to-own product is key there. I'd say, you know, at Aaron's, we've seen an increase in the number of leases per customer, right? So we're seeing more activity with the customer, which is great. However, that has come at a slightly lower kind of average price per lease. So customers are doing more agreements with us, as agreements tend to be at a lower level than they had been, you know, in a year ago. But what's really interesting is that customers are doing more agreements with us. So when we look at kind of the aggregate monthly payments that customers are making to us, we've seen an increase there. So again, you know, really good dynamics despite what's been a really challenging kind of macro environment for the consumer. And real quick on kind of the BrandsMart side, you know, we've seen an improvement in traffic, but at the same time, we're seeing continued pressure on kind of trade down to lower-priced products. So again, not, you know, nothing material to update really from our last earnings call, but the good news is, you know, things are hanging in there quite well. Great. And maybe if you can dive into, you know, what kind of merchant category, merchandise categories you are seeing, maybe, you know, headwinds versus tailwinds. And, you know, maybe if you can talk a little bit in details about the furniture category, 'cause I think that's seeing a lot of pressures, and I think a big furniture retailers reported earnings this morning, and it looks like the trend has not really improved. So more color on that would be great. Yeah, absolutely. So I'll start with BrandsMart first. Actually, you know, the majority of our sales at BrandsMart continue to be in the appliance category, but we are also expanding actually to our furniture product mix. And that's really to enhance the shopping experience and attract new customers. And so far, we've had some very positive feedback from customers in that regard. You know, we do continue to expect to see the benefit from a replacement cycle picking up here in the second half of the year and into 2025, primarily in the laptop and consumer electronic space. And we'll continue to monitor that. On the Aaron's side of the house, you know, while we haven't really introduced any new product categories recently, we have seen continued strong demand across most of our product categories. However, you know, we are continuing to see trade down within the product categories themselves, across all of them. That's helpful. Maybe... I mean, you guys, out of 1 Q, I think the most positive takeaway is that you guys are now seeing positive, you know, same-store lease portfolio size growth, even though the total is still down year-over-year, but at least, you know, we're seeing some, you know, initial inflection. I guess, what would give you the confidence for you to be able to achieve mid-single-digit growth in that, by the end of the year? I mean, what needs to happen for that, you know, to come to fruition? Yeah, I'd say that it's really a continuation of what we've seen in Q4 and really, you know, more so in Q1 of this year. With our new kind of unified decisioning and customer origination program, we're driving more growth in deliveries, and particularly on the e-com originated side of the business. And we're not, you know, seeing, you know, any signs of that delivery improvement changing, right? So it's just continuing to execute on that new program. We are continuing to refine it, right, and our ability to market more effectively into our customers after they've established leasing pricing with us. That kind of comes back to the earlier comment I made around, we're seeing, like, you know, the aggregate, you know, payment level per month by customer increasing. We think that that's a direct reflection of just our improvements and being more effective in marketing to customers after they've established that leasing power. So, you know, at this point, Hoang, I'd say to hit the numbers that we've laid out for the year, it's really just continue to do the things and see the improvements or results, right, that have come out of that continue, you know, through Q2 here and into Q3 and Q4. And as that happens, then it'll produce that growth in the lease portfolio size that we've talked about and you referenced. Got it. And I think it's interesting that you guys talked about, you know, the new lease and decisioning. I think you guys are giving people kind of a line where, you know, they can, you know, take on new leases, usually, you know, at a higher frequency, but at a lower subsequent lease amount. I mean, how much of, of that is gonna contribute to, you know, this, year-over-year comp? Yes, I'd say that the primary driver in the improvement are those actions that we took, right? What you know, what we haven't seen yet is any material kind of trade down into the lease-to-own sector from a payment you know, kind of option perspective that you know, you typically see as credit tightens. You know, we still remain of the view that that could certainly happen as we move forward and the current environment persists. But none of that's built into the outlook that we provided. So, you know, that would be a bit of a tailwind for us if it starts to happen. And then same thing from a kind of that replacement cycle starting to pick back up. You know, Marc hit on it, right? We expect to see it more so on the consumer electronics side, particularly laptops, as we move through the course of this year. You know, appliances and furniture tend to have a longer replacement cycle than CE. But, you know, that we're in an interesting environment, right, the last year plus, and so it, you know, these things could snap back more quickly than what we're modeling, and that would certainly be a tailwind as well. Got it. And we know that the industry was particularly impacted by the high inflation. I mean, two years ago, obviously, that has come down. I mean, how do you sensitize, you know, inflation to the performance of your business going forward? I mean, we're at around 3% now. I mean, does it require you to get to the last mile, you know, up to 2%, you know, for you to substantially improve from here? I mean, how should we think about that, and what if it stays this- Yeah, I don't think that, you know, the magic between 3% or 2% really, you know, is gonna be a big driver in demand at either BrandsMart or the Aaron's business, particularly at the Aaron's business, for sure. You know, but I think where you see more of the headwinds, and I'll start with BrandsMart first, right? You know, the slowdown in the new housing market, right, the slowdown in kind of that remodel market. You know, in both businesses, the fact that people are moving less frequently than they have in the past, right? Those types of events tend to lead to purchasing or leasing to own, you know, the products that we offer to our customers, and that's, you know, that's just been at pretty low levels. So, you know, as if that, you know, continues to persist, we'll feel that in the business. You know, I'd say, on the inflation front, the place that we really, I think, feel it the most is in our OpEx, right? Not so much in how it's impacting the demand drivers of the business. And we are seeing some improvements there, and we've taken quite a few actions over the last, you know, two-plus years, to reduce costs, as well, to keep that in check. So, you know, we're gonna continue to manage the business tightly, take opportunities to pull costs out of the business and position ourselves so that, you know, as the lease portfolio grows, which is what we're expecting this year, you know, and demand starts to normalize in, you know, hopefully 2025 and beyond, right, we see, you know, a return back to kind of earnings growth and margin expansion. Great. Maybe let's talk about Aaron's, a little bit. You've undergone a store consolidation efforts for the past, couple of years. Maybe can you walk us through how much of that is done and how much is left? And, you know, how should we evaluate the success of this initiative and maybe of the Gen Next store concept? Yeah, absolutely. I'll take that. You know, if we go back to when we spun from Progressive at the end of 2020, that's really when we started to roll out these Gen Next stores at more of an accelerated clip. The vast majority of these stores have been repositionings of existing stores into better locations, as well as the remodeling of existing stores in place. These stores have typically been larger with a static showroom. They've had a separate pre-leased room, and all the renewal activity and customer payment activities moved to the back of the store and off the sales floor. This has really created some personnel efficiencies for us, as well as allowing the stores to serve a larger number of customer from each store. If you fast-forward to the end of 2022 and into 2023, we introduced a new concept called the hub and showroom model, and this was really enabled by the success of our Gen Next stores. This model includes converting or opening showroom locations, which are stores that are 100% focused on selling product, and while the hub store that location is really in charge of servicing the customer, including delivery of the product, as well as taking payments. And then as you continue down the journey, as you saw in the back half of last year and the first quarter of this year, in 2024, we began opening net new locations, while also closing about 30 stores in the quarter. We'll, we'll continue to close more stores this year, and, but we'll also continue to open new locations, whether that's in a brand-new market or reopening, in a market we had been in in the past. At the end of the first quarter, we had over 25% of our stores were in the Gen Next format, and we, we haven't publicly stated, you know, our expectations on final store closures and final Gen Next locations, but we'll continue to, to update on future calls, and we'll continue to evaluate our store performance and be diligent in our, in our real estate decisions. Got it. And, I mean, how should we think about the success of these, Gen Next stores, I mean, versus the existing store base? Yeah, listen, they, they've continued to perform quite well, right? So, you know, achieving delivery growth, that's, you know, kind of north of 20% excess, in excess of, of the existing locations. You know, the way that we've always approached these is with a view towards that the invested capital would not only kind of generate, you know, portfolio growth, but more importantly, return north of a 20% return on that invested dollar. And, you know, and they've continued to do that. So they're performing well. I think we're continuing to look at opportunities to where we can add more Gen Next stores. But to Mark's point, it'll be more of a combination of this kind of hub and showroom strategy, right, where we're optimizing markets with a combination of what may be a Gen Next format hub location, and then a, you know, a smaller showroom that's nearby so you're leveraging, you know, kind of a lower OpEx footprint to service a broader range of... or radius, if you will, of customers. So as we move forward, you'll see us more focused on really kind of that, as opposed to kind of the standalone Gen Next format, as well as Marc hit on. You'll see us with more new store locations and potentially new markets. I think what we've gotten to where, you know, over the last few years, we've fine-tuned the model. They're performing, you know, well in the markets where we've rolled them out, and so we've identified a number of new markets that we could be rolling into as well. You know, probably less active on that front this year than we would be kind of in 2025 and beyond, though. Got it. Maybe... I mean, how do you think about, you know, the competitive intensity of, you know, the lease-to-own industry? I mean, you guys are the second biggest, you know, provider for store-based lease-to-own. There's also the other side, which is virtual, that you guys don't participate in, but I mean, how do you guys view the competitive intensity in, you know, your sector, and maybe what investments are you making on the end side to better compete with, you know, the larger, store-based lease-to-own chain? Yeah, great, great question. And listen, there's no question that the broader lease-to-own market has, it's gotten more competitive over the years, right? Especially with the growth in virtual lease-to-own. But in our store-based business, as well as our e-commerce platform, you know, we continue to focus on improving the customer experience and really making it easier for them to transact with us. You know, whether that's, you know, you know, the decisioning kind of process, the, you know, the products that are available to them, how quickly they can get through our website, right? You know, we're focused on continuing to improve that experience, and that combined with, you know, a very broad product selection, particularly relative to our peers, right? And a lower total cost of ownership. It's a really strong value proposition, overall proposition for our customers. You know, investments that we've made in our stores, right, especially the new Gen Next format, right? As well as, like I said before, the centralized lease decisioning, you know, other digital servicing platforms make it easier to make payments. You know, all of that, it's allowed us to serve our customers not only more effectively, but also more efficiently from a cost perspective. And we believe ultimately that, you know, we're enhancing that customer experience and making it easier for a customer to get into a lease, and then to make their payments, and to, you know, kind of, create flexibility for them to change things as we move forward, they make adjustments relative to their immediate budgetary kind of concerns and issues. Listen, I think at the same time, you know, we don't necessarily specifically comment on competitors, you know, by name, but we do want to say that we're very happy with the results that we've seen so far, particularly from a customer conversion perspective, right? It's a battle for applications and getting people kind of in the door. But, you know, the improvement that we've seen in actually going from a completed app to a delivered agreement is significantly improved from last year, and that's where we're gonna continue to focus on kind of driving that improvement, and as a result, you know, delivering incremental growth and lease agreements, and then the lease portfolio size growth that we're anticipating for this year. Got it. Maybe switch gears to BrandsMart. I mean, can you talk about the competitive advantage of the BrandsMart brand? I mean, you guys have about nine to 10 stores right now in two states, right? Is there any reason why you guys, I mean, BrandsMart does business in those two states? Y eah, well, so yeah, so we're in, obviously South Florida and the Atlanta market, plus Augusta, in Georgia. BrandsMart ultimately is competing in these markets on, selection, price, and speed of delivery, right? We offer a much broader selection of product than any of the, you know, main competitors in the markets that we serve. You know, all the names that y'all are familiar with in terms of who the competitors would be. And then from a price perspective, you know, we position ourselves as the low-price provider. So we don't get beat on price, quite frankly. And then speed of delivery is a big thing, right? We most of our stores have very large warehouses that are part of, you know, kind of part of their physical structure, and so we're able to deliver same day, when oftentimes to some of the competitors it could be, you know, days, particularly if you order online, right, before you before you get a product. So, you know, that, that's how we position ourselves, and it's worked very well in the markets that we're in. You know, it's interesting. The prior family that owned the business, they weren't really focused on growth. They were, they were very comfortable just kind of maintaining market share and where they were at. And we, you know, when we bought the company, we definitely, definitely saw an opportunity to expand the footprint. That's our plan, right? We opened one store last year, we're opening another store this year, and we've indicated the plans to open 1-2 stores a year going forward. We've done that first with a store here in Augusta, Georgia. Our second store is gonna be opening later this quarter, early next quarter, in Kennesaw, Georgia, which is a suburb, kind of in northeast Atlanta. And after that, I'd say that you're gonna see us really focus on Florida. A lot of opportunity outside of South Florida, where there's very strong brand recognition for BrandsMart that we'd be looking to grow into. You know, outside of that, we've done some market research that indicates that the brand has some strong awareness in adjacent states as well. But in the near term, you'll see us continue to focus on Florida, in particular, because there's just so much opportunity there relative to the small space that we're in in South Florida today, so. Got it. And, I mean, how should we think about the footprint of BrandsMart going forward? You know, I mean, and then can you talk about, you know, the, maybe the synergies between the Aaron's and the BrandsMart? I think one of the selling points is that, you know, you can apply Aaron's lease-to-own product, and decisioning to help, you know, make leases on BrandsMart. I I mean, can you talk a little bit about that as well? Yeah. Marc, you wanna take that one? Sure. So I think Kelly did hit on it a little bit just now in some of the store footprint going forward, but just to reiterate, you know, we do have a new store opening at the end of this quarter, early next quarter in Kennesaw, Georgia. It'll be the similar size and footprint to the new store we opened in Augusta last year. And Kelly also mentioned, too, that the plan likely will be to open one to two new stores each year, at least in the near term. We'll continue to evaluate store performance and further, you know, update any cadence changes there. And then, as well as from a location perspective, you know, real estate availability will continue to be a key factor and will likely target the Southeast in the immediate future. From a synergy perspective, I think from, you know, the lease-to-own product offering in BrandsMart, you know, we continue to grow that business. You know, it's, we're excited to have it part of our, you know, credit waterfall to give customers the opportunity to get into a payment that can fit their financial needs. And we're just continuing to work through that and grow that part of the business. I don't know if you want to hit on anything else there, Kelly. No, I think you covered it pretty well. Thanks, Marc. Great. I mean, I think that is a nice segue into my next topic, which is trade-down. Obviously, I think the lease-to-own has seen some trade-down behaviors. Not that much, but, I mean, it's starting to gain some traction. I mean, can you talk about, you know, the trade-down behavior that you are seeing in both maybe Aaron's and BrandsMart? You know, are you seeing higher-income customers coming down or, you know, credit tightening from maybe, you know, your prime issuers at BrandsMart? Yeah, so we'll talk about it kind of on two fronts, like you mentioned here, Hoang. So at Aaron's, we're not... Again, we're still not seeing anything kind of what we'd deem as material, right, as it relates to credit trade down in that business segment. You know, and I'd say that as it, you know, if it does happen, again, we'd expect it to be a headwind, or sorry, a tailwind for us. What's interesting, though, is, I guess as we're seeing so much growth from the initiatives that we're driving, you know, some of that, you know, we may be capturing customers that are starting to kind of come down into our market through those efforts. But from the data we're looking at, it doesn't look like we've seen a material inflection point yet. At the same time, right, at BrandsMart, we're seeing things which, you know, give us some optimism that, you know, this trade down on the lease-own side could be coming, right? And specifically, right, with our private label credit card provider, you know, they have tightened, right, which has been consistent across really all private label credit card providers in the industry. And you know, that in part has put some pressure on comp sales at BrandsMart. So, folks, you know, folks tend to take advantage of those promotional kind of credit opportunities when acquiring, you know, appliances, you know, furniture, you know, consumer electronics, those types of things. So there's been less activity there, and there tends to be a kind of a lag between not having access to the credit to buy the things that you want, versus, you know, when those things that you want become something that you need, right? It's a have to buy... and as that becomes more prevalent, I think that's when you're likely to see more trade-down activity in the lease-to-own. So again, like I said, we're seeing some high-level signs of... I hate to use the word "improving" because it's improving opportunity for us, but I think from a macro perspective, you know, tighter credit's not exactly a great thing. Mm. But we're continuing to see some positive signs there, but not yet at the point where we're willing to say that there's been an inflection, a material increase in lease-to-own agreements because of it. Got it. And continuing with the topic of trade-down, I think that the CFPB late fee rule, I mean, most people think that, you know, if it happens, then, you know, it could cause people from using credit cards to come down to, you know, financing products underneath, and lease-to-own included. Can you talk about, you know, who do you think would benefit more from that, you know, between BrandsMart and Aaron's? And, you know, I think that, you know, some of the private label providers, you know, may have decided to institute, you know, a promotional financing fee, to kind of make up for the lost economics. So just talk about, you know, which business of yours is gonna benefit, more from that? Yeah, listen, I mean, I think the late fees themselves, it's interesting. I don't think, you know, the payment of those fees or the size of those fees necessarily kind of drive a customer to choose between the payment types. Yeah. I think, you know, what you could see happening, I think it's what you're alluding to, is, you know, the underwriting standards could change, right? And I would put that more in the general, and that's for the card providers. You know, with the lower fees that they're able to charge on the late fees, they need to be probably a little more protective of their portfolios. And so in doing so, you're likely to see tightening to address that. Plus, like you said, looking for fee income elsewhere. That tightening should accrue to our benefit, right? If it's sustained, you know, we would expect that that could over a period of time, be a benefit to the lease-to-own business. On the BrandsMart side, what I'd say is that, you know, I can't comment specifically on different kind of fee structures and things like that, nor do I think it's appropriate. But what I can say is that our private label provider, they've been a great partner, right? And we've been, you know, actively working with them. You know, there's been give and take on both sides, right? So they've been very good to work with, you know, ensure that we continue to have a nice stable of promotional products that we can offer, kind of through the course of a year to help drive demand. So, while we are seeing a bigger focus on their end-run around some of those kind of non-customer-facing fees, they're doing other things to help kind of mitigate that. And ultimately, we're aligned in kind of driving volume for their products, so it's working out well. Got it. Maybe switching gears to lease performance, I think, you know, the industry has done a pretty good job. I think across the board, lease performance has, you know, trended back down to 2019 levels. But you guys, you know, because you guys are doing more, a greater mix of e-com, you know, that's gonna put pressure, some, some pressure on, lease write-off. I mean, can you talk about some of the initiatives that you have taken, you know, to mitigate, that makeshift impact? Yeah, absolutely. So, you know, our lease decisioning model solves for a risk-adjusted margin, and we'll make each decision on an application-by-application basis. You know, we haven't really tightened materially in some time. Unifying the decisioning process across all of our shopping channels, we've been discussing over the last couple of earnings calls, has really helped to improve the lease performance and the portfolio and the health of the portfolio overall. Ultimately, you know, we believe we're setting the customer up for success. We're trying to size the customer's payment to their needs and their, and their financial circumstances, and at the same time, we're developing our programs to ensure that our customers have flexibility, so, so they can have success. I think you're on mute. Sorry, I was on mute. Yeah. We're near the end of our time here, but maybe we would just end with what do you think the market is, you know, missing about the Aaron's story, and, you know, what would you want to emphasize to the investor base? I appreciate the question there. You know, it's always difficult to answer the question, what are they missing? But I'll tell you what we're most excited about, and that's that, you know, in a what's been a very difficult environment, particularly the last year plus, right, from a demand perspective, from, you know, headwinds that have faced our customers, you know, we've continued to innovate the business and make changes, right, and, and, and come at things, a different way. So, you know, the new program where we've gone to a common decisioning platform across both origination channels, you know, e-com and in-store, and combining that with, you know, enhancements to how we market into our customers and, you know, make them better aware and how to best utilize the remaining leasing power they have, has shown real results, right? That we certainly saw in Q1 and at the beginning of Q2, and we're excited about what that could mean as that continues through the remainder of this year, and particularly as we go into 2025. Because, you know, as you grow your lease portfolio size, you know, being up even a few percentage points, means a... It's very different than what we experienced the past year, where we came into 2024, down 7%. So, again, we're happy that with the actions that we've taken, the results that we're seeing out of it, and are looking forward to the results that will drive going forward. Gotcha. And with that, we're right on time. Thank you both, Kelly and Marc, for- Thank you ... attending our conference and really appreciate it. Great. All right, have a great day, everyone. Great day. You too. Bye bye.