Good morning. My name is Andrea, and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aaron's, Inc. Second Quarter 2020 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Michael Dickerson, Vice President of Corporate Communications and Investor Relations for Aaron's, Inc. You may begin your conference.

Thank you, and good morning, everyone. Welcome to the Aaron's Inc. Second Quarter 2020 Earnings Conference Call. Joining me this morning are John Robinson, Aaron's, Inc. President and Chief Executive Officer; Ryan Woodley, Chief Executive Officer of Progressive Leasing; Douglas Lindsay, President of the Aaron's Business; Steven Michaels, Chief Financial Officer and President of Strategic Operations; and Kelly Wall, Aaron's Incoming Interim Chief Financial Officer. Many of you have already seen a copy of our earnings release and our press release announcing the expected separation of Progressive and the Aaron's business into two independent publicly traded companies along with certain management changes. Both of those press releases were issued this morning and are available on our Investor Relations website at investors.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 actual results to differ materially from the content of our forward-looking statements. Also, please see our Form 10-K for the year ended December 31, 2019, and our Form 10-Q for the quarter ended March 31, 2020, for a description of the risks related to our business that may cause 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 and adjusted EBITDA, non-GAAP net earnings and non-GAAP EPS, which have been adjusted for certain items that 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 help investors facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance. With that, I will now turn the call over to John Robinson.

Thanks, Mike, and thank you all for joining us today. Let me begin by expressing my gratitude to the many outstanding team members throughout Progressive, the Aaron's Business, Woodhaven, and Vive, whose commitment, perseverance, and dedication has been extraordinary during this difficult period. Despite the continuing havoc caused by the COVID-19 pandemic, our businesses performed well over the past few months, resulting in strong second quarter financial performance. In the quarter, the company generated adjusted EBITDA of $130 million and adjusted earnings per share of $1.18, well ahead of our expectations. The company's performance was largely driven by strong customer payment activity, reduced operating expenses, and more conservative decision-making. The business also generated substantial cash in the quarter, ending June with $313 million on the balance sheet. Given the tremendous amount of uncertainty in the market, we will continue to maintain a conservative stance with respect to how we are managing the business. Now, I'd like to discuss the decision to separate the business into two independent public companies. Separating has been an idea that both management and our Board have spent a significant amount of time and resources analyzing. After thoroughly considering our options, we believe separating the businesses is the best path to increasing long-term shareholder value. While the combination of the two businesses made sense in 2014, today, we believe each business can chart a path to greater growth in earnings on its own. Over the past six years, while Progressive and the Aaron's Business have been managed separately, the teams have shared important technologies and best practices, making both businesses stronger. For example, Progressive's decisioning technology enabled aarons.com to be the first and only end-to-end transactional lease-to-own e-commerce business at scale. And most recently, it facilitated the launch of centralized decisioning across all U.S. company-owned Aaron's stores. Conversely, Progressive has created a return logistics system developed from the Aaron's Business and benefited from the scale of a larger public entity as it grew its retail partner base to its national scale today. As we look ahead, we believe the benefit of ongoing synergies of the two businesses is outweighed by the opportunities created by each business independently pursuing its own strategy with focused management. We believe Progressive has the management team, infrastructure, and scale to continue capturing the large unserved virtual lease-to-own market with its profitable and capital-light business model. The Aaron's Business, having been significantly transformed over the past five years, is well positioned to continue consolidating and repositioning its store footprint, which, coupled with aarons.com, is expected to provide a foundation for future earnings growth and positive free cash flow. In short, we believe both businesses are well positioned to stand on their own, and now is the time to separate them. As you saw on the separation announcement released earlier today, we will maintain significant executive management continuity. Douglas Lindsay and his team will continue to lead the Aaron's Business, and I will serve as Chairman of the Aaron's Board. At Progressive, Steve Michaels will take over as CEO, and Ray Robinson, our current Chairman, will continue to lend his substantial experience to Progressive as its Chairman. As part of this next step for the businesses, Ryan Woodley has decided that now is the time to depart. Ryan has been an outstanding executive partner for me and leader for Progressive, quadrupling the business during his tenure as CEO while also building the infrastructure to support its strong growth trajectory. While Ryan will be sorely missed, one of the truest tests of a great leader is the team he or she has built to perpetuate the business into the future, and the management team at Progressive is outstanding. There is no question Ryan will be leaving Progressive much stronger than when he started, and for that, we are truly grateful. So Ryan, while we see you go with sadness, on behalf of all of us at Aaron's and Progressive, we very much appreciate your leadership, dedication, and performance and wish you the very best in your future endeavors. Steve Michaels is the logical choice as the next leader of Progressive. Steve has been my trusted business partner for the last several years and has performed at a very high level as an executive with multiple operational, financial, and strategic leadership responsibilities, most recently as CFO and President of Strategic Operations. Steve has a unique combination of strong intellect, outstanding executive judgment, and deep and broad-based experience that positions him well to lead Progressive. Steve knows the Progressive business. In fact, Steve was the architect of the Progressive acquisition for Aaron's back in 2014 and has remained close to the business ever since. Steve and the Progressive management team have worked together for a number of years, and I'm confident his transition into the CEO position will be smooth. Overall, I couldn't be more excited for Steve to have this incredible opportunity. He has certainly earned it. In partnership with Blake Wakefield, who has been instrumental to the company's outstanding performance since 2013, and the rest of the Progressive team, I'm confident Steve will do an outstanding job as Progressive's next CEO. In conclusion, it's an exciting time for our company due to our recent performance, but more importantly, because of the future opportunity for both businesses. I'm really proud of the teams at Aaron's, Progressive, Woodhaven, and Vive for their continuing commitment to serving our customers despite significant challenges over the past few months. The operational and financial performance the teams delivered in the second quarter was outstanding. Well done, team, and thank you. I'm equally proud that we are in a position to separate the businesses into two public companies. This value-creation opportunity would not be possible without the outstanding work of the Progressive leasing team to grow the company significantly over the past six years and the Aaron's business team transforming it into a more modern, competitive company over the same period. I'm excited for the opportunities ahead for the teams, and I'm optimistic about the future for both businesses. Now I'll turn the call over to Ryan to discuss Progressive's second quarter performance and recent trends.

Thanks, John. It has been the greatest joy of my career to work alongside this team over the past seven years, including the last five and a half years as CEO. I'm tremendously proud of the results we delivered for our shareholders, partners, and the millions of customers we've served. I want to thank John for recruiting me to Progressive back in 2013 and serving as a mentor over the years. In total, the business has grown over tenfold during our time together, providing endless opportunities for personal and professional growth. I also want to thank my leadership team, including Blake Wakefield, our President and Chief Revenue Officer; and Curt Doman, our Co-Founder and Chief Innovation Officer. The significant growth of Progressive over the years is a direct result of their expert knowledge and leadership. Finally, I'd like to express my gratitude to the thousands of employees at Progressive for their outstanding contributions to the company's success and continuing commitment to our mission. As we enter the second half of the year, our results continue to be a testament to their efforts. I could not be prouder of the Progressive team, our partners, and the outcomes that together we've generated, especially in the context of the current environment. While we continue to operate primarily from home, the team's execution during this time has been exemplary. We are generating more revenue on less overall spend, as reflected in the lower absolute dollars of SG&A expense relative to the same period last year, resulting in 180 basis points of year-over-year SG&A leverage. We are encouraged that many of our retail partners have reopened their storefronts, and we're pleased to deliver the improving trajectory of invoice volume performance during the quarter. From a low point in April, where invoices declined by 21% year-over-year to a year-over-year increase of 2.6% in May and 9.4% in June, even as many retailers across the country experienced supply chain challenges and were not fully reopened. Revenues for the second quarter were $589.7 million, an increase of 14.2% compared to the second quarter of 2019. The revenue performance was driven by higher year-over-year portfolio balances entering the quarter as well as higher incidences of 90-day buyouts, which we believe resulted primarily from the government stimulus package. Active doors declined by 3.9% during the quarter as retailers temporarily closed many locations as well as limited operating hours and in-store traffic in response to the pandemic. Invoices per active door increased by 1.7% due to a slight shift in mix for higher volume locations. Gross margins declined in the period to 28.7% compared to 33.2% in the second quarter of 2019. As I mentioned in our two previous calls, we expected a meaningful decline in gross margins in the first half of 2020, resulting from the significant acceleration in invoice growth we experienced with the onboarding of new national retail partners. Additionally, government stimulus and enhanced unemployment benefits during the second quarter increased early buyout rates significantly, effectively creating a dynamic that resembled a second tax refund season for our business in the quarter. While 90-day buyout transactions have lower gross margins, they represent an important component of the overall value proposition for our customers and retail partners. SG&A expenses were 10.5% of revenues in the quarter compared to 12.3% in the prior year period, an improvement of 180 basis points. As we mentioned on our first-quarter call, until we have better visibility into the broader economic outlook, we have closely managed volume-driven costs and reduced discretionary spending while preserving our ability to continue to execute at high levels across all areas of the business. Turning to portfolio performance measures, write-offs were 6.1% of revenues, matching four-year lows for the second quarter period, down from 7.6% in 2019. This decline in write-offs reflects strong customer payment activity as well as changes made late in the first quarter to our lease decision. As John mentioned earlier, there remains uncertainty in the market related to the pandemic, future government stimulus, and overall future economic conditions. As such, we have not reversed any of the COVID-19-specific reserves we recorded in the first quarter. EBITDA was $70.7 million in the second quarter, an increase of 3.6% compared to the second quarter of 2019. The EBITDA margins were 12.0% in the second quarter compared to 13.2% in the prior year, due primarily to lower gross margins, partially offset by a reduction in buyouts and SG&A expenses. To summarize, Progressive has performed at a high level during this pandemic, generating strong revenue growth and invoice volume nearly in line with prior year levels despite significant door closures by many of our largest retail partners. While invoice volume has begun to rebound from the April lows, we have maintained a conservative posture as it relates to cost management and decision-making, which is producing high productivity on SG&A spending and low levels of write-offs. In closing, I'd like to thank all of the employees at Progressive for their tireless commitment to serving our customers. The combined efforts of the Progressive team over many years have enabled the company to take this exciting next step as an independent publicly traded business, ably led by Steve and the rest of the executive leadership team. I'm very optimistic about the future of Progressive and look forward to following the team's successes. I'll now turn it over to Douglas for an update on the Aaron's Business.

Thanks, Ryan. First, let me say I'm excited to lead the Aaron's business into the next chapter and acknowledge that this would not be possible without the extraordinary dedication and hard work of the entire Aaron's organization. From our leadership team to our dedicated team members in our stores, our store support centers, and at Woodhaven, who have made tremendous sacrifices throughout this pandemic. I could not be more proud of the team's performance. For the second quarter ended June 30, 2020, revenues were $431 million, a decrease of 2.8% from the second quarter of 2019, primarily due to a lower store count, a smaller lease portfolio per store to begin the quarter, and lower deliveries due to the temporary closure of our showrooms, partially offset by strong customer payment activity. As of the end of the quarter, we had nearly all of our Aaron showrooms open, having begun our phased reopening in late April. Same-store revenues were up 1.4% in the second quarter. This increase was due primarily to strong customer payment activity, including higher early payout revenue and retail sales, which we believe were partially triggered by the government stimulus package. Total recurring revenue written into the portfolio declined 13.7% in the quarter, due primarily to the impact of showroom closures and more conservative lease decision-making, both in-stores and on aarons.com. Within the quarter, recurring revenue written volumes rebounded from April's low of down 35% year-over-year to low single-digit declines in May and June. During the quarter, e-commerce recurring revenue written increased 16.9%, despite being negatively impacted by lower inventory availability and more conservative lease decision-making. As mentioned on last quarter's call, in April 2020, we rolled out centralized lease decisioning in all U.S. company-owned stores. The ability to instantly decision all customers regardless of channel is a significant milestone for the Aaron's Business because we expect it will allow us to better control lease portfolio risk, increase labor efficiency in our stores, and improve the experience of both our customers and team members. While we expect centralized decisioning to negatively impact recurring revenue written into the portfolio due to lower approval rates, longer term, we expect total lease revenues and margins to increase due to improved customer payment activity, longer customer retention, and lower write-offs. At the end of the second quarter, inventory in our stores and fulfillment centers were lower compared to the prior year quarter due to inventory management actions we took in response to COVID-19, as well as recent supply chain disruptions across our major product categories. While we expect supply chain issues to persist, we are working closely with our current vendors and new suppliers and are seeing signs that conditions should improve over the next six to nine months. This period of supply chain disruption highlights what a competitive advantage our Woodhaven manufacturing division provides as it allows us to have better control over our upholstered furniture and bedding supply. SG&A expenses were down $26 million or 10.7% in the second quarter compared to the prior year period. Approximately one-third of the reduction was a deferral of marketing spending, while the remainder was a permanent reduction, mostly due to store closures over the past 15 months. In the back half of 2020, we expect an increase in SG&A expenses resulting from increased marketing and labor costs. Write-offs in the second quarter were 3.7% of lease revenues, a 190 basis point improvement, driven by strong customer payment activity and more conservative lease decision-making, partially offset by an increasing mix of e-commerce. Importantly, e-commerce write-offs improved by 310 basis points year-over-year. Adjusted EBITDA increased by $17.4 million or 44% compared to the year-ago quarter, resulting primarily from strong customer payment activity and lower SG&A expenses and write-offs, partially offset by a smaller lease portfolio balance to begin the quarter. Adjusted EBITDA margin was 13.2% versus 8.9% in the prior year quarter. To summarize, I'm thankful to all the Aaron's Business team members for their extraordinary effort to serve our customers, our company, and our communities during this challenging time. With many parts of the country experiencing a significant rise in new COVID-19 cases, we remain diligent in our safety procedures for our customers and team members, and we'll continue to make adjustments to our operations as necessary. Looking forward, I'm excited about continuing the transformation of the Aaron's Business as a stand-alone company. We have a large market opportunity, a compelling customer value proposition, and the right strategy and team in place to drive future earnings growth and strong free cash flow. I'd now like to turn the call over to Steve to discuss the second quarter financial results.

Thanks, Douglas. First, let me begin by joining John in saying thank you to Ryan for his leadership and friendship over the last six years. Having just had my 25th anniversary with Aaron's, I cannot think of a more exciting way to start the next chapter with this great company. I'm humbled and honored to be taking over from Ryan as CEO of Progressive. The results over the years speak for themselves. He has assembled a first-class management team and positioned the business for continued growth into the future. Having been involved with the Progressive team from even before the acquisition, I am familiar with its inner workings, have met many of our retail partner teams, and I'm committed to continuing its legacy of technology innovation and dedication to its mission of providing simple and affordable purchase options for credit-challenged consumers. Importantly, I leave the corporate office in good hands. Kelly Wall, the company's current Senior Vice President, Finance and Treasurer, has been appointed Interim Chief Financial Officer. Joining Aaron's in 2017, Kelly brought extensive corporate finance experience and quickly became an invaluable part of the executive team. He has strengthened our treasury function and our bank group and updated and enhanced our credit facilities. As Interim CFO, he will be a great asset for John and the entire team as we work to execute on the strategic separation. On a consolidated basis, revenues for the second quarter of 2020 were $1 billion, an increase of 6.4% over the same period a year ago. Adjusted EBITDA for the company was $129.8 million for the second quarter of this year compared to $107.4 million for the same period last year, an increase of $22.4 million or 20.9%. Adjusted EBITDA was 12.6% of revenue in the second quarter of 2020 compared to 11.1% in the same period a year ago. Given the continuing uncertainties with respect to future government stimulus and related economic conditions, we have made no reductions to the incremental COVID-related reserves established in the first quarter. We will continue to evaluate this stance each period and adjust as necessary. Our customer payment activity has remained strong throughout the quarter. However, we have maintained a conservative stance with respect to our reserve position as the depth and duration of the current economic slowdown caused by the COVID-19 pandemic and the degree to which government stimulus will continue to support our customers when the current CARES Act lapses is unknown. Again, while the portfolios have performed well and are in good shape today, we believe these reserves represent our best estimate of the potential impact we may experience in future periods. Diluted EPS on a non-GAAP basis for the quarter increased 27.4% to $1.18 versus $0.93 in the prior year quarter, primarily due to the continuing strength of customer payment activity, lower operating expenses, and reduced levels of inventory write-offs. Operating expenses decreased by $39.7 million from the second quarter of last year, of which roughly $15 million is due to year-over-year store closures in the Aaron's Business. About $10 million of the change is due to reductions in write-offs across the businesses; $10 million is due to a reduction in Aaron's business marketing spending, of which about $8 million was deferred to the second half of 2020, and the remainder is primarily temporary COVID-related reductions. Cash generated from operating activities was $360.8 million for the six months ended June 30, 2020. As of June 30, the company had a cash balance of $313 million and gross debt of $286 million. During the quarter, we did not repurchase any shares of the company's common stock; however, we have maintained our quarterly cash dividend. In March of this year, due to the uncertainty caused by the COVID-19 pandemic, we withdrew our full-year 2020 outlook. In early June, we provided a mid-quarter update. Because there continues to be a tremendous amount of uncertainty in the market, we would like to continue to be helpful to our shareholders and analyst community. Therefore, we are providing a consolidated revenue and non-GAAP diluted EPS outlook for the third quarter. For the quarter, we expect consolidated revenues between $950 million and $975 million and non-GAAP diluted earnings per share of between $0.80 and $0.90. This outlook assumes no significant deterioration in the current retail environment, some level of continuing government stimulus, and a gradual improvement in global supply chain conditions. As a reminder, due to the portfolio nature of the business, the company expects that reported revenues and non-GAAP earnings in the third and fourth quarters will be highly correlated to the volume of lease originations in the preceding few quarters. With that, I'll now turn the call over to the operator, who will assist with the question-and-answer period.

[Operator Instructions] And our first question comes from Kyle Joseph of Jefferies.

I'd like to pass along my congratulations to everyone, Kelly, Ryan, everyone. Ryan, we'll miss you. John, we'll miss you, but congratulations to everyone on all the moving parts. And on the announcement, it's been very, very exciting. First question for Ryan. I appreciate the color you provided on invoice volume trends through the quarter. Can you give us a sense as to how that's trended in July? And then a follow-up to that would be give us a sense for how 90-day buyout activity trended month-by-month in the second quarter?

Happy to. Thank you, Kyle. I appreciate it. So we haven't quite closed out July yet and aren't providing monthly insight for Q3 right now, but I will say that we're expecting to be able to report a continuation in that trend of improving invoice volume. So we expect to see year-over-year growth in Q3, up from the slight decline we saw in Q2, which is great, and we're excited about that. On the 90-day buyout trends, we have seen higher year-over-year levels of 90-day buyouts. It's starting to taper a bit, as you might expect, as the effects of the stimulus kind of play out a little bit. And what we see there going forward in Q3 will be wholly dependent on what happens with any future government stimulus. We just don't have enough visibility on that yet to sort of talk about how that will play out in Q3. But we definitely did see higher year-over-year levels in Q2. The peak difference isn't that pronounced. It's sort of mid-single digits. If you look at sort of the peak rate of 90-day buyouts last year for a given monthly pool compared to this year, the continuation we saw this year is supported by the stimulus that's driving the variance you saw that we reported in gross margin.

And then I'll shift to Douglas. Nice job turning around the business this quarter. But as we think about the third quarter and the fourth quarter, it sounds like a lot of that -- the payments were very high in the quarter. So based on where the portfolio ended the quarter, can you give us any sort of sense for directionally how the comp -- how you anticipate the comp trending going forward?

Yes. Sure, Kyle. Yes. So we saw improvement all through the quarter despite the low revenue written in April, 35%. We saw a rebound in May and June. And as we enter the third quarter, we're seeing increasing strength, I'd say, in the portfolio, really due to higher customer retention and lower write-offs. We see that continuing going into Q3. In early July, our collections are strong. The portfolio continues to improve. We're seeing a lot less attrition, I would say, out of our portfolio. And based on these trends, we're looking at positive comps in Q3 as we move forward. So we're very optimistic about the way the Aaron's Business is trending.

Got it. And then just one for me on the spin. I'm trying to get a sense for how much the businesses still relied on each other. Progressive, how much it relied on Aaron's in terms of collections and how much Progressive relied on the consolidated balance sheet? But can you just kind of walk us through what's changed since 2014 in terms of how much they relied on each other?

Yes. Kyle, it's John. Good question. I'll tell you, back to 2014, we kind of constantly made a decision to run the businesses separately. Progressive was obviously on a great trajectory at that point. We wanted to continue that and felt like keeping the businesses as separate as possible made a lot of sense from that perspective. It also made a lot of sense from kind of firewalling information between the companies. So we felt like those are important. So we really have run the businesses largely independently since the acquisition. We've had separate management teams, separate headquarters, we've allocated the overhead of the businesses, we believe, very efficiently to each of their P&Ls. We have shared know-how and technology and learnings back and forth, but we really execute those separately and independently between the two businesses. And there's certainly been some good examples and real wins for both businesses. But for example, like reverse logistics at Progressive, that was know-how that was ported over from Aaron's, but it's executed largely almost exclusively by Progressive employees today. So there's really very few dis-synergies from splitting the businesses due to the way we've managed the businesses since the acquisition. And our expectation is there will be limited and temporary, if at all, short-term shared services between the businesses because of that as well. So there's some back-office sharing that's going on, obviously, around being a public company and Boards and things like that. But largely, separately, the whole kind of duration of the acquisition, so that certainly lends itself to being separated going forward.

All right. Congrats on a good quarter and the exciting announcement.

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

Let me add my congratulations as well to the team on many new roles and opportunities ahead here, exciting time. My -- to follow up on some of the previous questions. I guess I'd be curious, is there any degree of noncompete that you would set up for the Aaron's Business? I think if I step back and think about the trend in the industry, obviously, Aaron's acquiring Progressive, your main competitor Rent-A-Center doing acquisitions to try to grow its direct business. I guess is there anything to keep the stand-alone Aaron's Business in the future from trying to build out its own direct competitor to Progressive as we think about the next few years?

Thanks for the question, Brad. It's John. I would say this separation is not about drastic change in strategy for either company. And there certainly will be no limitations on their strategies going forward, nor have there been historically. Probably not appropriate for me to speculate on where the market goes; the market moves and it's a big market. There's a lot of opportunity in a lot of different pockets in the market. So probably won't, can't speculate on that. But both businesses have a good competitive position. They have different financial profiles, capital profiles, but both have great opportunities and great strategies going forward. And we think separate they'll unlock more value, but there will be no restrictions as there haven't been in the past, there won't be any going forward on either business.

That's helpful. And if I could move over to fundamentals on the Progressive side. Ryan, could you talk a little bit about the health of the retail partners that you have? Obviously, there have been some bankruptcies in the furniture sector, companies like Art Van. How is your retail portfolio looking today? And then can you give us a little bit more insights into how some of your new or large partners have been performing of late?

Sure thing, Brad. I believe, generally, they're doing very well, especially well all being considered. There was a lot of movement within the portfolio over this period of time, as you can imagine. We saw thousands of doors close in response to COVID sort of late Q1, early Q2, and then thousands of doors subsequently reopened. So it's been a bit of a tumultuous time. But I've very much admired the resiliency of our partners and how they've worked through that and were able to adapt. We talked on last quarter's call about the curbside motions and e-com initiatives they kicked off during COVID, which we did our best to support. And I think that's been a silver lining in all of this is how it helps solidify those relationships and find new ways to grow the partnerships, which is great. I think we certainly saw some closures, both among our small and large partners. But I would say absent the temporary closures due to COVID, in spite of any permanent closures, we would have seen year-over-year growth in active locations for the second quarter. So I think we would have reported growth instead of that 3.9% decline, we would have been talking about growth, which I think speaks volumes about the resiliency of our partners and our partnerships, which is good. And then the opportunity ahead of us, I think, for each of those remains very bright. We have a lot of those largest newest relationships still relatively new with significant opportunity to grow, both in-store and online. We talked -- some of them have talked about our sort of shared e-com initiatives, which represent very compelling long-term growth potential for the business that we're working very hard to execute on and together, and I'm very excited about those.

I guess just one last question here for Douglas. You've mentioned some issues of product availability that may last for the next 6 to 9 months, I believe. I don't think I heard this. Could you help to quantify to what degree your inventory or product selection is not quite where you want it to be today?

Sure, Brad. As you know, like most retailers, when we entered the challenges with the COVID crisis and closed our showrooms, we pulled back on a lot of our orders. As we began to rebound, we got our PO process back and running. Suppliers generally have been having a hard time meeting the demand out there in the marketplace. We really feel like we're in good shape in our stores. My comment was really around the level in our fulfillment centers. In our stores, we're able to meet the customer demand. Obviously, we have pre-lease coming in that helps us do that. Our fulfillment centers were down, and that really impacts our e-com business more than anything because when you're shopping online, you're looking for a specific product that's being shipped from our fulfillment centers. As we think about going forward on a per-store basis, we were down probably combined with our fulfillment centers and our store inventory, about 20%. But we believe that's improving every day as we're getting orders in, particularly in appliances. The six- to nine-month time frame is really for all of our products. We're seeing a little slower supply chain on computers and gaming, but furniture and appliances are moving more rapidly. I just want to also mention Woodhaven. I mentioned that in my prepared remarks, that is a real strategic asset for us. The fact that we can get bedding and furniture from our Woodhaven facilities and control the supply chain on that is a huge advantage. And I just want to shout out to that team because they're working really hard to get us where we need to be entering the third quarter.

That's very helpful. Congratulations to you as well, Douglas.

Our next question comes from Elizabeth Suzuki of Bank of America.

What do you think has been the net impact of the CARES Act on both sides of the business? And have you noticed more recent changes as those benefits start to wane? And can you quantify any of those changes?

I mean -- this is John. I'll -- yes, quantifying is going to be tough. I'll be honest because there's clearly been an impact on the businesses and primarily manifests itself in stronger customer payments than we might have seen this time in a normal year. But it's hard because there are a lot of different variables that are mixed. On the Progressive side, you could can see the impact in higher 90-day buyouts, which flows through to gross margin, which the team did an awesome job of offsetting through cost control and lower write-offs. But it did net down to a lower margin year-over-year at an EBITDA level for Progressive. On the Aaron's side, we've seen a lot of benefit. The portfolio has performed differently. It's probably lengthened out the duration of the portfolio there, which has resulted in, as Doug said earlier, the portfolio staying larger than we might have normally seen because of lower attrition, and it's resulted in strong revenue in the quarter and positive comps. As Douglas said, the expectation for positive comps next quarter. So it's definitely an impact that when you kind of blend that in a lot of the initiatives that we've taken, we tightened on decisioning across the whole enterprise in late March, we tightened on expenses. It's really difficult to know exactly and to quantify; we believe we tried and we think about it. In our expectations, there will be some sort of stimulus going forward, as we talked about in our guidance. But not completely clear on how much of it we can attribute to the CARES Act. The other side of it, obviously, is we closed stores during April. The Aaron's Business, Progressive had a lot of retail partners closing stores. There's just a lot of moving parts to try to quantify that. But that's probably the best we can do in terms of answering that question, but it's probably net-net been a bit of a tailwind, but there are a lot of moving parts.

Got you. And what portion of your quarter do you think was impacted by stores being closed? I mean is there any way to quantify that and think about as we go forward into the next quarter, are all of -- or really all of your stores open at this point and all of your partner stores open?

Yes. I think it's clearly a major issue in April. As you heard from both Ryan and Douglas, that started to improve through -- really started improving in May and really the back half of May and into June. But I'd say it's still having an impact. And it's a little unpredictable, just given how the virus is kind of affecting different areas differently. I wouldn't say we're out of the woods by any stretch.

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

So I guess my first question, and I know it’s tough to have a crystal ball, but you mentioned with the guidance for the third quarter that includes some level of continuing government stimulus, and I was just wondering if you could just give us a little more color in terms of what your expectations are. I mean I think right now, there’s talk about that there’s going to be another round of $1,200 checks and maybe some level of enhanced Federal Unemployment that maybe it’s $200, maybe it’s 70% of income. I guess I was just trying to get a better sense for what you’re specifically taking in at this point?

Yes. This is John, and I’ll let Steve fill in here. But what I would say is our expectation is there will be some level. We don’t know what that will be, and we probably baked in some conservatism in terms of what we think it might be, but the expectation is there will be some level of continuing unemployment benefit and then probably some stimulus. I mean, obviously, it’s moving -- the news is changing daily on this, and there’s -- it’s a moving target right now. But we do have an expectation there would be some, but maybe at a lower level kind of in what we were forecasting. I don’t know, Steve, do you have anything to add to that?

No, I mean I think that’s right. It seems like both proposals have some level of one-time checks as well as some enhanced unemployment benefit, and their -- the dollar amounts are not the same yet, but there'll be negotiations. And so we’ve been -- we expect something will get passed, and we’ve baked that into the guidance, but probably not at the same level, as John said.

Got it. And then just one last question. Obviously, you don’t have a ton of debt on your balance sheet, but I was just wondering, how do you think about the debt that you do have sort of forcing that off to Aaron’s versus Progressive once the businesses are separated?

Yes. It’s a good question, Anthony. It’s some of the work that will take place over the next few months. As we said in our release, this is a process that will take much of the rest of the year to complete, and kind of setting up balance sheets is part of that work that has to be done. We’re fortunate to be in a position, as you said, at the end of the quarter, we had a net cash position, so we have more cash than debt. So it gives us a lot of flexibility. Given that we’re in a net cash position, we expect that both businesses will be kind of set in their independent directions with really conservatively capitalized balance sheets. But the exact makeup of that at this point or how we exactly apportion up the debt has not been decided, and we’ll work on that and update you guys as we know more.

Anthony, this is Steve. One last thing I would add on that, and John is exactly right. But for one of the first questions and the reason for the acquisition back in 2014 was really to give Progressive a visible and public balance sheet to be able to have good visibility to our retail partners that we were courting at the time and project strength and access to liquidity and the ability to support those retail partners in their growth. And so that’s another thing that’s changed over the last six years. Progressive has grown so well and so nicely to the point where it has scale and the size now that we’ll be able to, as a stand-alone business, no matter what the capital structure split ends up being over the next -- on the separation date, it will have -- Progressive will have a great balance sheet that will continue to be an asset for us as we court additional -- well, support our existing retail partners and try to attract new ones.

Our next question comes from Bill Chappell of SunTrust.

Congratulations to everybody. A few quick questions. One, I realize we’re early in the stage, but any kind of guesstimate on kind of cost of the split, synergies of post-split and kind of how -- also where I assume both companies will reside in Georgia, but I didn’t know if there was something there, too.

Yes. Well, as I talked about earlier on the last point, Progressive has a headquarters and a management team in Utah, so Progressive's headquarters will be in Utah. The Aaron's Business will be headquartered in Atlanta. In terms of -- we talked about dis-synergies earlier, we don’t think those are significant given that we’ve done a -- we’ve run the business very separately, Bill, and then have allocated, we believe, expenses pretty accurately for all these years between them. So there shouldn’t be any big changes there. In terms of one-time expenses, there’ll be kind of what you would expect from an advisory standpoint to do this going forward. I don’t have a number for you today, but nothing abnormal relative to this sort of process in terms of expenses that we expect to incur to get the separation completed.

Yes. Bill, this is Steve. I’d just add, I mean, Bill, this is minor, but I would just add normal kind of public company Board cost for Progressive and we do some allocations as it relates to the audit, but it will be a full cost of the audit. So there will be enlisting fees and exchange fees and things of that nature, but nothing material, as John said.

Okay. So mainly just public company costs?

Some public company costs, yes.

Got it. And then just specific for Progressive, can you talk a little bit about just how the -- I know with Best Buy, you were going online at the start of the year. Obviously, Best Buy talked about how an inordinate amount of their business has gone online. So I just didn’t know if your share or your -- the percentage of the business, I mean how that’s worked? Maybe some color in terms of as not just with Best Buy, with all customers, have they gone more online? Have you held the percentage share of business that you would get normally offline? Or has there been any changes or surprises?

Thanks, Bill. The measurement exercise on that is a bit tricky, given the disruption that we’ve experienced with store closures and reopenings. So balance of shares are tough, sort of apples-to-apples comparison. We feel good about where we’re at in-stores. Our volume relative to the overall volume, we’re seeing in the stores. And obviously, anything -- all that we get online is incremental to that. Those initiatives are on track, both teams are working extremely hard to sort of bring those to fruition. And it’s great to have the strong support of good partners in making that happen. So we’re -- I guess I said it before, so I’ll just repeat myself. I’m very excited about the potential there and expect that to be a near-term benefit.

Okay. So too early to tell or I guess too confusing to tell is probably the best way to look at it.

No, I would say it’s absolutely going to be incremental. We feel good about what’s happening in the stores, and we’re on track to roll those things out. So we feel good.

Okay. And then, Douglas, one for you. Just any update, I think there was a fair amount of advertising around the pre-approval process now that you centralized decisioning. Any update of how that went? Again, I know it’s a choppy environment to see that, but just any thoughts there would be great.

Yes. Bill, I mean I couldn’t be more proud of the team and the rollout of our centralized decision-making. We’ve got a site apply.aarons.com, where you can go get pre-approved, either on your phone or in-stores. And obviously, we’re advertising that. We’re now seeing almost all of our customers either go through e-commerce or in our stores now going through that channel to get approved and to get their leasing power. It’s just given us the ability to control risk and drive margin and probably most importantly, if you ask people in our stores, it’s just creating a really great team member experience and customer experience. It’s just so much easier. It takes the labor out of the models, and the outcomes have been really strong. So it’s all working, and we’re really happy with it. And I think that’s what’s giving us a lot of confidence in the sort of higher customer retention going forward and stronger profitability.

Next question comes from Bobby Griffin of Raymond James.

I hope everybody is staying safe. And congrats on a good quarter in a challenging environment. Douglas, I wanted to go back to kind of some of your comments about the core business first. But if you guys have done a lot of work on the store rationalization efforts, and there’s still some more to go. If you were to look in the markets that you’ve already done or completed the large part of that rationalization, what are you seeing from performance metrics of those collective stores to highlight what the opportunity is on a long-term basis?

Yes. That’s a great question. We’ve been closing emerging stores for a while. I mean the beauty of the business that we have is the portfolio-based business. So you can effectively take these two books of revenue and put them together within a close proximity and retain -- even if you retain up to half of the customers, it drives a significant increase in profitability from the cost takeout. We’ve been investing heavily in market strategy in order to understand the further opportunity there. Right now, we’re at 1,100 stores, we think we have considerable market opportunity to do the same. I would say it would be a combination of closed merge activities, getting in slightly bigger boxes and better retail locations and enjoying the economics that we’ve seen historically from doing that. But with greater retention, just from being in a better spot in the market and really servicing the market through larger boxes and more e-commerce, and we’ve seen that be a successful recipe. We’ll also look at repositioning some of our stores and our more recent repositioning work and investing in place in the places that we think are real winners has also yielded benefit as we put our Gen-Next model in place. So I’d say we’re gaining more and more confidence in our real estate strategy, and that’s going to be an important pillar of how we drive strong cash flow in the long term and earnings growth.

Okay. I appreciate that. And then I guess also on your comments about written revenue into the portfolio, kind of down low single digits in May and June. I assume that does include the impact of the closed stores that you’re doing throughout the quarter? And if so, is there a way to kind of strip out the closed store impact and maybe get a sense of what written revenue in the portfolio is doing on a comp store basis, like a same-store count year-over-year?

Yes. So the numbers I gave you were on a comparable store basis, so it doesn’t include the impact of that. And so yes, importantly, we’ve seen positive trends in that. As we look forward, the revenue written number will decrease slightly. And I just want to be clear on that. As we -- and I said this in my statements, but as we use our centralized decisioning tool in the portfolio and it becomes a bigger part of the portfolio, we will be not approving as many customers, which will impact negatively recurring revenue written but positively impact our ongoing revenue and margin. And so that’s important as you think about that. In addition, as you know, last year, in the third quarter, we had a large sales initiative, which drove recurring revenue written up by about 13%, but we had negative same-store revenue due to lack of collectibility. We should see the opposite this year in the third quarter with negative revenue written due to centralized collections and comping over last year, but positive same-store revenue.

Okay. That's very helpful. And then lastly for me, Ryan, I understand the early buyouts ticked up, especially with the stimulus and stuff as well as the mix of the business. Is there any way to separate out the 450 basis points, even if it's rough numbers, decline in gross margin, how much do you think that was just kind of core mix of business changing versus early buyouts being at a much higher rate because of stimulus?

Yes. I can give you a decent sense to that. It’s a good question. We had talked, I think, in the last two quarter's calls about the expected impact on gross margin of those recent national launches and the resulting shift in mix as well as growth, revenue under portfolio earlier in the year. We said that we expect that would have an effect on gross margins. And about one-third of that, I would say, roughly, is attributable to what we -- the trend we expected. And the rest, I would say, is primarily driven by government stimulus.

Our next question comes from Alex Maroccia of Berenberg.

I hope you’re all doing well. Expanding upon the 90-day buyout trends you mentioned earlier, can you provide any clarity into how you’re considering the later-than-usual tax refunds that some people received this year?

In the context of expecting a prolonged effect attributable to tax refunds in addition to government stimulus?

Yes, just the stimulus increasing on the 90-day buyout. Are you expecting something similar given the July 15 tax day this year?

We expect to continue to see higher levels of 90-day buyouts, and I expect that will have an effect, although I believe it will be somewhat muted in the context of ongoing government stimulus. So we expect the trend of higher year-over-year 90-day buyouts to continue that. That will be a component. But I think the larger component will continue to be government stimulus, given that we expect some support to be passed here in the future over Q3.

Got it. Okay. And secondly, I know that you were anticipating the online adoption of Progressive from a few of the larger retail partners starting in July. Have there been any changes in timing there? And are you expecting to see any immediate benefits from it?

We do expect to see benefit in Q3 from those initiatives. Everybody has been working really hard. Everyone's had a lot to focus on lately, but the teams have been exceptionally focused on delivering on those initiatives, and I'm super proud of the progress that both teams, our internal teams, those -- our partner teams have made on those initiatives, and I expect them to bear fruit in Q3 and beyond.

Our next question comes from Vincent Caintic of Stephens.

And first question for Ryan. So thanks for all your hard work and sorry to see you go. Actually, the number one investor question I’ve been getting this morning to the extent you can answer it is, I guess why you’re leaving at this time given the growth and opportunity we’ve been seeing and so investor feedback has generally been suppressed by you leaving, any comments you can make there?

Thanks, Vince. It was ultimately a personal decision, but a really tough one. I'm just so proud of the team here at Progressive, and I really do believe the business has a very bright future, but there's never a perfect time for these things and as excited I am about the future of the business and confident I am in the team and their ability to work with Steve to create great success for the business, it just felt like the right time. The separation felt like the right time to hand over the reins to a new leader to continue the mission. And I'll enjoy watching their success and I, of course, will continue to be available to the company, to Steve as an adviser as I sort of watch that success play out.

Yes. This is John, Vincent. The thing I'd add, Ryan is obviously an exceptional talent. We've been lucky to have him. He's done an amazing job. One of the things -- and I think maybe the thing he does best is build and really grow an outstanding team. We've got a lot of talent. I mean Blake Wakefield is the President of the business. He's been here since 2013. He’s completely conversant at the business across all the different disciplines, knows the retail partners extremely well, knows the strategy extremely well. And there's just a lot of depth and breadth from a team perspective. I know Ryan said that earlier, and it's really true. So he has definitely positioned the business to continue to perpetuate its trajectory. And that's what we're -- couldn't be more appreciative of that, that kind of development, that infrastructure development that Ryan has put in place that allows the business to continue on.

And John, sorry to not be able to hear you on a quarterly basis too, but glad you're staying on. For Steve and Douglas as the CEOs of the businesses, if maybe you could speak to, I guess, what your focuses are going to be going forward as separate companies and any strategy, any particular focus that you see going forward? And that's it from.

Yes. This is Douglas, Vincent. So I mean in the Aaron's Business, not much changes. I mean our strategy is consistent with what we've been doing. We have a large, resilient customer base, and we feel like we've got a little wind at our back from a macro standpoint, so we're really excited about that. We really believe in our compelling value proposition for our customer, which really starts with superior pricing relative to our competition. We now can approve more customers than just about anyone else in the marketplace. And we've got this embedded service advantage with our stores and our supply chain versus supply chain, which is we believe really compelling. If we can layer on top of that digital enhancements like centralized decisioning and our e-commerce platform and all the other advancements that we're doing to simplify and improve the customer experience, it’s really compelling. And so we're pursuing a longer-term real estate strategy, which we think adds to that and provides positive cash flow and earnings growth to the overall mix of the business. So when you put all those things together and then look out at the second half of 2020 and our outlay going forward, we couldn't be more optimistic about the business and the benefits for shareholders.

Yes. Vincent, this is Steve. I mean I would just add basically what John said, that I’m very excited to be joining this really strong team that is executing at a very high level. And the strategy is sound. We’ve got this very large -- largely unserved massive market. We’re the leader, and we will continue to invest in technology and innovate our product and for the betterment of our customers, both current and future and retail partners and continue to spread and increase the buy-at-least-own paradigm at retail both online and in-store. We’ve got a great business model that’s cash-generative at high growth rates and a short-duration portfolio with great visibility for us to be able to be nimble and react to the things that we’re seeing in the marketplace. So the strategy will evolve over time, just like it has over the last six years, but it is working, and we’ll be doubling down on it.

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

Thank you for participating on our call today. I would just like to reiterate how much I appreciate our team members' hard work over the past few months. It's definitely a challenging time, and delivering such strong results in Q2 is exceptional. I'd also like to again thank Ryan Woodley for all his contributions to Progressive and wish him the best of luck in the future. Lastly, I'd like to reiterate how excited I am about the announcement today and the opportunities ahead for Progressive and Aaron's. Thank you, again, for your participation on the call, and we look forward to updating you on our progress.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.