Good morning. My name is Elisa, and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aaron's, Inc. First 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. First 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; and Steve Michaels, Aaron's, Inc., 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 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, 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, 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 will now turn the call over to John Robbins.

Thanks, Mike, and thank you all for joining us today. The world is currently confronting the COVID-19 pandemic, which is creating serious public health issues and inflicting economic damage beyond what most of us have ever experienced. Having been in business for over 65 years, operating in times of uncertainty is not new to Aaron's. The company has navigated the aftermath of many natural disasters and numerous economic cycles. Through these difficult times, Aaron's has persevered, innovated and thrived. With the safety of our associates and customers as the top priority, our team is laser-focused on successfully managing the business through this crisis and positioning it to succeed after the pandemic passes. Aaron's purpose is to provide access to life-enhancing products for our customers with compassion and respect. Never has this purpose been more important than during this crisis, and never have our associates who execute this purpose been more heroic. Whether it is a refrigerator or a laptop, Aaron's is enabling customers to get the products they must have in a critical time of need. I am humbled by the dedication and compassion our teams have demonstrated to each other, our customers and the communities we serve. We have made considerable efforts to get back to our communities during this crisis. Of particular note is the Sew Happy to Help PPE project that our Woodhaven Furniture team launched in mid-March. The Woodhaven team, led by Tommy Harper, quickly transitioned from furniture manufacturing to the production of personal protective equipment. Through the month of April, we have manufactured and donated nearly 65,000 masks, 20,000 medical gowns and 500 mattresses to medical and elderly care facilities, police and fire departments, and homeless shelters in Georgia, Texas, Florida, Nevada, Massachusetts, New York and the Navajo Nation. In addition, through our partnership with…

Thanks, John. I'd like to begin by acknowledging the remarkable execution of Progressive team during these challenging times. Over a period of just a few days in mid-March, we transitioned our entire workforce to work from home without any system or operational downtime. The team's resilience and efficiency in overcoming unprecedented logistical challenges, including managing through one of the worst earthquakes in Utah in the last 100 years while transitioning to work from home, enabled us to maintain high levels of uninterrupted performance for our customers and retail partners. I'd also like to acknowledge our retail partners for their continued collaboration as we have worked together to develop innovative solutions, including e-commerce and curbside alternatives to assist our customers during this difficult economic climate. Today, I'd like to provide detail on our performance for the quarter overall as well as to share insight into COVID-related trends that we've observed in the last half of March as well as into the month of April. Through March 15 and prior to the full impact of COVID-19, Progressive posted better-than-expected financial results as reflected in the fact that our revenue, gross margin, customer payments and EBITDA all performed ahead of our original expectations for 2020. We executed well at our recent national launches, and overall invoice volume was trending in line with the plan. Net revenues in the first quarter overall reached a new record of $658.5 million, an increase of 25.8% compared to the first quarter of 2019. The revenue performance was driven by continuing strong invoice growth, including an increase of 13.4% in the first quarter. Of note, invoice performance had been trending at a year-to-date increase of 20.7% through March 15, when the closure of thousands of retail doors, particularly in the electronics, jewelry and mattress categories, resulted in an…

Thanks, Ryan. I, too, am extremely proud of the exceptional dedication and contributions of our Aaron's store and store support center team members during this crisis. I want to thank Ryan Malone, our Head of Stores; Rob O'Connell, our Head of Human Resources; our divisional vice presidents and all of our multi-unit and in-store team members for their support of our customers and communities during this challenging time. On March 20, we closed all of our corporate-owned showrooms and converted to a curbside and e-commerce-only model. We made the decision to close showrooms with the safety of our team members and customers as our top priority, while doing our best to provide essential products to our customers during this crisis. The feedback from our customers has been tremendous. And I'm proud of our team's resourcefulness, positive attitude and desire to take care of our customers whose lives, in many cases, have been turned upside down. There is one point I'd like to emphasize. Given that we are classified as an essential business in most jurisdictions, we could have continued to operate with open showrooms. However, at the onset of this pandemic, we made the decision to close showrooms to protect our team members and customers, while we determined what new safety protocols we needed to implement to operate in a safe manner. In addition to closing showrooms, we made other significant changes to our store operating practices at the onset of this pandemic, including reducing weekly operating hours by more than 50%, furloughing 100% of our sales staff, processing new orders and payments at the curb side of our stores, suspending all in-home activities with deliveries and returns to the door only, and implementing COVID-19 payment relief programs for our customers affected by the pandemic. Needless to say, making these…

Thanks, Douglas. Let me begin with a few items before moving on to our first quarter financials. First is our goodwill charge. During the quarter, we conclude that the significant decline in the company's stock price and market capitalization during March 2020 triggered the need for an interim goodwill impairment test for the Aaron's business segment. The company engaged the assistance of a third-party valuation firm to perform the interim goodwill impairment test. This included an assessment of the Aaron's business reporting unit's fair value relative to its carrying value. Fair value was derived using a combination of income and market approaches. As of March 31, the company determined that Aaron's business goodwill was fully impaired and recorded a goodwill impairment charge of $446.9 million. Next, in the preliminary proxy filed in early April and again in the final proxy filed this week, among other things, the company requested shareholders vote to give our Board and management team the discretion to implement a change to a holding company structure. The requirement for a shareholder vote is necessary in Georgia, where we are incorporated, but would not otherwise be required were we incorporate in Delaware as many companies are. We believe this holding company structure could facilitate future corporate actions and provide greater operational and financing flexibility for Progressive Leasing and the Aaron's business. On a consolidated basis, revenues for the first quarter of 2020 were $1.1 billion, an increase of 8.8% over the same period a year ago. Adjusted EBITDA for the company was $98.5 million for the first quarter of this year compared to $115.2 million for the same period last year, a decrease of $16.8 million or 14.6%. Adjusted EBITDA was 8.9% of revenue in the first quarter of 2020 compared to 11.4% in the same period a…

[Operator Instructions] The first question today comes from John Baugh of Stifel.

A few quickies here. One, could you just tell us what the $14.1 million marketing contract you terminated was about?

Yes, John, it's Douglas. As you probably remember last year, we went through a process of looking at our demand side of the business, which was really on how do we drive the increases in marketing in the third and fourth quarter last year. As part of that, we -- I think we explained last year, we drove a lot of volume, but we had some collection challenges in the fourth quarter. We got back -- that back under control in the first quarter, and we're doing really well, and then COVID-19 hit us. And at March 31, it became clear to us that with our showrooms closing and our sales people furloughed that we weren't going to get a future benefit from that engagement. So we took the write-off in the quarter.

And then I'm curious on either side of the business, whether or not you relinquished at all the tightened underwriting decisions you made in the onset of the pandemic?

This is -- John, this is John. Good question. No, we -- across all our businesses, we tightened in the latter part of March and maintained that. We continued to maintain that approach. Now despite the fact we did see improving customer payment performance, particularly in the back half of April, but we've maintained that more conservative approach.

Got it. And John, are you seeing a higher quality of applicant in either side of the business from any changes in tightened credit above you yet? Or no, that's not the case in light of the underwriting decisioning again?

Yes. I mean, we -- and Ryan, you can feel free to jump in after me. But what I would say is we definitely heard -- we've heard out there that there is tightening going on in higher FICO bands for sure. But we haven't necessarily seen it across the board. Perhaps we've seen it in pockets on the progressive business. In the Aaron's business, obviously, we don't have the same visibility. We've seen good demand return in the stores that we have reopened in the back half of April. But what I would tell you is we've heard that. But given how short -- it feels like this has been 2 years, but it's been really 8 weeks that we've been dealing with this pandemic. And so I wouldn't feel comfortable saying there's any sort of trend that's developed there thus far. But clearly, to the extent tightening happens above us, and there's less availability of options for customers, that could be a tailwind for us in the future. But we're not ready to say that there's any sort of trend there yet, just given how early we are in this process.

And then Ryan, could you tell us your retail partner base? I don't know. What -- obviously, they were 100% open, and they went to some percentage closed, and then they're in the process of reopening. Any help with where we are, where we went down to, where we are today? And then kind of give us an update again on your verticals there roughly in terms of percentage?

Yes. Happy to do it, John. So as you might imagine, we saw the most impact where stores and showrooms were closed, particularly in our jewelry, electronics and mattress verticals. Some of the work we did there with some of our partners that I alluded to in the prepared remarks like working on e-com and curbside service alternatives helped to offset the impact that we obviously would have otherwise seen. But that was where we saw the most negative impact is where the showrooms were closed. Obviously, we did have some who remained open throughout the pandemic, either because they were -- well, in almost all cases, they provided essential services. In all cases, it provided essential services and needed to stay open, and we saw continuing activity out of those and less of an impact. So in -- I'd say, a few trends we're seeing take place across the portfolio. As you think about where we're at in the evolution of the pandemic, obviously, there's a ton of uncertainty about where we go from here. But we are seeing, as you know, state and home orders begin to be lifted and retailers responding to that by beginning their reopening process. We're seeing that -- the beginnings of that in jewelry and electronics. And we're also seeing the early signs of the impact that's having on customer activity, customers getting out. It's really difficult to disaggregate that from the general increase in the demand we have seen as a result of the stimulus. But that's obviously encouraging some demand that hadn't otherwise existed, and those are happening somewhat simultaneously. So in summary, we're seeing a return to demand, so positively increasing trends as we move through that March 15 to April 15 period. And then from April 15 to present has been sort of a gradual improvement sequentially as influenced by those factors.

The next question comes from Bobby Griffin of Raymond James.

The first question I had is around really the core business. And maybe can you provide a little color on the ability to scale back up some of the cost as demand returns? And how are you approaching that as stores are coming back open now, but the volume is not quite back to trends that you might have been used to in the past?

Bobby, this is Douglas. Thanks for the question. So first of all, we're trying to control all the expenses we can control. We've suspended a lot of the discretionary spend, let's say, at the corporate level, we suspended merit increases. We're working with our landlords on rent. We're taking a hard look at all of our discretionary spend. As you know, on a temporary basis, we took out a lot of costs. We furloughed roughly 2,000 employees in our stores and about 400 of our team members in our corporate office and our fulfillment centers. And so as business returns, I mentioned in my prepared remarks, about 85% of our stores are back open. We are bringing back on our sales force. And so far, those stores that we brought back online, we're seeing demand rebound or revenue written into the portfolio, which is our leading measure of sales effectively appears to be rebounding in those. So we definitely want sales teams on our floors to capture that demand. Collection volumes are up. So we need the labor in the stores to manage all that. We are, however, monitoring store by store. So where we have lesser demand, we're scaling back on hours for our drivers in other areas where we can. But we want to be ready for the business, and we're being prudent about how we look at the cost structure.

Okay. I appreciate that. And then maybe as a follow-up to John's question. For the Progressive side of the business, can you just remind us on what regions of the country your retail partners are more heavily weighted in, either the Southeast or West Coast or anything that might help us think about the impact of stay-at-home orders modestly getting lifted over the next couple months?

Yes. Given the increasing weight of the portfolio toward national accounts, it really is a case-to-case, border-to-border presence across our partners with what's been a traditionally stronger weighting towards the south and in the southeast in terms of just penetration of rent-to-own generally. But we're experiencing the sort of same patchwork of return to activity that others are as you look at varying state interpretations of federal guidance and return to general levels of returning to activity. So it's going to be sort of a patchwork of that as we come through, but the net effect of it is increasing return to kind of growth.

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

Just jumping right into it, Ryan, I wanted to talk a little bit about the trends and invoice volume and making sure we're connecting it properly to how we think about the income statement. You gave a lot of numbers in your prepared remarks about the invoice volume having been up over 20% and then down over 20% and then improving. So I guess, are these basically like weak increments you're giving us? And so are we sitting here with 2Q to date running down on kind of a weighted average basis? But that week-by-week, we're seeing growth. And so if the trend of the last week or 2 continues, we could see invoice volumes up for 2Q? Am I interpreting that right?

Maybe let me step back a little bit and sort of give a bigger picture and then we can zoom in for some of that detail because I think it will help with the context. So we had really strong revenue growth in Q1, that actually was the strongest growth we've had in 6 quarters. And the reason we had that strong growth in Q1 was obviously because we had seen such strong growth in invoice leading up to it, 34% in Q4. So Q1 benefited in large part, not only because of the uninterrupted January 1 to March 15 performance, but also because it was coming on the tail of such strong prior invoice growth. So that really aided Q1 performance, obviously. And then the drop-off in invoice only had so much time to impact Q1 results. So Q2 will experience the brunt of the impact of the invoice reduction versus plan. And that will begin to more significantly impact revenue. But you won't feel it more fully until Q3 when you have the impact of a lower invoice in Q2 bleeding into revenue in Q3. So that's sort of the bigger picture of the trends that are influencing what you see an invoice and how that translates into revenue. What we are trying to do is give you a little bit more precise insight into what invoice was doing for the periods that John laid out because those are really the periods of movement and material movement. And we said through March 15, invoice is doing well, growing 21% year-over-year. And in that interim period of impact before stimulus at [ 3 15 ] to [ 4 15 ] roughly, it was down 26% year-over-year as there was a lot of uncertainty in store closures, show enclosures. And then when stimulus hit mid-April, through the year, we're kind of talking about trends capped at the end of April, mid-April, through the end of April, you saw that recover significantly from down 26 to only down 2. And I guess the insight that I just provided in my response to the prior question was, it's continued to improve from there now into the positive range. And that's -- that leaves us with quite a bit of optimism. I think the caveat we provided is, it's just impossible to know the extent to which that continues to be supported by stimulus and how much its stimulus tails off, we'll continue to see increasing return to demand just because we're seeing increasing returns to levels of activity as state home orders get lifted. Hopefully, that helps.

Got you. That's helpful. So if we were to extrapolate out the trends you've been seeing in the last couple of weeks, would it be reasonable to think that, that invoice volume could settle out to being somewhere in the neighborhood of flat for 2Q in a world where, again, you've added new doors year-over-year and the partners you're working with are starting to reopen? Or is that just too much of a hole to dig yourself out of after a tough period of time at the end of March and the beginning of April?

Yes, I think it would be perhaps unrealistic to think that you'd overcome being down 26% for that period. Not providing specific insight on guidance for Q2, obviously, because so much is so yet unknown, just a comment there is I think the biggest impact I expect to have to current Q2. But again, caveat. There's still a lot of uncertainty out there about how this plays out. We're just cautiously optimistic.

I appreciate that. Just making sure we're all getting on the same page on how to connect the dots on some of these numbers. Maybe just lastly for me, if we could -- if you could give us a little more context on the bad debts and the write-offs? And I know there's a lot of unknowns here. But can you remind me, does that -- if you're experiencing elevated bad debt, is that going to result in us needing to take a bigger haircut as we try and triangulate the invoice volume into a revenue number in our models? And then, I guess, is there anything that you would think at this point in terms of the likelihood that the -- your ability to collect gets better or worse with what you're seeing here [ really ]?

So on bad debt, we -- obviously it doesn't get as much attention now that it's factored into our presentation net revenues sort of above the line. But just since you brought it up because of the impact that it has on the translation from invoice to net revenue. So for Q1, bad debt was, I believe, 10.4% of gross revenues compared to 9.7% last year. But if you back out the effect of that incremental provision on bad debt, it was 9.8% of gross revenue, meaning that as we book the provision in the ordinary course accounting for current levels of delinquency, it would have been 9.8%. So just right in line with last year. So we're saying, as we package Q1 and report out on it, we're right in line with where we were last year, reflecting current levels of delinquency. And so you step back from that and then say, is it reasonable to assume that payment trends will continue as they will in light of increasing levels of unemployment and other macroeconomic trends? It's unlikely that you would expect to have no impact whatsoever on our customers' future ability to pay. And so we're trying to reflect that in these incremental reserves that we've booked. So the idea is that when you do that, you're sizing it appropriately so that you don't need to further build that reserve in the future. But it's impossible to do that exactly right without knowing the future, obviously. So we make our best guess. And obviously, if we are a little conservative, we'll leave that reserve over time. If we're a little aggressive, we'll have to build it. But the goal was to get it as close to accurate as possible. It's close to an accurate representation of the potential future impairment.

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

Two quick questions. First one just in terms of e-commerce, just any kind of update there. I would expect that you probably saw a pickup with shelter in place in which the showrooms closed, but would love any update you can provide there.

Yes. Anthony, it's Douglas. So we've seen a big pickup in e-com over the last quarter as you would expect. More of our existing customers, customers who were previously going into our showrooms were doing business online in April with our stores closed. Interestingly, as we begin to reopen stores, we saw that e-com traffic continue to be up and accelerate towards the last part of April. So even in the states where we're opening, we're seeing a lot of strength in April, at the last part of April, and that's continuing into May in e-comm. So we're really happy, really happy we had all the framework in place and the technology in place. I think we get better and better at that every day, seeing higher traffic on our site and higher conversions. So really proud of the team. And too early to tell if that's going to be sustained, but we're happy with the performance so far.

Got it. That's helpful. And then just a quick follow-up. Is there anything that you're seeing on the virtual part of the business or the Progressive part of the business in terms of the competitive landscape? I just think that -- obviously, we've talked many times about the fact that you have dozens and dozens of these little sort of competitors, a lot of them are backed by private equity, and I would have to imagine they'd be suffering mightily in this environment. But I was just wondering if there's anything that you guys were hearing out there in the channel.

Yes. I appreciate the question. We may have heard similar rumors about difficulties being experienced by others in the market. But we've all had a lot to focus on over the last 8 weeks. And I would say it continued -- there continues to be pretty tough competition in the market. And we wouldn't be doing the right thing if we didn't continue to take that seriously, which is one of the big reasons why we haven't pulled back on some of our important investments and growth initiatives like e-com and mobile as we move forward, even in this environment, because there's just so much potential out there. And look, the fact that there's -- I think we should expect to continue to see strong competition, and that's just a natural result of a really large remaining market opportunity. Just -- not just share shift, but greenfield that remains out there. Retailers who have not yet implemented rent-to-own and the significant portion of 1/3 of the U.S. population that could still benefit from rent-to-own because they're underserved. So I think that's going to continue to support strong competition in the market, and we're investing to maintain our lead.

Got it. And if I can just sneak one more, and I hate to be that guy. But just reminded me something that you said. Have -- what do you see in terms of the pipeline, particularly given the fact that you have a lot of retailers who are obviously struggling mightily? I would think that, that would be helpful to you in terms of building out the pipeline. Maybe they're a lot more receptive to adding nonrecourse to rent-to-own solution, given the current sort of macroeconomic headwinds? I promise that's my last one.

That's a good question. We debated this at the onset of the pandemic because there were these sort of competing factors. One, there was just the level of uncertainty and what that would do to folks' desire to make plans and make investments, sort of offset by the strong desire to serve a customer who was going to benefit from the flexibility of lease-to-own and knowing that there would be tightening above us and that may be a tailwind going forward that, that might further increase demand in the pipe. So I may have been -- I may have thought it would slow down more, but it actually hasn't. As I sit here today, I think the pipeline looks better today than it did in early March. So I'm really happy with where we sit right now. We've already had a couple of wins and continue to be optimistic about the potential future growth that could come from those.

The next question comes from Bill Chappell of SunTrust.

I guess first question just on the Progressive side. Trying to understand if, and I realize it's too early to tell, but kind of your retail customers, if you see any risk out there of them going away, some of the smaller ones or struggling ones and if you've kind of factored that in over the next few months. And then conversely, again, I understand it's early, but typically, this is a time where retailers are looking for incremental dollars over the next few months. And so have you seen more interest as some are coming back to you who have been in project mode or what have you and wanting to move forward?

And by interest, you mean pipeline activity? Or do you mean among...

Exactly. Pipeline activity that's maybe people have pushed you off in the past, but now say, hey, this does sound like something, especially if we go into a recession that we could want to add to our business. If it's heated up or again, there's been so much turbulence, it might be too early for that.

Yes. So it's a decent-sized pipeline. So there -- I'd say there are puts and takes inside of it. But on the whole, I'd just reiterate the statement that I feel like it's -- I'm more excited about it now than I was in early March. We've had some wins. And I'm excited about the growth that could come from stuff that we have moving through the pipeline. So it's better than I expected, heading into COVID, which is a good position to be in. And then, I'm sorry, Bill, what was your first question?

Just with regard to the health of your existing customers. Are you worried about any of them going under?

Oh, got you, the partners. We have a base of several thousand partners. So I expect that we'll see the gamut of sort of outcomes from the pandemic, and I guess it would be naive to say that across several thousand retail partners that we wouldn't have any that go out of business, especially in the long tail of those partnerships. So I imagine that will occur down there. But where I sit today, I feel pretty good about the strength of those partnerships and the ability to generate future growth.

Got it. And Douglas, just any kind of early read for -- in the showrooms that have been reopened? Have you seen pent-up demand? Have you seen people actually show up? I mean I know it's -- in Georgia, we're kind of leading-edge on these things, and people are ready to get out and about, and so just didn't know what you've experienced so far.

Yes. I mean I think we -- I think Brian and I both did some work on the call of really breaking it up in time period. So I'd say after April 15, checks began to come out and we began to open showrooms on April 23. So what we saw was a surge in customer payments that lasted to the end of the month, and we're continuing to see that going into May. So that's positive, a lot of cash coming in the door. Customers have a lot of cash. And they're buying, and they're making their payments, which is encouraging. So our deliveries have been strong in the stores that we've reopened. We've got a phased reopen going on, and we're -- that we initially opened 2 states, then continue to open up to 85% of our network. In those stores that we've reopened, we are tracking to our original plan that we put out at the beginning of 2020. But probably more importantly, we're driving a lot of e-com. So e-com is way up, as I said in my prepared remarks, in the month of April. And that as a percent of our total deliveries is a significantly higher number than it's been in the past. So we're really bullish about that.

One thing I'd add to that, Douglas is exactly right. The only thing I'd add is, interestingly, even in the stores, the showrooms that have reopened, Bill, as you remember, e-com, we service through our stores. And so the e-commerce remains strong in those. So even after the showrooms open, which is an encouraging sign. We don't know what -- as Douglas said earlier, we don't know if that speaks to a trend. But it's an interesting fact that the e-com business has been strong and remains strong even when the showrooms have reopened.

The next question comes from Kyle Johnson (sic) [ Joseph ] of Jefferies.

Most of my questions have been answered, but just a few follow-ups here. I'll start with Ryan, if I may. Ryan, can you give us a sense for the revenue breakdown at Progressive between e-commerce and brick-and-mortar and how you see that trending over time? And then on that note, can you give us any sort of update with the new nationwide retailers you partnered with, where you are on being able to offer an e-commerce solution there?

Sure. Happy to, Kyle. So we don't split out e-com or -- from brick-and-mortar when we talk about results. But I will offer the insight to add on to what Douglas had shared earlier. We're seeing similar trends. So among our native e-com partners, we're seeing strong performance, especially in the context of COVID. As you can imagine, they're benefiting from that shift to online and doing very well. And even among our omnichannel providers, we're seeing the same thing. So we're seeing very strong double-digit increases in application volume through those channels, which is a really good thing to see. And if there was -- it's maybe inappropriate to say, but if there is a silver lining in a crisis like this, it's been the significant focus on accelerating digital initiatives across our portfolio and among some of our larger accounts, there's -- there was a focus prior to COVID, but this has served as a catalyst for their focus and investment on getting those new sources of application, new integrations developed. So that'll be a silver line coming out of this is the advancements that we're going to make on that front. As you know, that's an area we've been investing in for quite a while now, and we expect it to be a significant component of our future growth and the trends we're seeing are positive and the advancements that are being made on that front are likewise positive. And then on your second question on national partnerships. I mentioned in the prepared remarks that up until March 15, tracking right in line with expectations going well, great relationships with those partners. And the only thing that's changed is the deflection in invoice growth among some of them as a result of closed stores and/or showrooms. Those that have remained open are doing well. And I feel like we're seeing -- I feel like we are seeing increasingly positive trends there, and I expect that to continue.

Got it. And then one follow-up for you, Ryan. I think I know the answer, but I'd rather hear it from the horse's mouth. Given the invoice volume you guys had in January and February, I think you said it was just north of 20%. Obviously, that's down versus the fourth quarter. Is that more driven by retailer seasonality than an actual -- what drove that? My guess, it would be retail seasonality.

Yes. You got it. That's it. The Q2 is just a good season for big categories like electronics, even mobile and jewelry, they're doing well in that period. And so it was just going to be that irrespective of COVID.

Okay. That's helpful. And then last question for me. Over to Douglas. Sitting back with, call it, a month plus of store closures and looking at your performance during that time, has it changed your perspective on the long-term outlook for the number of stores or potential consolidation activity? And given the success of the e-commerce platform, any sort of long-term outlook changes you've seen there?

Yes. I mean, listen, the way we're thinking about it is we're taking effectively a digital-first strategy, where we're trying to do things in the business that we can scale quickly. I think RTO was a good example of that. How do we like put things at scale in our network and drive a better customer experience, control decisioning, control risk and have a better outcome for us. So with the digital-first sort of focus comes sort of this competitive advantage we have with stores, we believe that we really should have fewer stores in the network, but higher volume stores. And so what you'll see from us going forward is more, I would say, 2-store-into-1-store type moves. We think we can do this at a lower cost, drive greater earnings and have really good cash flow dynamics from that.

The next question comes from Vincent Caintic of Stephens.

So first on the Progressive. I just wanted to follow up on some earlier -- on an earlier question. Just on the number of doors that are open, I guess, if you could maybe let us know when volume was down, I think the worst was 26%, when it was down at that level, how many doors were closed at that time? And then where are we now? And are there any sort of discussions you're having with your retail partners, where it seems like maybe 100% of the doors might be opened by, let's say, summer or so? Like any sort of a forward look there?

Sure. Yes. We don't have exact counts just because of the volume in the tens of thousands, it's hard to track that discretely by period. But I'll just give you an example of the key movers. So in our jewelry vertical, obviously, those showrooms were closed entirely. Many of those in mall-based locations where the entire mall is closed. And while the vast majority of those remain closed to this day, we are seeing the beginnings of reopening there. Now we're in the early stages of that, and I expect that to continue gradually to reopen, again, in response to the lifting of state home orders. Electronics is another example where showrooms were closed, and there was a lot of curbside service worked on to facilitate curbside service, and I expect that will move to gradual reopening process with limits on the number of people allowed in the showroom and then that eventually evolving into open showrooms. But those 2 examples are examples where showrooms remained closed. But we are -- we have already seen the beginnings of the reopening process, and we expect it'll reoccur gradually; that's not going to be a 1 week to the next, as you pointed out. It'll be over a period of several weeks. But in spite of that, we're seeing that recovery in invoice, which is what's interesting. So it's obviously being driven by several factors there.

That's really helpful. Second question, I'm sure both on the Progressive side and on the Aaron's business side. Just wondering what sort of levels are baked into the reserves that you're taking, I guess, not necessarily a forecast of how bad can reserve -- can bad debt get, but sort of what's -- what levels can you absorb and be fully covered by your existing reserves? And maybe relatedly, do the reserves bake in any thoughts about depreciation rates and how you're thinking about return to inventory volumes, so pickups of volumes?

Yes, Vince, this is Steve. I mean as we said in the prepared remarks, and as Ryan said, we obviously looked at the balance sheet dated March 31, we looked at our lease impairment reserves and our bad debt allowances and decided or made the determination that it was unlikely to assume that COVID would not have some impact on the future. And once you make that kind of -- from an accounting standpoint, you make that potential impairment analysis, then you move on to like, well, how do you quantify it and you have to probability weight different outcomes. We've got this government stimulus that we don't know how the immediate $1,200 checks and the actual checks are going to continue to play out. We've got enhanced unemployment benefits that currently last until the end of July, but there's -- we have no knowledge of whether those will be extended. So we just had to use all of the information that we had available to us, along with the actual results that we've been seeing kind of post the quarter and make our best determination about potential future outcomes. As Ryan said appropriately, we're not going to be right, right? Because we don't know the future. But at the time, our best estimates were to take these incremental reserves, and they were basically applied against the valuation of the lease merchandise that we have on the balance sheet and then the amount of the AR reserves or the AR that we have on the balance sheet. So it's not reflected as a percentage of how many customers we think are going to go bad or anything like that. It's just -- it's an overlay against the reserves that we would have had anyways based on the information we had available to us when we were making the decision. And then obviously, part of the reserve is a CECL reserve, which refers specifically to our Vive business, which is a second look credit provider that partners with banks, and we had to adopt CECL as of January 1. As you know there, we had about a -- historically, we ran about a mid-teens provision expense under the previous provisioning method, and after adopting CECL, we expected that we'd be kind of in the low to, call it, mid-20s, and we were after we took the day 1 retained earnings charge from the adoption of CECL. Because of macroeconomic factors related to that CECL calculation, we ended up taking additional reserves in the quarter that put us into the low 30s percent from a provision expense, and that is heavily weighted on future expectations of unemployment rates and GDP. So that was about $7 million of the additional incremental reserves that we took.

Okay. That's very helpful. Maybe have you seen a lot of returned items or request for returns by customers?

This is Douglas. We've actually seen lower return levels in the first quarter and going into April than we have experienced historically. And I think there's multiple reasons for that. I think we're working with the customer more through this crisis and making sure that they can stay on the product and that we fulfill our value proposition for being flexible with them. Second is that the customer is really not trading out product right now. A customer rent-to-own typically will buy something and then trade up or trade out into something different. They're just not leaving their homes right now. And I think lastly, there's just more liquidity in the market. So customers are able to stay in their payments longer and get towards ownership. So we don't expect -- I expect to see lower returns over the near term as liquidity is in the market, and the more payments they're making in their leases, I think, more likelihood that they go to -- further into ownership.

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. I want to thank our associates, franchisees and retail partners for your commitment to serving our customers during this time of crisis. It's definitely been a tumultuous period. And our sympathy goes out to all of those who've been negatively affected by this pandemic. We thank you all for your participation on our call today, and we look forward to updating you again on our second quarter call.

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