Q3 2019 Earnings Call

[noise] good morning, and thank you for holding welcome to rent a center third quarter earnings Conference call.

As a reminder, this conference is being recorded Thursday November seven 2019.

Your speakers today are Mr., Mitch the Dallas, Chief Executive Officer of rent a center.

Maureen short Chief Financial Officer.

Daniel Overwork senior Vice President Finance.

I would now like to turn the conference over to Mr. Overworked. Please go ahead Sir.

Thank you James Good morning, everyone and thank you for joining us.

Our earnings release was distributed after market close yesterday, which outlined for operational and financial results.

Fourth quarter of 2019.

Related materials, including a link to the life what a cab.

Our available on our website at Investor day awareness Anadarko.

As a reminder statements provided on this call.

These statements, which are subject to many factors that could cause actual results to differ materially from our expectations.

One of center undertakes no obligation to publicly update or revise any forward looking statements.

These factors are described in our earnings release issued yesterday as well in that companies 65.

I'd now like to turn the call they will diminish.

Thank you Dan Good morning, everyone. Thank you for joining up.

[laughter], providing a more so one of the presentation shown on the webcast if you're unable to view. The webcast presentation can also be founded investor Dot rent a center dot com.

Hey, why a strong quarter with numbers in line with our internal expectations and I'll provide an overview on <unk> quarterly results in an update on our strategy and then turn the call over to marine.

So fundamental execution resulted in another good quarter would progress on both the top and bottom line.

Third quarter consolidated same store sales increased 1% and adjusted EBITDA was 56.6 million.

An increase of 7 million versus last year.

To your consolidated same store sales increased 10.2%, which speaks to the stabilization of our business and third quarter. Adjusted EBITDA was up 14.8% over much of your won't EBITDA margins expanded more than 100 basis points.

<unk> performance is result of executing our strategy are turning around the business from a cost savings and the more compelling value proposition.

So one of the core U.S.

Driven by the value proposition changes and our ecommerce growth.

Core same store sales increased 3.7% inline with our expectations in our to your same store sales.

Increased 8.9%.

She is impressive for any retailer.

And when revenues were down 3.3% year over year, largely due to re franchising in store rationalization. In fact, when you exclude the impact of Refranchising. Your revenues were 1.1% higher than last year.

Our portfolio on a same store base is finished the third quarter approximately 3% higher than last year, a good leading indicator for future same store sales expectations.

Mine traffic increased approximately 22% year over year, continuing the trend we've seen all year.

Web orders represented about 14% about at least on agreements originating in the quarter, which will equate to approximately 17% of our revenue.

Over 80% of a well distributed agreements are coming from new customers give me confidence in our ability to continue our stores and our E Commerce business and you can see I'm the churn the bottom right of slide number three words historical highs for customers per store.

As a result in a positive momentum adjusted EBITDA improved $8 million or 15.2% the same period last year.

Lastly on a core business these days and after a lot of tariff any any tariff impact on our product purchases and I'm pleased to report.

Based on who and where we get our products from today, we have seen virtually no impact from tariffs nor based on a tariffs that had been announced do you foresee any future impact from these terrorists.

So moving on to our acceptance now business, which does include the results of merchants preferred and then decide whether we sometimes also referred to as our retail business.

Our enhancements the value proposition any acquisition of merchants preferred drove invoice volume of $129 million for the quarter, 19% higher than last year.

Same store sales increased 6.2% for the quarter into your same store sales increased an impressive 12.8%.

Our skin tone losses acceptance now improve sequentially for the third consecutive quarter to 8.9% of revenues 70 basis points lower than last quarter.

So it's early to progress.

Great and merchants referred as so far exceeded our expectations.

Today, we've integrated the sales team.

Much of the call center identified enough started to realize $3 million to $5 million, an annualized synergies Oh on investing in additional sales talent to support spine girl.

Revenues for merchants preferred are on pace to achieve approximately $80 million annually as previously disclosed that even with the initial focus on integration.

Still managed to open about 200 merchants preferred location since the acquisition, which was closed in mid August .

Top priorities for the virtual business or in a position our sales team to capture the white space opportunity and show our platform and superior value relative to industry competitors.

Well also continue to refine and technology in order to meet the needs of our retail partners, where they'd be integrating in a point of sale system launching a mobile app for the hybrid solution and the hybrid solution you've heard us talk about before and when you talk about where we're talking about there the combination of the staff and virtual models, which can flight.

Sure staff during peak periods in transitional virtual our announced that model during wholesale time periods.

The hybrid models, you need to rent a center and something we view of the key differentiator for us in the industry.

We also have the goal planning additional national retail partnerships with our unique hybrid offering we believe will be an attractive partner for both large and small retailers I'm very excited about the virtual and hybrid growth opportunity I'm confident that will quickly become even more of a leader in this space.

With a virtual platform, becoming a larger part of our business works warring additional metrics to analyze the business in evaluating the best way to illustrate performance.

In future quarters will focus more on invoice volume and the schools active locations for this business.

We will also likely just continue reporting seems ourselves in acceptance now in the except the South segment next year is that's not strong him an indicator performance in a virtual E com world.

So we're moving our financial highlights and guidance I want to spend a few minutes discuss where where's the company.

We fit within the industry and some enhancements to our strategic plan.

It's mostly in over the past few years, we've been able to turn the business around following a period of performance.

I'm very pleased we've accomplished and where the company is today as we are stronger more stable company, where operationally sound with solid fundamentals and we understand the large customer base or by the dynamic leased on market.

With over 2400 brick and mortar locations rents I had the largest physical footprint in the industry.

It's competitive advantage by serving bank and I think customers and of course doors and acceptance out businesses.

We also have significant growth potential through our virtual and hybrid initiatives as well as e-commerce .

Our advantage business model generates recurring revenue streams and significant cash flow. We've got a pilot track record of optimizing cost in our conservative balance sheet enables us to both investing growth opportunities and provide shareholders value through dividends and potential share repurchase.

And by investing in merchants preferred we are again, transforming our company and meet the needs of today's consumer.

We're investing in a virtual platform and we'll provide a hybrid staffing model for our retail partners, which is a key differentiator for rent a center relative to industry competitors.

Calling attention on slide seven in our presentation over the past 20 years at least on industry has grown by approximately 4%.

On a compounded annual growth rate.

There are significant white space in the market through virtual and e-commerce platforms and additional opportunity to expand into multiple new product.

In addition, the industry is demonstrated resilience drew macro economic cycles, including recessions and you can see on this and the slide specifically performance at rents who did not alter during the great recession of 2008 back remain quite stable.

Well that conservative balance sheet and strong cash flow, we're making the necessary investments the capitalize on this growth opportunity and become more formidable competitor in the virtual leased on market.

As I mentioned earlier the industry is continuously evolving to keep up with with today's consumer historically, when you're serving the customer in our brick and mortar scores with on payment went outside payment transactions in a per employee customer relationship.

Industry also did we acceptance I was born almost 15 years ago to fill in need at one of our retail partner locations.

This increase our customer base and enable us to meet a newman underserved market.

And they were a multichannel lease don't provider, serving the customer with our ecommerce platform at rent a center dot com.

And were once again, expanding our presence in the virtual market with the acquisition of merchants referred on.

Spiritual gives us the the technology platform to continue serving in over 25 billion dollar market.

And with a turnaround behind us our strategy going forward, we'll focus on growing our retail partner business within the acceptance about segment.

Continuing to strengthen the domestic brick and mortar business your advancements in technology.

Growing in commerce, and maintaining a flexible capital allocation model that will maximize value for our stockholders.

Our primary focus is on the growth of our retail partner business acquired merger to prefer an accelerated our virtual strategy needs for a few months integration process progress has exceeded our internal timeline.

We have ample capital to grow the virtual business.

By providing our retail partners with the option of a step a virtual or mixed model as I said or the hybrid model, we differentiate from the competition because of our ability to serve a broader spectrum of customers including customers.

Additionally, we are well positioned to grow national accounts in ecommerce retailers for this platform and we will aggressively pursuing pursue this largely untapped market.

Within our stores and E Commerce business, we're focused on growing the top line and improving the customer experience.

We're taking measures to further optimize the brick and mortar footprint by testing some smaller technology enabled concept stores and we'll continue to implement cost savings.

Expanding into new product verticals, such as jewelry in tires and our stores is also expected to tap into a new customer base.

Additionally, we will continue to invest in our ecommerce platform, an online and mobile enhancements to improve the customer experience.

Over the past year, we've seen substantial growth from online consumers with higher traffic growing penetration and improved conversion trends.

I'm trying to spend our fastest growing channel represents a significant long term opportunity.

Our focus is to serve the lease some customer across multiple channels channel seamlessly through technology.

As you can probably tell we're extremely excited about the future and speaking of being excited.

Page 10 to reiterate what we've previously said we believe we grew our acceptance now retail business channel.

Over the next three years again by 2022, we expect to grow acceptance now merchants referred revenues to over $1.2 billion, an annual growth rate.

Approximately 15% an increase of approximately 400 million versus the current pro forma combined businesses.

We believe our goals will be achievable, given our improved capital position and ability to aggressively cells are respected pipelines.

As we move forward leverage hybrid model expand into new product verticals and as I mentioned earlier put ourselves in position to partner with more large national retailers very very exciting.

And with that.

I'll now turn the call over to Maureen for highlights on our financial results.

Thanks, Matt Good morning, everyone I'll cover some financial highlights for the third quarter provide an overview of our capital allocation framework and close with our guidance for 2019 before opening up the call for questions.

During the third quarter consolidated total revenues were approximately 649 million.

7% higher versus the same period last year.

Mainly driven by a consolidated same store sales increase of 4.5%, partially offset by Refranchising and rationalization of our store base.

Adjusted EBITDA was 56.6 million in the quarter, an EBITDA margin was 8.7% up 110 basis points over the same period last year.

non-GAAP diluted EPS was 47 cents.

48.7% over last year.

The special items in the third quarter total to credit of 5 million, which included a GAAP tax benefit related to the reversal of tax reserves for uncertain tax position.

Partially offset by debt refinancing charges.

Closure of certain core U.S., Doris and transaction costs associated with the acquisition of merchant preferred.

In our core segment.

Total revenues in the third quarter decreased 3.3% versus the same period last year, primarily data refranchising effort and rationalization of the core U.S. Darby.

Partially offset by same store sales increase of 3.7%.

During labour another store expenses decreased by 13.3 million over the same period last year, primarily driven by lower store count and cost savings initiatives.

Gets dollar losses in the core were 4.1% of revenue, which was 60 basis points higher than last year. Adjusted EBITDA in the core was approximately 59 million an EBITDA margin was 13.6% up 220 basis points versus the prior year.

Now turning to the acceptance now segment.

Total revenues in the third quarter increased 6.4%, primarily driven by the acquisition of merchants preferred and the same store sales increase of 6.2%.

During labor and other star expenses increased by 3.9 million over the same period last year, primarily due to higher skus stolen losses, which were 8.9% of revenue and inline with our expectation.

Adjusted EBITDA in the acceptance segment was 22.3 million.

EBITDA margin was 12.1%.

Mexico increased revenues by 4.6% in the third quarter and generated 1.3 million and adjusted EBITDA.

In the franchise segment revenue was 15 million in adjusted EBITDA was 1.1 million.

Corporate expenses in the third quarter decreased by approximately 4.2 million versus prior year, primarily due to the realization of cost savings initiatives.

Moving onto the balance sheet and cash flow highlight cash generated from operating activities with 228 million for the nine months ended September Thirtyth 2019.

We ended the quarter was 74 million in cash on the balance sheet and 260 million in debt, which was down 20 million since closing on the new credit facility during the quarter.

Our net debt to adjusted EBITDA continue to improve and ended the quarter at 0.8 time.

Even with the significant reduction in debt with the refinancing we have been able to maintain strong liquidity.

Which was 222 million at the end of the third quarter.

These results.

Illustrated in the liquidity and net debt to adjusted EBITDA metrics down in the graph.

In addition, the company recently reached an agreement in principle to sell as corporate headquarters after running a competitive sale process.

Due to the restructuring efforts over the past two years, a significant portion of the building was not being utilized presenting the company with an opportunity to realize material value by selling the building and leasing back a smaller footprint.

Net proceeds after taxes and fees are expected to be approximately 35 million and will be utilized to advance the company's dated capital allocation priorities of funding growth initiatives in the retail partner business and returning capital to shareholders.

Slide 14 lays out our capital allocation framework.

First priority is to continue to invest in the business with a focus on growing the virtual channel.

We are committed to maintaining a conservative balance sheet, and we'll take advantage of strategic opportunities as they arise.

During the refinancing and our improved financial performance, we returned value to our shareholders through the introduction of a quarterly dividend of 25 cents per share with the first declared in the third quarter and paid out in early October .

As previously communicated we continue to maintain the flexibility to buy back shares.

Regarding our guidance the company is reiterating a narrowing our annual earnings guidance and increasing our revenue guidance for 2019.

I'd also note our guidance does not include the proceeds on the sale of the corporate headquarters.

At all as always detailed income statements by segment are posted on our company website in the 10-Q for the third quarter will be filed by tomorrow. Thank you for your time today now I'll turn the call over for your question.

At this time, if he would like to ask your question. Please press star followed by the number one on your telephone keypad again, that's star one to ask a question, we'll pause for just a moment to compiled acuity roster.

Your first question comes from the line of Budd Bugatch with Raymond James.

Oh, good morning, Mitch Good morning, Marine Good morning, Daniel can congratulations on another solid quarter.

Ive a few questions if I could just let's just start at the core with the skips and stolen which were a little elevated from what I expected I know that.

Usually get higher skips and stolen in the second half a year, but before one I think quizzes was higher than I thought about it is there anything going on there that consumers are and how many investors should know.

No. Good morning, Budd This Mitch I don't I don't think there is our our range we want to be in the threes three to four I mean year years and years ago NCCN that recession resistant slide it was into twos, but for the last for this decade at least three to four spend era.

Our our range and so 4.1 slightly above that.

I can't say, we're pleased with being a 4.1, because it's also into three three to four range, but now there is nothing nothing there we can execute better.

It is really what we're focused on with the operations team and just slightly off I have a range of 4.1, but no. There's really nothing going on there other than we can execute a little better certain outlying market things like that and they're kind of normal running a running a business. So we just need to execute better, but there's nothing going out with the consumer than highway.

Okay.

And and getting into the detail in acceptance now all my notice that the cost of rental in fees.

I had increased about 300 basis points over the second quarter, and 600 basis points year to date till like 41.7%.

And the pricing multiple is actually come down to two for can you give us.

An understanding of what's going to and what would that looks forward to going forward and is there something going on in that area.

I think it's the changes to the value proposition, we made last year being fully in place.

The market place with wood necessary for our value proposition standpoint, and all the way we looked at it but.

Where are we.

When I came back last year, we cut a lot of overhead out of the business is.

We we took a lot over it out so we can improve the value proposition in both ends of the business courses charges in between the companies on when the inventory comes back and all that stuff. So there's some.

Stuff in between the corn acceptance now, but we we focus more on the overall EBITDA margin and when we could cut or overhead people not serving the customers and in some projects we didn't need to do the cuts we've made over the last 18 months improve the value proposition drive more customers have the same store sales were having in.

The overall have an EBITDA growth, that's really where we're focused on versus.

One line or the other and when we can add 110 basis points the EBITDA margin overall.

We feel good about that doesn't mean, we're not trying to get the losses, a little lower in each segment things like that or can we tweak the value proposition and get another tenant 20 basis point, you're there were always looking to do that but again overall.

We took cost side of business. So we can improve the value proposition. So we can get more customers and it's working and overall, we're real pleased with 110 basis point improvement on on EBITDA, having said all that yeah, I don't I don't think they get any any worse going forward in the virtual business.

Merchants preferred with more virtual business, you end up with a little lower gross margin, but ultimately get higher EBITDA, because there's no labor in the stores. So yeah, we don't get too hung up on on one line like I said virtual could even lower gross margin more but it's going to raise EBITDA margins overtime overall EBITDA margin. So we're really focused more on the bottom.

I understand that I just was curious if that's kind of a forward a way to way for us to kind of model.

Not particularly as we do model. It I was also curious if you could maybe share what the 90 day penetration in acceptance now in the retail partner program is right now whats the percentage of 90 day.

Though there are people that execute.

Yes that execute the 90 day options.

About a third.

About a third of all of our rentals and up and up paying out within.

90, or 100 days, depending on the retail partner.

Okay and last for me on the balance sheet is there a goal now to think about.

The level of debt so the debt to EBITDA, how to how to think about the leverage that you're comfortable with obviously the the balance sheet has a lot stronger character now going it's had in.

And going knows when but I'm just curious on how to think about that going forward.

This is more in the the way we're thinking about the balance sheet is we want to keep the leverage ratio below 1.5 times and as you can see we've been below that.

The last couple of quarters. So that we think of that 1.5 as somewhat of a Max of what we would go to.

Given the existing business and after post refinancing.

So were well below that so you really don't feel any pressure announcer to reduce debt anymore I'm, new should we should not just.

Do that because that's what you're looking at as well our priority is to continue to invest in the business. We believe the virtual opportunity will require some investment and and given the return on that investment that we're expecting that's our number one priority.

We have excess cash from there then were were potentially paying down debt further just to save on the the interest as you know the.

Interest, but lower interest from the lower debt balance will be $15 million to $20 million lever going forward and then we're returning capital to shareholders through our dividends. So those are our capital allocation priorities.

Thank you very much congratulations.

Good luck on the balance of the year and into next year.

Thanks, Thanks, but.

Your next question comes from the line of Kyle Joseph with Jefferies.

Hey, good morning, guys and thanks very much for taking my question.

First quarter.

On the core.

I'm not looking for any 2020 guidance or anything, but just from a longer term perspective, how you view that goes opportunities there.

Given where you are.

And the things in the Refranchising and.

Overall performance as a business.

On a year to year long term outlook for that.

Sure Kyle good morning, Ed.

We are where.

Our big growth vehicle, certainly its virtual and the accepting some are the retail partner channel, but we're also very excited about the.

The average age we haven't brick and mortar the way the E com piece, so thats growing you know we.

We use our stores is the final mile. If you will the couple of thousand sources the final mile for ecommerce it's growing.

Growing though as we talked about earlier, depending which specific much metric you want to look at its growing in the 20% range. We ended the quarter as I mentioned in the portfolio up about 3% year.

Year over year, which is a great.

Indicator of what same store sales going forward, but we would the way the E com as we see in low to mid single digit growth.

Moving forward for a number of years, we think that that opportunity to keep it where it is again in that low to mid single digit same store sales there maybe a little more refranchising as we talked about before count as you know, we're really using that now very opportunistically. The stores have turned around so we're not just.

Not just any stores are for sale things like that it's more opportunistic and.

Yeah, we're as I mentioned, we're going to test the view in 2020 tested.

Smaller footprint stores, because E com such a bigger part of our business technology is a bigger prior business can we.

Ken as as leases turned over it.

Can we prove to ourselves in a test that we can run a little less space and improve margins that way. This it's kind of a long term view, but maybe gastar somewhere we only have five year leases. So if that works and we can shrink square footage.

It's a five year plan that can add you know basis points every year to the to the mouth. So were the way E com going the way the web orders continue to grow we're adding some verticals as I mentioned like jewelry and tires testing right now jorion tires in our in our brick and mortar stores as well.

Added verticals on retail partner in the retail partner channel so.

That's a long answer I guess the short answer is we continue to continue to believe.

Low to mid single digit same store sales in the core business is doable for a number of years.

No I appreciate that that's that's great color.

From a a longer term perspective also thinking about.

Credit performance at the core.

Obviously you reference.

Loss rates used to be in there too, but that was more than a decade ago.

Now, they're kind of the three to four.

Impact the overall loss rates at the core.

You know were.

We've looked at that a few times in that it's very slight the difference between the E com customer and the brick and mortar. It is it is slightly higher.

We don't.

It's still a matter executing better the way, we approve the orders and so forth in tweaking the way, we approve the orders and so forth. So we're not we're not going to.

And with the word is let more e-commerce business raise that I'm. We just FX you better it is slightly higher but not enough to to say, we can expect higher losses going forward. We we just need to tweak some of our processes and get them back down under 4%.

Got it that's very helpful.

Q4.

Mine this morning looking through the press.

Miss anything but can you talk about so we had about a half a quarter of merchants preferred contribution this quarter. So just based on the $80 million Brad.

Is it fair to say that contributed about 10 million CD.

That is now segment in the quarter.

Merchants preferred contributed to the higher revenue within the third quarter for the acceptance now channel, we're happy with the performance of merchants preferred and Thats definitely helping with the revenue growth within acceptance now.

Got it.

And then I know you guys talked about sort of.

Disclosures from from that side of the business, but just wanted to be.

It's pretty clear, but none of the excepted style or sorry, none of the merchant preferred location for reflected in the acceptance outdoor accounts in the quarter.

Thats correct, yes, both in the store account or same store sales merchants preferred is not.

Is not included in those numbers.

Got it okay.

Mention sorry, Kyle as Mitch mentioned, we'll start tracking things like.

Invoice volume growth active store count some of those more virtual type of metrics going forward and Tyler maybe just add to that as we as I mentioned, we added a couple of hundred doors just in the couple of months, we've had I mean as you. It so as it shows on the slide about 75 of those were.

We're.

Acceptance low volume acceptance now locations and windows with those really worry you recall, we're running parallel as we're negotiating the acquisition, we've put our own virtual process out there and we just put it in a few stores can detect it remember we talked about we're testing our own as well those were out there in stores not doing any volume yet because we really had.

Hadn't put much meat behind once we bought merchants preferred we didn't have a team out there trying to sell so we converted 75 of those 200 other merchants preferred we convert over to merchants preferred where they have the team out there going back in the stores in keeping the doors active and things like that so that those 75 were pretty much dorman in acceptance now because we.

Just roll them out in there. It was just kind of sitting there. So that was part those 75 or part of that 200 growth, but overall.

What we're focused on integration had the pipeline is so full that we're still able to get those 200, new locations just in a couple of months since with goals, which you know when you close the deal I guess I think that's your priority day. One is that we got opened doors you.

Of course, you're always trying to grow we put your plan together to grow in integrating and so forth and that's just the indication of the opportunity there I believe.

Right.

Helpful. Thank you guys one last one for me Green.

<unk>.

On the sale lease back to the headquarters in those in the first easy reference there.

I'm sorry, what was on the sale leaseback timing the timing I'm, sorry, the timing will be.

The end of 2019 or early 2020.

Okay. That's it for me thanks, very much for answer on the question.

Thanks, guys.

Your next question comes from the line of John Rowan with Janney.

Good morning, guys.

John .

I just want to go back into capital allocation a little that.

With that.

The debt stands now looking at even just the free cash flow generated through the first nine months of this year mirror effectively and shouting distance.

Largely running your balance sheet is that in next year. If you chose to funnel free cash flow to debt repurchase.

I just wanted understand something so.

Given kind of that dynamic you know where is the tolerance for repurchasing stock and trying to figure out where we start modeling and.

Yeah. I think you said you 255 million authorized I just want to know where that stands in the stack next year. If you have $290 million or free cash flow you pay out $60 million of dividends how much debt you paid out how much can you pay down how much of that debt is a term loan versus revolving just walk me through what that looks.

Like next year.

Yeah, I'll I'll start and then let marine given the some of that detail about how that how did that split up what are our focus is certainly with the capital to grow the business and <unk>.

As we as we bought merchants referred to grow it the virtual business hybrid business as well to still some staff growth.

And it depends you know we need to make sure. We have room were especially big partners Big National partners that will take up some some cash some investment right. So as you grow the business. So growth is first and certainly we're committed to the dividend. We have already started that and share repurchases are on the board and we're now.

I can tell you that number we start buying stock but.

Yes, certainly, it's certainly presents an opportunity depending depending where the stock is than any particular point in time.

As far as how much debt, we can pay down and and so forth. The split is on the 260 is 260, but I'll. Let you go through that right. So we've got a revolver of 300 million and Weve bar 60 million on that revolver. So we have a lot of flexibility there and then 200 million on the term.

And we we have a lot of liquidity in like Mitts mentioned that the purpose of that are the reason for having that liquidity is it's really did try to grow that business, but in the near term if there's opportunities to pay down debt.

We'll take advantage of those opportunities to to lower the interest rate, but as much sense. There's.

Definitely the opportunity to repurchase shares going forward, if we two cities though.

Okay worry what is the what does the blended cost of debt going forward, obviously this quarter with the big reduction in the overall debt.

I don't want to.

Enterprise at a rate off of this quarter because it might be offices, what's the ongoing run rate fully baked in cost of your dad, where you know.

All the commitment fees and everything and rolled up it's around 6%.

Okay, and Mitch you open the door, so I'm going to walk through it and you talked about large retail partners large national retail partners anything we should go on that front what are the pipeline look like.

I think you know we're gearing up for after buying merchants preferred as far as putting the sales team together specific people just for the large retail partners in and we're just getting started on that we think theres a great opportunity. There's a lot of large retail partners out there and a lot of the don't at least on option yet and.

We've got a very unique offering was the where we'll we'll be virtual through their Pos however, they want to do it we've got the resources to doing however, the retailer wants to do it will also staff certain stores all stores, depending on their volume staff from just on weekends things like that so we got the we got the most unique offering in the space and we're after.

Mystic that we're going to be will assign some big large national retailers.

Okay last question Mitch you talk about.

The skips and Stolens in acceptance now I know you made you made a point about it being better sequentially, but obviously, it's it's higher year over year.

You got the conversation on those.

The.

The in store number but is that the right way to look at it I mean should we be looking at skip SOLANS and in acceptance now on a sequential basis or a year over year basis, because I mean, obviously year over year that I'm, just a lot, but can you remind me again why it may have shifted up so just a higher number at some point.

Over the past year.

Yes, I think normal year over year, I mean, we look at both anyhow, but year over year over year, certainly you know a real important metric. We only are pointing out the sequential side of it because last year was the outlier. It was just really low due to the recoveries, we had coming off the Compton Hh Gregg exit it was just lower than then.

Then we would normally run it was on the low side of our of our eight to 10 range. In fact, there I think there was a quarter or two and there were underwriting. So just because last year was so low coming up recoveries that we that we because we booked a big reserve on clothing constant Hh Gregg and then we had some recoveries so last year was what.

As low and that's why we're talking about so sequentially, but certainly we don't hide the fact that 60 points higher than last year's just last year was the outlier. That's why we we point out the sequential side, Okay, Thats exactly what I need to know thanks, guys. Good. Thanks Jen.

Your next question comes from the line of Bradley Thomas with Keybanc capital markets.

Hey, Good morning. This is Andrew on for Brad We were encouraged by the 3.7% cough in the core segment I was wondering if you could talk about the components of this in house ticket traffic and collections are trending.

Hi, Good question good morning, Andrew.

We don't get too specific on that but it's it's.

It's traffic, it's ecommerce traffic, primarily but its traffic growing at its not.

It's tickets stable, but it's not like it's all in pricing, where we're just getting a lot more and pricing certainly that the deflation of electronics makes it hard to get a lot at a ticket you get a little more out of furniture and and so forth but.

Overall, it's traffic to answer your question from a collection standpoint.

No actually probably could have been slightly better.

Where we were.

We were within our range, we're wanting to be from a collection standpoint, so that's pretty much all traffic on the positive side.

Okay understood and then for the for the upcoming fourth quarter could you talk a little bit about how you're thinking about promotions, if you could remind us.

What your what you're up against last year, and how you might go to the market differently. This holiday season.

Well, we we obviously for competitive reasons would want to get to detail, but generally speaking similar to last year nothing.

No need to worry about us M&A deep promotions that are really going to drive the revenue downturn and we don't.

No. It again, there's promotions and of course, you have black Friday week, and things like that as a retailer but generally.

Our promotions are different than last year, but from a which you would worry about and how much we're collecting how much we're giving away and things like that pretty much on top of last year.

Okay. Understood. Then my last question is on March as preferred.

I was wondering you know as you talk about the next step what are the areas that have been integrated and what areas do you have more work to do.

Good question, Andrew the sales teams have been integrated.

But we have more work to do to add tool, which were in the process of doing getting a lot of good people hired out there to add add to the sales team the merchants preferred Joe Corona running merchants were done a good job.

Adding adding the sales team, but after we integrated.

The call Center is about where we had a smaller call center here, that's about half integrated with the one merchants preferred.

A few more back office synergies will happen in into next year, but it's really the the call Center and back office is big enough integration is first synergies.

But then on the sales team.

Basically more people to higher took into to hit those growth numbers were off and running obviously as we've already talked about but we have more salespeople higher were more.

A person or to just focus on large accounts things like that so when I said it earlier it exceeded our timeline.

Yes.

We didn't think we get the sales team and the call centers is integrated quite as fast as we have in its gone well that the.

The operations team emergency room, Mike Dinehart runs that confident down there and they've done a great job with the integration. So we see the higher when impresses, adding more to the team.

Great. That's good to hear thank you.

Thanks, Andrew.

Your next question comes from the line of Vincent Qinetiq with Stephens.

Hey, Thanks, good morning.

Another question on merchants preferred so glad to hear that the rollout is doing well.

And I'm kind of curious so in terms of the development of the I guess the combined.

Offering how that's going and in any of the rule. That's you've had some of that offering to the existing acceptance now retailers.

Sort of how has that John Hester is there any way to measure.

You've had by having the combined offering.

Well.

I would I would say the combined offering lifts comes next year as as we roll it out to some of our current partners in a lot of new partners. So that the combined offering really is something that kicks off early next year pretty much in January Vincent in the 200 doors that that have opened so.

Our reddi wip since we bought merchants prefer to have been solely virtual there's a few staffed fully staffed model opening because the volume of those stores, but the mix the hybrid the differentiator. If you will really starts in January .

Okay. That's helpful and then so Youve, Illinois, you've highlighted.

What you've integrated so far.

Sales call center, and so forth at what point do you think.

You will have all of that ready and I guess the fundamental part of the question and then a lot of Investor has been asking is you know at what point, particularly because it seems like retailer appetite as strong at what point are you ready to.

To be able to operationally has a national retailer.

Trial going on.

We will be ready in the next 60 days, we'd be ready for a national retail trial, the first of the year.

Okay, great separate question, but kind of related to the prior fourth quarter question I'm, just wondering us we're getting into holiday sales season, this or anything.

Difference for this year in particular, just trying to get a sense of how you're seeing the consumer.

Its existing restaurants.

They were last year, if there's any nuances on what their particular looking for.

Mr going into the holiday sales.

Yes. Good question, though we're seeing that just a strong.

I'm sure we'll hear about.

No.

Comps being a little lower than last year, you know, but thats really a.

Measure what were.

What we're comping over last year versus what we're comping over this year Thats why we talk about the two year number in both the Korean and the retail partner channel. They accept itself segment. If you will and when do you look at a two year, whether you look at the core or the eight now segment just continues to perform so the customers they're strong.

Nuances as far as what they're looking forward no. We haven't we haven't seen more putting their ordering online everyday versus coming into the store I think it's just the way people shop and were where theyre form wherever they want to shop. They don't have to come in those store to do business with us.

Yeah. They can do it all from the comfort of their home and like I said earlier, we use our are couple of thousand.

Brick and mortar locations as a final mile on the core side, but they don't they don't have to come into more and more people are doing that let us take care of them in their home versus coming in the store, but other than that there's really no trend this trend the speaker.

Got it very helpful. Thanks, so much much thanks Vincent.

Your next question comes from the line of Anthony Chukumba with loop capital markets.

Good morning, Thanks for taking my questions.

Just one in terms of the 125 I guess doors.

But that you rolled out on Merck suffered excluding with 75, but we're conversions from acceptance now outdoors and can you give us any color in terms just in terms of those stores like any particular vertical or verticals or is that sort of one chain or few chains of just wonder if we give me any color on that thanks.

Yes. Good question. It was primarily extolling the furniture business as we think about newer verticals like like jewelry and tiresome. We're looking at both in both the core business and on the.

Virtual business as well some others.

That we are testing yet.

That's pretty much been furniture, so far no no big retailers and they're just a lot of.

Local regional players built building up the the.

Merchant prefer and had a bit of a pipeline to begin with and without the capital to really take advantage of it. So a lot of Thats just Tom May go assigned to people up that if they get out of capital assign a before so pretty much snow on the furniture space for now Anthony to answer your question.

Got it thanks, and then just one follow up question just remind us.

How does how does merchants preferred currently handle I.

Thanks return merchandise mm and and do you see that changing at all going forward.

Yes, they have a few different ways on return merchandise to get rid of it through online.

Methods of getting rid of its them some.

Primarily that.

Selling it online and things like that we're certainly not brick and mortar footprint will be able to improve on that and be able to not only help the collection side of thing, but help maximize the value of some of those returns to our brick and mortar stores like we do on the acceptance now side.

Got it that's helpful. Thank you.

Thanks Anthony.

Your final question comes from the line of John Baugh with Stifel.

Thanks, Good morning, Congrats on the solid results here ill jump right in.

You welcome.

To an earlier question marine didn't seem to want to go into the merchants preferred TNL impact on Q3.

In terms of either revenue or maybe the the expense side and EBIT impact.

Should we then look at Q2, and then compare to Q3 and.

<unk>.

Make interpolation is that way or is there any any kind of help there.

Yeah, Dan we're trying not to differentiate now between the segment was with merchants preferred and acceptance now we see it as one segment going forward, we talked about the annual revenue expectation for merchants preferred being in that $80 million range, so that hasn't changed based on.

What we're seeing that the door count I think growth reflects around.

A little bit higher than we expected. So hopefully that provides enough colors to be able to model.

Merchants preferred impact.

Okay.

And then Mitch I may be mistaken they were my memory, maybe off that I thought last time, we talked about merchants preferred in the sort of opportunity, which I think you identified is 400 million pro forma that it would be more local regional there's a lot of talk on this call about the national account. So maybe I'll just start there.

You know, it's something changed or what's the expectation as they were going to win yeah. A lot of that 400 leasing. The initial years is going to be the small regional local guys.

No I think you.

I think you remember right John the 400 million the 800 million of revenue going up to 1.2 over the next three years is not dependent on.

Large national retailer I know that would be actually additive to that we think we can do that.

Regional players obviously, some larger regional players in a lot of a lot of regional players in general.

Finally for that kind of growth, but there's not a national player. There. It's just another avenue of growth, but that that growth. We've laid out for the next few years is not dependent saga. If we don't get one of the big guys were not going to hit those numbers. So I think your memory accurate and Nick.

The large retail partner opportunity just in addition to what we've already talked about Okay. And then you comment around the 90 day being around a surge that trending is that trending up and what's been a pretty good economy here do you see that number in general moving higher.

No. It's been it's been pretty flat, it's been pretty flat.

Okay, and the terms of pricing.

Oh, we still in the two 2.1 times range on sort of the eight outside of the world is already terms with discounts or.

Pricing.

Approval rates et cetera that you are promising retailers any of that moving in one direction or any other.

No not really there is still under low twos. The you know the 2.1 range like you said you know the they be it's more competitive out there and you do end up having.

Kevin impacting margins through you know the deal we make with the retail partner and so forth, but I wouldn't say, it's trending any differently than it has.

Last year or two it's been competitive out there and that has some impact on margins and how you how you pay the retailer and so forth, but no nothing nothing in the last.

Quarter or anything like that that's changing.

Okay, great. Thanks, Good luck, Thanks shopping center.

There are no further questions Mr. Fidel you May proceed with any closing remarks.

Thank you very much in thank you everyone.

For your time this morning on behalf of of all of US the whole leadership team and everybody get Renaissance I want to thank all of you all of our co workers are retail partners and our franchisees. We we thank all of you know when we look forward executing our growth plan and building on our solid foundation. Thanks again, everyone.

This concludes today's conference call you may now disconnect.