Q4 2019 Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time. Many lives will again be placed on a musical. Thank you for your patience.

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She would like to ask a question you will need to press star one under telephone keypad in order to view the company's presentation on the website. Please remember to turn off the pop up blocker on your computer. It's now my pleasure to introduce your host Ms. Vicki necklace advise you partners ma'am the floor is yours.

Thank you Amy I know you should have received a copy of the company's fourth quarter and full year 2019 earnings release.

I haven't squeeze called advisory partners into one to seven 505 800 for the coal today, we have Charles Horn, acting CEO Executive Vice President and Vice Chairman of aligns data and Tim Kaine Executive Vice President and Chief Financial Officer over line data before.

Again, I would like to remind you some of the comments made on today's call in some of their responses to questions may contain forward looking statement.

These statements are the subject to the risks and uncertainties described in the Companys earnings release and other filings with the FCC.

Alliance data has no obligation to update the information presented on the goal.

On today's call our speakers reference certain non-GAAP financial measures, which we believe will provide useful information for investors.

Conciliation of those measures to GAAP will be posted on the Investor Relations website at alliance data that.

With that I would like to turn to go over the Charles Horn Charles.

Thank you.

Good morning. Thank you for joining us today are with me is Tim King CFO , we plan to keep our prepared remarks quite short today and with that let's go to page four and talk about our 2019 consolidated results.

For the year revenue decreased 2% to 5.6 billion adjusted EBITDA net decreased 21 cents 1.3 billion inquiry P.S. decreased 14% to $16.77, which is in the lower end of our range for the 2019 guidance the weakness in 2019 was primarily.

Card services.

2019 was a transition year at 80, yes people are productive, let's begin with the transition of card services toward more tried to clients and verticals.

This process hurt 2019 profitability as we have sold 3.2 billion of noncore, but income producing receivable since 2017.

The result is a healthier client base below revenue growth, we were able we were slow to adjust our operating cost structure, a commensurate with lower growth, but actions undertaken late in 2019 have rectified that.

As part of the strategic review the commenced in 2018, we sold Epsilon in 2019, and Pressman January 2020, simplifying our story and alone increased investment in card services.

Next we streamlined our cost structure throughout Ats, reducing run rate expenses by over 200 million entering 2020.

Lastly, after some executive management turnover the board of directors harvest season entropy veteran in Ralph and Reta, who joined Cdis next week to lead the business going forward.

During 2019, we reduced the parent level debt by 2.9 billion, while extending the debt maturity ladder for the remaining debt with 2 billion extended from June 2021 to December 20 to 22, and 850 me an extended from June 2021 to December 2024. In addition, we spent 976 million on share repo.

Purchases during 2019.

Our capital allocation priority in 2020, well continue to focus on debt retirement as well this internal investment to support new product capabilities and card services.

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Moving to page, Bob I'll turn it over to Jim Good morning, as Charles mentioned I'm on page slide where we have broken out our segment results.

I'm just going to go I'll discuss the corporate results here. So I'll go into greater detail on the next few pages for world to want to card.

Turning to the corporate expense at the arm of the page, we have been able to lower the corporate expense from $141 million in 2000 $18 million to $93 million in 2019, a decrease of 34%.

Jerry was a major focus for us in 2019 with the sale. That's one we needed to pare back expenses quickly and we did we now estimate a run rate.

Corporate expenses of approximately $65 million for 2020 .

Now turning to slide six I'll go into more detail from won't be one segment.

On an adjusted basis revenue increased 5% well adjusted EBITDA was that was essentially flat compared to 2018 breaking out the results further you'll see the air miles adjusted revenue was flat primarily due to 1% decrease in air miles redeemed compared to 2018.

Adjusted EBITDA net decreased 8% on a constant currency basis, primarily due to the increase expenses at presque associated with the on boarding of two new clients in 2019.

As most you know press most sold in January of 2020 .

Your miles issue were flat in 2019, but turned positive at 1% growth in the fourth quarter importantly, our largest client bank of Montreal extended its contract three years in October .

[noise] Brandloyaltys revenue increased 8% on a constant currency basis for adjusted EBITDA net increased to 20% on a constant currency basis.

Strength into the Disney product offering was a driving factor in the revenue growth.

Which coupled with our cost containment measures implemented during the year helped drive strong improvements in our adjusted EBITDA net.

Moving to slide seven plus it's got the key metric card services.

[noise] credit sales for 2019 were up 1%, resulting in a normalized average receivables growth of 1% and appeared receivables were approximately 19.5 billion up 9% year over year and consistent with our expectations.

Gross yields were down 50 basis points for the year negatively impacted by purchase accounting associated with the acquired portfolio in the second quarter and decreases in the fed fund rates, which negatively impacted our finance charges.

We feel comfortable the gross yields will be modestly up in 2020 .

Our operating expenses, excluding the fair value adjustment on the held for sale receivables worsened by four basis points in 2019.

Cost containment measurement.

Implemented late in 2019 should lead to a 100 million of expense savings per card services in 2020 .

The principal loss rate improved from 2018, and now more closely is falling for normal seasonal patterns.

Well underlying credit trends are stable, we could see a slight increase in the rate in 2020 due to a slightly lower receivables growth rate, what we call the denominator effect.

I think once you rates were up 14 basis points, primarily due to the portfolios acquired at mid 2019.

Delinquency rates on these receivables, which is being serviced by third party has deteriorated since the acquisition to date.

The portfolio are scheduled to convert on our platform in the first quarter of 2020.

Return on equity dropped in 2019 commensurate with the decline of profitability. We expect our we used to improve and 2022, the 27% to 29% range.

Turning to slide eight.

Good news from the financials for card.

Starting with the receivables as I mentioned the parse the slide obviously normalized receivables were up 1% <unk> yields were down 50 basis points combined these factors led to a 1% decrease in our revenue year over year.

Operating expenses were up 6%, primarily due to the additional 90 million adjustment for the carrying value of the held for sale receivables.

Excluding this charge the operating percent was essentially flat to 2018.

Provision for loan losses increased $172 million or 17%, primarily driven by 9% increase in the ending receivables and timing.

Strong loss trends in Q4, 2019, Sealy with stable loss trends in Q4, 2018 versus improving loss trends in Q4 2018.

Funding costs increased 14% and due to rate pressure in early 2019, coupled with the success of our consumer direct funding initiatives.

Essentially we raise money in this channel faster than anticipated for needed to fund the receivables growth.

[noise], let's go to page nine and discuss our 20 tween guidance.

I'll start and our initial revenue guidance for 2020 is flat.

It really two primary reasons for this one we sold Precima as we've talked about before January 2020, Precima contributed over 80 million in revenue tool to one in 2019 with expectations of 100 million revenue in 2020.

And to no growth in normalized normalized average receivables at card services.

Remember, we sold 2.1 billion of revenue generating receivables during 2019, which creates a significant grover impact going into 2020.

With core EPS, we expect an increased 22% as we read before your benefits of the cost continue to make measures implemented. During 2019. In addition, we continue to explore further cost continued containment initiatives and 2020.

Tim.

Charles as already mentioned that our normalized receivables will be flat, but we expect to exit year up mid single digits, assuming no further rate cuts by the fed we would expect our gross yields to increase 30 to 50 basis points.

Turning to operating expenses, we have mentioned the companywide expense reduction initiatives, including those initiatives undertaken in card.

We anticipate the car services will benefit approximately 50 to 70 basis points due to these initiatives.

While slower growth helps our gross yield there will be some pressure our principal loss rate. This is the denominator effect as I mentioned before as we do not see any pressure on our consumer.

And of course last we will be implementing Cecil in 2020 . The day, one effect is strictly a balance sheet impact to allowance for loan losses deferred taxes and equity.

We anticipate recording between 606 hundred $50 million as an increase the allowance for loan losses with a decrease in equity net of taxes.

Has allowed by the regulators, we will rebuild our bank equity over the next four years on a go forward basis, all new receivables fully reserved at the higher allowance rate, increasing approximately 50% to 55% for 2020, we anticipate an additional provision expense of approximately $60 million, which has been fully contemplated in our guidance.

With that we'll open it up for questions.

Thank you at this time is if we're conducting our question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad to allow for as many questions as possible. We ask that you. Please limit yourself to one question. That's one related follow up your first question comes from one Sanjay Sakhrani with KBW Suntrust Your line.

Okay.

Alright. Thank you good morning, obviously, a lot on moving pieces here I guess first question is when we think about the key variables going forward that could affect the card services or loyalty business and your outlook could you just talk about what they might be outside of a change in the macro environment.

Well, let's start with little to one I'd say Loyaltyone is set up for a good 2020 as we've talked about we did renew with bank of Montreal or biggest sponsor at air miles issuance growth turned slightly positive in the fourth quarter and we expect that to continue in.

Your mouse cost structure has been adjusted quite a bit. So we do think you're looking at a business there that can be up low single digits on revenue and low single digits in terms of EBITDA and net.

The or somewhat mature business with they generate good cash flow and I would expect their EBITDA margins to jump up north of 40% again.

With brand loyalty you saw good turnaround for them in 2029 team are you saw the revenue increase in constant currency up more than mid single digits. Good expansion in the EBITDA net I think next year is going to be a little bit more stable year for them, some improvement potentially but with market dynamics being what the or I'd say more of a stable year for.

Brandloyalty versus a big growth year like it was in 2019.

Weve card services, we've talked about I think we feel good about the primary assumptions behind what we've given you in terms of receivables.

The gross yield outlook, especially with no acquired portfolios I think a key variable there will be whether were successful in introducing some new product capabilities. In 2020, we do think that that's important going forward that we provide additional capabilities to our clients that we take advantage of or our relationships and contracts with our clients introduce these new.

New offerings and essences can be really key focus for us in 2020.

Okay.

I guess one follow up is just one of the concerns I get from investors as the confidence in the guidance given there will be a new leader starting in about a week.

Maybe Charles you could just talk about.

How aligned his vision is with the one that you've been set out in terms of working on.

Maybe just Tim the confidence in the guide as well. Thanks sure. Yes, obviously, there has been limited dialogue with Ralph since he's not joined the company at this point I would say, though that the board level the management level and just very.

Small conversations with Ralph we believe we're taking a conservative outlook for the year.

Especially if you look at the core EPS of $20.50.

If you think about the share count reductions we've done over the course of 2019 the cost containment measures. We think we're taking a very conservative approach I'll, let Tim comment on a minute what we'd like to do scientific or frankly get back where we can move to beat and raise versus Jason it. The other way now for several years by taking a conservative approach in both the topline and bottom line I think what weve.

Done that in 2020, Tim Yes. So obviously the the first driver of the 2020 guide is a big drivers going to be that a our number and we feel like we've taken a conservative approach keeping the our forecast for a normalized they are at flat year over year.

You had been at a fairly modest increase in the yields and so we feel pretty comfortable about the revenue portion of card. The Big then obviously good it expenses, we've taken a lot about $100 million out of card services expenses collective collectively across the organization about $200 million out.

Those are the big drivers the Big then factor becomes a Cecil number and we can control that Cecil by that and the period. They are number so the $60 million that we called out as a seasonal effect for 20, Twentys certainly is dependent on 100% dependent on how much we grow that ended period. They are.

Okay. Thank you.

Your next question comes from the line of Darrin Peller with Wolfe Research Sir Your line is open.

Hey, Thanks, guys.

Talk strategically from entered about your.

Your vision on growing the portfolio now I know, you're obviously, taking a more conservative approach by what types of new business would you be willing to add in terms of profitability metrics in terms of the type of actual customer now.

I know you were getting away from them, all but I'd be curious to hear a little more context into what goes into that Conservative guide on the receivable side what types of new how much of that is new wins, new business that might be coming on and what what's the profile in terms of return on return on equity you're expecting them.

Sure. So if you go back to last earnings call that was quite a bit discussion about our growth is coming from our newer vintages. We continued to see that growth, but we need to do on top of that Darren is one give some growth back in the core older programs that have been somewhat stagnant, we need to find ways to reenergize that and then we need to look to onboard more clients over the course of.

2020, and what it May mean is we're looking to go to smaller clients, maybe only web based easier to onboard not the difficulty of onboarding in store, so we'd get a smaller grouping of clients coming through the we can help ramp and grow and then on top of we talked earlier, we need to look its are there other product capabilities. Our clients are looking for capabilities. We can we.

Can provide that's going to be a key for us going I guess can be a balance across the board we need to get some growth in the core continued growth in our interim programs newer programs and then find new means to grow understand bucks for increase it by going after some of these smaller web only clients or where we only support them on the web I think thats what were looking for.

This there is part of the reason we have been guiding to lower sales growth. Obviously they are growth is that we can be much more selective about who were going after on a new basis, but in some cases, you know there's partnerships that will get to the spot where we we don't want to keep them in one of the profitability is not there so by keeping.

Slow a lower profile nice growth than we are able to keep our profitability, where we want that to be sold as a combination of balance of the are always versus that growth or growth profile that is conservative we able to maintain the profitability. We think we should be yet.

And is that still 30% type type borrowings.

Well as we indicated for 2020, we think will be a little bit slower than that I do think the opportunity for us to rebuild it back to the 30% plus but in terms, where I live between 20 slightly lower.

And just one quick follow up would be when you think about the portfolio are those larger pieces of your current portfolio I know L. One as some things maybe potentially changing toward a secret I mean did you include any concern or anything any potential risk on any any meaningful client that might change their minds on how they're doing things and your outlook.

And just if you could give us a little more color on the bridge on yields.

That's it will go back to the queue. Thanks, guys.

Any known or anticipated risk weve already considered so guidance is again I think in our waste pretty conservative.

Yes, so if you think about the comfortable with the yields Darren I.

I think there's four things I'd do factor into that one.

Currently the markets not anticipating any fed decreases we certainly the slower growth allows us to season, our files until we get back to the yield increasing we do not have any renewal pressure in 2020 and the certainly we have over the course of the last three to four yield years remove lower yielding files. So we feel very.

Well that we should be able to get some increase in our yields and that's why we're guiding to a 20 to 50 basis point improvement in the yields.

All right.

Your next question comes from the line of Andrew Jeffrey with Suntrust. Andrew Your line is open.

Hi, Good morning, guys. Thanks for taking the question.

Hey, Charles you you mentioned.

Priorities, one of which is the investment in the card services business and I Wonder if you could elaborate a little bit on how you rank order those investments, particularly in the context of perhaps changing.

Profile of some of the new card services customers, you're going after you mentioned web only.

How do you feel your your position competitively tack wise data security wise et cetera.

It is that an area of focus.

Let's start with the data security I think we feel very good that we are where we need to be if not better on data security.

On the Tech I can say that I think we need makes investment that's what we've talked about here today is we probably didn't invest quite enough over the last three or four years and capabilities such as Ron digital.

Some of the Onboarding initiatives it takes too long to onboard clients at this point and we need a platform. This more friendly if we want to offer the alternative products.

It's equal pay or if we want to go through and onboard smaller clients.

Thats really not that we were set up so it's going be a key initiative for us going forward, because we want to expand our client base, we want to have more capabilities, we want to move front line on the websites or clients use quicker rather than just waiting to the very end and they see us in the shopping car basket. Those are the things, we really focus on a 2020.

Okay, and you think that's a one year process such that you see the benefit of that next year.

It depends so in the guidance, we're not really considering this lot of benefit there, but it's really going to be a decision. The board management level, whether you build or buy it is going to be very simple.

Okay, and then one quick follow up.

I don't think I heard it did you mention what a corporate leverage ratio is today.

We didnt thats about 1.4% right now.

Todd 1.44 times, Okay. So that you think that would be room to continue to return capital.

Yes.

Yes, we should think good shape in the way we've extended our debt Andrew.

Great appreciate it.

Your next question comes from the line of Bob Napoli with William Blair <unk>. Your line is open.

Thank you and good morning, the just following up on the corporate leverage in that kind of cash flow with loan growth in the low single digits.

Obviously, the loyalty business as a pure free cash flow business you de leverage.

Quite a bit are you generate a lot of excess capital do you plan to return capital work.

This year to shareholders do you plan to buy back stock or.

Are you just going to continue to reduce leverage in the near term.

Well about say two things there one on dividends, we definitely are going to continue our dividend stream I should been released go up today on on that topic to I would say, we always look for opportunities to return.

To our shareholders may be a case issue, we feel the still more important too to hit or disruption or little bit more at the parent level or we as we talked about we know we need to invest in our business is part of the reason, we divested Epsilon. So I'd still say, it's going be lower priority, but I'm not going to say the share repurchases are not out of the question.

Just and then I guess then what's in your guidance for me if there were just news that.

My your is citigroup when the Meyer business from Alliance data systems have Victoria's secret.

Up for sale do you have any anything built in for client losses, and what happened with.

The Meyer business.

So we'll start with Victoria's secret all we can really say, there's we believe we're in good shape.

For any initiatives. They may undertake widmaier that goes back to mid last year and so I was in held for sale last year.

It was a client relationship renewal year that for whatever reason, we just couldn't quite comfortable with the terms of that they were looking for I get a better opportunity to offer from Citibank and so we moved on that influenced Sotheby's their 2019 numbers have been fully considered in our 2020 numbers. So Bob you recall that in the Q2 call. We we had a portfolio go into.

Now for sale that was the Meyer portfolio. So weve, obviously fully contemplated in all 2019 and 2020 his guidance.

And then just if I could on Ralph coming on board.

I would assume these listen again on this but the odd his hiring alliance data has been known to have.

Very good data assets work well with retailers, we've had good feedback from a number of your customers.

Is why was he is what's his background and loyalty at American Express some in running private label I guess it city what was it and is.

Does does Ralph do you expect substantial changes or do you expect to build on the key assets does he understand the key assets that the company has.

He said limited access to the company at this 0.2 issues had to be that way.

My take is he brings a very strong operational background to Ats, which is very needed. I think you will continue on the digital initiatives would fully supports some of the past we're taking.

So I think it's not going to be Steve as you go I think you will make changes as appropriate to make the company more efficient, but I do think he believes in the under buying backbone of the company. How we go to market. The digital initiatives, we're looking to achieve and so I think overall, he's going to be tightly aligned to the looking to run a more efficient company than maybe we ran the best.

Thank you.

And that's very much or if you would like to ask the question. Please ask that should limit your questions to one question with one related follow up. Your next question comes from the line of Dom Gabriel with Oppenheimer. Your line is open.

Hi, Thanks, so much for taking my question.

We just think about the go forward expense.

As a percent as a percentage of average receivables and we think about what you've talked about as far as the expense investment versus the expense saves do you still believe that it's possible that the net of these two could have a lower expense base total adss.

In 2020 is that part of the.

That's kind of the way that it shakes out.

Yes, absolutely so when we start club quoting the expenses that were going to realize.

That is going to be net of the investments certainly as we look and that's because of course going to depend on how we invest in if we buy business.

Large business here.

More than a couple of tens of millions of dollars that would have some effect of that the incremental investments, we should be able to get our expense savings as I outlined.

Okay, and then if you just thinking about the capabilities that you had discussed a little bit on the call.

Thus far what what is part of the the franchise that you think is I wouldn't say lagging, but we'd like to enhance to the point, where you feel like you may need a bolt on.

Capability or purchase somebody and a bolt on transactions.

Yes, So I think it's really comes down to the two things we somewhat talked about before the digital initiatives will be number one and then number two would be speed to market the ability to onboard but it's much quicker than what we've been able to do you can have a really good pipeline, but you can only onboard to three times a year. That's just not quite good enough. So it's really the speed to market. This can be ICU business as well.

Yes, I see it really is that the two conditions, we got to we have as a consumer in the retail partner and in both cases, we want to be more appealing an easier for our consumer.

More appealing and then with the retail partners Charles has outlined we want to make that easier. So you really comes out to just faster better with those two constituents.

Okay, great and if I could just sneak just one more in here thinking about the gross losses versus net losses in the quarter and the guidance of.

Perhaps 20 to 30 basis points increase is that coming from gross losses expectations changing or is it really the recovery rates and can you just talk about the two dynamics there heading into the are and what you've seen and and those moving parts. Thanks. So much I really appreciate it.

Yes, I'd say, it's going to be more trending toward the gross loss versus the recoveries recovery rates would be pretty much. The same year over year I'd comes back to you know we talked about the acquired portfolio. We did in the second quarter of 19 close over 900 million, we have seen some deterioration coming through in terms of its delinquency trends under its current servicer.

So we do expense that will put a little pressure in the first quarter prior to our converting them and it will see come back in so I'd say if anything it's just going to be slightly up on the gross you gross losses with little bit somewhat consistency in the recovery streams.

Your next question comes from the line of David Scharf JMP Securities. David Your line is open.

Hi, good morning, and thanks for taking my questions as well.

A couple just on the portfolio.

Maybe not to beat a dead horse I realize you don't like to talk about specific contract terms.

But are you able to.

Share with us whether or not as it relates to L brands are the vs.

[music].

Contract, whether there's any kind of change of control provisions it is.

Just because the contracts survive a change of control are automatically get melafind.

Yes, you somewhat answered it for US, which is we can't really expand on what we say beyond we believe that we're in really good shape.

Got it no appreciate it and.

And just one follow up it.

Trying to get a sense just to give us I guess a sense for order of magnitude you you've got.

Upwards of 150 different retail clients when we think about.

Flattish growth broadly.

Can you give us a sense for.

I guess how much growth.

Is anticipated next year from the just the ramping up 17, 18 and 19 vintages.

In there for how much of that is being offset perhaps by Ics expectations for declining balances for you in aggregate programs older than that.

I guess, the Swedish then take away some of the new ways of the Grover from selling these receivables is we'd expect or credit sales in 2020 to be up in the 4% to 5% range and that'd be somewhat indicative of what's your base is doing.

So as your normalized receivables could be flat slightly up because of the Grover we sold 2.1 billion receivables in 2019 that were there before now they're not I'd say that the best indication in what's going on at the underlying business is the credit sales growth of 4% to 5% for next year.

Your next question comes from the line of Ashish sabotage from Deutsche Bank assets. Your line is open.

Thanks for taking my question.

Just a quick follow on the delinquencies. So you mentioned there was some challenges as one of the black portfolio, but can you just.

Like some color on how the underlying trends that excluding that.

That one particular portfolio how the delinquency trends are and then just as we think about seasoning off some of the new look portfolios that he'll applied or or New York portfolios that have come on over the last year or two how should we think about seasoning off those portfolios and they in fact on delinquencies going into 2000. Thank you. Thanks sure. So you basically if.

Okay. The book of business acquired in the non acquired I think what you're asking the obviously the pressures coming from those acquired books of business. The rest of the book is very stable in fact, I'd say, even including that 14 basis points variance year over year is not particularly significant movement in our delinquency rate, but that 14 basis point is being caused by that.

The acquired portfolio and once we get that our system, we think we'll be able to get that back in line with the rest of the portfolio.

That's very helpful. And then maybe just quickly on that is not appreciate how should we think about that as appropriate.

By the end of 2020, including the impact of Cecil.

Yes, the reserve rates will be up about 50%.

On a balance sheet youre going to of course, you're going to increase your balance sheet on day, one for all the existing receivables that we have and then of course, you'll build and ROE. We of course of guided $60 million of extra build over the course of 2020 for the new receivables. So in essence will be about 50%.

That will you would expect to with the same different accounting and 2019.

Thank you that's helpful.

Your next question comes from the line of Eric Wasserstrom, but yes, Sir your line is open.

Great. Thanks.

Just one quick follow up on on guidance and then a follow up to that question. If you don't want the so I just want to be explicit in terms of the.

The EPS guidance does not contemplate share repurchase for for this year as that is that correct.

Correct.

Okay.

So maybe.

Could you just maybe help us understand what sort of incrementally you're contemplating in terms of.

Of changes or or or improvements to the funding structure is it.

Continued deposit growth, replacing term debt or how do we think about the dynamics of the of the liability structure going forward.

Yes, I see the liability structure for 2020 should be fairly stable, we launched that deposit product, which is the big difference. So we had in 2019, but we are learning our way into that market to make sure. We can maximize that so we don't anticipate changing our percentages between deposits retail brokered.

Conduit term debt on the card side as we get into 2020, we will start leaning much more heavily into the deposit product because we will know how to maximize that so this is a test and learn year for us and we'll get that deposit product to direct to consumer up to about 30%.

So what would look for in 2020 is to see little expansion in the NIM as we talked about before we do expect to see some improvements in the gross yields we saw pressure early in 2019 on our funding rates, we saw that start to moderate as the fed cuts came in place in the back half the year. So I think youre not going to see a great deal of movement in your funding costs beyond just the change in May.

Yes.

[music].

Thanks very much.

Your next question comes from the line of Brian carry with Bank of America. Ryan Your line is open.

Good morning, guys Wonder sort on the U.P.S. guide is it sounds like there are number moving pieces between the previous core EPS guide of mid to high Twentys percent growth to the 22% growth now and I was hoping you could you parse out some of the drivers give us a bit of a bridge between the two.

I'd say that the biggest thing we've probably done is if you look at it going toward the low end of arrange what we said the third quarter you could get close the $20 and 50 since we talked about today when the things we wanted to make sure with the changes to been going on in radius is that we provide.

Conservative guidance for 2020, we believe we've done so with the 20.5 Oak, where you yes. So we probably maybe put a little more conservatism factor in it than what we had going back to the second or third quarter.

Got it Okay, and then just moving a loan receivable growth over the last call. It sounded like a longer term expectations were for receivables growth more on the high single digits range is it fair to say the growth in receivables can reaccelerate in 2021 or the mid single digit range kind of now the best way to think about growth going forward. Thank you.

It could it could reaccelerate into 2021, obviously, we're guiding towards the end of period of 2020 of.

Up mid single digits, because that sets us up for the 2021 period.

We want to make sure we're balancing out the are always the income versus that growth. So you know obviously, if we find attractive file that we can get through our returns we could get a little more growth in 2021.

Your next question comes from line of Vincent Caintic with Stevenson since your line is open.

Hey, Thank you good morning, guys.

On the.

Folio and the growth rate.

To this quarter or this year youve been this past year, you've been pretty strong on selling receivables and I'm just kind of wondering.

As we look into 2020.

Are you contemplating any more sales of non strategic receivables and.

The more moves to held for sale and.

As part of the guidance and then.

If we were to think instead of receivables being a are being flattish year over year. If you were to grow.

Any thoughts on what that would have done with CBS , because I know that now that we see from maybe growth. This.

Gets penalizing the near term or just how to think about that and how to think about what you modeled in for a sales. Thank you.

We can sort of the held for sale as you saw we were very active in 2019 really got active Q3 Q4, we have a small carry over into the first quarter next year, but I think most of that or if not all that will be gone currently there is nothing.

Scheduled or anticipated will go into hill for cylinder between 20.

We sleep client performance can influence that and or clients own.

Financial position can influence that but there is nothing scheduled at this point to go into held for sale between 20.

The big and if you start thinking about the growth on 2020 versus the 2019 on the average and then we're guiding to flat.

The big effect on Cecil is going to be the end of period of course, the mid to high single digits on that growth rate has the effect on Cecil. So if we were able to grow or average receivables and keep our end of period that guidance. The same that would be incremental to our port to our income.

Okay got it. Thank you and then just one quick follow up on the.

The change to 2020 guidance.

This report versus the prior quarter, just the portfolio yield and the loss rate. So I understand the explanations on why last retirement as though.

Growth math, but just kind of so last quarter, you were calling for flat portfolio yield and flat.

Loss rates I'm, just kind of wondering if you can bridge what changed in your thinking there. Thank you.

You are pretty much right, then switches, we lowered a little bit the air growth rate lower little bit revenue impact, especially once we took out.

Yes, and we did slightly increase the loss rate expectation between 20 or between 19 in just to reiterate it's the same thing you've you slow your growth rate down your yields improve which are loss rates get worse.

Okay, great. Thank you.

Your next question comes from the line of John Coffee with Susquehanna John Your line is open.

Great. Thank you for taking my call.

My question is on the actually look into one of the last callers on the loans held for sale I saw that versus Q3 that declined about 1 billion was there much noise in that in that well I guess, what I'm trying to ask is did that was that just reflecting <unk> billion dollars of sales or was there anything added to held for sale in the fourth quarter.

It was just all peer sales.

Okay. Thank you thats it.

Your next question comes from the line of Dan Perlin with RBC capital markets that your line is open.

Thanks, guys.

And this may be ultimately a better question for Ralph the Charles you know there seems to be a pretty big push from a lot of the traditional banks and tech companies, creating.

Well I would consider to be much more robust loyalty programs and what we've seen the past and so.

Just like to get your kind of updated thoughts as to why you think there's relevancy into private label program today.

No I heard you mentioned on the call that expanding and creating new products in particular around technology is important but I.

Are you, saying the guidance is conservative enough and therefore, you leave room to make those kinds of investments or are you, saying already that you're contemplating those kinds of investments. Thanks.

So the guidance would incorporate largely what we're anticipating doing in 2020, we're probably looking a little bit differently than you did we don't think were necessarily losing on the value proposition of the loyalty program our ability to target.

Consumers going to take the program. So we don't think Thats. It is there a situation where some of the fintech companies are coming in getting better placement of websites than us that is true and they can be little bit quicker to market, which is further reason, we've talked about being quicker to market. So I think it's more of a case, where the competition has picked up with Fintech I don't think it's at the cost of loyalty, we still think were superior in the way.

Yeah.

But the ease of use has given them a slight advantage that we need to address and we think we can address the quite quickly.

Okay, and then I just wanted to make sure I understand when things are Ralph.

Joining next week.

You are saying as it has had very limited access to.

The company, so that kind of suggest that he's got to get to a learning process. So when we talk about this company being in transition last year I mean does kind of beg. The question. If it's not also going to be in a situation. The transition this year. So.

And and along that same lines like how the conversations been with client in terms of kind of keeping them in a holding pattern I mean, I understand there kind of contractually obligated to a certain level, but it has been a little bit rudderless here as of late so I'd just love to see our here Theres any kind of Contentiousness that's been they're not in the market you guys. Thanks.

So first let's see I think the learning experience will be very small if any based upon his background with American express a little too operations, obviously, Citibank human North American operation I think Thats, a very short learning curve with clients I can tell me I'm not aware of any contentious.

Issues regarding the clients know when saying we have major problems with the change in leadership I think they're looking for the quality offering are we continue to support them or we supporting the brand and growing receivables that's what they're looking for.

Okay. Thanks, guys.

And your final question comes from the line of well dance with Goldman Sachs. Your line is open.

Hi, guys. Good good morning.

Maybe I'll start on the strategic front you had the comment in the press release that you're going to continue to evaluate strategic alternatives going forward and I. Just wanted to ask is this meant the signal any incremental change at the board level on the strategic front or other strategic conversations at the board level still the same type of discussions that we've been having.

Ill call it for the past year or so.

It's the latter same I mean, we've been having these conversations going back to 2018 as to where we want to redirect the company, where do we want to make investment the company.

We can really say is we're still continuing that process. You. So are we divested epsilon between 19, we saw little small business co. Pressman January 2020, we can to continue to evaluate what's going to best tell our story Simplifier story as well as what is the best return of capital to investors and what is going to give us the best overall growth prob profile going forward, we see.

Probably part is the growth driver for the company, we know we need to invest in it are the reason that we sold Epsilon is we've not invest in sufficiently in epsilon, because we needed to invest and card services.

So I think we'll continue to evaluate all opportunities, we'll look at anything that's going to be accretive to our shareholders and long term, we're going to look for what is the best best for growth driver for the company.

Understood. Thanks for that answer and maybe just one more I was hoping to clarify the guidance and card on the expenses just given all of the noise an expense base from the held for sale portfolios.

How are you thinking about dollars of expenses.

And the card segment, and 2020 versus 29, Tan and when you talk about the operating leverage being down year over year.

Operating expenses as a percentage of receivables are you talking about the number including or excluding the onetime charges in held for sale marks that we had last year.

So if you look at the Opex percentage, excluding the Mark Marcon held for sale was 9.14% for 2019, what we're saying is that we think that will drop 50, 30, I'm sorry, 30 somebody by the 50 to 70 basis points in 2020, and that's consistent with the expense reductions we've already put in place and what we think we can continue to do.

Due to drive efficiencies within the business.

Got it thank you for taking my questions.

This concludes our question and answer session I'll now turn the call back over to the presenters for closing remarks.

We appreciate you participate on the call today, and if you have questions feel free to call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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