Q4 2019 Earnings Call
[music].
Good morning, and thank you for holding welcome to rent a center's fourth quarter earnings Conference call. As a reminder, this conference is being recorded Tuesday February 25, 2020. Your speakers today are Mr., Mitch Bodell, Chief Executive Officer of rent a center Maureen short Chief Financial Officer.
India and yellow work senior Vice President Finance I would now like to turn the conference over to Mr. work. Please go ahead Sir.
Thank you Lisa good morning, everyone and thank you for joining us.
Our earnings release was distributed after market close yesterday, and it outlines our operational and financial results.
For the fourth quarter and full year 29.
Oh related materials, including a linked to the live webcast are available on our website at Investor day arrests Anadarko.
I never mind or some of the statements provided on this call are forward looking statements, which are subject to many factors that could cause actual results to differ materially from our expectations.
Right. It's under undertakes no obligation to publicly update or revise any forward looking statements.
These factors are described in our earnings release issued yesterday as well as the company that's easy filing.
I'd now like to turn the call over to match.
Thank you Daniel and good morning, everyone. Thanks for joining us.
And we'll be providing a voice over to the presentation shown on the web cast Nick can also be found on investor that rent a center dot com.
[laughter] 19 marked a milestone year for rent a center and as you can see on slide three we significantly improved profitability and carefully.
Performance was driven by revenue growth and efficiency initiatives, we made strategic investments, they're taking a retail partner segment to the next level.
And we probably grew the rent a center business as well.
Comparable store sales were positive in all operating segments fueled by continued enhancements in our value proposition and in ecommerce.
We strengthened our balance sheet through a significant reduction in excess cash invested our growth strategy well simultaneously initiating a 16% increase in our quarterly dividend.
We feel great about the best LIBOR, one on the path to sustainable earnings growth, we have a business generates significant cash.
Channels, we intend to continue to evolve and optimized to capture great.
I'm extremely proud schemes and confident in our strategy.
Now turning to the fourth quarter on slide four.
Well consolidated same store sales were up 1.6% over the fourth quarter last year, they've increased over 10% on a two year basis.
Ended the quarter with a record number of average customers per store.
Operating earnings Rose approximately 50% adjusted EBITDA margin improved 210 basis points versus the same <unk>.
Helped by favorable lease performance and efficiency initiatives.
Revenue growth in our retail partner channel accelerated in the quarter with invoice <unk>, 35% driven by organic expansion and strong performance in virtual.
We believe we're well positioned to build on these trends in 2020 in our forecast for the year.
That's a double digit girlfriend waste time and positive comparable store sales in our rent a center business.
No.
For more specifics in <unk>, so I want to focus for a few minutes focus my comments and how we're thinking about the next several years, including our earnings some strategic priorities.
As we outlined on slide five at least on market remains dynamic resilient and ecommerce and virtually no sizable markets.
Yeah, Hi, just north of 25 million with ample runway ahead.
As you saw on the earnings release, we renamed our segment reporting aligned with our priorities around virtual and omni channel.
We watch and integrated retail partner solution under the preferred we bring to start Tony Tony in preferred leasing.
Our virtual our snapped in hybrid offerings and the evolution of a decade of experience around retail partners.
It offers partners a flexible model I mean bank nonbank consumers are meaningful incremental revenue.
The muscle as momentum with revenues in the corner driven by organic expansion and virtual growth.
The right Center business segment includes our stores and E Commerce platform.
That is benefiting from our work to create a true omni channel experience it serves customers where they want to shop.
E Commerce, and 19 that 15% of revenues up from approximately 10% much here.
This channel Leverages, our stores provide a highly effective distribution network that drives attractive unit economics when loss position higher ticket.
We think that's unique advantage to drive synergies from both the rent a center business.
At least.
So turning to slide six never strategy to grow for at least in a restaurant business can drive significant shareholder returns.
We believe the combination goes all the consistent mid <unk>.
This includes or over 1.2 billion in <unk>.
22, and low single digit same store sales via the rent business.
We think the combination can drive.
11% to 13% adjusted EBITDA margin number in long term with profitability expected to benefit as preferred leaves a few scale.
So, let's turn to the catalyst for our financial goal starting with for at least on slide seven.
We currently operate in five out of the top six convert.
Furniture retailers.
And my time is growing and most happy and virtual offerings, we're focused on increasing revenues with new and existing partners Ritchie <unk> gold them over 1.9 in revenues night.
Wow and 1.2 billion dollar gold is not even assuming a large national retail partner.
Good Friday, the key driver and I'm not sure. This is fully appreciate the neither is our differentiated model.
Partners to ask how will this worked for us.
And our answer is the leases on solution can be pure module.
It can integrate with accretive.
It is worth Standalone basis.
Preferred these can be a fully adoption or it can be weekends or during every trip periods with her best addresses I've heard a desire for flexibility control and consumer transparent.
Thank you very active highly effective model.
Well sure bank and on bank.
With decades of experience.
Sure we address them anywhere from a credit can shrink consumers reps just a subset of it.
The power combination.
<unk> revenue per location is over seven times higher than competitors for retail partners given the benefits of of the model I just described.
We have no leadership to drive growth.
And we're making investments improve the ecommerce transfer both traditional and pure play partners.
These include a streamlined process in integrated check on any kind of course and he kept sites I should say.
The synergies, we're very excited about a pipeline.
Aspects to grow preferred lease.
Turning around it's been a businessman slide nine were extremely pleased with performance in that segment as well.
Solid growth in the portfolio in 2019 supports our plan to achieve low single digit comparable sales growth in 2020, and we're building on the merchandising improvements we made last two years.
For example on 2019, we expanded assortments into jewelry tools, and and tires and we're continuing to shift our mix higher margin product an inspirational merchandise.
It's offsetting performance of some consumer electronics categories.
Turning to slide 10.
Well achieving record levels of ecommerce traffic, that's resulting in continued girl comparable store sales.
Our sales were expanding our customer base with the new younger demographic.
These transactions are accretive relative to traditional in store agreements.
<unk> position costs.
Hi, current products and stronger lease performance helps offset slightly higher just give some masri any count.
Well, what we got additional site improvements in 2020, probably application process, then reduce that risk.
We're also excited about.
First platform for Rensselaer Dot Com, which went live just last month.
This platform has enhanced payment functionality increases speed to market for site improvements and updates.
Our focus is fuel technology to certainly some customer across multiple channels.
No worries provides a highly effective network to address the final mile delivery.
And we're leveraging in for same day delivery and for collections.
I want to stress. So we're excited about the potential growth opportunities, we intend to achieve our objectives in a.
Disciplined way, we've done a tremendous amount of work to improve the organization and to support growth and we'll manage the business vestments ensure weren't sacrificing returns for revenue.
Now before I turn it over to Moreno Wanna mention as you may have read the press release, we entered into an agreement with the Federal Trade Commission. So 30, a common period results during the civil investigative demand related to the purchase and sale of customer lease agreements and the rents in our business <unk>.
We received from the FTC in April of last year, and there are no five no penalties no admission of wrongdoing fault or liability on the part of the company.
The <unk> permits to continue purchasing in selling consumer at least agreements.
This inquiries entirely unrelated to the large somewhat well they have to see announced last week parents in regards to their progress segment.
We have not received its martijn AFDC in <unk> history of working with the FTC as well.
Everybody's ginger customers clearly understand the key distinctions in our transaction.
The flexibility and that's how you and we'll continue to do so.
We have additional inquiries from MPC at this time.
I'll now turn it over time frame to discuss financials and our 2020 <unk>.
Thanks, Matt Good morning, everyone. Our I'll cover financial highlights for the fourth quarter and review our guidance for 2020.
Starting with slide 11, consolidated revenues were approximately 668 million in the fourth quarter and increase the 0.9% versus the same period last year.
Again, driven by a consolidated same store sales increase of 1.6%.
Partially offset by re franchising and rationalizing our store base.
Adjusted EBITDA was 63.7 million in the quarter, an EBITDA margin was 9.5%.
210 basis points over the same period last year.
Non-GAAP diluted EPS was 58 cents of 66% over last year.
Turning to segment results, which incorporates the change as noted in the really.
Preferred lease total revenues increased 10.8% in the fourth quarter versus the same quarter last year.
The performance reflects a 35% increase in invoice volume driven by organic expansion and strong performance in the retail partner nor channel.
Same store sales were up 2.1% in that model versus the same quarter last year.
We are encouraged by the results and optimistic about prospects to achieve invoice volume growth in each quarter of 2020.
This will be the final quarter, we will report same store sales for the preferred lease segment as we believe inquiry volume is a more useful metric as we move forward with our hybrid model and newly launched virtual offering.
Adjusted EBITDA for preferred lease was 17.6 million or 9.2% of revenues.
The year over year change in EBITDA as a percent of sales was driven by investments people in cost to integrate technology to support future growth.
The margin Delta was also impacted by the mix shifts to virtual location, which have higher skip Dawson losses than staff location.
In total gets done losses were 14.2% of sales for the preferred least segment in the fourth quarter.
Lease performance was in line with our expectations for the quarter and we believe profitability can improve as we scale the virtual offering.
Turning to our rent a center business, which includes corporate owned U.S. stores and rent a center dot com.
Revenues were 438.8 million in the fourth quarter and benefited from a 1.2% increase in same store sales.
Adjusted EBITDA for the rent a center business was 72.1 million, a 520 basis points as a percentage of revenue versus the same quarter last year.
The performance was driven by lower supply chain expenses and an increase in vendor marketing contributions as we continue to streamline the business.
As a percent of revenues gets dollar losses were 4.1% flat sequentially with the third quarter 2019.
Finally in the corporate segment fourth quarter, adjusted EBITDA increased 1.6 million.
And as a percentage of revenue increased 20 basis points versus the prior year driven by performance based compensation.
Moving onto the balance sheet and Ashland highly cash generated from operating activities with 215 million for the year ended 12 31 19.
The company ended the fourth quarter with 75 million of cash and cash equivalent.
An outstanding indebtedness of 240 million.
I'm 20 million from the ended the third quarter.
In 2019, we paid down over 300 million in debt.
The company's net debt to adjusted EBITDA ratio ended the fourth quarter, <unk> 0.7 times compared to 2.1 times at the end of the fourth quarter 2018.
Turning to our guidance for 2020, and our capital priorities on slide 12.
The consolidated basis, we're projecting revenues of 2.755 to 2.875 billion.
Adjusted EBITDA of 255 to 285 million.
Non-GAAP diluted earnings per share in the range of $2.45.
To $2, an 85 cents.
To summarize the midpoint of the ranges equates to mid single digit revenue and adjusted EBITDA growth.
Modest EBITDA margin expansion.
And double digit EPS growth.
The guidance includes investments to support growth in both preferred lease and the rent a center business.
We're also providing revenue and EBITDA guidance for preferred leads in the rent a center business for the full year 2020, we expect for burden lease revenues of 860 910 million.
An adjusted EBITDA of 95 to 105 million.
We expect revenue growth across the preferred lease segment with organic expansion in the staff model. The addition of virtual on hybrid doors.
And growth in our regional partners E Commerce channel.
Our 2020 estimate assumes roughly 20% organic invoice volume growth.
We expect EBITDA growth and margin improvement preferred leads to be influenced by mix shift.
An additional investments to support growth.
We expect to maintain a low double digit adjusted EBITDA margin for preferred me.
A higher mix of virtual will result in a lower gross profit.
Offset by reduced operating expenses.
The mix change will also impact skips stolen losses.
We expect the metric to be 100, 200 basis points higher in 2020.
To an average of approximately 12% for the here in the preferred least segment.
For the rent a center business, we're projecting 2020 revenues.
At 1.755 to 1.8 to 5 billion.
As a reminder, the guidance does not include the impact of any new franchising transaction.
We're projecting adjusted EBITDA of 265 to 285 million for the segment.
Our revenue projection is in low single digit increase in same store sales for the here as we benefit from growth in the portfolio.
And E commerce expansion offset by a lower store count.
We expect EBITDA performance to benefit from an additional 10 to 15 million in cost initiative.
Which we believe said more than offset slightly higher skip stolen losses from growth in ecommerce.
We're projecting a skin still in losses of approximately 4% for 2020 in the rent is that our business.
As you look to model the full year. There are a couple of additional items I'd like to point out.
First the share count, which ended the quarter at 56.6 million diluted shares.
Last year due to higher employee stock compensation and shares issued in connection with the merchants preferred acquisition.
As is our practice or 2020 projection does not incorporate additional share repurchase activity and assumes approximately 57 million diluted shares outstanding.
The second is the cadence of earnings.
As compared to 2019, we expect the grow earnings in each quarter of 2020.
Looking at the first half we expect mid single digit EPS growth in the first quarter as we invest in preferred Lee and expect growth to accelerate in Q2, driven by cost savings initiatives.
The second half should have a traditional seasonal pattern with stronger growth in the fourth quarter versus the third quarter.
I'll close with a brief outline of our capital allocation framework on slide 13.
As Mitch mentioned, we've made a great deal of progress to rejuvenate cash generation and profitability and we're focused on growing the business in a disciplined way.
Our priorities for cash or to invest in our business.
Followed by potentially taking advantage of M&A opportunities and returning cash to shareholders.
2019 reflected these priorities as we invested in the business.
Urgent preferred pay down debt and increase our dividend, which currently has a yield above 4%.
We expect to generate free cash flow in the range of 105 to 135 million in 2020, which is a decrease relative to 2018 as you recall the settlement risks related to the vintage merger termination in 2019 resulted in a 65 million one time benefit for free cash flow.
Additionally, gross and EBITDA and lower interest costs will combine for 30 million benefit year over year, which we expect to be offset by higher cash taxes and investments to fund our growth initiative.
We plan to increase capital expenditures to 40 to 45 million for the year to invest in technology and analytics in order to grow digital channels in support of the retail partner business and our E Commerce platform.
Free cash flow guidance also includes investments in working capital to fund invoice volume. We believe these investments will generate a high rate of return and support profitability and cash flow.
We also believe we can maintain or conservative balance sheet as we execute on our long term financial and operational goal.
Net debt to adjusted EBITDA was 27 times than we had total liquidity over over 235 million, but the entity here.
[laughter] than our practice as has been our practice historically, we intend to return excess cash to shareholder.
We increased our quarterly dividends by 16% to start 2020 repurchased 59000 shares in the fourth quarter and we currently have share repurchase authorization of over 220 million.
We've returned nearly 800 million to shareholders in the form of share repurchases and dividends over the last 10 years.
And we will continue to opportunistically allocate capital to augment returns.
As always detailed income statement by segment are posted to our website and the 10-K will be filed by Friday February 28. Thank you for your time today I'll now turn the call over for your question.
Thank you as a reminder to ask a question you will need to press star one on your telephone withdraw your question press the pound or hash key please standby will be some pilots una roster.
And our first question today comes from the line of Brad Thomas from Keybanc Capital. Your line is open.
Hi, Good morning mentioned marine and congratulations on a strong fourth quarter and strong year.
Thanks, Brad Good morning, Brad Thank you.
Let's see I wanted to just first start off with the new preferred lease business and the integration of merchants preferred and I guess just.
Follow up on where we are in that in that integration and and where we stand today.
From a position of your ability to go out and market.
And pitched, the new offering and potentially be landing.
Some new more sizable accounts.
Yes. Good question Brad work, we're there I mean were integrated were were written and go we made some enhancements as morry mentioned to the technology of course, that's an ongoing.
The issue right, we're always going to be enhancing especially in this band AIDS. So it's always a it's always being enhance but we're ready we're up selling we've added.
A number of people in sales team, probably almost tripled the sales team since we bought merchants referred we end the.
Hey.
Specific person were large national accounts.
As you saw a press release, maybe about 10 days ago. So we've added to the sales team and other technology were integrated and we've added a national accounts person solely to focus on the bigger accounts, so were up and running.
Great.
And on the rent a center side of the business.
You know it would seem that the industry has faced some headwinds from things like deflation in consumer electronics, and and potentially that shorter selling season over the holiday period.
What did you all see in the fourth quarter and and how are you feeling about the health of the portfolio I mean, clearly the guidance would imply that you feel good about momentum, but but just curious if youve experienced any of those dynamics yourself.
We do feel good about it.
Felt good about the fourth quarter art, we had a really really tough comp as you know that whatever the rents in our business segment was 9% or some from last year, we comped over that so now we're in the like the mid tens on a two year comp. So we're very very happy with the way it turned out we adjusted our plans I mean, you could see the.
One week less from a shopping period standpoint.
That was on the calendar for a long time, so we knew it was there and we.
Started our black Friday still weak earlier than we did have a year before things like that you just have to Justin.
Feel good about it as I mentioned that we've added a few new product lines.
Deflations.
The deflation spent an issue I'm moving and tell you Brad you know how long have done. This I've done this for a number of years, we've been through quite a few cycle and electronics category of having to adjust bringing newer technology dry.
And these days ramp more of the Samsung Q less than we run of the regular you hdtvs more the premium premium technology and so we're so it's a headwind were used do you have to change your value proposition adjust your pricing adjusters screen sizes is just what kind of technology Kerry.
[music].
You know we've we've been through this a number of times in and it's and I won't say, it's not a bit about headwind, but it's.
It's one we certainly have overcome and we'll continue to overcome not only with the way we handle the electronics today, but with other new product categories.
Very helpful. Thanks, so much much thanks Brent.
Our next question comes from a line of Kyle Joseph from Jefferies. Your line is open.
Hey, good morning, guys.
Statements about the solid solid quarter and falling into the year I just like you get your sense for a on the preferred we business you gave us plenty of color about.
Margins in 2020, but as we step back and look at that from a longer term perspective can you give us a sense for where you think that overall EBITDA margin shakes out and maybe suffer some context just compare holly.
Eventually looks versus the rent a center side of the business.
Sure. Thanks, Kyle so thinking about the EBITDA margins within the preferred lease segment, we expect low double digit.
Guidance for 2020 for that segment.
Similar to the EBITDA performance, we had this year.
We continue to invest in the business and so on that.
Negatively impacts EBITDA margin, but as we scale up the business. We've made some investments we've we've purchased merchants preferred which had a lower EBITDA margin, we integrated that within the business.
With a full quarter performance in Q4 that was slightly dilutive to EBITDA margins, but as we scale up that business.
And reduce the return on our investment early in the year not should start to build over time.
So we expect an ongoing EBITDA rate of low double digit.
Relative to the rent a center business, which is around 15%.
As you know we've had significant cost savings initiatives within that business segment, and even expect another 10 to 15 million this year.
Got it Ah that's that's really helpful. Appreciate that and I know, we just a integrated the business but.
Can you give us a sense for.
The pipeline of retailers there.
Yes, Scott some of those.
Are they nationwide are they more regional players and then in terms of.
Of merchandise is are you guys look into diversify the merchandise that you guys are partnered with there.
Yeah, Yeah, good morning cow.
Yeah, I'd say, yes, all of those actually have yes to the pipeline looks really good the pipeline for national players is starting to deciding to define itself again, we heard on national accounts.
Person three weeks ago, but he is the ground running because he's done. This for you is doing this for TD bank before we hired Paul Hamilton, So I'm not that we weren't working on before that either so yeah. The pipelines. Good in all accounts both in local regional and National account. So we're pretty excited again.
Mind, you we don't.
The forecast doesn't necessitate a national player.
As a kind of numbers we've talked about over the next couple of years, just maybe keep going on the regional players.
So we don't even have to add number I feel really really good that we will get get some national accounts over the next year or two.
Got it and then one last one for me a little that semantics here, but the capex on the preferred we segment. This was low in Fourq you are the investor.
The investments in that business is not quantified in capex in the fourth quarter and kind of trying to reconcile that with your with your capex outlook for 2020.
Yes, so most of the investments we've made so far with the integration of merchants preferred have been to grow the sales team. There's been some technology investment and a lot of which will continue to to grow in 2020, but some of that is operating expenses some of that as Kathy.
But a lot of what we've seen so far has been related to people, which are operating expenses.
Yes, and enhancing enhancing the technology isn't always capex right a lot of its operating expense when you're enhancing something that already exists.
Yes, no that makes perfect sense, a that's it from me thanks very much for the time in answering my questions.
Thanks.
Our next question comes from the line of John Bow from Stifel. Your line is open.
Thank you good morning, and congrats on the fourth quarter near jump right into it.
Could you just tell us where in the store business. The CE percentage is right now mentioned, maybe how that changed in 19 versus 18.
To sum up 15% on the revenue and at the end of it beyond 2018, it was running about 10% so.
I'm not very good amount, but that's what about 50% growth than that in that segment. When it went from 15 to to 10 from 10 to 15 excuse me. So continues to grow and the we talked about a little bit last quarter, how the number of orders that come in off the web or kind of a leading indicator and when we look at.
The the web borders and the fourth quarter, which was about 17% of all of our lease on agreements that that translates into is heading towards being 20% of the revenue in the future. So 15% of the revenue in the fourth quarter, but the agreements. We wrote were 17% agreements. So it just continues to.
Right any agreement, obviously as much as forward looking indicator toward higher than 15% revenue going forward. So it looks to me like thatll be.
20% pretty soon.
Okay. So I'm, sorry that was the E commerce, you're talking about their.
I was asking about the mix of products sold.
For a term appliances versus consumer electronics in the store business 19 versus 18.
Sorry about that I guess I heard the wrong okay.
That's all I want I've been watching somebody as politicians I just answered the question I wanted to answer around someone's man [laughter].
Oh, sorry, it was about the so.
You're talking about the headwinds in consumer electronics, yes.
Yeah. We're you know were down a little bit in that category, where they had been again immuno John Weve done. This together for a long time you follows long time, you have to you stop carrying the 32 inch.
The Tvs in stock and 40, MTV and just get bigger windows CBS become $200 that at stores like best buy you don't carry them anymore me just move up the screen size.
You start to mix then you know the Q led from Samsung the mantle cell from LG and that kind of stuff in and minimize disruption of the deflation in the we're supposed in 25% range and consumer electronics. So.
Well, we we've done it before when you have to address from you.
To address from TV. The you know when those one another.
Other style back in the eighties nearly 90, so we've done this a few times, we know how to do it.
It doesn't mean, it's not a bit of a headwind. It's just you can make him a headwind with your value proposition.
Your mix and then we're going to another category assessing a lot of categories as I mentioned like tires in handbags, and so forth, but it's running above and maybe the short answer. Your question is running about 25% of of our revenue.
Great. Thank you for that and then Maureen I think you mentioned something about a 20% invoice growth in preferred lease in.
And 20 did I hear that Ryan is that is that comparing.
Like the old merchants preferred organically or help me define that number.
Yeah. The 20% is that were ganic growth expected in 2020 in that business. As you know we bought merchants preferred in August and will also benefit next year from a full year of merchants preferred. So we wanted to isolate the impact of just the organ.
Unit growth, but just to help you we ended the year with about 750 million in revenue in preferred lease.
If we would have had merchants referred a full year it would as accreted to another 50 million of revenue. So starting the year at 800, it's a it's about a 20% organic invoice volume growth. So the total growth overall for that segment will be higher than 20, because we'll also have the full year event.
I said merchant deferred but organically, we expect 20% invoice volume growth.
Got it so the staffed model will grow as you said, maybe low single digits call.
And then to get to that guidance you gave for at least the rest of sort of the combination of picking up pro forma what you didnt own for merchants preferred as well as the organic growth there.
The SAP business is actually expected to grow double digits as well.
We below merchant suffered but overall it is also growing double digits were benefiting in the staff business from adding additional functionality technology integrating with their Pos systems and other application portal as well is growing the E commerce business for our retail partners.
Hey grew up.
Grew 16% in the fourth quarter, the SNF modeled DRAM.
Okay. That's interesting Okay, Oh, and then you know you mentioned a Paul coming on board, where there were there other leadership changes that occurred.
Within merchant preferred or preferred lease and any any specific cells.
Of actions taken you know to help us think about.
Oh, yeah, the new new tools in your tool bag in that side of the business.
Certainly added added a lot of people through an integration some people some people.
A lot of people get added some people leave and so forth like any integration. The other thing I'd add is we ended the board members same press release, we spent about Paul Hamilton joining us we added a board member you have recently.
That that has a lot of experience in the retail retail business retail partner business payment payment solution business was.
Glenn Marino's with the synchrony for a number of years.
GAAP executive at Synchrony. So he just joined our board and so we're just adding a lot of people to help us in that part of the business and and and then a lot of salespeople as well.
Okay, great. Thank you good luck thanks John.
Our next question comes from a line of Bobby Griffin from Raymond James Your line is often.
Good morning, everybody. Thank you for taking my questions and I'll, Let me add my congrats to a solid or on your for you guys.
Thanks, Bobby So I guess first I want to talk on the lease preferred can you maybe talk a little bit about what some of your legacy acceptance now customers are doing are you seeing some of them switched to the virtual and hybrid model when they used to be staffed or they are kind of integrating the two any any commentary there.
Or be grid.
There's a few conversions mostly in the in the lower the lower volumes step stores were.
It might be better for everybody to go more hybrid like this weekend labor or totally virtual our largest customers like I mentioned that weren't five out of this six largest conventional furniture retailers a they're pretty much the same because of the volume is such that we need to say staff pretty much bell the bell weather.
Thorough and companies. These on the slide like Boston rooms to go and values to the and so forth. The nationally those are older staffed build a bell and we'll continue to be now some of the technology enhancements make us more efficient.
Some of the E com enhance hansman skin grow the business more from the customers going on their website. So theres enhancements been made there, but those will stay snapped. It is too a lot of volume grew location.
Okay, that's helpful and marine on the additional cost savings I might've missed in your prepared remarks, but additional cost savings and the rent a center business can you maybe give a little color on what areas of the operations. All you guys have identified for the incremental 15 this year.
Sure the large piece of our cost saving initiative is optimizing the number of vehicles, we haven't or rent a center stores.
We're also investing capital in new more modern technology to streamline the store network, which will increase the speed and functionality for our co workers serving our customers.
As well as the creation costs over time from a lower monthly spend.
So those are the mainly its reducing the lead through the vehicles and reducing the network cost in our stores. Okay. That's helpful. And then lastly, just a quick modeling question for me can you can you provide the store count across the business units at the after the end of 12 31 19 for us to tune up.
Our models.
Sure and their rent a center business. We ended the year with 1900 73 corporate U.S. stores.
998 preferred lease the application.
123, Mexico location and 372 franchise location.
Well. Thank you for the detail best of luck in our 2020.
Thanks, a lot Bobby Thanks, Bobby I'd also add to that before we get to the next next question. The more you had mentioned in her prepared comments.
At the store count Bobby but you there that the share count number two and are prepared comments, we need to make sure people heard that so that tough.
Because our.
As you noticed the EBITDA numbers relative to consensus estimates were.
Our our higher or not so much the the EPS higher in 2020 compared to the street because the share count number being used by a lot of the analysts this.
Is the.
It's not an updated and if when you use the rights your count with our profit there our EPS guidance is higher than where the street. This will make sure we get the rights your account, which is which was wide again.
And ended the quarter at 56.6 million and we're expecting it to be 57 diluted shares outstanding in 2020, and if you don't use enough and EPS was even though we guided higher profit Dps came out about same she was because of the number was with too low and in some cases UNEV.
That mostly just stock performance a little bit on the emergence preferred stock we gave but this is not goes up more of the yeah. There's more shares to be counted be sunny employee incentives and what we do with merchants preferred so just a little reminder, there besides the store count Bobby.
Absolutely. Thank you. Thank you for that much and best of luck going forward. Thank you.
Our next question comes from the line of John Rowan from Janney. Your line is open.
Good morning, guys.
Mark.
Mitch I was going to give you an opportunity to talk about the share count.
And so again keep in mind me in the deck. It shows 220 million a repurchase authorization can you remind me where that comes comes from is that the accelerated buyback program what are the covenants around utilizing it I just wanted to.
The repurchases in my model as well and I want to make sure that we're bracketing, how we look at those correctly versus how the program functions and you know what the.
Covenant restrictions are.
Sure. This the 220 million was authorized by the the board several years ago. We did do an accelerated share repurchase plan several years ago don't anticipate that at this point, but it was a decision that was made several years ago, we have plenty of capacity in our.
Debt facility, but that and that's something that the board has opined on and believes that.
Share repurchases could be a part of our capital allocation strategy, we actually did repurchase a few shares in the fourth quarter and are open to that in 2020, but as a reminder, our guidance does not include any share repurchase activity for 2020.
Youre, but the accelerated purchase program wouldn't preclude you from.
Going into the market, an opportune times it doesn't require like a block purchase or anything correct. No that there's really no stipulation around share repurchases that were under at this time that they accelerated share repurchase plan with something we did a onetime thing several years ago. So it has nothing to do with our go forward.
Added GE and potentially buying back shares opportunistically, Okay, and then as we look at cash flow and 20, Twond and you're right. So we can balance out the possibility of repurchases and the share count issue.
One was at 105 to wherever the <unk> free cash flow guidance that does not include 35 million for the sale leaseback correct. So I can't remember was that closed at the very end of this last quarter was that closed in January of this year. It was closed in the fourth quarter. So by the younger so what so I wouldn't be in guidance for next year. Okay.
Tax season.
Some indications are that no rates are live refunds are a little slow it's probably too early to draw conclusion I did see something on the IRS website saving that some of the earned income tax credits and affordable trial to your tax credits might get pushed out into the very beginning of March which is a little bit of a delay versus last year I just want to make sure.
So that that type of delayed doesn't push refunds out past the early payout options for your for your lease contracts.
Yes. Good question, John We know it is a little it doesn't appear like it's going to be a little slower maybe a week's lower than last year, but it doesn't appear that it's going to going to cause any issue relative to how we perform in the in the quarter, how the customer perform so I don't I wouldn't see that is.
Little bit slower, but I don't think is going to be an issue based on on the way. It normally works and you know we're here. We are later in February I can I can tell you that even through January every business remains solid and we're on our point and John.
We have a longer same as cash period, now relative to others and versus even a year or two ago, we're not up against that period, where people sign up for agreements over Black Friday, and then you come close to not being able to exercise if there. If there is a delay in tax refund that that's not an issue.
Brad.
That's right when did you actually do you extend that last year was even the year before where you changed what does it went from like 90 days, even 120 or something like that.
Yeah and two in early 2018, when I came back we went from 92, either 121 80, depending on the product. It varies so yes marine made a great point. It does that really wouldn't matter. A week you are there and this is this will be our second tax season.
Under under that were two full years into that and it's working obviously the value propositions working pretty well.
Okay last housekeeping question, what's still corrector blended rate to use on on that.
Oh its around 6%.
Okay, and actually one more question more housekeeping their tax rate for 2020.
The tax rate will be similar to this year around 24%, 24% to 25%.
Alright, Thank you very much thanks Shannon.
Our next question comes from the line of Anthony Chukumba from Loop capital markets. Your line is open.
Good morning, Thanks for taking my my questions. So first question you mentioned some of these new product categories them, specifically, you mentioned jewelry and bags tires.
Fourth when I'm forgetting I'm just two questions on that first I guess, the fourth almost tools I'm two questions on first off is that in all stores at this point and then also and then second off if you can just give some early color in terms of what you're seeing what you're seeing there in terms of customer acceptance and any sort of.
Market differences.
In terms of like skip stones on those products. Thanks.
Sure Anthony Oh, I'll answer part of your question, then and the rest don't be careful not to give our competition too much information.
Handbags, and toolset that rolled out nationwide.
Tools generators handbags are nationwide.
After we did a test the raw nationwide tires in jewelry or still in test. The recent that we just started.
As far as any other data around other specifically performing like I said I think I think I'll keep that in my pocket.
Okay fair enough.
And then I guess my second my second question.
In particular reason that you did you didn't have the store counts in your press release, because you because typically you have you have those in your press release.
Yeah, we decided to include them in our 10-K and 10-Q going forward with the addition of virtual and the complexity of hybrid locations that could potentially even shift between a virtual location to a staffed at any given point within a quarter. It's it's complicated the numbers will continue to show the.
The staff location the rent a center stores franchising in Mexico going forward, it's just a less relevant number for us when it comes to the preferred lease segment, we use the metric of invoice volume to really understand what the business is doing rather than.
Location count.
Got it okay. Thank you. Thank you.
Thanks, Jim.
Our final question today comes from the line of Vincent cancer from Stephens. Your line is open.
Thanks, Good morning.
Just on serves me you sold straight to feed the good guide for 2020 up 18% years Midpoints just two questions.
First the sure cadence over the course of 2018 that we should expect it to ramp up or is it kind of an even 18% throughout the year and then secondly, it was great. Thank you and they did you already have national accounts.
All in furniture. However, I'm just wondering you said the big lift to go from national furniture retailers to becoming.
To go in for a broader set of each other categories.
I'll start with that one of them up Maureen talking about the cadence no I don't see is big lift Vincent.
To to get into other other verticals on the preferred leads by we've done really well with the bigger furniture account no I don't I don't see there's big look I think.
You know like.
As your I'm sure you're familiar to you the biggest change when you get into different verticals you. It's going to be your decision engine you risk you risk engine and you know you might tighten it in one category versus another that's all but it's not not a big lift other than than.
Hey.
Presumably you have to tighten it a little more one category versus another.
Just to add on to that I mean, we've got one thing that national accounts are looking for is.
Public company with a strong balance sheet to be able to fund future growth than we absolutely have that so it should be I'm like Mitch said not too big of a stretch to go into someone that.
Fairly similar in size to some of these other large retail partners that we currently do business with.
And then to answer your question about preferred lead and how the cadence of growth will show through 2020, it doesn't build throughout the year at the portfolio business. So as we add additional retail partners.
It will come pound so that the second half of the here is higher growth than the first half of the year.
Okay. That's very helpful. Thank you one more question so on the.
The center core stores just seem to.
Revenue and EBITDA guide just kind of flattish for 2020 is that entirely.
From re franchising efforts and and if so just kind of wanting.
What you're thinking about reached franchising and if you could remind us kind of the.
So EBITDA lifts that comes from retention, we Sanchez. Thank you.
Yeah, Vincent I think that if the different Brent Refranchised about 100 stores last fiercely you'd think about then almost 5% of our Starbreeze got Refranchise. When you think about the revenue impact to that.
And going forward as we've said very Opportunistically couple of years ago, we were talking about franchising more.
Certainly the company is in a different position as the position. We're in now it's going to be used very opportunistically certain markets that if we think a franchisee can do better or or for whatever reasons, but just opportunistically. So I don't see the it's not a big part of our strategy going forward, but it does remain part of our strategy.
From an opportunistic standpoint fires even on going forward there hasn't been there hasn't been much impact.
EBITDA was down a little bit because the refranchising that would have some negative impact.
I'm talking about the revenue, but if you refranchise opportunistically the low profit stores. You don't you don't give up is that much EBITDA our royalty rates.
Brian Yeah between five and 6% so if you're if you're selling <unk> you know the.
Fourth quarter tile stores, you're not going to be that far from an EBITDA standpoint.
It's mostly revenues some EBITDA.
But you can you give your return somewhere else because you got cash for the stores in any you return.
Based on what you do with that money right. So, but overall, it's more of a revenue impact that's the marine and that EBITDA impact when you just look at their incentive business segment right.
Great very helpful. Thanks, so much thanks Vincent.
We have no further questions I'll turn the call back to Mitch Fidel for closing remarks.
Thank you Lisa Thank you everyone for joining us. This morning, we Oh, we're glad to deliver very positive results for 2019 or for the fourth quarter specifically.
And I want to thank all the entire team.
The 14000, or so coworkers out there in the stores in the key.
You are in the here in the field support center, there's a great effort last year by by many many people and we will work just as hard in 2020 to do it again, thank you everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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