Q1 2021 Rent-A-Center Inc Earnings Call
Good morning, and thank you for holding welcome to rent a center's first quarter earnings Conference call. As a reminder, this conference is being reported Thursday may 6th 2021.
Your speakers today are Mr. Mitch Fadel, Chief Executive Officer of rent a center Marine short Chief Financial Officer, Jason Hope Executive Vice President of the asthma.
Anthony Black Scholes Executive Vice President of rent, a center business and Daniel O'rourke, Senior Vice President of Finance and real estate I would now like to turn the call over to Ms. Gerard.
Please go ahead, Sir Thank you and good morning, everyone and thank you for joining US our earnings release was distributed after market closed yesterday and it outlines our operational and financial results for the first quarter of 2021 of.
All related materials, including a link to the live webcast are available on our website at Investor day at rent a center dot com.
As a reminder, some of these statements provided on this call are forward looking statements, which are subject to many factors that could cause actual results to differ materially and adversely from our expectations.
That's right on schedule the teams or optimizing the business for scale as we increase of our digital presence turn on new functionality and continue to grow the portfolio.
Our seem of segment, which combined our previous preferred at least segment with the acquired the theme of business drove strong merchandise sales an invoice volume in the quarter.
At a stand alone basis the of seem of business. We acquired in February at adjusted EBITDA margins of 17 five per cent in the first quarter. The past around is truly exciting we feel great about our strategy to capture more of the retail partner opportunity.
As we move ahead with the FIMA the rent of center business is also making important progress the continued accelerated profitable growth.
And the first quarters of Testament to that demand was broad base and driven by our value proposition E Commerce and the digital investments we've put in the motion.
Total revenues were up 47, 7% driven by the of seem acquisition and of 15% year over year revenue increase in a rent a center business.
Adjusted EBITDA margin was 13% up approximately 370 basis points supported by topline improvements and efficiency gains.
The retail partner business had a great quarter with the seem end voice volume up approximately 28% amount of pro forma basis, driving over 30% pro forma revenue growth.
The run of the center business generated outstanding results with the 23, 4% increase in the same store sales.
That's the 13th consecutive quarter of positive comparable and it's a nice lift and the two year stack trend.
A digital strategy continues to drive growth e-commerce in mobile or in the early innings, and we think there's a long runway for each.
Now turning the slide for.
As we've discussed we're operating two leading LCL platforms of broad region compelling evidence increase revenue and earnings at.
<unk> is immediately transformed or retail partner business to a higher growth higher profit and best in class virtual platform.
The theme is doing so many things for us at some improving our ability to compete for high value national retail accounts and enhancing our underwriting with the high performing decision engine the supports more verticals.
The team is bringing expense of data and digital expertise and we know of of superior back end infrastructure.
The agreement with Mastercard announce recently is just one component of our strategy to create better access to more products for cash and credit constrained consumers.
With the dedication to serving customers we've put together of best in class set of assets to support at least zone and we look forward to working with you to grow the business further.
Jason.
Thanks, Mitch turning to slide five the retail partner business had an excellent quarter with sales doubling versus last year as you're likely aware Q1 is the first quarter. We include of Sema and our financials. After closing the transaction in mid February.
The business performed well versus our expectations supported by improvement in merchandise sales and strong growth in invoice volume.
The revenue gains were achieved despite continued constraints on inventory that of impacted many of our retail partners.
Skip stolen losses were eight 6% improving by 360 basis points from the prior year.
For 2021, we expect the total skip stolen losses for the seam of segment to be between nine and 11%, which we expect the decrease as we transition to the seam of decision engine.
We continue to expect the schemas EBITDA margins to be approximately 14% for the full year.
Adjusted EBITDA margins for the <unk> business, we acquired in February of were 17, 5%.
And skip stolen losses were three 7%.
Made the decision to move all collections and the servicing activities for the virtual business into of Siemens centralized the operations, which will drive much better efficiency.
Consequently, we.
We have provided notice that we will be shutting down the servicing an collection the center in Atlanta in its entirety no later than the third quarter as we ramp operation staffing in Utah.
We're also on track for all virtual locations to be converted to the of seem a platform mid year with all staff locations converted by the end of this year.
We've targeted $40 million to $70 million and potential synergies and given the actions I. Just described we are well on our way to capture and $25 million of that in 2021.
We continue to believe Athima will grow revenue, 20% to 25% on an annual basis with the mid teens adjusted EBITDA margin.
Now turn the slide seven Mitch.
Mitch mentioned the Mastercard agreement.
The multiyear partnership to create a new category of payment card to supplement the credit or debit and stored value segments. This new segment defined at the first opened loop lease pay car to shop at a broader range of physical and digital of retail locations without the need for physical integration.
To put this into context, where traditional these to own and buy now pay later firms have acceptance at tens of thousands of merchants when fully implemented customers will have access to shop at approximately 2.2 million durable goods Mastercard merchants utilizing there at least pay Mastercard with no.
Integration required.
This should unlock of new level of shopping power for cash and credit history, and the customers to lease eligible goods that improve the quality of life.
This is the first LTR payments card in the industry that provides retailers access to of significantly larger segment of consumers that couldn't previously count as customers since the don't qualify for traditional financing alternatives and ubiquity of access to the consumer base the has traditionally.
Been locked out of shopping at name brand merchants customers will be able to utilize their native of CMO mobile application to select items in store initiate of least with the seamer and then check out at the point of sale just like any other Mastercard cardholder.
Strategic partnerships or just one of the ways, we can leverages sema to drive customer origination along with the proprietary technology.
Based decision engine.
This will enable us to fully unleash the $40 billion to $50 billion of addressable market that is currently underserved or.
Our quantitative marketing group has already completed several successful test of originating customers through a variety of the technologies mentioned with direct to consumer customer acquisition costs, averaging $83, which compares favorably to the leading fintech companies.
We anticipate continually declining direct to consumer acquisition costs as we scale E Commerce and mobile as an augmentation strategy to our existing merchant origination platform. In addition, these technologies further support our national account strategy by reducing integration efforts.
I'd like to personally thank the technology team and commend them for bringing these paradigm shifting technologies to fruition in record time.
The integrated approach should enable us to accelerate our growth through a frictionless experience that gives us repeat access the potentially tens of millions of customers and allows us to pursue our strategies within an overall market that we estimate is in the tens of billions of dollars all while having a proprietary.
The advantage to achieve our revenue and profit growth expectations.
During the second quarter, we'll be releasing of video overview that shows our beta products in action and demonstrates the power of the Cmos family of products now.
Now I'll turn it over to Anthony to discuss the rent a center business.
Thanks, Jay as we look at slide eight the rent a center business had a terrific quarter with total revenues up 15% driven by our strongest comp ever of 23, 4%, it's our 13th quarter in a row of positive same store sales, while we recognize the macro environment played a role I want to underscore.
How proud I am of the team for executing at such a high level to achieve these results as well digi.
The digital initiatives continued to be a big part of improving the customer experience E. Commerce grew over 50% in the quarter compared to the first quarter of 2020, now representing almost 25% of revenue and digital payment penetration increased as well.
Similar to the of Sema business, we experienced higher early payout activity due to the tax season and stimulus that helped the top line performance, but the demand for new agreements significantly outpaced our expectations as well.
The net result is that we achieved sequential growth in the portfolio in Q1 for the first time in our history.
To put a finer point on at the portfolio was up 10% to end 2020, and we came out of March with the portfolio that was 17% ahead of last year.
We believe the current level of of the portfolio, coupled with stronger retention that we're seeing will benefit us in future periods.
The topline performance mixed with low skip stolen losses of two 7% and our consistent expense focus led to an increase in adjusted EBITDA of almost 70% versus last year with an adjusted EBITDA margin of 24%.
Turning to slide nine in addition to digital improvements first quarter performance benefited from proactive measures to implement alternative inventory sourcing strategies. These strategies helped offset the inventory constraints, we've experienced in certain product categories, and we ended the quarter with higher inventory levels.
Last year.
One area, we're really excited about going forward or the new product categories, notably we launched the tire category nationally and as we say it's gaining traction.
The categories of true value add for our customer and is one of the ways. We will keep the momentum going we believe tires, along with our other new product categories will approach, 5% of the portfolio by the end of the year.
We continue to enhance the online customer experience, which will reduce friction and give customers more control and tools to manage their lease transactions the.
Of the enhancements include of faster approval process and a more seamless checkout.
Centralized decisioning in our stores has also helped to improve the customer experience by increasing efficiency and reducing losses.
We've also invested in modernizing our stores with new technology to increase speed and enable mobility and customer interactions. So our coworkers can reach customers with the more seamless experience that further improves customer interactions.
Along with the advancements in our online customer experience, we believe theres an opportunity to grow our physical presence in key markets to serve more customers operate more efficiently and ultimately grow revenue.
Within our communities we plan to open a few new locations. This year in order to test of smaller footprint with a more technology focused customer experience given our strong e-commerce demand.
Turning to slide 10.
While Maureen will expand on the guidance in a moment I'll touch briefly on the rent a center business outlook for 2021.
With the Q1 performance and favorable portfolio, we've increased our revenue and adjusted EBITDA guidance. We now think our same store sales for the year will be 12% to 14%, which does assume a return to more normalized mid to high single digit comps the back half of the year.
We also believe we can sustain skip stolen losses in the 3% range for 2021, and we'll have an adjusted EBITDA margin above 20%.
As I've discussed we benefited from the macro environment, but have also worked hard to implement several transformational changes to the business that have positioned us to keep the momentum going I'll now turn the call over to Maureen.
Thanks, Anthony on the consolidated basis total revenues were one point there at $3 7 billion at 47, 7% increase versus the same period last year.
Benefiting from the Athena acquisition in mid February.
Pro forma revenue growth was 24, 8% of.
Organic growth was driven by higher early payout strong demand and better customer payment activity.
By government stimulus.
Adjusted EBITDA was $135 million, which is more than two times our performance in Q1 of last year.
And pro forma adjusted EBITDA growth was 49, 3%.
Adjusted EBITDA margin was 13% of revenue.
At 370 basis point improvement over the same period of last year.
The margin improvement was driven by higher revenue lower losses, and lower operating expenses due to the asset light virtual athene the model.
Partially offset by a lower gross margin percentage given the mix shift to virtual.
Diluted EPS on a non-GAAP basis, nearly doubled versus Q1 of last year coming in at $1.32 versus <unk> 67 in the previous year.
The Athena acquisition and strong operational performance drove the improvements year over year offsetting higher interest cost.
On a GAAP basis pretax earnings were negatively impacted by one time of sema transaction and integration costs.
Stock compensation expense related to equity consideration subject to vesting.
And amortization of intangible assets related to the acquisition of the theme that.
Free cash flow was 124 million of.
The $86 million versus Q1 of last year.
We ended the quarter with the $123 million cash balance and gross debt of 1.38 billion.
Given the strong performance and higher early payout activity in Q1, we were well ahead of our target date to be under two times leverage as we were right at two times on a pro forma basis at the end of Q1.
During the quarter, we paid down $110 million on our ABL revolver and paid down an additional $25 million in April.
Liquidity at the end of Q1 with $528 million.
Our diluted share count increased to $68 6 million shares as a result of the Athena acquisition that was $66 3 million on a weighted average basis in the first quarter.
During the quarter, we paid a cash dividend of 31 per share, which was approximately 7% higher than last year during the same period.
Turning to our 2021 guidance on slide 12.
Based on our results in the first quarter and our improved outlook for the rest of the year, we are increasing 2021 guidance.
Our guidance assumes no additional government stimulus.
An improving global supply chain and that key metrics returned to more normalized levels in the back half of the year.
We now expect consolidated revenues to be between $4 four of five and $4 6 billion for 2021 with the increase driven by stronger than expected revenue in Q1, and an improve outlook, primarily due to the higher rental portfolio balance in the rent a center of business.
Consolidated adjusted EBITDA is expected to be between 600 and $650 million.
Non-GAAP diluted earnings per share are expected to be between $5 37.
And $5 85.
We also expect to generate free cash flow of $250 million to $300 million.
Which is an increase of over $100 million versus the guidance issued last quarter.
The increases are primarily driven by strong performance in Q1, as well as higher outlook for the rest of the year.
Turning to our segment projections.
We expect our of Themis segment to generate revenues of 2.32 to 2.42 billion.
Adjusted EBITDA of 320 to 350 million as expected with adjusted EBITDA margin of 13, eight to $14 five per cent of segment revenue.
Margins were impacted in Q1 due to higher pay out activity.
Gross margin and adjusted EBITDA margins are expected to grow sequentially throughout the rest of the year for the theme of segment as we implement synergies, which are expected to increase our yields reduce duplicative costs.
And offset the impact of metrics returning to more normalized level.
We expect the rent a center of business segment to achieve revenues of $1 94 to $1 99 billion.
As Anthony mentioned, we expect same store sales to moderate to mid to high single digits in the back half of the year.
Operating expenses will increase year over year of labor and losses returned to normalized levels.
<unk> and adjusted EBITDA of $405 million to $425 million.
Or 29% to 21, 4% of segment revenue.
Regarding the cadence of results for the rest of the year, we expect revenue to increase year over year by approximately 65% each quarter and non-GAAP diluted EPS is expected to be up approximately 70% in Q2.
And at the 35% to 45% year over year in the back half.
Turning to slide 13.
Our capital allocation priorities continue to be investing to grow the virtual lease to own business, including growing the E Commerce channel via strategic partnerships and new technology innovation.
Secondly, we plan to continue reducing our net leverage to our longer term target of one five times.
Both of these strong adjusted EBITDA growth and debt pay down while preserving robust liquidity.
And finally, we plan to continue to provide attractive total shareholder returns by returning capital to our shareholders in the form of dividends and they also take advantage of share repurchases opportunistically.
With the large addressable market of the virtual lease to own business.
And the highly profitable rent a center business. The company is well positioned for long term earnings growth and strong free cash flow generation.
We're excited about our prospects for 2021 and confident in our 2023 goal for $6 billion in consolidated revenues with the mid teens consolidated adjusted EBITDA margin.
As always detailed income statements by segment are posted to our website and the 10-Q will be filed tomorrow. Thank you for your time today I'll now turn the call over for your questions.
At this time of people would like to ask the question. Please press star one number one of your telephone keypad.
Pause for just a moment to compile the Q&A roster.
Yeah.
Your first question comes from Milan of.
Anthony.
Number from loop capital your line is open.
Oh good morning.
Congrats on the strong all sorts of the year and thanks for taking my question.
A lot of really good detailed information in the press release and in your comments. So I appreciate that a lot I guess my my question is on the.
The second half guidance.
Now you're sort of.
You're assuming no additional fiscal stimulus.
Which makes a lot of sense, but I guess I'm just wondering how are you thinking about the child tax credit because at that doesn't really kick in until July.
Which is obviously the start of the second half and I would have to think with your core customer that could be really beneficial to them. So how how are you factoring that into your guidance. Thank you.
Good morning, Anthony This is Mitch and the.
Thanks for joining us this morning, we don't have that factored in.
So you know if that is the benefit that would be there'll be upside to our numbers, we haven't really factored in the kind of we really don't know what the impact of it it's going to be I agree with you. If it's anything that's going to be positive, but we didn't factor in anything positive in our forecast because of that.
Got it and I know this is probably pretty tough to parse out but you know as you think about maybe we'll just focus on the run of center business does your strongest comp ever the 23 per cent very impressive I mean, how much of that was with the fiscal stimulus right. I mean, there was the.
At the checks.
You know the sort of coming out of December and was the other checks of started coming out in March like of that that's sort of half of the car was at three quarters of the type of I mean, I know you guys have been doing very strong comps for quite some time, but because of just said it.
The accelerated meaningfully even though even though the two year stack basis.
Yeah.
Hey, Good morning, Anthony This is Anthony so thanks. Thanks for the question Yeah. It is at is kind of hard to parse out the specific on it so.
We believe that maybe a third of it was driven by stimulus, namely the merchandise sales.
I think the bigger question is if you look at our go forward you know as shown in our revised guidance you can see that we still believe we're going to continue to outperform throughout the rest of this year and we're.
Market share, we believe that obviously some of the guidance increase that we have is driven by what happened in the first quarter, but what's what's more important to us of what we're focused on is really were exiting this quarter with the portfolio. That's sequentially is up 17%, we exited the fourth quarter up 10% ex.
Exit this quarter up 17% and I'd say that stimulus played a role we are extremely excited as well with what's happening at E com, 50%.
Comps are a 50% improvement in our E. Comm performance. So on a go forward basis I think that that's that's what's really exciting to us.
Thanks, so much for taking my questions on the keep up the good work guys.
Thanks Anthony.
Your next question comes from the line of Brad Thomas from Keybanc Capital markets. Your line is open.
Hi, good morning, everybody and congrats on a great quarter here.
Two questions if I could the the first around.
I see them at.
And the Decisioning tool and your ability to leverage some of the Cmos.
The expertise and insights across the broader portfolio, hoping Jason Mitch you all could talk a little bit about your early learnings and your level of confidence at this could reduce losses and potentially also increase the approval rates.
The margin as a result.
Great and if I could ask you a follow up regarding the guidance I mean.
Think just at at a high level you all beat by about 30 songs you Flunk true about 30 cents to your guidance just as we think about the balance of the year I I would think there might be reason for more enthusiasm to the balance of the year can you just talk about it and he puts and takes are there any offsets that may be creeping up or is this just.
Conservatism is we think of the year. Thanks.
Yeah. Good morning, Brian there are some assistant cakes, as we think about the guidance and keep in mind that the.
The the variance versus the street is slightly different in the various the variance versus our internal target.
That is we think about the back half of the year, we have additional costs that will be flowing through with labor and losses going back more towards the normalized trends.
Some of the customer behavior, we expect to.
Become more muted towards at the back half of the year as the as the country opens back up and then we'll have the implementation of the 25 million of synergies in the of semen segment that will actually improve our margins going forward the with gross margins in EBITDA margin. So.
Those are the assumptions worked into the guidance.
Yeah of breads of Smith's I think.
You know we're.
Based on the way we've operating the last few years, we we like to make sure. We can we can do we say we're going to do.
You can call at being conservative or or just making sure we fulfill our commitments and so forth in advance of the pointed out we didn't take things like the child tax credit and.
How much of that worse and try to put everything everything in the kitchen sink into our forecasts of the rest of the year, we're pretty much normalized trends that still takes the the.
The latter half of the year like Anthony said still takes around the center business and the the.
Mid to high single digits from the same store sales the endpoint even late in the year of.
The great growth in the in the theme of business, but.
Okay, great. Thank you and then switching to the the rent a center of business so really.
The really strong result, this quarter and that was basically wondering how the competitive environment looks like some of your other publicly traded peers also had a good result, but when you think about the broad brick and mortar.
The rent to own industry. Im wondering are you taking share from other guys like maybe even the mom and pops.
And how much of a when you think about your E com benefit that nice 50% growth how much of that.
Chuck kind of thinking of how about how the pet is affecting you as a differentiator and maybe.
Kind of putting some things from a market share perspective. Thank you.
Yeah. Good questions Vincent this is Mitch.
You know I think I think.
Youre right I mean, there's there's good results and in our industry not of lot of other public companies to look at the good result, obviously our share.
We've done well for a number of years now and.
As we get similar bumps that our competition got in the first quarter.
We maintained that the differential.
Between our same store sales and our competition.
Yeah.
Whether one quarter youre, 10% of somebody else's zero of another quarter of 'twenty, three and we still got the differential in there. So we're really happy with the way the teams performing Anthony the Siem or doing a great job count has been a big part of it is as you mentioned.
And I think at as a differentiator right probably more.
With not so much of differentiator with the other public company as much as it is a differentiator for us and the other public company against more mom and pop of regional businesses, because we've got a little more investment into things like E. Com. So I think it is the competitive advantage for us.
Against.
Of the smaller regional players so and I think at only continues to be more it will continue to be more and more of a tailwind as we invest every day.
In the e-commerce, and you're not going to see much of that through smaller regional five store chains 10 store chains 20 store chain. So I think it will only continue to get better at the Differentiators as you as you have the money to invest are numerous he kind of being one of them certainly the supply chain, we have advantages in the supply chain at others.
And things like that so.
Boy, we couldn't be couldn't be happier with the way the business is performing the customer I mean, the customer demand is incredible not just because of the stimulus but.
We've talked about this before Vincent.
At the.
S. L. P. O is the virtual business continues to grow not just with the sema, but the competition is.
The buy now pay later as things become more mainstream is just helping drive there's more awareness I should say to at least the one in and I believe that's one of the tailwind for rent a center or two and that's not that's not stimulus tailwind I think that's a much longer term tailwind is lease selling becomes more mainstream.
Okay. That's very helpful. Thanks very much.
Thanks Vincent.
Your next question comes from the line of Bobby Griffin from Raymond James Your line is opened.
Good morning, Buddy. Thank you for taking my questions and congrats on a great start to 2021 and the initial integration of the CMO.
Thanks, Bobby Thank you.
First I wanted to circle back on the core business and this is more kind of of long term question, but obviously theres been a lot going on with stimulus and different things that you guys have also done a lot of really interesting initiatives corn cost out e-commerce growth and different things like that during this period. So clearly the business has benefited some from the Gulf.
<unk> of core, but when you look out and you think about the core business on a longer term basis, any idea or kind of color around what may be the normalized EBITDA margin is at now a 20% EBITDA margin business or is it at some point need of returned back to maybe at the high teens at was doing before and I guess I'm, just asking really in context.
Given that the mix of the business has changed so much with e-commerce as well.
Yes, good question Bobby.
I definitely believe it's the 20 plus business on an ongoing basis and it shouldnt come below that when you think about the technology and the E comm growth Anthony even mentioned that.
You know, we're going to open a few stores in end markets this year and some smaller footprints to.
The act is as much as the showroom for our walk in traffic.
A technology center for payments.
And the fulfillment center for E com orders so.
There's such a transformation of the business the week.
Yes, I think of lot of people out there see of sema as our as our quote unquote Fintech play when the rent a center business is turning into a fintech company as well. It just happens to have a couple of files and fulfillment centers out there that that are.
The brick and mortar so and I think as we go more and more of the technology, we have of the potential to even reduce our square footage cost we're going to try some of that using technology to show more of the product and so forth. So I think when you put it at all together.
It's definitely a 20% plus business moving forward.
Your line perspective, including lower loss rates for more fraud detection.
And also streamlining our staffed business some of those locations will be converted to virtual.
And they will be moved to the Athene the decision engine as well. So those are some of the drivers of the improved EBITDA margin throughout the year.
Okay Bob.
I would add to that debt.
The.
Yeah. That's one of the reasons. We pointed out is if you factor all of those things out we thought it was important to point out with the Standalone. The seam of virtual business did in the first quarter.
By itself.
So that kind of at that kind of gives us the target rate and end.
Even though the extra early purchase options from stimulus can bring those margins down then you obviously outperform or maybe it's not obvious where you outperform on the loss line. The customer performance is so good at tends to make up for that sort of the 17. They have had some puts and takes in it but it's a it's a pretty good pretty good.
Number that's why we pointed out a couple of times to shoot force. So as we go through the year and go from nine and get to the 14th for the year. Obviously, the at 17 and half of third is our target once were once we're fully integrated and then the other thing at I'd say the.
When you when you think about that first quarter.
The margin in.
Remind everybody of the first quarter the.
Overall is usually the lowest now stimulus helped helped this quarter end.
And when you look at look at the some of the estimates out there were.
That segment missed the estimates, but we obviously didn't change at our annual guidance on on the Sema. So.
Obviously, the more too disappointed internally with our with how it performed against our estimates that 9% margin compared to maybe the way so.
It was modeled by some of the analysts so.
When you think about our full year guidance, we're still right on right on track.
Even though I think some people some analysts think that 9% was at a surprisingly low number obviously internally without having to change our annual guidance. We had it we had forecast a little differently because of the first quarter always.
Of these being under pressure because of the extra payoffs from tax season in this case stimulus, but the.
The short answer is at 17 and has the real important number for four from of target standpoint, when you think about how we step ups of the year average 14, and where we'd get to going into 2022.
Absolutely I appreciate the details in the best of luck here in the second quarter and remainder of 2021.
Great. Thanks, Bobby.
Your next question comes from the line of Kyle Joseph from Jefferies. Your line is open.
Hey, good morning, Lee at guys congratulations.
Congratulations on a very strong start to the year.
I think the follow up questions from me.
Terms of I've seen the did you guys give the mix of the E comm versus brick and mortar and key end can you give at kind of longer term outlook of how you see the balance there.
Yes.
I know the I don't think we did say it but we've talked about at before it's in that incident at 15% range depends how you look at at whether you're talking about volume versus contracts and so forth, but it's it's creeping towards that 15% range of we think theres a lot of upside to that number so as.
As we mentioned we're in the early innings, there end and the rent a center side with the 50% growth.
We're almost at <unk> 25 per cent of the business on the theme of side, we're almost of the 15.
A lot of upside in both of the businesses from an account standpoint.
Got it thanks, and then on the on the rent a center side of the business given given how much of the business is now E com and you touched on this earlier, but give us a sense for how you see store count evolving over time I think in some of your prepared remarks, you talked about adding new stores in some markets for their potential for.
Store consolidation and others.
Hey, Kyle this is Anthony yes, so our strategy was and I think I mentioned at the last the last quarter was the remain at least net neutral and the way we think about at this year is and as we progress through the year, there's going to be opportunity to renegotiate leases, we might exit some leases and so forth but of.
Our plan with the with a pretty strong pipeline is too to continue to look for opportunistic new locations in the communities that we serve.
Recognizing the fact that at least net neutral is where we expect to end both from from the opportunity from a revenue perspective, we're not looking to lower the store count, but equally we still see that there's plenty of white space out there and as I mentioned in the prepared remarks, I think Mitch commented just a minute ago.
The opportunity to test a smaller footprint is really exciting something thats more technology focused.
More of a fulfillment and of payment center for our customers and at the same time. It allows us to remain embedded in the communities that we serve and we do a lot of business with Unbanked and underbanked customers cash paying customers. So the ability to remain in those communities and serve those customers is really intriguing. So the short answer is at least net neutral good.
Line of of opportunities for stores and that's our go forward plan and if we can if we can hit on the right.
Smaller square footage.
The program with the technology and so forth the Anthony just mentioned the.
Think of the long term impact of of the the 2000 stores roughly 2000 corporate owned locations, where we can add.
As leases expire obviously at the long term play.
Five years 10 years out whats the whats the average rent, what's the rough percentage against our revenue compared to what it is today and there's there's you know there's quite a bit of room in there. If we can if we can you know the.
Business has changed and we can use technology at a little differently and you know if there's a 10 15 20, 30% square footage reduction somewhere in there. If we can find that by trying a few of these this year it could be pretty darn significant at least for at least for the long term from of long term view, which wall Street doesn't always have but the affirmative.
Long term really the way we look at the business.
The excited about at least the exploring that opportunity.
Got it thanks, Mitch and Anthony and Anthony you're at your tire Pine was phenomenal.
Yeah.
No problem.
These items around we've heard of the told many times of around here and kind of we're kind of tired of at around here yes.
And then last one from me Maureen just want to make sure from a modeling perspective did you give the ending share count and then kind of what you expect the weighted average diluted count to be for the year.
Yeah, we expect it to be around that 68 million of count number that I gave that occurred in April and that should be around the number on a go forward basis. It was a little lower than that on a weighted average basis in the first quarter, but going forward, it's around that same $68 million.
Got it thanks very much for answering my questions.
Thanks, Kevin.
Your next question comes from the line of Jim von <unk> from Northcoast Research. Your line is open.
Good morning, and thank you for taking my question.
Everyone else seemed to ask the good ones. So.
I'm going to pick on the Anthony one more time.
Regarding the supply chain it seems like your eyes commentary at least on the the brick and mortar side of the business seem to be a little bit more upbeat.
Then maybe some of your competitors sort of absorb.
The good business I was wondering if theres anything inherent about kind of your product categories or maybe at the price points on the front end industry.
That make you guys feel a bit better.
Better about your supply chain and sourcing than some.
Some of your maybe larger higher price part of competitors. Thank you.
Thanks, Tim I appreciate it and good question so.
From an inventory perspective, we feel like where we're positioned well.
We have done some some things our strategy to order product order promotional inventory to go head end and beef up our supply was an important component we've done some things about around regional and local sourcing of inventory as well.
And.
Those were really proactive measures that we took to get us in the position that we're in right now and if you look at our held for lease one of the ways that we look at it to realize at the strength is its up almost 9% versus the same period last year and that's even considering that we have about 100 fewer locations the re franchise locations in <unk>.
California, So we feel good about where we're at right now like I said promotional purchases regional and local sourcing and don't forget that we're also in the business of we do have some customers who tend to they like to return the product once in a while and thats, okay, because we get that merchandise back and we're able to go ahead and.
Re rent it to somebody that's looking for a good deal so those things coupled with.
The success and we're very proud of our merchants and our suppliers for their support and the things that they're working on as we go through the subsequent quarters. The back part of the year. We just expect that the supply chain will continue to get better. So we feel good right now we've got enough enough inventory to meet the demand.
I would add to that I would add to that Tim the.
Those are all great points I would add one other one the.
Inherent to our business compared to traditional retail is the SKU counts a lot lower.
Because of those returns of the dancing in the sarcoma because you do get returns you got the kind of limit. What you would you have I mean, we're not gonna have they're not going to have 4000 different living room groups to pick out of for like you might on the wafer or something like that or even in a big furniture store like rooms to go where you can match free.
<unk> the fabrics and so forth so the limited skus.
In our rent and of rental store due to the return to primarily and obviously as you know were small box retail so they're not large showroom. So the limited skus I think really really helps and this kind of environment.
And that is an inherent piece of the the the model that.
It's always there so I think it helps from a supply chain standpoint, and then we get not only the returns of the and Andy was talking about but we get a few returns from our preferred lease business you know the the legacy business and soon we will down the road, we'll be monetizing some of the theme of returns as well. So we get we got product coming back from there that really helps the supply.
Fine as well not to mention the variety of at.
No that's really great color I really appreciate it guys. That's all for me. Thanks. Thanks, Thanks, Tim.
Your next question comes from the line of John Rowan from Janney. Your line is open.
Morning, everyone.
Jonathan I was wondering if at all.
What kind of make sure that the timing of the the capital raise and the deal with the Sema isn't impacting kind of the implied cost of debt can you just walk me through.
If that stays stable what happens to interest expense going forward.
Sure. So as we generate more cash flow, we will be paying down on the.
The ABL revolver first to preserve liquidity and since we have that the revolving line of credit that is on my list right as far as the interest rate goes so and there'll be a minimal inc.
Change in interest rate going forward versus what we're seeing today.
Okay. So the.
The interest rate is roughly the same.
But should interest expense come down as youre paying off some of that debt.
Yes, it will as we pay down debt. It will the dollars will decrease over time, maybe not down from the first quarter because of the first quarter. We closed in the middle of the quarter right. That's what I'm trying to get out where you closed in the middle of the quarter. So I'm just trying to figure out if the interest expense actually goes up next quarter, because you're only at a partial period, which makes the.
Cost of debt look lower when you're just looking at one period end statement.
Yeah, that's right. So at the approximately $12 million that we saw in the first quarter was only about half of the quarter's worth so it'll be around 20 million each quarter going forward and that will reduce over time, if we pay down yeah. It won't it won't double from the 12, because we paid down we already we already got sort of at two times leverage that.
We're talking about would take the 12 to 18 months of first quarter was so strong we're already down to the two times some of them won't quite doubled but that's that's the ballpark is that it goes to about 20.
Okay, and then just a couple of housekeeping questions Marine you talked about EPS guidance in <unk> versus second half I didn't quite get it written down I believe you were talking about year over year growth can you repeat what you said.
Yes, the the second quarter on a non-GAAP diluted EPS basis is expected to be up at approximately 70% versus last year and then for the back half of the year, we expect to be at 35 to 45 per cent year over year end part of that is because of the.
Metrics returning to more normalized levels in the back half yeah, partially partially of that and then at.
And obviously, we're comparing the last year, so last year's second quarter.
You know the 70 per cent of the second quarter, then go into the 35 to 45, which so obviously pretty strong later half of the year at.
Has a lot to do with what the second quarter of last year was with the pandemic and taking reserves on collection.
Skip songs of not knowing where those were going to end up with closures and so forth. So it has a lot to do with what happened last year as well.
Okay and just last question from me Mitch you mentioned around 2000 company owned stores do you have the actual number I didn't see it in the in the press release.
And I think its $18 44 in the U S and 121 in Mexico and was at $4 61 and franchise, that's pretty good off top my head of having more intriguing it sounds pretty accurate today.
[laughter], Okay, alright, thank you.
Thanks, John.
Your next question comes from the line of Anthony <unk>.
<unk> from loop capital your line is open.
Thanks for the allow me the double dip I'll keep it brief.
So.
Mentioned, a couple of times buy now pay later.
I guess I was just wondering because one of your soon to be public competitors at.
The partnership with the large buy now pay later provider and they certainly got the benefit from that so I was just wondering if you are.
Or having any conversations about similar partnerships and if not if you will.
Consider.
Partnering with a buy now pay later to provide the the lease to own in the credit stack. Thank you.
Yeah, Anthony Thanks for the tanks of the question. This is Jay.
So a few asking because I'm not going to obviously comment on any specific partnership, but I put them into a few buckets we.
We have the waterfall bucket.
We are always actively pursuing we are already integrated in with the number and we are in the discussions to continue to expand on that strategy specific to your by the L. P. A leader we are in discussions there as well because once again it is incremental and additive to those.
Players.
Our consumer segment.
Is very complementary and so that is at.
Absolutely part of the strategy as well and then the third is that as we had mentioned with the Mastercard partnership we actually have other ways in which we can begin to tie in with merchants with little to no integration effort in order to enable our consumer segment to get.
A much broader access to two named brands merchants.
Our three pronged the salt essentially.
You know that we have.
We're a very coordinated at all.
That's helpful. Thank you.
Great. Thanks, Anthony Thank you.
That concludes our Q&A session I'll now turn the call back too much if at all for closing comments.
Thank you everyone for joining us. This morning, we appreciate your time.
Pretty excited at what we got going on here very excited about our future.
We've got fantastic growth rates at this point.
Our EBITDA margin.
But those two together with the.
With our current multiple and we think it's free compelling story. So I appreciate your time and listening to it and look forward to reporting again.
The next quarter or two years ago.
Have a great day out there thanks, everyone.
That concludes today's conference call. Thank you everybody for joining you may now disconnect.
Okay.
Yeah.
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