Q2 2021 Rent-A-Center Inc Earnings Call

Sir Mr. Mitch Fadel, Chief Executive Officer of rent a center Maureen short Chief Financial Officer, Jason Hoak Executive Vice President of a FEMA Anthony <unk> Executive Vice President rent, a center business and Brendan Medtronic <unk>, Vice President of Investor Relations I would now like to turn the conference over to Mr. Medtronic.

Please go ahead Sir.

Thank you Tamara.

And thank you all for joining the rent a center team to discuss our results for the second quarter of 2021, hopefully you've had an opportunity to review our earnings release, which was distributed after the market closed yesterday.

And all related materials, including a weighted to the live webcast are available on our website at Investor day retro centric dot com.

As a reminder, 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 and adversely from our expectations. These factors are described on our earnings release issued yesterday as well as in the company's SEC filings.

Rent a center undertakes no obligation to publicly update or revise any forward looking statements except as required by law. This call will also include references to non-GAAP financial measures.

Please refer to our second quarter earnings release, which can be found on our website for a description of the non-GAAP financial measures and the reconciliations to the most comparable GAAP financial measures with that I'll turn the call over to Mitch.

Thank you Brendan.

The need for more demographic inclusivity and technological disruption.

As I think we're all familiar with today, many aspects of consumer behavior evolving quite rapidly much of it enabled by technology and recently accelerated by the COVID-19 pandemic.

1 change the pertain to US is the adoption of all types of payment plan.

It's becoming increasingly acceptable if not preferable to pay for goods and services with a stream of small payments rather than running up credit card balances or depleting savings.

We're also benefiting from consumer preferences for seamless flexible inconvenient experiences Reno centers differentiate in Omnichannel model allows consumers to conveniently shop for pay for and get access to durable goods through the channel of their choice digital physical or hybrid hassle free without <unk>.

Long term debt obligations or other long term commitments.

Another trend that benefits us is growing demand for solutions that promote inclusivity, rather than lockout underprivileged groups. Many traditional payment services and retailers are effectively closed off for underbanked are cash constrained consumers.

And those services that are available are often lower quality experiences that can make people feel like second class citizens.

Our business strives to provide the financially underserved with access to top quality products and first class experiences.

And finally technology is transforming almost every aspect of business, especially with respect to data and analytics and the <unk> acquisition is given us industry, leading capabilities in those areas. When you think about our business today with the seamer.

Roughly half of our business is digital whether that's ecommerce or virtual half of our businesses digital an incredible transformation. When you think about that or just the last 2 years.

We think that leasing is still in its infancy as a form of consumer payment and then our omnichannel model and industry, leading technology platform provide us with a strong foundation for growth.

Moreover, we are breaking new ground in the payments industry with the recent launch of our proprietary lease paycard powered by Mastercard.

Which revolutionized the LPL shopping experience for durable goods for financially underserve consumers.

And dramatically expand on the market opportunity for retailers.

<unk> I'll expand on this new product another fintech developments in a few minutes and given this transformation of our business, you'll hear is increasingly disgusted and the payments and fintechs context.

Pivoting to concepts like gross merchandise volume as we did this quarter.

So now let's review the highlights in progress we made during the second quarter.

Total revenue was $1.2 billion in increased approximately 75% year over year, which was largely driven by significant incremental growth merchandise volume or GMB, resulting from the <unk> acquisition and on a pro forma basis organic total company revenue group 21.6.

[noise] percent led by the 43% organic growth and GMB for our virtual least some business.

As as being of course, athima as well as 10% organic revenue growth for the rent a center business.

And we continue to get a lot of macro questions, especially on the effects of stimulus payments over the past year and as we said in the past we certainly have benefited from some aspects of the recent uncommon macro environment, including stimulus payments, but.

But we believe the primary factors behind our performance include strong underlying fundamentals technological advancements and execution the.

The team is just on a fantastic job of driving transactions and portfolio of growth with a range of initiatives like product offerings and procurement under challenging conditions.

Implementing e-commerce, and marketing strategies, and adding new merchants.

On top of this or at least on businesses durable and anti cyclical as it actually benefits from a tighter credit environment.

You know when the economy's booming and creditors lose our core customers tend to lease Moore.

During more challenging economic periods when credit tightened, we gain new customers, who previously didn't need or choose to use our solutions.

We do not believe that performance, we've delivered as a result of the pandemic and stimulus or or a story that is as good as a gift not at all in fact, we believe our best results remain ahead of us.

We delivered over 400 basis points of EBITDA margin expansion on the second quarter to 15, 2% benefiting from very strong profitability and the rent center business and solid margins of the theme.

As a company we remain highly committed to efficiency investments in our customer relationships and they're paying off with lower loss rates and improve collections.

Adjusted earnings per share was $1.63 in the second quarter compared to pro forma earnings per share of 80 in the prior year.

Given our strong performance year to date and favorable underlying fundamental trends, we increase our 2021 guidance across pretty much every key metric.

In addition concerning the compelling long term value creation potential of our company's strong financial position and significant cash flow generation. The board is authorized to the new $250 million share repurchase program.

I am pleased to say the integration of a theme as well on track and.

Moreover, the additional insights we've gained about Ah seem over the past months makes us even more optimistic about the technological on strategic value of the acquisition and the tremendous long term growth prospects for our company.

With all that I'll turn the call over to Jason update us more specifically on the Athima business.

Thanks niche.

To start I would reemphasize your comments on a female.

After a full quarter of getting deeper into the business. We continue to be impressed with its quality, especially in the technology side.

Decision engine data and analytics and Tech talent are all best in class.

<unk> in a leap forward for our virtual <unk> capabilities and has been complimentary with initiatives we were already working on.

So we are very enthusiastic about our position in the virtual <unk> industry and the expenses possibilities, we see for this business.

As Mitch noted earlier this week, we issued a press release outlining some of the key solutions will continue to roll out and launch over the next few quarters that will make up the assume an ecosystem, which we believe can double the estimated total addressable market for schema to something approaching $100 billion.

We are excited about the growth opportunities for the assimi ecosystem and and proprietary patent pending elements of our solutions.

I'll stay on on some of the highlights of this week's press release in a few minutes, but first I would like to take an opportunity to step back and provide a big picture perspective on how we think about these sema opportunity.

The traditional retail shopping payment system, primarily comprised of cash credit cards and debit cards essentially excludes a large segment of the population to financially underserved from securing the use of durable goods. Because these consumers have an institution cash or credit profiles to meet this day.

Handers of most payment solution providers.

On top of this most options that are available today offer an undesirable experience that can treat financially underserved customers as second class citizens.

This system is also suboptimal for retailers, who would certainly offer durable goods to this large segment of customers, but lack the transaction solutions to do so.

A similar addresses challenges for both groups through its mission to create a consumer lease ecosystem that reduces transaction frictions and barriers for consumers and businesses.

And creates a shopping experience that is more inclusive of all demographics by on locking opportunities for consumers, regardless of income level or financial history.

Interestingly, we're even seeing some success with a seamer for non retail applications with very strong adoption rates for benefits plus solution among athima customers.

We will achieve this mission by adhering to 4 core principles for all of our solutions ease choice mobility and transparency.

Fintech innovations we highlighted in the media earlier. This week are great. Examples of this in practice.

You seem on marketplace is a single destination accessible on both DSC mobile App and web site, where consumers can acquire the eligible retail products they need through an <unk> transaction was sema.

The marketplace is a gateway to gives consumers an entry point can be seen the ecosystem, providing choices beyond the brick and mortar retail network to include a growing network of e-commerce retailers.

Do you see them on mobile App puts the power of these seamy ecosystem at the fingertips of customers by providing them greater mobility and choice from shopping.

Customers can apply for a new lease with the seamer find retail locations to shop directly access the CMO marketplace manage their lease accounts and stay up to date with retailers promotions and offers.

You seem a browser extension, let's consumers extend their LTA shopping experience beyond the marketplace directly on select retailers' websites true proprietary technology that does not require retailers to be integrated with a seamless e-commerce solution.

The browser extension allows customers to carry the shopping power provided to them by simo on their own individual journeys within untethered LTM shopping experience no longer will customers be limited to only shopping on site from locations with prenegotiated or exclusive e-commerce arrangements.

These seem Elise paid card is a groundbreaking innovation that can unlock substantial transaction opportunities from financially underserved consumers and retailers.

It will begin as a virtual card that enables approved customers to enjoy a flexible payment experienced backed by sema to complete LCBO shopping transactions across multiple retailers.

Reviewing and executing an <unk> agreement with Sima customers can use the athima lease paycard to complete their shopping experience in the marketplace or on the retailer's website via the browser extension.

By year, and we plan to begin piloting a physical these pay card also issued through the Mark had a platform, giving customers access to the millions of durable goods retail merchants that accept Mastercard.

This is a paradigm shift in the market opens up shopping opportunities for consumers from what we estimate is 40 to 50000 retail stores today to literally millions of merchant doors and is a key factor in driving what could roughly amount to $50 billion increase of incremental tan.

Importantly, the proprietary in nature of least day card should provide a seamount with a favorable competitive position as we pursue these growth opportunities.

Moving on to the second quarter results in operational progress my comments reflected pro forma performance as if a female was included the prior year the.

The retail partner business came in a bit ahead of our expectations on strong merchandise sales and 43% GMB growth.

Despite some ongoing macro related supply chain disruption and somewhat greater than anticipated retail partner churn, resulting from store conversions.

Adjusted EBITDA margin was 13.7% in the quarter versus 12, 3% in the prior year with skip stolen losses of 8.7% down 970 basis points year over year.

Integration is going as smoothly as we would hope and we remain on track to realize the estimated $25 million of synergies in 2021, we completed the conversion of all virtual locations. The sema platform during the second quarter and staff location conversions are progressing on plan.

We continue to optimize the organization and are pleased with the results we see from blending the fast and nimble approach of a startup with the structure of a more established operation.

We're getting the right structural framework in place to support our product and business development roadmap as well.

For example, we have aligned our staff multi unit leadership team with a retailer base, allowing for more streamlined communication and execution effectiveness.

We expect this change to further maximize our already strong relationship with retail partners the.

The retail partner pipeline continues to develop and we are an ongoing discussions with multiple national and large regional accounts.

In addition, we're also exploring some alternative channel partners that could prove to be meaningful marketing automation from web app marketplace and browser extension continuing to evolve and through analytics personalization and multi buried cats were attracting more customers and lowering our cost per acquisition.

We are optimizing customer journey management tools to build utilization of our lease lines and lifetime value of our customers.

We developed a number of assets inclusive of videos to demonstrate the value of our offerings.

Finally, I'd like to thank the entire team book legacy rent a center and a steamer with a tremendous effort over the past 6 months.

Integrations are never easy I think we have really exceeded expectations.

With that I'll turn it over to Anthony.

Thanks, Jake the rent a center business segment had another strong quarter with revenue growth of 10.2% on same store sales growth of $16, 6%, which march 14th consecutive quarters of positive same store growth.

Underlying fundamentals remains strong with our lease portfolio up close to 17% at the end of the second quarter similar to where it was at the end of the first quarter.

As Mitch noted earlier I am really pleased with the team's performance this quarter and with our position heading into the back half of the year as we're maintaining that strong year over year portfolio increase.

1 area, where we've had a lot of success is introducing new categories to our platform that have expanded our addressable market things such as tools handbags E bikes and tyres tires are a great example of how we see opportunities that can continue to drive incremental growth.

E Commerce continues to be a key growth driver with revenues up 19% in the quarter, even with us pumping against 58% growth last year during peak pandemic disruption.

Traffic and conversion trends remained strong running well above prepandemic 2019 levels.

Importantly, E Commerce is transforming rent a center. This has made us a more nimble and dynamic company and changed how we interact with our customers, resulting in faster decisioning and enhanced engagement that helps our customers make better decisions.

In combination with our leading retail outlets. We believe we are well positioned to deliver a true seamless omnichannel experience for our customers.

A retail outlets continue to be a key element of our competitive advantage rent a center remains committed to our heritage of serving the local communities, where our customers live in building lasting relationships. In fact, we just open the first new store in a few years in Oklahoma and we plan to launch at least a handful more local.

Patients this year.

Moving on to profitability adjusted EBITDA margin was 25, 9% in the second quarter compared to 20% in the prior year with improved decisioning low loss rates and strong collection activities.

I'll close out with some comments on our outlook for the second half of this year on top of strong execution tailwind to probably been a more beneficial factor than normal for the first half of this year with stable economic activity, an ongoing government support for many of our customers. We think the favourable tailwind will start to normalize over the second half of it.

A year, which will likely translate into some slight moderation in sales growth with same store sales in the second half still estimated to be very strong in the low double digit range. Similarly, we think some of the factors that have benefited margins will also begin to moderate as we expect our EBITDA margins to level out in the.

Low twenties in the second half of the year with that I will now turn it over to Maureen.

Thanks, Anthony second quarter consolidated revenues were $1.2 billion and 75% increase the prior year period, primarily due to the acquisition of Athena witchcraft in mid February.

On a pro forma basis revenues grew 22%.

Consolidated adjusted EBITDA have $182 million more than doubled year over year and on a pro forma basis grew 41%.

Adjusted EBITDA margin was 15.2 per cent in the second quarter compared to the pro forma margin is 13.1% in the prior year with solid margin expansion prevent the redness on our business and.

And Athena segment led by revenue growth lower loss rates and operating efficiencies.

GAAP EPS was 90 fence in the second quarter compared to 70 cents on the prior year period and.

And included 1 time costs related to the theme of transaction and integration.

After adjusting for special items that we believe do not reflect the underlying performance of our best day non.

Non-GAAP EPS, whereas 1 dollar and 63 cents and the second quarter of 2021 compared to 80 in the prior year period.

We generated 101 million of free cash flow in the second quarter like as a percentage of net income winds in line that historical 10.

We ended the quarter with a 145 million cash balance and growth that at 1.3 billion.

During the quarter, we pay down 55 million on our ABL revolving credit facility and have fully paid down the outstanding balance.

As a result of our continued strong operational performance and debt reduction or leverage ratio at the end of Q2, 1.7 times.

And we had over $600 million is available liquidity.

During the quarter, we paid cash dividend at 31 cents per share, which was approximately 7% higher year over year.

Turning to our 2021 guidance.

Given are better than expected portfolio, performing and favorable underlying fundamental trends, we had increased 2021 guidance and tightened range. It.

Our guidance the sales no additional government stimulus payment or material chains and the macroeconomic environment.

But from normalization of key profit driver than the back half of the year from recent level net may have benefited from the combined effect of the macro environment and policy responses to the pandemic.

We now expect consolidated 2021 revenue to be between 455 and $467 billion for 2021, which is an $85 million increase at the midpoint versus our previous guidance from Maine.

This reflects better than expected revenues in the first half of the year and continued benefits from our strong second quarter portfolio balance in the rented center business segment for the second half of the year.

Consolidated adjusted EBITDA is expected to be between 660.

700 million.

At $55 million increase at the midpoint versus previous guidance.

And translating to adjusted EBITDA margin of approximately $14, 5% to 15%.

The new guidance takes into account that strong portfolio performance, Anthony referred to and assumed a more gradual increase in the last race in the back half of the year towards historical level than previously expected, partially offset by continued investments and talent and capabilities to support our technology and growth initiatives.

Regarding the cadence of margins over the back half of the year, we expect a modest sequential decrease in the third quarter, reflecting typical seasonality on.

Led by a notable sequential uptick in the fourth quarter.

Non-GAAP diluted earnings per share is expected to be between $5.90 and $6.40.

Which is an increase at 58 cents at the midpoint.

We now expect to generate free cash flow at $300 million to $350 million for the year.

Turning to our segment projection, we expect our assignments segment to generate revenues at 234.

$242 billion for the full year and for queue for it to grow at a higher rate in Q3 given seasonality.

Adjusted EBITDA for the Athima segment is expected to be $330 million to $350 million, which translates to adjusted EBITDA margin of approximately $14, 1% to 14.5%.

Gross margin and adjusted EBITDA margins are expected to increase progressively in the second half of the year as we realized synergies, which should increase yield and offset the impact of some reversion towards historical levels for key profit driver such as gifts donlin losses and customer payment trend.

We expect the redness on our business segments to achieve revenues as 2.02 to 2.6 billion with low double digit same store sales growth in the back half of the year.

Third quarter revenue growth is expected to be in the mid single digit range with fourthquarter in the high single digit range.

Operating expenses should see a step up in the third and fourth quarters, reflecting recently increases and more normalized gift on the loss rate.

We expect these trends will result in 2021, adjusted EBITDA at $488 million to $500 million for the rent. It's on our business segment translating to margins of approximately 23.8 to $24, 3% for the full year and the low 20th in the back half of the year.

Our capital allocation priorities remain focused on driving long term value creation per shareholders.

The top priority is appropriately funding, our current business and investing in value enhancing growth initiatives.

Next we will Opportunistically look at M&A transactions that can January favorable return.

After satisfying investment mean, we returned capital to shareholders through a combination of dividends and share repurchases.

With share repurchases employed opportunistically.

Underlying all capital allocation decision as a commitment to a sound financial structure with appropriate levels of elaborates.

With $300 million to $350 million are expected free cash flow for 2021 and strong underlying fundamental momentum we.

We believe the company has more than adequate cash flow defend investment.

Make significant progress towards our leverage target of 1.5 time and.

And per quarterly dividend.

Accordingly, our board of directors approved a $250 million a share repurchase authorization that replaces our previous authorization and represents approximately 7 percentage of our market cap at current share prices.

In closing as mix noted earlier, it's a very exciting time for all of our stakeholders as our company is in the process of transforming into a more dynamic fintech oriented business with the highly compelling total recurrent algorithm that includes projected strong top line growth.

With targeted revenues of 6 billion in 2023.

Margin expansion.

Stance on free cash flow generation capital returns to shareholders and solid double digit EPS Greg.

Detailed income statements by segment are posted to our web site and the 10 key will be filed later today. Thank you for your time on now turn the call over for your question.

We will now begin our Q&A session to ask a question. Please press star 1 on your telephone to withdraw your question of press. The pound key your first question will come from Kyle Joseph with Jeffrey. Please proceed.

Hey, good morning, Thanks for taking my questions and congratulations on a real.

Really really strong quarter.

And I appreciate all of the the commentary gave across all of the segments.

From a high level as it were thinking about 22 here.

And not asking for guidance, specifically, but can you walk us through and maybe it might be helpful to do it by segment, but how you are thinking about.

Normalization of revenues, obviously, assuming may be different than the rent a center segment and then as we think about <unk>.

Losses, and margins and then Mitch I think any day, good job kind of addressing some of the offsetting factors, whether it's maybe less buyout activity or on normalization of credit demand if losses do in fact normalize on 22, but just walk us through some of the offsetting impacts as we look out longer term on the business segments.

Share Kyle this morning, and I can I can on Internet and and then C.

Net has any additional comments that are longer term guidance as we talk to that hasn't really changed the 6 billion target and still are of 2023 target some of the assumptions that go into that growth projects in.

Alright that has seen that will grow 20 to 25 per cent and DMV as well as revenue over the next 3 years.

We had seen low to mid single digit comps and the redness on our business. We are seeing some of the benefits of that portfolio carrying forward into the second half as 2021.

And there could be some that scientists that portfolio growth continues.

And to play out throughout the year, but our current projections for 2022 and 23 still.

Still on seeing that load of mid single digit calm.

We also assumed 40 to 70 million.

The annualized run rate synergies with the Athima transaction and integration.

And it does not include as we've mentioned in the past the.

Benefits of any national accounts any large national accounts that we had.

Or incremental revenue associated with the Mastercard agreement.

Got it.

That's that's very helpful. And then click click 1 off here, obviously child tax credit payments started going out last month did you see any sort of impact on either segment.

No really milk on good morning, Kyle that's myths really nothing nothing to speak of I think our customer.

The payments are still strong I mean, our customers are.

In pretty good shape, so, but it's not like our payouts went up like when bigger stimulus checks hit and things like that so demand remains strong collections remains good but no big no big cop on payouts or anything that would actually dropped the portfolio.

Got it. Thank you Miss and then 1 last 1 from me probably either marine or Jason just on a seamer. Obviously these are really good.

EBITDA margin expansion quarter on quarter, recognizing there's some some moving parts there annually hasn't roughly 6 weeks of contribution from a seamer in the first quarter, but can you walk us through the the drivers of that it seems like losses or stable was it less buyout activity, obviously benefited from the full quarter of a theme but.

Walk us through the drivers between the big Big uptick in EBITDA margin there.

Sure Kyle on most of the improvement in EBIT margin went through gross margin you can see it sequentially increased on.

Couple hundred basis points, or 150, or so basis points switch business does the improvement in on.

Even on margin there were also some benefits.

Higher revenue less payouts as you mentioned translates to higher margin and also converting some of our preferred lease stores to a theme that to their technology at results in a higher yield.

So those are the main growth drivers, we do expect.

Margin to Inc. Increased progressively throughout the year as we mentioned last quarter, mainly due to the synergies really taking hold in increasing throughout the year.

Got it very helpful. Thanks, a lot for answering all my questions.

Thanks tone scale.

On your next question will come from Vincent Tainted with Stevens. Please proceed.

Okay. Thanks. Good morning, Thanks for taking my question I think first questions for Jay So on the GMB volume growth.

43 per cent, that's really price of year per year.

I guess first if you think that's sustainable number and then the second.

Perhaps if you could break it up.

Between what you're seeing an organic growth from your existing merchants versus your new account wins.

I am guessing with a 43 per cent number it's going to be a mixture of both but I guess it would be impressive it that was all organic or mostly organic from existing margin. So.

Perhaps if he could.

Break those 2 out that would be very helpful. Thank you.

Good morning, good too.

Good to hear your voice.

If you look at the GMB trend for the balance of the year I think what we're expecting is to grow around 20%.

And.

Growth Decelerates, because we're copying high growth rates from last year, obviously with the endemic and everything else that's happening.

1 of the other things that we think is going to be a tailwind.

From a forecast from G&P includes the on.

Line traffic and the activity metrics customer accounts. So we're actually doing a really good job with regard to our opening new doors and then most importantly, as we're bringing on some of the new technology as I mentioned in my comments of the ability to increase the churns per customer number of pieces and.

And that will have a direct effect and then like I also mentioned, we have a number of e-commerce.

Which currently represents about 15% of the segment.

And is going to continue to grow as we're bringing on more and more both partners there and also bringing the digital channels online with the assets that we announced earlier this week, yeah, and I would add to that.

The 15% that detail moves on the.

Low single digits, a year ago, the threats from in and it's going to continue to grow as a portion of the business as we continue to.

Turn up the volume on.

All of these efforts on our Omnichannel approach.

Okay, great. Thank you.

Second question I think this is for Mitch. So you mentioned M&A and prepared remarks on kind of curious what your what you might be thinking of when we look at the competitive landscape. It seems like up and down the point of sale financing spectrum and bye bye.

Buy now pay later on at least on you've seen a competitor.

Bye.

By not be later company to be.

Fully in the ecosystem on them.

Other competitors focus are doing more on partnerships with other navigator guys. I'm just wondering when you think about M&A on partnerships are both of the broad spectrum.

What are you thinking there thank you.

Sure Vincent think we're we're open to looking at anything that.

Good.

The right multiple and add Saar ecosystem.

And like I said, the right multiple for.

For us to get a good return on so I wouldn't.

Cut off any category, we're open to that obviously right now we are pretty focused on the integration of Athima, but it's gone smoothed. This view is talking about 6 months into it so and.

Cash cash is building you saw the share repurchase because.

As part of the capital allocation this.

Cash flow is better than we anticipated at this point. So will obviously continue to fund new accounts national accounts will take up some of that cash flow. We will be look will look at anything from an M&A standpoint, I wouldn't I wouldn't.

Not look at anything in any of those categories that you mentioned.

Okay got it that's helpful. Thanks very much.

Thanks Vincent.

Your next question will come from Brad Thomas with Keybanc capital markets. Please proceed.

Hi, Good morning on let me add my congratulations on a great quarter are on the momentum and the business.

I was hoping we could talk a little bit more about the loss range to skip stolen continue true.

Like it really favorable levels can you talk a little bit more about the changes you are making the decision on how much that is benefiting the loss rates and how sticky you think that maybe some of these more favorable trends might be.

Yeah, Brad Thank said, it's J. Thanks for the question and good morning, and I'll I'll kick off the answer in that over to Anthony as well so.

1 of the things that we have been sort of most impressed.

With the acquisition is the decision engine.

And the advantage that that gives us as well as our data Sciences group. So what we're finding is is a combination of the day to set that we're able to use from our legacy business in combination with a few months technology is enabling us to underwrite better from 2 components. The first component is from Ah.

Broad perspective, and being able to dial in and reduced down on.

Our fraud losses, and skip stones Resorbing from that and then the second thing is actually we're we're we're able to provide a better underwriting decision with regard to line in customer and so that the results in a materially.

Better ticket for us overall, so the combination of the 2 things is giving us and on.

Okay.

Yes, I would I would echo those sentiments on the renison or business as more of a portfolio transitions to E. Com 1 of the things that we're always concerned with is is how do we reduce fraud and decentralized decisioning has really given us an opportunity to reduce that substantially as it continues to be a larger part of.

Of the portfolio and that's really the most important thing for US is reduced the fraud and go ahead and convert more of the customers and another thing that we've introduced recently as well is approval amounts for our customers. So now not only can we go ahead and approve more customers. We can go ahead and and throttle the potential for loss by going ahead, and making a determination on the <unk>.

Evil amount. So it has benefited the rent a center business and also the increase in digital payments has benefited as well with more than half of the of our payments coming digitally that's that's helping as well.

Just real quick 1 last thing attack on on the scene a segment.

Data services capability now is bolted into our collections activities. So it enables us to anticipate in advance and make sure that we're being more targeted with regard to.

Doing preventative activities on a on site.

And the only other thing I would add bread, you think about the athima side in a virtual business like that decision <unk> is going to be a main component of it and you'd always trying to improve it and obviously we.

Think it's working really really well right now on 1 of the best parts of it seem as a decisioning and it continues to get better every base.

Basically every week on the underwriting from it.

Meats and review things so that's a core.

Element of the assume a business and getting better every week on the reminisce on their side.

It's relatively new in the in the last year and.

We never had much of a loss problem. It run. This winter is is you know bread.

So we've gone from the mid threes to the mid 2 that's fantastic.

On 1% is important and you can point to his decision engine for the majority of that.

Meg 1 per cent of important but beyond that the customer experience and <unk> I'm sure and the efficiency of using a decision in vs. Manual verification is is you could almost call. It a game changer.

45 minute transaction for our customer inside a brick and mortar store, then I'll take 10 minutes and the efficiency the labor savings on our end the customer experience.

You are on here is talk on a whole lot about labor costs because of the efficiencies we've found with decisioning in the digital payments and Anthony mentioned, even though the wages are up I mean at the entry level hourly wages, 1 Anthony and that like.

Like 15, 20% range you on.

Here is talking on a lot about it because there's a lot of offset with efficiency and using less hours to make up for that higher paid so.

And the technology and the E com advanced technological advancements overall of the reason for that and much more efficient business and then you add on to that it's a better customer experience for repeat business and all that and it's it's much more of a game changer a run the center than just the 1 per cent difference.

Probably in the in laws from Oregon.

That's great Yeah, all very very encouraging just to follow up on that last point you made much on the inflation front.

Could you talk a little bit about.

How an inflationary backdrop in merchandise.

The business I think of many years, where we were seeing deflation in areas like consumer electronics.

Furniture, and and how does that how does the outlook for the business change.

With the merchandise cost inflation that we're seeing.

Yeah I'd actually.

It's very odd and.

The impact on a lot of businesses is pretty negative on our business inflation actually can be a positive has been in the past and I think we're seeing some of that right now and it's a positive even.

Even when you pay more for product and that product gets more expensive a retail that's good for at least on all right I think everybody. It's easy to understand that if it's more expensive at retail.

It's good for <unk>.

Because of products or 20% higher I think we're seeing furniture prices, maybe even at retail 30% higher but if if it's not like they're going to get approved by prime lenders for 30 per cent more just because of inflation if anything it's going to get tighter with lenders right. So more more customer should start flowing into the into.

To see them through the war waterfall. So it's good it's good there when things get expensive redone and it's also good for the rent incentive segment.

And when you when you can pass on the.

Inflation that we're seeing in the cost of goods and small payments on average $2 a week. It doesn't have much impact on demand at $2, a week and 2 or $3 a week $10 per month, everyone to look at it doesn't doesn't.

Demand, there, but yet actually drives more gross margin dollars.

Overall, because we're more than covering the inflationary cost of the product.

It's more gross margin dollars would actually helps the EBITDA margins right. As it flows is if you have more gross margin dollars. So it can be very positive in the least on business for all those all those reasons as bad as inflation can be for the whole country in general for our business, where it's really an anti inflation play.

Really helpful perspective, Thanks, Mitch thanks, everyone.

Great. Thank you.

As a reminder to ask a question. Please pass star 1 on your next question will come from Anthony to combo with Blue capital markets. Please proceed.

Good morning, and allow me to.

To offer my congratulations on a really strong quarter as well.

So first question.

Very encouraging to see the I'm sure repurchase authorization, obviously buying back stock at these levels would be highly accretive to your earnings per share.

Now is that.

Sure purchase per I'm going to be a 10 b 5.1 or is it going to be where you are you going to buy back stock Opportunistically.

Yeah that we're going to think about share repurchases as a flexible way to return capital to shareholders with a preference track skating in a manner that generate value, meaning when the stocks are better value will die at a greater amount and if the stock on these down towards fair value worldwide lab.

Now we want to be able to continue to buy even within blackout periods and will likely use at 10 B 5.1 plan.

On we've used to it at times in the past.

We really want on balance more between dividends in share repurchases going forward with this new authorization.

Got it Okay. That's helpful and then just 1 clarification so.

You mentioned that your increased guidance.

Does not assume any additional government stimulus payments.

Are you counting are you considering the <unk>.

Then a child tax credit additional government stimulus payments from it seems to me like that is an additional government stimulus payments just that people are gonna be getting every single month as opposed to getting a 1400 dollar check so I just wanted to clarify that.

Yes, I think I think.

We saw such little impact in July with the first check them out as we as we model of the risks the rest of the year.

Certainly it's in there so I would say no additional stimulus not not true there's going to be a big impact on trial fix your credit. So you haven't seen much I believe if it if there is an impact that's positive.

But it's not like we've put a whole bunch of.

Positive momentum into our model because of it because we saw little impact in July so it's really not in our model.

It's obviously out there and if anything it will be a positive to the model on income.

Got it that's helpful. Thank you.

Thank you.

Your next question will come from John Rowan with Jannie. Please proceed.

Good morning, everyone.

Morning.

And on that you talked about national partners, a little bit.

Can you just maybe give us on the I know you I think also anything specific but what the pipeline is people who are testing or that you're a sales group of salt into just give us an idea of how we're moving towards the progress of getting on national partner.

Hey, John this.

It is J actually thanks. Thanks for the question. So we are now actually seeing.

Natural cow team get into what I would call full swing.

As I mentioned in the previous earnings call.

We are in we have a.

Robust pipelines, so we kind of break it into 2 areas as big National retailers, and then E. Com. So we have several hundred big fish and process with regard to the national outside and over a thousand from an E com target, which includes obviously large regionals.

Specifically, obviously, we're not going to comment on the partnerships themselves, but I can tell you that we're in we're in mid to late stage discussions with roughly a dozen.

Of the National partners, and probably double that with regard to the E com nationals and retailers. So really nice progress we track this now.

The good news is we picked up on a significant amount of talent as part of the acquisition schema, we've consolidated it with our existing National account team on our development office, and we're making really nice progress there.

Alright, thanks, guys.

Thanks Johnstown's.

Your next question will come from Bobby Griffin with Raymond James. Please proceed.

Good morning, Buddy Thanks for taking my questions hope everyone's doing well.

Thanks him on Earth.

I want to touch on the rent a center segment and maybe.

You talked a little bit about margins coming.

Coming back down to maybe the low twenties range, which is still an incredible level. When you look at where these margins EBITDA margin or on 2019, so nature and your marine wherever can you maybe unpack some of the drivers there that structurally change in the business and the confidence you have that these are not temporary stimulus changes in their more structural changes in.

You can maintain this low twentyish EBITDA margin going forward.

Yes, good question, Bobby I think.

The primary reason is.

Pretty close to a fixed cost business, so when you're growing like we're grown in demand as strong.

You get you get EBITDA margin of the lava flow through the bottom line think about that.

The gross margins in the 70% range and not much costs below that as you bring on more customers you get you get pretty good flow through right, 50% anyhow closer on every dollar so.

It's primarily growth now that E com helps from an efficiency standpoint, certainly.

Even the.

Even the inflation I mentioned earlier, giving us more gross margin dollars, but the losses being lower with the decisioning on.

All of those things working together, but I would say Anthony the primary reason is the demand driving the drugs the top line.

And and of course on a portfolio business, there's a long runway on that demand, we can see quite a ways out and that's why.

Our quote on quote slowdown in the back half of the year, so low double digit same store sales so.

And I would say that with.

With a little bit of a giggle when we call it a slowdown low double digits and so so all these all these extra dollars drive quite a bit of quite a bit of flow through on that's the that's going to be the biggest part of it.

Okay, and then maybe to follow up on Brad's question and understand how inflation is from places come in and it is coming on is how it drives the impact here, but are you starting to see it so already in the numbers on when we look at the $16.6 per.

Per cent comp renison or businesses that already benefiting from some merchandise inflation or is that more kind of a go for type comments.

I'd say, it's from our go forward I think we're just starting to see some price increases because of course at our volume of purchases are orders or we're buying quite a ways out.

So I think that's a forward looking benefit.

Honestly that we don't have modeled.

But it's really not in the numbers to date.

We're just starting to see it now and ticket as as inventory flows through the through the system. So but it's early on.

Thank you I I appreciate all the details on Buffy questions and best of luck to you in the second half.

Thanks Bye bye thank you.

And at this time there are no further questions I would now like to turn the call back over to Miss Fidel for closing remarks at this time.

Thank you drew mirror and thank everyone for joining us. This morning, obviously, we're really excited about.

How things are going in and we believe the best is yet to come in on a lotta people out. There think this is the peak we do not.

We see we see ongoing growth on the run the center side as we've talked about but we didn't spend much time talking about things like new product categories and van. Thank you mentioned that new prepared comments, but new product categories driving the business E. Com just just flying off.

Almost 20 per cent growth and he come on their own suicide comp on over almost 60% last year during the shutdown. So fantastic stuff there Ah seamer, obviously knocked it out on the park with their GMB.

And we are so excited about some of the proprietary stuff we announced this week that we really think increases the Tam Jays plan of attack.

Those with those products like the lease pay card and so forth, where you add that to assume on we really.

We forgot 1 plus 1 equal and 3 here the great plans were great ecosystem plan that the <unk> had since you started last year is coming to fruition and and yet to the assume and like I said, 1 plus 1 equals 3 so I could go on all day about how excited we are most of you probably already hung up.

I'll just stop there and so everybody have a great day and we appreciate your support thank you.

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

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