Good morning, and welcome to the Alliance Data Third Quarter 2019 Earnings Conference Call. [Operator Instructions] In order to view the company's presentation on the website, please remember to turn off the pop-up blocker on your computer. It is now my pleasure to introduce your host, Ms. Vicky Nakhla of AdvisIRy Partners. Ma'am, the floor is yours. Viktoriia Nakhla;AdvisIRy Partners;Senior Associate: Thank you, operator. By now, you should have received a copy of the company's third quarter 2019 earnings release. If you haven't, please call AdvisIRy Partners at (212) 750-5800. On the call today, we have Robert Minicucci, Chairman of Alliance Data; Charles Horn, Executive Vice President and Vice Chairman of Alliance Data; Melisa Miller, President and Chief Executive Officer of Alliance Data; and Tim King, Executive Vice President and Chief Financial Officer of Alliance Data. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Alliance Data has no obligation to update the information presented on the call. Also, on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the Investor Relations website at alliancedata.com. With that, I would like to turn the call over to Melisa Miller. Melisa?

Thank you, operator, and good morning, everyone. I'd like to welcome the folks that are with me here today, and I'd like to begin with an important update on our overall business transformation, including the progress Card Services is making in our journey to reposition the portfolio as well as our consolidated financial results. Tim will then cover the segment results, and I'll close with 2019 and 2020 guidance. Let's turn now to Slide 4. We can all agree that change was necessary. And if there is any message that you take away from our time today, it should be that we are indeed making tangible progress. First, I'd like to acknowledge that this road to transition has been lengthy and at times bumpy for our stakeholders. The Epsilon divestiture, tender offer and corporate restructuring are complete. Our Card Services business has expanded into healthy verticals, and credit metrics have normalized. Within Card Services, you'll see progress in 3 important areas. We've successfully shifted our focus to healthy brands and verticals. We continue to serve the modern consumer with digital tools, adding new offerings, and our streamlined operating model will allow us to do more with less and to get paid for the value we bring to the table. As I mentioned on our last call, we have been making the tough yet critical decisions in the short term to deliver on the long-term health and viability of the business. With transformation can come disruption, so we've kept this very simple and think about our efforts in 3 pillars: a streamlined operating model, ensuring we offer differentiated value, ultimately leading to consistent sustainable growth. Now while Card Services has been executing against its strategy to transition the makeup of the card portfolio, we've considered our broader operating model as well.…

Thanks, Melisa, and good morning to everyone. As Melisa just mentioned, there are factors negatively impacting us in 2019. While not underplaying these, the underlying metrics of the businesses are improving. So starting with LoyaltyOne, we see reported revenue decreasing 6% to $246 million for the third quarter. Adjusting for the unfavorable foreign exchange rate and the shift to a net revenue presentation for certain reward products, revenue increased 1%. Looking at Card Services, revenue was up 3% and in line with the increase in normalized AR. It is important to note that both of our businesses saw positive revenue growth on an organic basis. Moving to adjusted EBITDA, LoyaltyOne's number were negatively affected by product mix, resulting in an 8% decrease in adjusted EBITDA. I'll now move to Slide 8 where I'll go into more details on Card Services. As I mentioned in the previous slide, revenue was up 3%, in line with the increase in normalized AR. This is an important turnaround versus the prior quarter where we saw revenue down 4%. In Q2, we had both lower yields and lower normalized average receivables. This quarter, our average receivables are up, and yields are stabilizing, resulting in positive revenue growth. Operating expenses were flat year-over-year. And as Melisa mentioned, we have taken dramatic steps to increasing our operating efficiency. In this quarter, our revenue growth outpaced our operating expenses by 300 basis points. We had a $100 million provision increase compared to last year, which was largely the cause of Card Services' year-over-year negative performance. This was driven almost entirely by the difference in the AR growth trajectory. Let me walk you through the math. In 2018, our Q3 reservable AR decreased by approximately $430 million. In the third quarter of 2019, our reservable AR increased by approximately…

Thank you. And as Tim mentioned, there are a number of onetime factors affecting this year's statement. If you turn now to Slide 10. First, we did not contemplate the Fed lowering the prime rate twice. In fact, like many in the industry, our early forecasts predicted a rising interest rate environment. Second, we are now expecting a larger markdown on our held-for-sale receivables than previously anticipated. However, we are committed to moving forward with the sale of these portfolios to clean up our balance sheet. Third, we've seen some credit sales deterioration in our core programs, which is leading to a slight reset in our average accounts receivable. We still fully expect to exit 2019 with yields higher than the previous Q4, yet down slightly for the full year. We are tackling these disruptions now, and they are all fully reflected in our guidance for 2019. The combination of these factors is driving both the revenue and a core EPS reset. Where we guided to revenues of $5.8 billion, we now believe we will be flat to 2018 at $5.6 billion. On core EPS, we are now targeting a range of $16.75 to $17 even per share. On a pro forma basis, we are targeting $20.50 to $20.75 EPS. So despite the moving pieces, I hope you've heard that we have made tangible progress in improving our business model and repositioning the Card Services portfolio. We are shifting our focus to faster-growth verticals, and we'll be implementing new offerings and doing more with less at a lower cost. Our efforts will ultimately restore the health and vitality of the company, and we are confident that growth will follow. And finally, moving on to Slide 11, we will enter 2020 with a more focused streamlined business with the building blocks…

[Operator Instructions] Your first question comes from the line of Sanjay Sakhrani with KBW.

Thank you for all the context as we look into next year, but I wanted to just clarify maybe your confidence on some of the guidance data points that you've provided, both in terms of revenues and expenses for each of these segments. I guess one point I was thinking about is when I look at your rate assumption for no rate reductions -- no more further rate reductions, it seemed like the market is assuming there might be 2 to 3 more. So should we think of that as putting risk to the EPS target range for 2020 if that's the situation? And then how should we also think about capital ratios and how you'd manage capital going forward into 2020? I've also got one follow-up after.

Sanjay, so let me start with the rate question. So we do not expect any yield compression without contemplating the Fed, any further action by the Fed. So that would put risk on us if the Fed does lower rates. So that's answer one. Two, as you start thinking about the guidance going back to the yields, we expect yields to stay flat. So our yields, and therefore our revenues, should be very consistent with our AR growth, meaning we don't expect any degradation in our yields. So very much in line with our AR. That's going to flow through to our EPS. And the EPS is, of course, going to also benefit from the cost savings. So if I'm going to -- if I just use -- and I'm going to use pro forma and I can switch back if it's easier, but if I use the pro forma that we've put out of $20.50 to $20.75, we would expect our flow-through on that pro forma because we've contemplated the expense reductions in our pro forma to be up 6% to 8%.

Okay. And I guess, what are the asset and liability betas if you have further rate cuts? Like how does that flow into revenues and expenses for card?

I'm not following your question. Are you asking how rate-sensitive we are on the asset side versus the liability side?

Yes. As rates go down, like what -- how should we think about the impact?

Yes, it -- we're about 70% to 80% variable rate on our book. It takes about 6 months for our liabilities to catch up to the rate reduction, meaning to reset our liabilities. So in essence, we have exposure for about 3 months or 4 months as the liabilities start catching up and, obviously, our assets reset more quickly.

Okay. And maybe some more color on sort of how we should think about capital management and ratios. And then my follow-up question is, also, I saw an 8-K that Kelly Barlow from ValueAct is stepping down from the Board, and it doesn't seem like there are any disagreements with the company, but maybe you guys can talk about the relevance of that and how that might affect the path forward. And also, Melisa, I thought I heard you say you guys are done with the corporate restructuring. Does that mean that any further sales or divestitures are off the table?

All right. So let me -- I'll take the capital ratio. We'll turn it over to Rob since he's here, to talk about Kelly. Then I will switch back to Melisa as far as any further strategic conversations. So capital ratios, Sanjay, I really think about that in 3 very distinct buckets. I obviously think about the balance sheet, making sure the balance sheet is very healthy, we have enough cash on that balance sheet. We also think about any type of strategic investments. So anything we might do in card or the other LOB as far as looking at doing some type of investment to obviously shore those businesses up or continue to grow those businesses. And then, finally, of course, we look at stock repurchases. So we look at those 3 different buckets, and we just balance the 3 of them out.

And Sanjay, if I might add to that. We also consider the capital strategy with the overall business strategy. So they're not -- we don't separate them, they actually go hand-in-hand. And so as we look forward and ensure that we are making the right investments back into the business, that will influence how and where we allocate capital. We see them going together. And then I'll pick up on the corporate restructure question, Rob, after you.

So with respect to Kelly Barlow of ValueAct, Sanjay, this week, Kelly informed us that earlier in the year, he took on new responsibilities. He was named a co-Portfolio Manager of a new fund of ValueAct that focuses on social environmental problems. He continues as a partner in the master fund. You said it in your comments. Kelly has been a significant contributor to the Board. There are no issues in terms of strategy differentials, financial or operating differential perspectives. He was very effective in raising in or changing our strategy in our pivot and the management changes. And so I think now with our path defined, he's going to devote more time to his new role at ValueAct. So clearly, we're grateful for his service and wish him the best.

And Sanjay, if I might come back around on the corporate restructure question, I appreciate you giving me a chance to follow up. What we were attempting to articulate was that the corporate restructure actions in connection with the Epsilon sale were complete. If there would be anything in the future, of course, we would reevaluate what would be required. We mentioned previously that we had a number of initiatives that were under strategic review, and that really is still what we would say where we are today. Does that answer your question?

Yes, yes.

And your next question comes from Darrin Peller with Wolfe Research.

Just maybe start off with what you might be contemplating in 2020 guide with regards to either portfolio acquisitions or the type of growth from different types of retailers. How much flexibility do you actually have on portfolio acquisitions also would be helpful. And then should we be expecting any more portfolios to move into held-for-sale, just overall how is the health of the portfolio?

Darrin, in terms of portfolio acquisitions, currently, our 2020 guide does not contemplate any large-scale acquisitions. So that could be an upside opportunity. Moving forward, our long-range plans, certainly we would be evaluating that which is available in the market. We do expect, however, to be signing a very healthy new vintage next year. And some of those programs that we signed this year will be coming up next year, and that is also fully contemplated in our 2020 guidance. And then with respect to held-for-sale portfolios, we did have a strategic nonrenewal, but sitting here today, there isn't one that we know about. We'll always be selective in what that looks like, and that's largely why we are really committed to moving forward and clearing up the balance sheet with those that are there today.

Okay. Just a quick follow-up on that. When we think about the profile of those new vintages, with regard -- with respect to the credit quality of those loans as well as the yield and the trade-off between the type of yield you want to get for that credit, I mean, is it basically the same? And I imagine we should be expecting the ROE to get back to north of 30%.

It's a great question. And the answer is, from a credit quality perspective, we are actually seeing a bit of an improvement in some of the newer vintages over the rest of the book. But we would expect that over time, we would say it would be stable and the exact same with the yields. They just take time, as you well know, to spool up. And it really depends. If we have a start-up program, you're looking at about 3.5 years-ish by the time we get to steady state versus, of course, a full-scale conversion, where we have productivity right away. Tim, anything to add there?

No. There was just -- last question. And I'm sorry if I missed this earlier, but I was just trying to find the breakdown on the revision to EPS guide this year specifically with the -- from the held-for-sale. I mean I'm sorry I couldn't find it or you may have said it earlier, but if you could just reiterate that.

Sure. Darrin, obviously our reset, Melisa outlined 3 specific items that were -- caused our reset. One is going to be the held-for-sale mark. Two is going to be a slightly lower average receivables, and then the third, -- why am I drawing a blank?

Prime rate.

Prime rate, thank you. So -- and each of those is about 1/3 each.

And your next question comes from the line of Bob Napoli with William Blair.

I guess the -- Melisa, what is the right revenue and earnings growth rate for this business over the long term? I mean do you have -- can you give some color on what you think the right model is?

Now that's a great question, Bob. And I'm glad that you asked it because as we bring forward our long-range plan, for us, it's not growth at all cost. For us, it's not deliberately throttle growth back because you have a short-term gain. It really is what is the best for the long-term viability of the business. And we would say long term, high single digits, both in terms of revenue growth and throughput. And of course, our sales and AR would be slightly different depending upon if we have a year with many conversions or many start-ups.

Bob, there's some other factors, too. When we start growing in the high single digit, certainly, we have some opportunistic things presented to us. Certainly, if we could go over slightly that number, that's fine. We don't end up hurting our organization. We have infrastructure we need to put in place. We have capital requirements. Certainly, we need to make sure that we have a compliance organization to keep up with that. So we start thinking long term with high single digits. It will bounce around a little depending on the opportunities we see.

Part of our enthusiasm...

And then if I...

Go ahead, please.

I was going to say if you look at that high single-digit revenue growth, and with your strong ROE, I mean, do you get some operating leverage on expenses, and then capital return drives like low double-digit earnings growth and EPS growth? Is that the model or is that...

This is our model. As you go down the P&L, obviously, when I start looking at the AR growth, [ i.e. at ] high single digits, I expect my revenue to be in line with that. We are not seeing any degradation in our yields at all. When you go down to our operating expenses, we are pushing efficiencies there. So we'll get a little pickup there. Charge-offs are -- have been very stable. So our provision expense and our charge-offs have been very stable with a little bit of pressure in the last few years in cost of funds, which certainly is abating now. So by the time you get down to that, yes, you should have some flow-through that's better than your growth on your AR.

Okay. My follow-up question is just -- and I appreciate the presentation on the shift in the customer mix, but it's a -- I mean, a very choppy retail market out there. And I mean, I would guess that as you look at your portfolio that, I mean, I'm sure you guys know which customers could be at risk and not at risk. And how do you get confident, I guess, in that long-term model that even as you're still converting or adding more stable retailers that you're not going to have some significant fallout? Some of your larger customers still are -- that are in that active or not exactly performing with all cylinders going, I guess, if you would.

Yes, that's a fair observation, and just a few thoughts we bring forward. First, some of the divestitures, particularly those that we executed against that last year, actually helped to derisk our portfolio. We closely monitor the viability and the financial health. And of course, there is a list or a watch list that we carefully consider. But when we really think about the risk to the organization, Bob, we look at it in the form of EBT risk. And so what we have done is, as we've built our long-range plan and our guidance for 2020, we have assumed that there will be some percentage of brands that will not make it. And that is fully contemplated in our 2020 guide and our long-range plan.

And I'm sorry, I need to sneak one more in. I guess the buyback that you did, why do the buyback when you did and the way you did with -- I mean, I think knowing that there's some cleanup to go? And I think you like raised your guidance a little bit last quarter. Why do the buyback at the point that you did and not wait until you have a little more understanding or control over the business, if you would?

So obviously, we looked at a variety of options working with the Board as far as what was the right return to the shareholders. We felt that Dutch tender auction was the best way to get some return back to the shareholders. We were considering a large variety of different options and it seemed like the best to us at the time. And I'll tell you our view is we successfully executed that Dutch tender. The stock was trading about $155 a share when we executed that. And we were able to buy close to -- actually a little more than 5 million shares at below the market price of $148. I think a lot of people are judging that versus where the stock is now. But if you look at the circumstances when we executed that Dutch tender, we thought it was a nice return to our shareholders.

And your next question comes from the line of David Scharf with JMP Securities.

Melisa, I'll kind of echo some other comments in expressing appreciation for kind of the deeper dive into the portfolio shift. I did want to follow up on that a little bit. And one of the hallmarks of the traditional retailer base, notwithstanding all the secular challenges that you've had to pivot away from is that over the years, there was a remarkably high retention rate among all those traditional mall-based retailers. And as we think about the 60% of AR now that's coming from these newer verticals, I'm wondering if, as a start, you can perhaps give us a sense for the timing of those renewals. I mean since these -- a lot of these are newer companies, they're not necessarily start-ups, but things like Ulta and so forth that have experienced such rapid growth recently, can you give us a sense for the contract lengths of a lot of these, and perhaps what percentage of that AR might be up for renewal in 2020 and 2021?

Great question. Thank you. So again, our guidance for 2020 would fully contemplate any programs that we would bring forth or consider up for renewal. So that would be important. And on average, it does depend on the vertical, and it does depend on the product type, whether it's a co-brand program or private label. But they're anywhere 7 years to 10 years. There are a few programs that are 5 years, and that's largely driven by us because we want to ensure that it's a vertical into which we would like to play. Does that answer your question?

Yes. No, no, no, that's helpful. It sounds like there isn't any imminent bubble of renewals necessarily in the next 12 months or 24 months.

No. They are spread over the term. So if we start thinking of 7-year, 8 years on average for our renewals, if you look at -- we look at this fairly often is to look at -- make sure we don't have a big bubble in 2023 or 2024. They're spread fairly consistently over the terms, which is nice because we don't have any big renewal risk in any given year. When we look at the big renewals, the small renewals, co-brands, the PLCCs, when we look at all of them, I'd say we don't have any risk other than it's just -- it's peanut butter, for the lack of a better term, over the like 7 years, 8 years.

And David, I appreciate the comment about remarkable renewal rate. I actually wrote that down. I'm going to have to put that on our office wall. What -- and we appreciate the acknowledgment. We retain 100% of the brand partnerships that we want to retain. So if we are in a situation where we are parting ways, it really is because there's a fundamental disconnect in how we view the value and the viability of the program.

Got it, No, that's helpful. And that's actually a good segue to my follow-up. As it relates to the held-for-sale, by my calculation, based on kind of the efficiency ratio, the OpEx, the 8.7%, I calculate the markdown on that held-for-sale at about $60 million. Can you give us -- that obviously has implications, not just in valuation, but potentially timing. I seem to have jotted down in my notes that the expectation a quarter ago was that most of that held-for-sale would be disposed of by the end of this calendar year. Is there any update on your latest thoughts on timing?

Yes. Obviously, we're actively negotiating the portfolios right now. Clearly, we're not going to do something that would be silly economically for the sake of December 31, but we would very much like to clean up the balance sheet by the end of this year.

And your next question comes from Andrew Jeffrey with SunTrust. [Operator Instructions]

Tim, can you help us at all with how your core EPS outlook might translate into GAAP? It strikes me, a lot of investors are waiting to understand what your GAAP earnings are to make ADS more comparable with peers. And I know there are a lot of moving pieces, but can you help us with that at all?

Yes, they should be -- if I'm -- I'm doing this quickly in my head, but there should be no difference in my improvement -- in my GAAP versus my core EPS. There's not a big difference as I go from my GAAP -- as I walk down to GAAP from my core. So you get the same type of improvement.

Okay, that's certainly helpful. And then as a follow-up, when I sort of want to dig in a little bit on the reserve build. And I recognize, again, that CECL may change the dynamic here a little bit, but should we expect, as the portfolio grows, that we're going to see sort of the stair-step pattern? I'm just trying to understand why there'd be -- what sounds like was a catch-up in 3Q and how to reconcile that with growth going forward.

Yes. And I realize that was a difficult math exercise to go on an earnings call.

Especially for me.

The big difference -- Andrew, we talked before, and I know you understand it, but just for the audience. When I'm comparing Q3 of '18 to Q3 of '19, the difference in the end-of-period receivables build, which is what I have to put the provision up for, is $1 billion. I decreased $400 million last year. I increased $600 million this year. At a normal reserve rate, that should -- just a standard reserve rate's going to cost you $60 million to $65 million, hence, the $100 million. So it's also, last year, we got a benefit of lower rates. We've declined in our rates. We've picked -- got even better last year because, again, I'm comparing year-over-year. This year, I have very stable credit, so I didn't have any issues there. But last year, I got a lower rate and lower receivables. This year, of course, I had higher receivables, stable rates. The difference was $100 million between 2018, 2019. There's nothing -- there's no credit issue there. It is 100% based on receivables. That help?

Yes.

And your next question comes from the line of Dan Perlin with RBC Capital Markets.

Can you just kind of help remind us how you plan to get L1 back to growing again versus kind of the cost rationalization story? And then what would be like the trigger for underperformance that would require you to get rid of it? I mean I know the question was asked about disposition of assets, but I'm just trying to get a picture about how this all plays out as you think about this kind of long-term calculus for the business.

I think it really comes back to a couple of things, Dan. First, if we look at air miles, you know the modeling comes down to miles issued. So if miles issued drops, cash flow drops future revenue recognition. We've had some major client renewals. We have a major renewal this year with Bank of Montreal. I think that will then position us to get back to really driving growth and getting more promotional miles issued. With it, we are also looking for ways where we can improve the value proposition to our collectors to get them more active, get them more engaged and actually increase our burn rate to some degree. And that will the drive top line. On top of that, we have made several reductions to the cost structure in Canada, which is going to help us on a profitability standpoint. So we are looking for improvements across the Board with air miles in 2020. With BrandLoyalty, let's be frank, it's been a rough 3 years frankly in terms of performance. This year, it will be up year-over-year in terms of EBITDA, but there's still some improvement to do. We've made several changes there in terms of the cost structure, and we're looking to further roll out some digital initiatives to further drive basically client engagement. We think that's going to be good going into 2020. I could still see a situation with BrandLoyalty where the revenue is down year-over-year as we reposition it in the market, but we do believe that EBITDA will be up just based upon the revised cost structure we've put in place.

Okay. Did I hear you say the BMO renewal is still yet to happen? Is that -- that wasn't my follow-up. I just wanted to clarify that.

Yes.

But that happened in '19?

Yes, Q4.

Yes, Q4. Okay, great. And then the second question, Melisa, as you talked kind of the portfolio, right, so it's pretty bifurcated. You've got this great new opportunity of clients. You've got some of these legacy clients struggling. I'm trying to understand the conversation that you have with them to kind of drive growth. So you've got legacy clients who you're trying to sustain, I guess, in a lot of ways, but also help them through their process. And I'm wondering what that conversation is actually like today versus this real growth opportunity, which is this rate of change story that you're telling.

Yes, that's a great question. And of course, every brand partner is different. You almost have to look at each one of those dozens of programs individually because there are brands within our core files that are growing high single and, in some cases, low double year-after-year. They are, however, masked a bit by the partners that are not growing. So for us, it's all about making sure that we have the right campaigns in place that are getting the consumers to spend more often, make an extra trip and spend more when they make a trip. In fact, if you look at our year-over-year metrics, number of buyers up, spend per trip up, retention rate. That's a little brand-dependent, but, by and large, it's either flat to up. So our partners do -- listen is the wrong word. Our partners do count on us to be there for them during these times of weak sales. The card program, for many of our partners, is the bright spot. When someone has one of our cards in good times and in bad for a brand, they spend 1.5x to 3x as much as a noncardholder. So these card programs are very, very valuable to the partners we serve.

And your next question comes from the line of Eric Wasserstrom with UBS.

Melisa, my question relates to the -- to just the go-forward economic model of ADS relative to the historical. And I think one of the things that the investment community is, I think, struggling with a little bit is understanding how ADS contemplates value creation. Historically, the emphasis was on earnings growth and adjusted earnings growth, which resulted in high double leverage and an emphasis on share repurchase, which, of course, accelerated EPS, but was largely destructive to book value. And now that you are predominantly a lending company, and book value is a relevant valuation metric, you look very expensive on book even as your PE optically is very low. So can you just maybe help us understand, on a go-forward basis, how we should think about and measure value creation at ADS?

Sure, Eric. If it's okay, I'll take that, and Melisa will jump in. So the value creation, I'm just going to go right to the top with the revenue. Clearly, by -- if you're thinking value creation as far as shareholder return, increasing the EPS, so I'll go to book value in a second. But going straight through growing our book by 9%, 10%, 11%, high single digits and having that flow straight through and then getting to my revenue, having my earnings, obviously increasing my leverage on my operating expenses, you get your earnings per share. You then go back to say, "Well, boy, I'm concerned about my book to my overall -- my book value." And that is very much, as you said, a financial institution metric. We still do have 2 other divisions. We still very much -- and that's obviously why I'm quoting core EPS. I'm not quoting GAAP EPS. That is who we are currently. If we are ever to go to an institution that didn't have those, of course, we would look at our tangible book value. But then I'd come back and say tangible book value is going to be a function of the prime to value of my assets at what they're carried. And I'd say when you start looking at our receivables, our receivables have dramatically higher yields, dramatically higher returns. That when you start looking at book value versus our peers, given how our ROEs are and our growth are, I don't think that's a fair comparison. I think obviously we should trade at a higher multiple just given our performance. And so I'm happy to walk through kind of more metrics with you if you'd like, but that -- because you're in that land of, boy, tangible book value as opposed to what the value of the underlying assets are. That help?

Yes, yes. And just to follow up on one point. Just with respect to your leverage position, what -- can you help us understand whether the priority is to continue to reduce your debt or, in fact, to accelerate leverage through incremental share repurchases?

Well, clearly, that's a conversation when we start thinking about the cash flows, debt repurchase that we're balancing, I'm going to take a little bit of the newbie card here and say 120 days. Obviously working with the Board, making sure we think about debt repurchases, debt -- share repurchases. So we're working through that.

And your next question comes from the line of Vincent Caintic with Stephens.

Just, first, a quick clarification just because I know there were a lot of numbers, but the 2020 outlook EPS mid to high teens, that's based on the 2019 core of $16.75 to $17 a share, is that right?

Yes. So if you're going to use core EPS, then go to core EPS in 2020, the quote we had was mid-20s. So call it $25, $24, $26 range to high 20s, call it, the $28 range. That's -- we're kind of -- we're guiding in that ZIP code.

Okay. And the core -- the year-over-year core is the 16 -- it's not the pro forma number. I'm just -- yes, just because I noticed your pro forma of $20.50 versus sort of the core, okay.

When I answered the question for Sanjay, when I switched to pro forma, that's when I said the 6% to 8%. So if you want to use the pro forma, the $20.50 to $20.75, it would be 6% to 8%.

Okay, got you. Okay, very helpful. And then my broader question is -- so I appreciate all the things that are changing and all the detail. And I think the Investor Day, I think people look forward to that because it seems like a lot of things are evolving. I'm sort of just wondering, kind of similar to -- maybe similar, but a different take to some of the other questions is, so you've got active receivables growth still in the mid-teens range. You've got your -- maybe the total portfolio is shrinking. How should we expect that to go into 2020? And then when you think about your -- and, I guess, your stock's now indicating $114 premarket. When you think about buybacks there versus renewing some of these accounts that might be struggling, just how broadly do you think about that part of the business?

So let me talk about the receivables growth. Clearly, when we're looking at the average receivables growth, you'll see that we're down 1% on a reported basis with the end of period being up 3%. The trajectory we're showing and, hence, the position we are taking in the earnings call was if you go back and look at Q1, down dramatically; Q2, getting back to flat, Q3 to end of period, and then if you just use the guide of $19.5 billion versus the end of period last year, we're going to be up 9%. And so part of what we're trying to convey, and we hope folks take away, is that the -- all that -- we're selling portfolios, all of those different things we've done back in 2018, we're working our way through that, and we're back to a growth profile with our AR. That should then translate into -- because we think our yields are fairly flat, meaning then you translate into a growth in your revenue that's commensurate with your growth in your AR. The business model, from our perspective, is pretty simple, grow your AR, keep your yield, keep your charge-off and obviously get some leverage on the OpEx and you obviously grow your EPS. And that's what we're trying to convey here.

And your final question comes from the line of Jamie Friedman with Susquehanna.

I just wanted to ask you, Melisa, with regard to that Slide 5. Your voice was noticeably more excited, enthusiastic. I had 2 questions related to that. One, I'll just ask them upfront. The distinction you're making in the sequencing of the vertical versus the vintage, it looks like the verticals go before the vintage. I just want to make sure I understand why you pointed that out. And second, if you could just share some more use cases. You talked about beauty, home goods, retail -- and eTail, rather, in your prepared remarks, but some more would be helpful. So the vertical versus the vintage and then the use cases.

Sure. So the -- part of the reason that we've tried to separate the 2 is we -- if you go to vintage first, we have found that there is huge demand in the marketplace for what it is that we bring to the table. But if the vertical itself is not growing or not changing with the modern consumer, then, 3 years from now, we're going to be back to the same place. So we deliberately tested into what are the winning categories where we believe there's markets and consumers are going to want to stay. Another example could be children. So those of us that are on the phone that are parents, the one thing that we always do is we want to be sure that our children have before we do. So that would be another example of a vertical. Not all are winning, but that is a vertical that is going to endure. So then when we go down to the vintages, by the time that you conclude that a vertical is viable, you develop a list of healthy candidates, go through the selling and onboarding journey, you're looking at about an 18-month time frame before you get that first dollar, if you will, of revenue. So that's why you will almost always see that vintage shift lack the vertical shift -- or lag the vertical shift. Does that answer the question?

Yes, that's really helpful.

And at this time, there are no further audio questions. We will go back to the speaker for closing remarks.

Well, I certainly want to thank everyone's time for today. I understand there were a number of moving pieces and messages that we asked you to consider. We want to acknowledge again that this road has been long for many on the phone here today. And our goal is to make sure that you are confident that we are making the progress that we know that we are making, and that we will finish this year strong and it will be a great jumping off point for 2020. So thank you, everyone, and we'll talk next quarter.

And thank you. This concludes today's conference. Thank you for your participation. You may now disconnect. Presenters, please hold one moment.