Mitch Fadel - Chief Executive Officer Maureen Short - Chief Financial Officer Daniel O'Rourke - Vice President of Finance

Good morning and thank you for holding. Welcome to Rent-A-Center's Second Quarter Earnings Conference Call. As a reminder, this conference is being recorded Tuesday, August 08, 2019. Your speakers today are Mr. Mitch Fadel, Chief Executive Officer of Rent-A-Center; Maureen Short, Chief Financial Officer; and Daniel O'Rourke, Vice President of Finance and Real-Estate. I will now turn the conference over to Mr. O'Rourke. Please go ahead, sir.

Thank you, Jessa. Good morning, everyone, and thank you for joining us. Our earnings release was distributed after market closed yesterday, which outlines our operational and financial results for the second quarter of 2019. All related material, including a link to the live webcast are available on our website at Investor.rentacenter.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 from our expectations. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements. These factors are described in our earnings release issued yesterday, as well as in the company's SEC filings. I'd now like to turn the call over to Mitch.

Thank you Daniel and good morning everyone, thank you for joining us. We will be providing a voice over to the presentation shown on the webcast. If you are unable to view the webcast, the presentation can also be found at investor.rentacenter.com. Now, moving on to the first page of it and our company highlights and strategic updates. The strategic plan we laid out last year focused on cost optimization, enhancing the value proposition and refranchising. The successful execution of our strategy has been instrumental in driving same-store-sales and EBITDA. Over the last 18 months we've taken over $140 million of annualized cost out of the business and with the refinancing now completed that number goes up to approximately $160 million moving forward, due to the expected interest expense savings of between $15 million and $20 million annually. This new capital structure has also enabled our board to approve the initiation of our quarterly cash dividend of $0.25 per share starting in the third quarter. Maureen will fill in the additional details regarding capital allocation, but certainly a big step forward. The value proposition enhancements we’ve made are having a positive impact as reflected in our continued same-store-sales growth. One of the key initiatives we’ve focused on this year is driving online traffic, which is up almost 30% for the quarter. We also focused on improving the conversion rate of those orders which we've also done, and that’s improved by about 400 basis points. We’ll hit a few more web and e-commerce steps in a minute, as this really becomes a really key growth driver for us. On July 15 we announced our intention to acquire Merchants Preferred, a nationwide virtual rent-to-own provider which fast-tracks our existing virtual rent-to-own strategy. The virtual business is now becoming a top priority and…

Thanks Mitch. Good morning everyone. I’ll cover some financial highlights for the second quarter; provide an overview of the refinancing we recently completed and close with our increased guidance for 2019 before opening up the call for questions. During the second quarter, consolidated total revenues were approximately $656 million, flat versus the same period last year, primarily driven by a consolidated same-store sales increase of 5.8%, offset by refranchising and rationalization of our store-base. Adjusted EBITDA was $67.4 million in the quarter and EBITDA margin was 10.3%, up 100 basis points over the same period last year. Net diluted profit per share excluding special items was $0.60. In our core U.S. segment, total revenues in the second quarter decreased 1% versus the same period last year, primarily due to refranchising and rationalization of our store base, partially offset by a same-store sales increase of 5.6%. Store labor and other store expenses decreased by $23.8 million, primarily driven by lower store count and cost savings initiatives. Adjusted EBITDA in the quarter was approximately $73 million, and EBITDA margin was 16.2%, up 280 basis points versus the prior year. Now turning to the Acceptance NOW business, total revenues in the second quarter decreased 1.5%, primarily due to the run-offs of certain Acceptance Now partners, partially offset by a same-store sales increase of 6%. Store labor and other store expenses increased by $3.8 million, primarily due to higher year-over-year Skip/stolen losses due to recovery credits in the second quarter of 2018. Adjusted EBITDA in the Acceptance NOW segment was $23.1 million and EBITDA margin was 13.1%; lower than last year but up 180 basis points from 11.3% in the first quarter of 2019. Remember as you look at last year, the Acceptance Now business benefited from the run-off of accounts from Conn's and…

Thank you. [Operator Instructions]. Your first question comes from the line of Budd Bugatch from Raymond James. Please go ahead.

Good morning and thank you for taking the questions; just a couple of questions. To start I’ll just start with the Merchants Preferred since that’s the newest initiative. Mitch can you give us kind of a read of what your first steps will be on Merchants Preferred? How are you going to plan to integrate and maybe give us a little bit more flavor of what their current is in terms of doors and growth of doors year-over-year and that kind of historical?

Yeah, I can give you some of that Budd, good morning. Probably won't get into too much of the historical results, we haven’t even closed yet. So we can talk quite a bit about it, but I won't get into too much depth with it, like I said, we haven’t even closed yet. But generally speaking going forward we're going to have integrate the business. We are going to have at least initially – the people here running the staff model will continue to run the staff model and Joe Corona and his team out of Atlanta with Merchants Preferred will run the virtual model. So we are going to – you’ll see the numbers integrated, we are going to have the experts on each side work together, kind of co-leads if you will the person that runs Acceptance Now for us and then Joe who leads, their CEO of running the virtual. So co-leads, still working on the branding, doing some customer research on whether we keep both brands long term, initially we will – whether we keep both brand names long term or not, we're doing consumer research on. They've got about 2,500 doors. I mentioned their LTM in revenue is about $80 million. They have started to turn a profit in the last year or two. As I mentioned, what we like a lot is they’ve already built the infrastructure, already taken the start-up losses that we're about to embark on from an Acceptance Now standpoint to dive into the virtual world. They’ve got a large pipeline, they have been capital constrained, so we can unleash that pipeline with their 40 plus sales person team. We’ve got a large pipeline for virtual. We went over the numbers, how we think we can grow the $700 million of Acceptance Now becomes $800 million with Merchants Preferred initially and we think we can go to 1.2 over the next three years, we are very confident we can do that based on the businesses out there. The offering will have new verticals, and when I say the offerings, you know manned or virtual or a combination of the two which will be – we are the only ones out there that will have that combination and to new verticals. They are in tires, we are not in tires, so that’s new vertical and there’s other new verticals to talk about. So we are excited. It should close this month and get working on integrating the two businesses.

Okay, let me just turn to, quickly to the core, one of the issues we talked about last quarter and was the 180 days. It looks like it showed up maybe a little bit in gross margin performance this quarter and the quarter year-over-year. Can you talk a little bit about what's affecting gross margins? I saw it; the cost of merchandise sales was up significantly year-over-year. Talk a little bit about how that works and may be if you could give us a flavor on what investors should expect?

Yeah, I think – I don't think it just showed this quarter. When you go year-over-year, don’t forget last year in the second quarter is when we were making the value proposition changes. If you look sequentially the last four quarters, it’s the highest gross margin in the core business in the last four quarters. So it started to show up as soon as we put it in at the beginning of 2018. By the third quarter it was showing up and our gross margin percentages have only gone up from there slightly. They've been about 69.5 every quarter. So it's been pretty consistent and I’d expect them to stay at least at that range. Sequentially they’ve improved actually since the third quarter of last year, and quite a bit of improvement over the first quarter, so I think that’s already baked in. It’s not like they are dropping. They are only dropping year-over-year because we made a lot of changes last few, the beginning of the year, and I just point to the EBITDA margins. The 16.2% EBITDA margins in the quarter is the highest in forever, and its almost 300 basis points higher than it was a year ago. So if the gross profit is down marginally from a year ago, the EBITDA margin is up almost 300 basis points, which I think is the important number, and like I said, just looking at the gross margin last four quarters and it's not like it's dropping. It's only dropping if you go all the way back to second quarter last year before we made the value propositions, and it is lower than it was before we made the value proposition, but again even EBITDA margins is the highest in forever. So we've got a better value proposition, but we’ve taken the cost out, so we are making a lot more money than we used to overall and the gross margins are pretty – it’s already backed in. It’s not like they are dropping anymore now. They only dropping when you go back to early last year. So overall we are really happy with those margins, with the EBITDA margins.

Agreed, I see that. What’s the average contracts for – number of contracts now per core door? Can you kind of give us what that looks like? How the customer count is?

You know I don’t have that in front of me. I know one of the slides shows the customer count per store effect on page three. The customer count is right on top of where it was per store back in 2016; the blue line on page three compared to the red line. So we are right on top of our high point for ever finishing our second quarter – I’d say ever – in the last four years where the high point customer account was, but I can’t say its three of the presentation. I don’t have accounts in front of me, but that’s the customer account which is going to be about the same. I mean the accounts are higher than the customer account on a kind of relative basis and comparable will be pretty close.

Great! And a last for me, just Maureen can you talk a little bit about the rates in the Term loan B and revolver, how does that look? I know we get $10 million to $15 million of annual interest savings. When will the document be filed on those agreements and can you maybe give us a little flavor of inside what those look like?

Sure Budd. Within the 10-Q that’s filed later today, it will include all the information about the credit agreement, and the rates on the AVL are initially 150 basis points plus LIBOR. Its dependent on leverage that can range from about 150 to 200 basis points and the Term loan B is 450 basis points plus LIBOR.

450 basis points above LIBOR?

Yes.

Okay, and is that a FILO loan, is that how that’s working?

No, it’s a traditional Term loan B, not a FILO. Its bot based on a borrowing base.

Repayment capability, if you want to, what kind of flexibility do you have?

Yes, we have full flexibility either six months, before we’ll be able to prepay the debt with no penalties.

Okay lastly, any charges that will show up for the bank refinancing in the third quarter?

Yes, within the third quarter there is refinancing fees of between $7 million and $8 million.

Terrific! Thank you very much. Good luck and congratulations! Really lovely to see the complete turnaround. Thanks.

Thanks Budd.

Your next question comes from the line of John Rowan from Janney. Please go ahead.

Good morning everyone.

Good morning John.

Maureen I just, I appreciate the information on the cost of the, you know of the B and the ABL. But I was just wondering, what – just maybe back up making it a little simpler, what's the blended rate of debt cost that you have now, including any commitment fees that you might have. Just trying to get a sense of what the overall cost of the facility is to you today?

The blended rate is, I believe it's around 6%, a little under 6%. It would be the $200 million at the 450 basis points plus LIBOR and then the $80 million on the AVL at 150-plus LIBOR.

And the 6%, does that include commitment fees as well?

Yes, there are commitment fees on the letters of credit, and that ranges from 25 to 37.5 basis points.

And then the guidance that you guys gave for the net debt at the end of the period, does that include an assumption for repurchases? I mean I'm basically asking if your guidance includes assumption of repurchases.

It does not include share repurchases in our guidance.

Is there a limiter in the covenants to how much you can return, whether it be through dividends, acquisitions or repurchases?

As long as we meet certain liquidity thresholds, the restricted payment basket is unlimited within those facilities.

Okay, any tax rate guidance going forward?

Any tax rate guidance. Yes, it’s between 23.5% in 24.5%.

Okay and then just one question on the acquisition that you did, what is their strategy for dealing with return merchandise?

Well, they have a few different ways they do that. I think the key point there; I want to say a few different ways when they recover merchandise. Of course they don’t have brick-and-mortar stores to re-ramp and so they have these other things, online sales, things like that to discard the merchandise, whether it’s all for up for those kinds of things, which is what most of the virtual providers do, is have to find another liquidator and things like that. The key point there though John is that in our – with us having the brick-and-mortar stores, we can monetize them at a higher level than what they've been able to do – without, it's not like they have a level of returns that’s going to hurt the core based on the way their value proposition works with shorter term agreements, 12, 18 month agreement, they don't get a lot, but the few they do get we can monetization, we can improve the monetization with our core brick-and-mortar stores.

Yeah, would you be willing to tell us what their return rate is relative to the Rent-A-Center? Well, relative to the Rent-A-Center core and Acceptance Now.

No, for two reasons; one we haven't closed yet, so I wouldn’t give any data on what their current situation is, and I don't have it in front of me, but we can get in to that later, it’s not real high, it’s not real high. But there are returns of course, it’s a rental business, but the few they have we’ll be able to monetize in a much better way.

And do you think you will be able to you know plug them into your brick-and-mortar stores and improve the gross margin that they are getting on returned merchandise?

Correct.

To be clear.

Correct.

Alright, thank you very much.

Thanks John.

Your next question comes from a line of Kyle Joseph from Jefferies. Please go ahead.

Hey, good morning guys. Thanks for taking my questions and congratulations on a busy good quarter.

Thanks Kyle.

Just following up, I know you guys talked about one-time costs from the credit facilities. Should we expect any one time costs related to the acquisition in the third quarter as well for modeling perspective?

A little bit, from a banker standpoint. Investment banking fees or not, it’s not a whole lot, but there will be a small amount of investment banking fees.

Got it. And then thinking about Merchants Preferred, you know how quickly do you anticipate being able to consolidated the two business and go out and pitch the platform to new potential retail partners, what sort of time line do you have there?

Well, the kind of – it will come with phases Kyle. They got a large pipeline right now for virtual; they've been capital constrained, so some of that we can only issue immediately based on the current offerings. As far as the hybrid offering where it’s a combination of virtual or manned within the same store, in different stores we’d be able to do that pretty quickly. In the same-store from a technology standpoint we're probably looking at early next year. So the six month kind of time window on the full offerings, but as far as the current offering and unleashing their sales team baked on that being capital constrained, that starts day one.

Got it. And then just thinking about EBITDA margins of the – I’m sorry, not the consolidated business, but the combination of Acceptance Now and Merchants Preferred over time. I know you said you know from a near term perspective there may be a little bit of margin compression. That's understandable given you highlighted there a little bit profitable. But over time given the combination of the business, how do you think about the EBITDA margin versus where Acceptance Now has been trending, given it is virtual and fully understand that there's some puts and takes in terms of EBITDA margin obviously, less employee costs, but you know some offsets there as well.

Yeah there's some gross, certainly gross profit is a little lower in the virtual world, but then you make up for it from a labor standpoint. I think initially it will drop the margins, but as it becomes more meaningful, the margins will be higher than where Acceptance Now is today.

Got it. Thanks very much for answering my questions.

Thanks Kyle.

Your next question comes from the line of Bradley Thomas from KeyBanc Capital Markets. Please go ahead.

Good morning this Andrew on for Brad. I just had a question on Merchants Preferred. It seems like the acquisition will complement Acceptance Now well. A question that we've been getting from investors is whether or not you're keeping an eye out for additional acquisitions like this one going forward?

Well, we looked at the numerous companies and decided Merchants Preferred – we believe Merchants Preferred is the best fit for us for what we needed. You know certainly you know with our capital structure we’ll have the opportunity to do more and yeah, we won't need to buy the infrastructure and so forth that we are buying. So we'd have to look at it a little differently, but I would never say never. We are always going to look at opportunities, but right now we're focused on just integrating and growing rapidly with the one we just bought. But to answer your question Andrew, of course we’d look at things, but it would be under a different look, right, because again this is a lot about buying infrastructure and so forth. But sure, we can look at it, there’s an awful lot of virtual companies out there and if the economics are right first, we’d look at it.

Right, that makes sense. And my last question is on the core business, I was wondering if you could talk more about some of the merchandising trends and initiatives that you guys are doing that will drive comp in the second half?

Well, it’s really the e-com side of the business, the web orders that are growing at 30%, our conversion rates growing – it grew about 400 basis points in the second quarter, so our online agreements that are up 38% when you combine those two. It’s already 15% of our revenue and it's growing every quarter. So the value proposition changes we’ve made are really attractive to the customer and we're getting a lot more online traffic and we are very confident that that's very sustainable.

Okay, great thanks, that's all from me.

Thanks Andrew.

Your next question comes from a line of John Baugh from Stifel. Please go ahead.

Thank you. Good morning and congrats on particularly the progress of the balance sheet. I was wondering first, could we just get a clarification on your comp calculations, Maureen. That hasn’t changed at all. We are still like taking out the benefit right of a closed door when it folds into an existing store for what 12 months and then it comes back into the comp.

Its pulled out for a full 24 months. If a store receives a certain percentage of count from a closed location and there weren't quite a bit of changes this quarter with new stores coming into the comps, whether that be from hurricanes that had occurred previously or the closures, particularly on the Acceptance Now side.

Okay, great. And Mitch I know you mentioned the Merchants Preferred has been capital constrained, but is there any kind of rough invoice volume growth number for the last 12, 24 months that you are willing to offer.

I don't have the invoice volume growth, their revenue is growing. I know the 2018 revenue was about $75 million and the last 12 months revenue was $80 million. So that's a nice trend from a percentage standpoint, especially being capital constraint and having to pick their spots where they can grow. So I don't have invoice volume in front of me, but the revenue is growing and their profits been growing and even though they are only slightly profitably now, with synergies we're going to be in the -- we said it’s an immaterial effect this year, because it’s only going to be about four months left in this year when we take it over. But on a run rate basis once we get the synergies by the end of the year, even their current profit, we are looking in the $5 million range. So besides buying the infrastructure and speeding up our process from a virtual standpoint, it’s not like we didn’t get any revenue or profit. Like I said, with synergies we’re going to be in the $5 million range. We said immaterial this year, because of the timing and obviously we had to get those synergies over the next couple of months.

Okay and then Maureen is there any – if you hit this goal for Merchants Preferred or you know growth, how does that impact cash flow? Is it self-funding, does it generate cash, does it use cash?

There will be a working capital outflow and as we grow the Merchants Preferred business, but clearly we believe that’s a profitable growth from EBITDA stand point over time and definitely believe in the potential growth of that business. So yeah, it will generate free cash flow as an ongoing business, as we put the inventory investments out to work and we’ll generate cash flow over time, but initially there will be working capital investments.

Great, and jumping back to core and write-offs, you mentioned online is growing. My understanding is that it has a little higher risk to it. Are you seeing that or is it too early to see that? You mentioned it’s up 30%. I’m wondering what you are experiencing and/or anticipating on write-offs and core?

Our skip/stolens were 3.2% in the quarter, in the second quarter and a year ago when online business was probably less than, well as I said the online agreements were up 38%, it was 3.1%. So we are right on top of last year, even with all the new customers coming from the web. So we're not seeing that kind of a risk from that customer coming in, so we're not anticipating it to happen them going forward. We haven’t seen it yet. Like I said, we are right on top of last year sequentially down significantly from the mid threes and we are expecting very well on that. So we are not seeing a problem with the web customers driving our losses.

Okay, and then my last question Mitch's you know around – I mean obviously the balance sheet is great and you announced that dividend. I’m just curious the debate internally around the opportunity to grow with the virtual business and how important it is to have a capital structure balance sheet that can support that when pitching the business. Can you give me the puts and takes on how you thought about the capital allocation as it relates to your total addressable market being so large?

Sure, you know simply put, our first priority is to grow that business and to grow into that $20 billion business and the dividend comes from a place where we think we can do both and we are at 0.8x debt rate now. As Maureen said, we want to stay conservative from a balance sheet standpoint and keep it at 1.5x or less, but that’s an awful lot of cash flow on a monthly basis today anyhow. So the short answer John is we can do both.

Okay, alright. Terrific! Thank you and good luck.

Thanks John.

Your next question comes from the line of Vincent Caintic from Stephens. Please go ahead.

Hey thanks, good morning guys. The question is on the virtual rent-to-own. So I appreciate the revenue guidance you gave for the two year outlook of $1.2 billion. Kind of wondering if you can give us a flavor of kind of what confidence and what line of insight you have in there, and I guess the reason I ask, it seems like for virtual rent-to-own you have a typical three year sales cycle with the retailers. So are there any pilot programs that you have already running? Is there any progress you can share?

Well, our confidence Vincent comes from the pipelines that are out there, the opportunity that’s out there, how much white space is still out there. You know we've been able to grow the manned model Merchants Preferred as we’ve been able to grow the virtual model even being capital constrained. We’ve got a great sales team. We don't have any pilots, not that we are going to speak to it today. As far as large national partner renting, we already have some large national furniture partners and we believe this will accelerate our opportunity to do that. But it’s not – I guess the short answer here is the $1.2 billion is not based on going and getting one of the largest retailers in the country. Its that would actually improve that $1.2 billion. We believe we're going to be able to do that, but it's not – our number is more conservative than that when it comes to defending regional players, some other verticals like I mentioned earlier. So it's not based on we got to get that one big retailer that we're going to do $200 million a year on or $300 million a year on.

Okay, got it, that’s helpful. And I guess maybe taking a step back at kind of your view of virtual rent-to-own and your expansion plan. So you've got your existing acceptance now, manned offering. Now you have the virtual offering with Merchants Preferred, and another one we haven’t talked about, I think before is your partnership with Vyze by Mastercard [ph]. I think you’ve already got a couple of retail partnership there like with Home Depot, so I’m wondering if you could talk about that. So once you get Merchants Preferred integrated this year, how do you – could you give us a broad overview how you see Rent-A-Center and the virtual rent-to-own offering competing beginning in 2020.

Well, we do have relationships with a few of the different waterfall companies like Vyze and integrators like Vyze and Versatile and some of those other one stores, some of those other companies. We also integrate right into POS systems directly with retail partners. As I mentioned earlier, about 80% of our business comes through a waterfall, a partner that has the waterfall, whether it's the own that we, that our IT department you know went into and built into with the retail partners IT department or it’s a third party like Vyze or Versatile. So we are doing business with all those companies, great relationships with all those companies and that will be as we grow, a lot of times you are talking not just to retail partners, but you are also using those waterfall integrators as a growth vehicle. We just recently did a deal where were in something called TD Complete, The TD Bank is the primary and we’re the only tertiary in there that just started being offered last month. So yeah, there's a lot of activity around not just retail partners but also online partners in these waterfall integrators and you know the direct online business is going to be a big play there in the virtual world too, not just necessarily direct to the retailer.

Okay, perfect. And yeah, I think TD has a couple of private label credit cards with the big retailers and that's really exciting. Just one last quick one. So I know we talked about the value proposition driving some of the gross profit margin decline, but has there been any recent changes to the value proposition since second quarter of last year or should we now be expecting to comp the virtual proposition, value proposition in the third quarter. Thanks.

Yeah okay, that’s right, I totally understood that Vincent, but no there hasn’t been any major value proposition changes since last June, the second quarter and it’s a good point. It’s kind of what I was talking about when Budd asked the question about the core, the second quarter last year from a margin standpoint. If you start with the third quarter, you see a much more consistent gross profit margin, because EBITDA goes up and then on the email side, you see it more consistent as you get into the latter part of last year and there's not more of its going to drop and except for virtual. Virtual as you know Vicente drops gross profit level, but grows EBITDA level and that’s what we expect to see. And one other point on what we were talking about earlier, when you followed up and said yes, TD Bank, you have some of these – some exclusive offerings. We are exclusive and what their online program is, it’s called TD Complete and we are the exclusive rent-to-own provider in there.

Okay, that’s great, really helpful. Thanks so much guys.

Thanks Vicente.

[Operator Instructions] Your next question comes from the line of Anthony Chukumba from Loop Capital Markets. Please go ahead.

Good morning, and let me add my congratulations, particularly in terms of all the work that you guys got done this quarter, the refinancing and the Merchants Preferred deal executing the turn around. So hopefully you are all off for a long vacation sometime soon, I’m thinking marine. So I had a question, you know kind of related to the last question. You know you talked about you know in the core business, I guess in both core business and Acceptance Now, you know gross margins has been coming down, that's because of the better value proposition. In the core business, you know you obviously this quarter you were a bit off, not that through – you know since the expense leverage right. So you had that and came up with the higher operating margin. That wasn't the case in Acceptance Now and I was just sort of looking through my model. This is the first time in five quarters that Acceptance Now operating margin went back and one-time items actually decline year-over-year. So I guess I’m just trying to sort of reconcile that you know why that’s sort of working in the core business, if it’s not working now in Acceptance Now, is there something I’m kind of missing there?

Well, a couple of comments that I made. First of all I want to reiterate, in the core business margins are not coming down. They are lower, the gross profit margins lower than a year ago, but if you look at the last four quarters it's been very stable and its actually higher than the third quarter of last year. So they are not continuing to drop. They are only lower than the second quarter of last year as the value proposition were being implemented. And overall the EBITDA margins up 300 basis points, and against the third quarter last year it’s up 500 basis points. So they are not coming down, they are only coming down if you compare it to five quarters ago. On the Acceptance Now side, as Maureen mentioned and if you look at the skip/stolens now, this is the third quarter in a row where they are down. We've gone from the mid 11s, which was out of our range of 8% to 10% and then they were 10% in the last quarter and now they are 9.6%. They’ve dropped significantly in the last three quarters, we’ve performed well there. But a year ago, when you go back five quarters to the second quarter of 2018, we have some recoveries Maureen mentioned it. In 2017 left Conn's and HHGregg declared bankruptcy. So those two large partners with up to 36 month agreement, that revenue from those accounts was running off in 2018, especially the early part. So we had to run off of those accounts which is driving revenue with very little cost, because we closed those kiosks and put the revenue stream into other kiosks. So we had the accretion of those closed stores helping us early last year, the recoveries, where we put the recover amount at the end of 2017 and the losses associated with closing those stores, we had some larger recovery, as we are looking at what the real losses were in the second quarter, there was some recoveries. So we had a low, an abnormally low skip/stolen number. So even though skip/stolen number this past quarter is in-line with our expectations, its 200 basis points higher than a year ago. So when you think of those 200 basis points, the margin is right on top – you are pretty close or right on top of where you’d expect it to be or where it was last year, excuse me in that 15%, 16% range. We are not disappointed with the 13.1 EBITDA margin this quarter. It’s just last year’s abnormally high because they had run-offs and under recoveries.

Okay, no that’s very helpful clarification. And just one thing, I just wanted to make sure I got this correct. I mean you were talking about the increase in your EBITDA guidance and you said part of that was the debt refinancing and I was – did I hear the correctly, because I mean that’s interest expense right, so that wouldn’t be factored – that wouldn’t affect your EBITDA right or did I hear something incorrectly?

No, the EPS was impacted by the refinancing. [Cross Talk] yeah.

Okay, got it, okay. No, thanks for clearing that up. Okay, thanks so much guys.

Thanks Anthony.

Thanks Anthony.

There are no further questions at this time. I turn the call back over to Mr. Fadel for closing remarks.

Well, thank you everyone, thanks for your time. We are pleased to report these really solid numbers and getting the refinancing done and now we'll go back to work on getting the Merchants Preferred acquisition closed and maintaining these kind of revenue growth numbers, same-store sales numbers and go out there and put another good quarter on the board. So we are working hard for our shareholders, working hard to grow the business and we're really excited about getting our refinancing done in the Merchants Preferred acquisition. So with that, thank you for your time.

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