Bread Financial Holdings, Inc. (BFH) Earnings Call Transcript & Summary

Okay. We're going to get started with the second half of our day. I'd like to welcome our next guest, Tim King. He's the CFO of ADS. This is his first time at our conference since he stepped into his new role as CFO of the company a few months ago, and we're really excited to have him. So thank you, Tim, for coming.

Thank you.

You've obviously been the CFO for 9 months now. Before, you were the CFO of the card business since 2012. Maybe you could share your experience thus far and how different the roles have been?

Yes, that's -- thank you. Nice way to intro. The role in the card services was very operational, very much driving the forecast, the accounting at a very operational level, clearly, with one boss. As you move yourself to the CFO for the company, the capital structure becomes much more important, the taxes become much more important. Obviously, IR didn't have that function before. And a tongue-in-cheek say, I used to had one boss, now I have about 30: the Board of Directors, the investors, obviously, the analysts. So very different constituents and political skills.

And I guess, jumping right into sort of some of the concerns over the stock. It's obviously trading at quite a depressed level today. I mean could you maybe just give us a perspective on your thoughts around sort of what's happening and what needs to be done going forward?

Sure. So obviously, for the last 9 months, we have been in the state of flux as an organization. I have -- tongue-in-cheek will also say, "Look, I'm going to do my next earnings call in April. It will be my third CEO as a part of that." And that's obviously trying on the markets to have that leadership changeover. Having Ralph now starting to be on full time, I think, is going to be helpful. But there's also a number of questions that folks have asked today and have asked consistently about what our capital structure look like. What do we do with share repurchases? What are we going to do about the debt pay down that we need to -- and formulate a thought. And we can't really answer that until we bring Ralph into that question. So we need to get some clear answers of our strategic direction. The other piece, of course, is stock is trading down because folks don't believe us. We've had about 3, 4 quarters in a row where folks have felt like we've faded. We've missed on our numbers. We need to produce long-term steady growth, and Ralph and I certainly understand that.

And when we think about the guidance that you guys have provided. I mean on the conference call, you talked about how it baked in conservatism. Can we just think about -- talk about the puts and takes into that guidance, like what will drive a better outcome, what could drive a worse outcome?

Sure. So let's start with the bad. We'll get to the good. One of the things you obviously worry about, the Fed drops the interest rates 50 basis points yesterday and signaling a number of others. We'll go back and look at that to see what the effect that has on our guidance. That is going to have some pressure in our NIMs. We certainly need to look at our offsets and a number of our offsets, and also part of the reason you start with a fairly conservative forecast. Other things that could cause some issues is if the coronavirus continues to kick along, we start having folks not shop. So we start getting a denominator effect. Our retailers lose sales. We then lose receivables. We start losing that. Of course, we start losing some finance income. And then of course, if that ever translates into unemployment spiking back over the 4% mark, it starts going to 6%, that would certainly be a negative. On the positive, certainly, we're very conservative about our guidance. We feel like we maybe pull some more expenses out of those forecasts. So there's some opportunities to push on some of the metrics.

So we actually had the ability to sort of get an intro to Ralph over the phone as sell side analysts. He gave some perspectives. But I mean you've obviously spent a lot more time with him. Could you maybe just share your initial impressions of sort of how he tends to address some of the issues at ADS?

Sure. So the joke that our General Counsel had, which is, he is as fast as an auctioneer with his request and the way he says things. And the reason I say that is not to obviously poke fun of Joe, the General Counsel, or Ralph, but he's just -- his enthusiasm is infectious and he has -- he's coming at this with just a great positive energy. He understands the business. He is really, obviously, looking at all the different pieces and driving that forward. First, very personal, very much -- he's somebody who is setting nice tone for the organization. And while that seems kind of a little bit fluffy for a group of analysts and investors, the reality is you've got to have a good mood in that organization, you got to have folks believing, and he's getting folks believing. He understands the business, driving in the right direction and very, very engaged.

And how do you think his skill set sort of translates to private label because some of his skills, even though he's had a long tenure in card, aren't really in private label?

It's a good question. He -- so first off, the overall general knowledge of the card business and some very specific things, he is awesome. He walked into my office, 6 days into it, I was having an esoteric conversation with one of my tax attorneys about tax refunds and how we get those back in. He was right in that, understood all the nuances of that. And so his knowledge of all the different pieces of the business are fantastic. The difference between running a large co-brand program -- a number of large co-brand programs as opposed to private label, he's coming up to speed very quickly. I think his comment to me at one point saying, "6% losses, oh, my goodness, I would have shot myself [ but at ] Citibank at 6% losses." But he -- then he quickly turned that into, "And I get the fact as long as we're getting paid for that risk, then I get that." So he's moved very quickly. He's -- and part of it is just internalizing the difference in the metrics and the dynamics.

So I guess moving on to sort of the loan growth projections you guys have outlined, mid-single digits type growth in 2020. Could you maybe break down sort of how that growth occurs across the different channels that you expect to grow in?

Sure. So what we guided to is end-of-period being up mid-single digits, average being flat, normalized, being flat on the year. And what I'd say is what we're really trying to do is replace the $2.1 billion of receivables we sold last year and have that come across towards the end of the year to set us up for 2021 with some growth. The areas that we are having pressure on our growth is going to be in our core portfolios. Those vintages that are older than 2015. So we have the legacy malls that you all know about a Victoria's Secret, Express, et cetera, certainly having some pressure there, but we're making that up and replacing those receivables in some of the newer -- the Burlington's, the Sephora's, the Alta's, they are doing very nicely for us.

Okay. And then when we obviously think about some of your exposure to mall-based retailers, are there any specific retailers you're monitoring we should be concerned about?

Look, you all -- you see them in the news, VS is certainly with the Sycamore Partners. We're monitoring that. Certainly looking at Pier 1 is going to be somebody who are watching us. They just declared bankruptcy. And there's 1 or 2 other retailers that have come through. Forever 21 who's coming through their bankruptcy, watching how they come through that. We're watching them very closely.

I mean when we think about your loan growth expectations, were those types of pressures sort of factored in?

Yes, they were. So you always worry about a little more pressure. The Sycamore and what they're going to do with VS. But we had -- we're very conservative about our growth, and we expected to set very specifically our core book of business to have some pressure this year, and we were conservative with our growth there.

And so you've obviously been pruning the portfolio to position for better growth. Are there any more areas to sort of prune going forward or do you feel like we're done?

No. The pruning really consisted of 3 different areas. And when we talk about pruning, we talk about selling the portfolios. We had areas that were nonstrategic, profitable businesses that we just decided for a variety of reasons, compliance, and the amount of infrastructure we have to put around supporting that that we exited. So strategic reasons. Two, retailers that had some type of financial health issues, a Bon-Ton would be an example there. And the last is, if we were -- we did not get a renewal for a client. The first 2 categories won't be an issue. We've made any strategic decisions fast in 2018, 2019. We're able to sell those actually in the fourth quarter of 2019. Most -- I can't imagine if we have a retailer who's not doing well financially anymore that we would prune that. I think we'll let those just matriculate through our system. They're very, very profitable. You just have to replace those receivables, and prior we chose to sell them. Most likely, we'll keep those. So my only risk, as I look at any type of loss, is going to be nonrenewal.

Okay. And are there a lot of portfolios that are sort of in the renewal phase as we move over the next couple of years?

Yes. So if we think about it, 160, 170 different clients, it's pretty evenly spaced over the next 5 to 6 years. And there's always going to be 1 or 2 big ones any given year and about 4 or 5 small ones, 10 small ones. Sometimes there's a 2 or 3 nameplates. So like I've seen, I have 2 or 3 different nameplates who do the renewals at the same time.

Okay. And as you're thinking about positioning, you guys feel pretty good about your prospects in renewal?

Yes, we do. That doesn't mean there's -- you obviously saw in our 10-K across the book of business. There is one potential that we're watching very carefully. We felt it was important for full disclosure in the 10-K to call out the negotiations aren't going the way we'd like them to and make sure that we start sensitizing the market that we may lose a client in 2019 -- or 2020, excuse me.

Okay. And I'm sorry, did you guys size?

We said 3% of our revenue.

Okay. And then when we think about data, we had some of your competitors here before. They were talking about the fact that they get a lot of data from their counterparties, they are utilizing that to really drive higher conversion and sales. Could you just talk about sort of what you guys are doing and how you're positioned?

Sure. So we've been obviously collecting that data for years and years and years. So you go back 20, 30 years ago. So I think we -- I would say the pioneers in that space. We're working with our retail partners, getting that data, making sure we're driving it back -- the consumer back in the store, making sure we understand the loyalty component of that. So it's one thing to get the data. It's something else, obviously, to take the data and then convert that into action. I think we've proven that we can do both of that. And look though further than asking our retail partners, most of them will put up their hands, if not all. And so we think that Alliance Data does a really nice job of taking the data, help them drive that consumer back in here. Like I said, pioneers of doing that in 20, 30 years' worth of data, driving that performance and driving that behavior with our customer back to our retail partners.

And when you think about your capabilities versus your competitors, do you think pound for pound, they stack up similar? Or do you think there's some more work to be done?

Of course, I think we're doing a better job. The -- look, we've been doing it for years and years and years. We would be silly not to think our competitors are doing a very nice job of that, and we have the right level of paranoia. We need to stay in front of our competitors. We need to understand that behavior better. We need -- the more data we can possibly get, the better off we're going to be. I'm not going to ever belittle one of them. They're doing a very nice job. I think we do a better job, we've been doing it longer. We have an organization that's established to making sure we cater to our retailers to drive that behavior, making sure we're getting all that SKU level and data to drive that back. And I'd go back to -- the proof for me is going back to our retail partners and saying, who do you think does the best job, and most of the time I think we come out on top of that.

I guess I want to shift gears a little bit, talk about the charge-off rate and credit quality because that is obviously front of mind or top of mind topic for people. We've definitely seen a lot more volatility at ADS versus others, and maybe you could sort of just walk us through what's been driving that volatility? And as we look forward, should that abate?

Sure. So obviously, we had set the expectations on our charge-off rates about 20 to 30 basis points. And then we come in, in January, some background, and we're up 60 basis points on the January data, the 7.2%versus 6.6%. That was something we anticipated. And if you look at just by normal sequential trends, I go December to January, up 110 basis points in December of '19 to January of '20, it was up 120 basis points from December of '18 to January of '19. So very much in trend. And clearly something we saw because I go back and look at that trend, we expect that to be elevated, meaning year-over-year elevated in the Q1, abate the rest of the year. And nothing happened that we hadn't anticipated. The -- there was a big pig in the pipeline that had to work its way through the system, and that's going to hit us in Q1.

Okay. And that was expected as you move along?

Absolutely.

And when we think broadly, right, like there has been a lot more volatility to ADS. I mean when I think years, like several years. I mean what were sort of the contributing factors leading to that volatility versus your peers?

I think it is obviously where the retailers are, some of their cycle -- their life cycle. If I have somebody going bankrupt, and I kept that file, what will happen is you get a big spike in my charge-off for a short period of time. That will affect my overall book. The timing of how we have dealt with our recoveries certainly is going to cause that. So oftentimes, if we're going to look at selling any of our assets, the recoveries, we do it towards the end of the quarter. That will have an effect on the first 2 months of the quarter, that will cause some volatility. We have gotten to the point where we are trying to be much more smooth with our recovery patterns. We don't think we're going to have the push from having a large retailer like Bon-Ton because Bon-Ton did affect our charge-off rate, it's that spike. So as you get rid of some of those factors, you should be able to start smoothing that out.

Okay. And then obviously, I have to ask about sort of the coronavirus and people are obviously very concerned about the macro environment. As you're looking at the data right now, I assume there's nothing specific to that that you've seen, but what will you be monitoring as we look forward?

The biggest risk to us is twofold. One is absolute sales that our retail partners go down, right? And so far, we haven't seen absolute sales go down. What we've seen is that they're mostly switching to the Internet. We got a week's worth of data. So it's pretty early. But as -- if you go back, the first is the absolute sales go down, what you're worried about is sales at our retail partners go down, our receivables go down. That obviously has some effect on both our revenue. And then you also worry about just from a straight denominator effect that might have on your charge-off rate, right, because if I lose those new good receivables, then that, obviously, I have the same dollar charge-off that might elevate my charge-off rate a little bit. So we'll watch that pretty carefully.

Okay. But you haven't seen anything thus far in terms of retail sales that leads concern?

Yes. So all we've seen so far is a shift and a very, very mild shift of people going on to the Internet as opposed to going into the stores.

So someone before was talking about the one sort of interesting wrinkle with CECL is that you are making macro assumptions going forward. And so as you're thinking about sort of what -- how the market is behaving today, sort of what it's perceiving it to be, how will that factor into your CECL impact?

Yes. So first is every good allowance model prior to CECL had an overlay for economic conditions. When I ran at HSBC, prior to coming here, we're certainly on ASC 450, we had a macro overlay. So that's not new. CECL just describing how you're -- describing how you put that in and be much more specific you need to have that in. So first off, look, we always had to look out because your allowance is supposed to be set up so I take care of the charge-offs in the emergence period, and I've always had to consider the macroeconomic environment. Having said that, it's a much more tangible direct feed to your CECL model now, but there's still management overlay. So if I look at that CECL model, we are going to use -- Moody's comes in, look at our overlay. If at the end of that, we feel like it is not taking -- not being egregious enough or being overly egregious about the emergence period, we have the ability to say we're going to scale it back or push that back a little bit, exactly the same as ASC 450. And [ by say ] that it sounds very flipped like, "Oh, we're just going to make a decision." Tim sitting at his office, says, "It's too big." All my bank boards, all -- my CFO, my bank, my Chief Accounting Officer, obviously, the Board of Directors as well as my outside folks, all have to be convinced. So it's not a flipped piece of it, but there's a lot of folks have to look at that. But it has always been a factor for any type of allowance.

Okay. And you guys generally use like a consensus view on the economic state lines?

Yes, we'll use Moody's as our fee, but we'll probably get 1 or 2 others at this point.

I see. I want to sort of shift gears, talk about expenses. And you mentioned you feel like -- you feel strong about sort of the expense reduction initiatives you've taken and you might get a little bit more even. So could you just talk through some of where you've been taking out expenses and why you don't feel like it's going to eat into the muscle for growth going forward?

Yes. So let's talk about payroll, and we'll talk about payroll. We talk about it by the line of business, right? So let's talk about my card services and let's talk about corporate. The first is that's not really a fair way to do it. We've taken our -- basically our holdco model and combined it into an operating model. What that means is I can take a whole lot of payroll out of books at corporate as well as my card. And if we start talking about the overall $200-ish million, you're probably talking $60 million, $70 million of that that we've identified, we've eliminated those positions. Some of them were redundancies. Some of them were positions that we could look at and so we didn't need that position. We're also looking to where appropriate push jobs into more economic spots, Bangalore we have a spot. So we can move people to Bangalore. But obviously, doing that in a way that's economically viable. There's also a number of items as we started rightsizing our footprint here in the United States related to real estate, we've been able to save on real estate. And then as we go to contracts, as we've combined it into an operating committee, there's opportunities to squeeze those contracts down. We also have spots like fraud and some of our operating expenses, staffing levels that we can be able to control.

Okay. And I guess when we think about sort of capabilities, you guys talked about having -- thinking of making investments. How should we dimensionalize that in the context of you guys expecting expense savings going forward?

Yes. So there's 2 different spots. One, I wouldn't say there's any expense savings associated with that. The question is, is there any risk associated with that. As we make incremental investments back into the business, tens -- fives and tens of millions of dollars we have budgeted for that. We are set to do that. The only spot that we had -- causing risk to our plan is that we made a large incremental giant leap forward to our budget. So that's the only risk to it, but there's no opportunity for the savings on the operating expense. There might be a risk if we choose to do something on a large-scale for an acquisition.

Okay. And like when we think about those types of acquisitions, what are they?

So where we feel we need to shore up our book is going to be in the online presence, very specifically in the front end of the market. So as you get on to a website, we are not in the front end of that purchase decision. You look at a couch, the couch -- lot of the good -- new fintech is saying, own that couch for $10 a month, $100 a month. And that you merely can click on that, and there's -- you're done. You don't have to go through that whole process of then going to check out and then deciding what your credit line is going to be. They've already prescreened you for your credit, they've made that very easy and they put that to the spot where it's a buying helpful factor, "Hey, I can own that couch for $10 a month." We need to have that same technology, be it an installment loan, be it a pay as low as, which is a slight version of that. We need that button to make that very easy to capture that data. That's the spot we need to spend some money on.

And you'd rather buy versus build?

We're looking at whether we should buy versus build. It's okay for us to be a fast faller because we own the retailer, we own the network, we own all of that. But we have to be a fast faller. So the question is, can we build that fast enough to just still be a fast faller. But if we make the decision, boy, we -- it's going to -- I'm [ going to agree just ] it takes us 2 years to build it internally, and the response has got to be -- we got to buy that because we got to make sure we are fast faller, the market is established and that is a niche that they like. The consumer likes that. The retailers are very accepting of that. So we have to have that technology and have to have it fairly quickly.

And when you think about the returns on that type of product, is it comparable to the stuff that you have or is it different?

It will depend on what the deals we strike with those merchants. In some cases, an installment loan, my guess is, as we start negotiating, that will probably have a lower return. The pay as low as will probably have a higher return. Installment loan is a longer period of time. Generally, the market is a little bit less -- the interest rates are a little bit less. Pay as low as, because generally the merchant pays you, they may pay you a 2% or 3% discount rate, but you're getting a 3% discount rate that turns 6x a year. So you're getting 18%, 20%, just by virtue of the fast turn on those products. So the pay as low as, higher; the installment is probably a little lower.

And when you look at like consumers that are taking those types of products, how do they compare to your core customer?

Installment loans are going to be fairly similar. The pay as low as, we're a little bit concerned of the creditworthiness there. And when you start saying, I'm going to buy that sweater for 4 payments of $50, you kind of question that whether maybe they -- their creditworthiness. Now some people may just do it because it is so easy to do it. They'll say, "Sure, click. All I got to do is click on that button. They're going to do it, and they already have my private label credit card set up for it." That's okay. If somebody starts being too heavy in that spot, we'll be nervous, and so we'll watch that very carefully. And that's part of bringing that product up we're being very cautious with.

And I guess maybe more broadly, as we think about different options for merchants on the installment lending and lending side specifically. Like do you feel like the fintechs are doing a better job than the private label space, broadly speaking? Because it seems like a lot of what the incumbents are doing is sort of morphing their products into what the fintechs are doing?

Yes. So go back to my statement, which is, it's okay to be a fast faller. What the fintechs have done is -- and actually, there's a study from a consultant that came in and said, there's going to be 4,000 -- at a time, 4,000 different fintechs out there. They said their guess, 5 of them are going to make that, which means they've tried 4,000 different things for the consumer to work and only 5 are going to make it. So we're -- yes, do I think those 5 have found something that we haven't found, you bet. There's another 3,900 -- what is it, 3,995, 3,996 that haven't -- aren't going to make it. So we're good being that fast faller. And yes, they've identified that spot, and we're okay with them identifying that spot, because again, we have the contract with the retailer and the retailer would prefer to work with us. Recall, we are the cheapest form of tender for them. We have all the data. We have the loyalty with that retailer. And the retailer would much prefer, hey, get a Pottery Barn credit card or have a Pottery Barn installment loan or have a Pottery Barn pay as low as because we'll label it, all of that. We can make that a closed network for them, we can get all the data for them. If it's a Pottery Barn credit card and there is a pay as low as, it's somebody else that doesn't -- it's branded something different, that's confusing to the consumer, retailer doesn't like it as much. So again, I'm okay with being a fast faller. We have to be a fast faller. Some -- we've had 4,000 different ideas tried. We know which 4 or 5 are going to work now. We now need to mimic it fairly quickly.

So it's really a user experience thing?

Absolutely.

And so I guess, when we think about sort of the way business is done in private label, does the industry just have to evolve in terms of the user experience? I mean we hear a lot about sort of the Apple progress and the experience or how amazing it is. I mean do you feel like that's something that's being pushed down from your merchants?

It does. There is no question. First off, here's an example of where the user experience seems to be a lot much better for us. Something like -- I'm going to get the statistic around 40% or 50% of the lost sales for us on the private label is because the consumer doesn't have their credit card with them, and there's a fairly clunky process, in some cases of finding out what their credit card. In some of our legacy retailers, they have to pick the phone up, call us, "We have to find Sanjay's credit card number." Give them that, "And you got to give me your driver's license." And you'll say, "Why would I do that, just take my American Express." Think about what your Apple phone, your iPhone is going to be able to let you do now. You're going to walk in, it's going to be stored on your phone, you don't have to carry a wallet that's thick. And you can immediately just -- and even better is that technology allows it when you walk in and you start to pay at Pottery Barn in my example, it's going to flash your Pottery Barn card so that's the best form of tender for you because you're going to get the best rewards. You haven't had to think about that at all. So when you start talking about a better experience, that's an incredible opportunity. People walking on with their phones all day long help us. I mean you didn't walk up here without your phone, and every single person out here has their phone within about 2 feet of them. Tiffany told me I had to leave mine back in my bag, so it didn't go off. Other than that, I think everybody else has their phone.

Got it. I'm going to shift gears and ask a question about some fun topics around capital. And after that, we'll come to the audience for questions. So please, audience prepare some questions. Obviously, CET1 at the bank, really, really strong. When you pull up and you look at the holding company not as strong, how do you guys manage capital at the company? Because I think when you look -- when you think about some of the investor concerns, it's around capital at the holding company level, but that might not necessarily be warranted. So maybe you could just talk about it.

I think about it as a no meal kind of a bifurcated model. When I look at the banks, first and foremost, for a variety of reasons, has to be well capitalized, has to have passive safety and soundness with the FDIC. So very comfortable there. But then you move up to the corporate level, and you can't use a financial services model at a corporate level because we have nonfinancial services assets. Then I just look at it, where do I feel comfortable about, when that debt is coming due, do we have enough cash flow to support it short term, do I feel like that debt is not going to be put us in a spot where it doesn't let me sleep at night. For instance, redoing the whole balance sheet the last 6 months with moving all that debt out into 3 and 5 years makes me feel much more comfortable, and then look at how much cash flow we have spinning off. Collectively, call it, $600 million of free cash flow coming from the entity. And I look at the amount of debt we have at $2.8 billion at the parent, you start feeling very comfortable with that. But having said that, I know -- I've heard from a lot of folks today, that's causing consternation because that's -- you get this $2.8 billion, and then you look at your tangible book equity and the fact I have negative equity at the parent company makes them feel a little uncomfortable. So obviously, Ralph, myself and the Board will be very clear about what we think we're going to do and make sure that we decide how or if we're going to pay down the debt or how we're going to do that, so we're clear with that.

And when we think about sort of your regulators, they are myopically looking at the bank. They're not really focused at the holding company level at all.

They do have -- they do look to the bank parent as a source of strength. And I think it's actually a fairly strong indication, they look at the bank parent. I think there is a positive, not a negative from the bank parent. For instance, there's a $750 million line of credit we have at the parent that if ever need be, we could obviously have that available for the banks to make sure the banks have -- if they hit an economic downturn, we had to do -- infuse capital down there, there's that ability to do that. The regulators are very comfortable from what we've heard. They obviously don't object, and that's how you feel they -- you feel okay. And looking at the bank parent, they're obviously going to watch that. They feel we're in a good spot there.

Is there any itch to buy back stock given the stock's valuation here? Or not really because you want to shore up capital?

The itch got a whole lot large in last week. The big drop. Look, it's a conversation we got to have with a more large group. The -- there's a number of investors who said to us, and this is -- look, we run this company for the investors. A number of investors have come and said, "We are concerned about your capital structure." The prior questions you had and the amount of debt you have there and the double leverage. But I don't know if we have to address one versus the other. When you start spending $600 million off, you could potentially do some type of share repurchase and some type of debt repayment. I just think we need to be very clear and make that decision and then articulate it to The Street, and that's obviously a work in progress.

Understood. So let me open it up to the audience if there's any questions. Audience? Yes, so I am doing a good job?

Right.

Right. Yes, there is one right there. One second please.

Just on capital, I'll go back to your original comment. I mean I know the CEO is on 100-day listening tour, but the stock is $79 today, you have the capital today. Based on your comments, seem pretty comfortable with it. I mean could we potentially see some action before May after that tour ends? Or he really wants to wait and kind of get everyone's feel?

Yes, part of my feedback for Ralph, when I get back to the office and chat with him is, look, here's what I've heard from everybody. And your question is similar to some of the agita we've had from other people, which is, kind of '100 days just feels like too long if you really get your head around it. And the lack of clarity that we are with our capital structure is causing some of that agita. And look, I know we're going to annoy some people go in one direction or other, but I think we just have to say this is what we're going to do, be very clear about it, lay that out and start executing on it. And I think there's a -- to me, there's a sense of urgency to that, but that's just me talking, and that's going to be my advice to him. And obviously, we'll caucus with the Board of Directors to make sure we come up with the plan, but I certainly hear the 100 days feels like a long time.

[indiscernible] given where the stock is.

Yes, absolutely.

[ Assuming that we're really doing that $20-plus number. ]

Yes so -- and to the point was, as we started that conversation where he was coming out to the investors and the analysts, we started that prepping a week earlier when the stock was $100. And then obviously it is nearer to $80. Look, you wake up and just -- I'm not suggesting this is anything besides a factor into your decision. But when you start saying, I could spend $300 and buy 10% of the company back right now, that's fairly positive. But then I have another people, when you start queuing up say, but that's $300, you don't have to square away your debt. And so obviously, you got the 2 pieces there. We have to come back if we're going to do this or that or some combination there and stick to it and make sure everybody gets clarity. And like I said, we're going to annoy somebody through that process but I think just having that clarity will help everybody, right? And I think -- I get the fact that 100 days feels like a long time.

Another question over there, yes.

Yes. Could you share with us just your thoughts on the rate cut yesterday or maybe what went through your mind and then how you think ADS' business model response to that cut in any way, shape or form? Obviously around credit should be helpful. But any other thoughts around -- just rate or how your balance sheet will respond to that?

Sure. So obviously, the rate cut is going to have some pressure on our NIM. We need to work that through and see what's going to do for the overall P&L. But you hit one of the very specifics as far as a potential opportunity. When I look at my charge-off rates and my operations to support my charge-off rate, we'll walk back and -- we'll walk through that and see, do I think there's opportunities on my charge-offs. You get a 50 basis point decrease in the discount rate. Obviously, that starts putting a whole lot of cash into the system. Does that keep my employment rate where it needs to be? And then we got to go back and work our way through the whole P&L. So yes, it's -- that was -- my first reaction was, "Uh-oh, that's going to affect my NIM." And then I started as -- because I heard about it as I was getting on a plane yesterday, as I start going through the different line items, we just got to work our way through because there might be some opportunities in my operating expenses or some other spots.

There's a question over here.

Tim, you mentioned that you have 160, 170 relationships. Just wondering around the market TAM, like how many other potential retailers could you go after? If you could just elaborate around that?

Yes, so this is pre-Ralph and so it is not fair until I've got caucus with him a little bit. But we generally think we have a -- we should be able to get this business. You start off at $300 million, $400 million, $1 billion, depending on how you're going to slice that. And you can work your way down to growth of getting yourself into a $30 billion to $40 billion average AR pretty quickly. I'm obviously doing that real fast and not vetting that up, but you start looking about the number of people where we might fit as far as a product set is going to be right-sized. But I got to work that through with Ralph because it's going to be slightly different. But you can see a pretty greenfield for us to grow the business.

Any other questions in the room? I guess one of the questions I get is some of your competitors have sort of linked up with a lot of tech-oriented partners. You guys have done more retail, but definitely more defensive retail recently. Are there any opportunities on the tech side that you see?

Yes. One of the things you heard both me talk about and Charles talk about, as you look at where we need to grow. So the example I had with having installment loan, tech, all those -- that's all part of the user experience. And of course, we're watching our competitors. Our competitors are watching us and seeing what they're doing to advance that. So it really comes down to how to make it easier for my consumer, how to make it easier for my retail partners. And so that's -- we're looking across the gamut from both the loyalty side to onboarding, to using their cards.

Can we talk a little bit about the loyalty business? I know we spent a lot of time on private label. It's definitely the lion's share of everything. But how should we think about the loyalty business? I understand you guys still sort of strategically thinking about banks, but maybe assuming it stays as a part of the business, how is it performing relative to expectations today and sort of where do you expect it to go going forward?

Yes, kudos to Charles, he did a very nice job. So those businesses now roll to Charles. He's done a very nice job of managing the expenses, getting those businesses right-sized as far as their footprint. They are doing nicely. I'll quote him on this, which is their utility-esque. They're growing at 2%, 3% a year. They're throwing off about $250 million, $240 million of adjusted EBITDA. Very, very stable businesses. If you think about Canada, very specifically, I mean you got 70% of the households. They're just not going to grow that much, but they got a monopoly there. And it's run well. Again, we've taken a lot of expenses collectively there. Brand loyalty does the same thing. So the way I view that and when I talk to analysts is, think about it as 2%, 3% growth over time, utility-esque, very strong adjusted EBITDA.

And when we think about sort of the market for those assets to the extent that you considered selling them, how strong is that market today? Did the lower rates help for that market?

Sure. Sure. I think anybody's going to buy is going to look at the, obviously, a discount rate on their cash flows and so roll rate is going to help there, that's a good call out. But we certainly haven't marked them. We don't have a process in place looking at them. And so I can't talk about who would have an interest in it. But we do think that, obviously, the current environment might be helpful.

Okay. I've got a couple more on yields. So going back to the rate question. But let's take rates out of the equation. All right. And when we think about sort of the yield progression going forward, I mean should we think they're stable with all these new product initiatives or do you think that they can go higher?

I think, obviously, we're giving expectations. We think they're going to go higher in 2020. A lot of that's just a function of -- I don't have any exogenous pressure I've had in the last 3 years, 2 renewals scattered. Also some of our enhancement services, our Pay By Phone had some pressure on that that's all gone away. And then as I look forward, slowing the growth instead of growing at 20% in the prior years, you start growing mid-single digits. What happens then, obviously, as my yield starts coming up, we feel very comfortable that our yield should start to move up.

Okay. I got like one more on outsourcing because that -- you mentioned outsourcing before. That's historically not been a part of the ADS DNA. It definitely became a little bit more of it as we did some of that in Epsilon right? So I guess, when we think about the card business, how much outsourcing is done in and how are you balancing sort of customer experience and outsourcing?

Yes. So it's always been a source of pride for us that we had our own systems. We did everything in-house. For a large extent, did a lot of it here in the U.S. The -- but at some point, we always have to check that model and make sure that it is -- we're getting the benefit and if it costs us more money. New CIO has come in and said, "Look, we just need to make sure we're doing this as efficiently as possible." It's something as simple as do this function in India as opposed Europe with our employees, or can I do this in a spot where I shouldn't be sending out these statements, I could have somebody else send out the statements. So we're going to look at all that very carefully as far as how we position ourselves. At some point, you got to recognize if it is not a value-add, we have to think about what's the most cost-effective way to attack that.

Okay. And I guess one final question. Just as we think through first quarter earnings cycle, I mean we should have a lot more of a definitive view around strategy by then, right, versus further out than that.

Yes. So the earnings call, I think it's Thursday, the 23rd of April, that's going to be, obviously, Ralph's first entrée into the market and the ability to start queuing up where he thinks. He's got obviously start queuing up some of his thoughts on that. Yes, so we'll be more definitive.

Okay. Well, we're just about out of time. Any other questions in the audience? All right. Thank you.

Thank you, guys.

Appreciate it.