Upbound Group, Inc. (UPBD) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the virtual fireside chat with Rent-A-Center. [Operator Instructions] It is now my pleasure to turn the floor over to your host, John Baugh. Sir, the floor is yours.

And I apologize for the tardy start here. We had some technical issues. So quickly, what we're going to do is we're going to have Mitch Fadel, CEO of Rent-A-Center; and Maureen Short, the CFO, make some opening comments. I've got a handful of questions I'm going to ask that I think will be helpful, and then we will ask the operator to open the call for questions. So I apologize for the delay. But Mitch, if you could kick us off, that would be great. Thank you.

I will, John, and thanks a lot. Good morning, everyone, or afternoon, depending on where you are. We appreciate your time for the next hour, and hopefully, it'll be informative for everybody, and we enjoy doing this. And we love the business we're in, which is the Rent-A-Center business, and I'll start with that update. We really -- for those of you who don't know, we really have 2 significant segments that we operate. One is the rent-to-own business, the Rent-A-Center business, it's about 2,300 stores. It's about 2,000 corporate-owned and about 300 franchise. Traditional brick-and-mortar operation with a fast-growing e-comm segment to it. Our 2,300 stores handle the final mile for our e-comm though, so we don't have separate infrastructure for that, so that's one segment. And then I'll talk about our retail partner business in a second. So that segment -- today's update on that segment is certainly more positive than traditional retail. The vast majority of our stores are still open. We're -- the only area we're shut down from operating in is Puerto Rico, where we are not operating as an essential business there. But in the United States -- and that's about 30 stores, by the way. And in the United States, we are operating virtually everywhere, serving our customer everywhere, even with all the shutdown orders because we're considered an essential business. And the reason we're considered an essential business is the products we carry. We've got a wide mix of products, but specifically the refrigerators, the freezers that people need, especially cash and credit constrained customers we deal with. What are they going to do if they go spend the $200 they have at the grocery store and then the refrigerator dies and the food is starting to spoil? So refrigerators, freezers, stoves, laundry and laptops, so people can keep their job by working from home. So we have essential products that we rent, and we're serving the customer still everywhere. Now there are some stores, where based on -- we're following local and statewide and federal rules on this and orders that govern us. So there's a few places where we do have the showroom closed, and we're servicing our customer only through telephone orders or web orders, Internet orders, the e-comm part of it, doing curbside, doing threshold deliveries or doorstep deliveries and so forth. So I don't want to say it's business as usual, but it's pretty close. We do have some showrooms closed, but the majority of stores have the showrooms opened, and all stores -- we're servicing the customer throughout the United States through that essential business exemptions and so forth and glad to do it. We're here for the customer. They need all our products, but specifically those essential items. And again we're operating almost at 100% of our stores with the exception of Puerto Rico and some showroom closures that are still operating out of the back anyhow. So that's the update on the brick-and-mortar today. Our retail partner business is the second segment, significant segment that we operate. And we've got about 1,000 locations, where we staff the retail partner store to do a transaction under the brand Preferred Lease and close to 3,000, where we do it virtually. Now there's been a lot more closures on the retail side, most -- a lot of our business is with furniture stores. And so nowhere do they have that essential exemption, those essential exemption waivers. So there's been more closures over there than there has been on our Rent-A-Center side. So the good news there is a couple of things. One, it's a portfolio business, so we've got long tail portfolio to collect them through our call center. We don't get shut down totally like a retailer does because we've got a recurring revenue stream and contracts to collect on. So we've got a long tail that goes well beyond any prediction on how long the pandemic will last. And then we have been extremely variable from a cost standpoint in that the 1,000 locations that are staffed, if any of those retailers close, then we furlough the employees and we save the labor, too. And actually in the short term, if you knock off the labor in those staffed stores and you're collecting your accounts and you're not buying any new inventory because the retailer is closed, then you have actually a benefit to cash in the short term. So it's a good time to be in recurring revenue nature -- type of business at both Rent-A-Center and Preferred Lease with nice long tails to collect on the Preferred Lease side. The Rent-A-Center side, same thing. Just we're still doing a lot of business on the Rent-A-Center side as well. So good stuff there as far as being able to outlast this. And then I'll move on to what happens at the end of this. And that's actually -- we're actually even more excited about that. We're glad we're in the type of business we're in today with the recurring revenue stream in this environment versus street retail. But on the back end of this, we're even more excited because there's going to be a lot of opportunity. The stimulus really goes in the pockets of our customers. We've -- the -- we've proven in the past to be very recession-resilient for a couple of reasons. Where people think our collections are going to crater, remember this is a lease and not a sale. The customer doesn't take ownership until the end, until they exercise one of their purchase options. So even the customers under pressure, we're not -- we don't have to try to collect money out of someone who doesn't have it. All we have to do is pick up the merchandise and rent it to somebody else. I mean, yes, well, you got to have the demand to rent it to somebody else. Well, coming out of this, there'll be plenty of demand. We will see, we're already seeing it. We will see prime lenders tighten up, subprime lenders tighten up, pushing more into the lease-to-own funnel. So what we've seen in past recessions -- and obviously, none of us have seen the times we're living in today. But based on our experience and my experience, having done this since in 1983 with the exception of 2.5 years where I left the company, and worked through many different recessions, including 2008, the demand -- as the prime and subprime lenders move up, the demand increases at the top of the funnel for us and more than makes up for anything that we could lose at the bottom of the funnel. And so we're -- the short story is we've got a recurring revenue stream to make it through this. We don't have liquidity concerns. And we got a great balance sheet. We did borrow on our revolver just to get the money in-house versus not -- at an abundance of caution. And we feel good about where we are. And because of the nature of our business, we'll feel really good coming out of this about the opportunity to serve even more customers. So with that, I'll see -- Maureen, if you want to add anything to that before John starts with his questions.

The only thing I would add is I know everyone is concerned in general about liquidity. And as we said in our press release, we feel comfortable that we're going to be able to continue to serve our customers with the liquidity that we have. There's also some cash flow benefits from demand slowing down if we are to see that, which can be helpful in the near term. I'm sure we'll get into more details on the call, but there's -- we're not at risk of having liquidity concerns.

Great. Maybe I'll start it off and just ask you perhaps, Maureen, to walk through a few numbers on liquidity. What is your liquidity position? And maybe also what your kind of cash obligations are for the next 12 months. And then roll into your comment you just made about the nature of the business. And if demand weakens and the fact you don't have to write new leases, how that impacts your cash flow. So sort of 3 questions. Total liquidity. What's your cash obligations, say, in the next 12 months? And then walk us through the dynamics of how working capital changes if lease demand shrinks in both sides of the business. Are you there?

Maureen, did we lose you?

Sorry about that. I was talking on mute. Sorry about that. So for -- to answer the question about the balance sheet and liquidity, we've got a $300 million ABL credit facility that has a pretty long maturity of 2024 and a Term Loan B of $200 million that expires in '26. So we have a long runway with our existing facility. We have borrowed on that revolver $118 million as a precautionary measure to ensure that we have the available cash. We have previously borrowed about $45 million at the end of the fourth quarter. So we now have a balance of $163 million on that $300 million revolver. And we didn't necessarily need that cash. So it's sitting on the balance sheet at this point just in case we do need additional liquidity going forward, but we didn't need it as of right now. As I talked about, there'll be some working capital benefit. So some of our cash outflows that we'll have are just the typical expenses with labor, which we've done some reductions, rent expense, which we're looking at, talking to our landlords and try to reduce rent expense where we can. But inventory purchases is typically a significant cash outflow for the business. And as demand declines, as we talked about, it reduces that investment that we make by buying inventory, putting it out on rent for the customer and then generating cash flow over time with small payments, which is what the customer pays. So as an example, on the Preferred Lease side, where Mitch talked about has been more impacted than the brick-and-mortar business, when a customer signs a new rental contract, we buy the merchandise from the retailer at a cost of, on average, around $1,000. And then we collect about $150 or $180 per month, whatever the case may be, from the customer. So for the first few months, we're in a negative cash position on that transaction. So if a retail partner closes and we can't write new agreements or just demand slows in general, our cash outflow reduces. So previously coming into the year, we were planning to have a working capital investment because of the growth that we assumed on the virtual side as well as continuing to generate demand in the business. So again, if demand slows, then that actually helps the business from a cash flow perspective in the near term. It will negatively impact it in the longer term because we'll have a lower revenue stream. But in the near term, it helps cash. So -- and we were trending ahead of expectations in January and February. The first quarter is a strong cash position for us because with tax refund season, there's a lot of payouts. And so we're able -- we ended -- or started into this whole coronavirus epidemic or pandemic in a strong cash position. We had paid down a lot of debt last year. Our leverage ratio at the end of last quarter was 0.7x. So there's a lot of benefits here as far as the cash position. Some of the other outflows are things like cash taxes, which we're trying to take advantage of any of the changes with the stimulus plan that the government run out -- rolled out. So our cash taxes will also be lower for the year. So those are the big buckets as far as spend and what we're doing to try to make sure that we have enough liquidity.

Super. And to the extent you can comment on what you've seen in the last week or 10 days or whichever period of time when we really started to see things lift in terms of perhaps new lease take-up or payments or lack thereof from your customers and the pickups that would occur, I guess, if you couldn't collect payment, whether any of those have changed meaningfully. And I understand it's early innings, but it might be helpful to get a little insight of what you've seen immediately.

Yes, John, I'll take that to start with. In the -- on the Rent-A-Center side, as I mentioned earlier, the demand of those essential products like refrigerators and laptops, let's say, has made up for any lack of demand for all the other reasons. So our demand is stronger in certain categories, and again, making up for any other weakness. So there hasn't been much of an impact on the Rent-A-Center side. Certainly, on the Preferred Lease side, there's more impact with more of those stores being closed. Again, we're able to take the labor out of the stores and collect out of our call center for those that we have staff. So it actually will be an increase to cash flow for a while as -- on the Preferred Lease side, as Maureen said. Down the road, you have a smaller portfolio as people pay out. And then you just build it back up, and we just think we'll have a tremendous opportunity to build it back up when we come out of this for all the reasons I said earlier, stimulus, going to our customer. And then a lot of people -- to your question on returns and so forth, we have not seen any -- it's not like more people are returning product. They need the product more than ever in their home. If you think about your home and most people are stuck in their home today. You don't get rid of something out of your home, you're probably just adding to it, if anything. So good time to be in the household durable goods product categories like we are. So returns have not spiked. What have we seen spike in the country, we've seen unemployment spike. Of course, 2 points to make on that -- the impact of that in our business. One is our customer is the one who's going to be whole based on the federal subsidies to the states. If -- who's going to take a cup when they go on unemployment? It's not people at the income range of our customers because of those federal subsidies. So that's number one. They're going to have the similar income levels and it's not like all of our customers are unemployed either. It's still a very -- it's still a smaller percentage for us. But -- so we take comfort in the fact that they'll still be made whole, number one. Number two, and most people don't know this, and this is really an important point. We've got -- we had a program in our stores and in the Preferred Lease side. The -- something we call Benefits Plus, it's a club program. Its benefits to the customer. They pay a few dollars a week for it. You've seen it before, it includes some of the warranty stuff like replacement product. Some of it is included in the rental payment, but they get extra benefits by having this $3 a week add-on product. We make good margin on it. It's underwritten by Aon. One of the products within this club is unemployment insurance. And about 75% of our Rent-A-Center customers have this feature, have this benefit, which is, after they're unemployed for 15 days or more, we help them put a claim in with Aon and they will pay their rental payments direct to us, up to $1,000 in the aggregate for each customer. So to the extent we have a lot of people going on unemployment, even people being made whole has nothing to do with how much they're going to get on unemployment. Just that they're on unemployment, Aon will pay the rental payments up to -- in the aggregate of $1,000, and that's 75% of our customers. The other 25% we work with, we can wait a week or 2 until they get their unemployment and so forth because we want to keep the revenue stream. And so we haven't seen the increase in returns. We would not expect to see the increase in returns for the reasons I just stated, which is primarily the unemployment being higher than normal, number one. Number two, more importantly, 75% of our customers have this unemployment insurance feature backed by Aon. So if anything, it probably will add some demand, especially as retail starts opening back up on the Preferred Lease side. But on the Rent-A-Center side, if anything, as these checks come out even before we're out of the pandemic, it probably helps demand more than anything else.

And Mitch, on that, that's an interesting feature. Have you checked with Aon? And are they -- they're not going to declare force majeure and deny these claims when they come in?

No, we've already -- yes, we've been talking to them. We actually have been talking to them. They've been very, very helpful. It's a subsidiary of Aon. So a smaller part of a big monster like Aon. Probably monster is not the right word to use there. But anyhow, a huge conglomerate like Aon. We're not in all that bureaucracy. It's a small subsidiary backed by -- that Aon own. So we know the people real well. We've done business with them for a long time. What we've worked on the last few days is how to make the requirements, the paperwork a little easier because we're going to have more claims than we normally do. And they've been -- yes. Well, we really don't need that. So let's skip that kind of thing. They've been very helpful to try to expedite rather than get in the way. So another great partner, and we won't have any problem with that.

Okay. Super. And then perhaps you could explain -- I find with many investors, the assumption as we enter a dark period like this, that your "losses are going to spike dramatically." Perhaps you could just walk us through what losses are for you, first and foremost, and how the security of what you do is very different from a subprime lender who is making a loan.

Yes, good question. On the Rent-A-Center side, the losses run about 4%. And the way we calculate loss is it's the cost, the remaining value of the product. When we buy product and rent it to someone, it depreciates over the life of the agreement. So on average 16 months it depreciates. And say, after 8 months, they stopped paying us, and we couldn't find them and we took a charge off. That's the remaining value of the product. In my example, it would be about half of the cost. If we spent $400 on the laptop, let's say, and they paid us halfway through, we've probably depreciated it halfway then. So we'd owe about $200 -- we won't owe anybody $200, but there'd be $200 left on our books. And that $200 would be a loss. That would be the charge-off against revenue and that runs about 4%. So as you can see in that, just the way I described it, it's not even a cash loss if those go up. That product was bought a long time ago. So it's a paper loss. And why does it not skyrocket? Why have we not seen it even go up back in 2008? And yes, I realize this isn't 2008. We've never lived through anything like this. But why doesn't it go up during tough times? And why don't we expect it to go up, certainly not significantly go up? It could go up a little bit, but certainly not materially go up. Why wouldn't we expect it to? Well, the customer doesn't own the product. We're not trying to collect cash. If the customer cannot afford it even though unemployment for 4 or 5 months is going to be 100% of what they've been making, even though we've got the unemployment insurance, even though stimulus and all that, if they can't afford or just don't want it anymore, they return it and we rent it to somebody else. So it's our collateral sitting in the customer's house, not theirs. So we pick it up and rent it to somebody else. So then you say, well, okay, so your losses won't spike like traditional subprime, but you're cutting off the revenue stream if you have more returns. And that's absolutely true. If we have more returns, that would, but we also have more demand coming out of this to re-rent that to somebody else. And I -- first of all, I don't even expect more returns because people need the stuff that's in their home. But in the worst case, if we had more returns, it's not a spike in losses. It gives us product to rent to somebody else that we don't have to go buy more new product on. It actually is a benefit to cash flow if you get more returns. We don't want more returns because it hits revenue later, but more returns on the front side for a month or 2 actually help cash flow because you don't have to buy as much product because you've got the returned product to rent to somebody else. So I think the biggest thing missed, John, in your question is, when people lump us in with subprime, is that we don't have to collect money out of someone who doesn't have it. That's not our transaction. Our transaction is a lease. Equity doesn't transfer until the end, and therefore, losses don't spike during these types of times.

Okay. And I think you made an important point there that even in that case where an item is, say, stolen or somebody just takes it without paying, you've already incurred the cash outflow and the inventory upfront, and it's a book loss and not a cash loss. And that's something that I don't think a lot of people appreciate or understand. You mentioned, Mitch, that you're largely operational, at least on the store side. Even stores that are closed, you're operational. Maybe you could talk to us quickly about how you collect money normally and how you're collecting money today particularly for those stores, few, that are physically closed and how you're operating in the small percentage of stores that are physically closed to give us some comfort around your close to normal in terms of operating your store business.

Well, first of all, a couple of comments. On the Preferred Lease side, the retail partner side, about 75% of our customers are on AutoPay through their bank account. So that's a little bit different customer. And 3/4 of them set up on AutoPay. And in brick-and-mortar side, the Rent-A-Center side, it's not near that much set up on AutoPay. It's more like 25% on AutoPay and the rest pay week-to-week, not that many in cash. It's about 25% AutoPay. Another 50% or so pay with credit or they just like to make their payments when they want to make them. They call with a payment or they go online and make a payment. So they can call the store to make the payment. They can go online to make the payments and so forth. And that covers -- between AutoPay and weekly payments through online, it covers about 75% of the payments on the Rent-A-Center side as well. And then you got the smaller segment that pays in cash. And they normally come to the store to pay in cash. What we would do now in the stores when we've got a closed showroom, I think, I mentioned this earlier, they would actually call the number, which is the store phone number. And someone would take the payment curbside using precautions and so forth, gloves and the like. We've got all that kind of stuff set up as you would -- I won't go through all those details because I think we all know what those are by now. And we would do a safe cash transaction curbside and basically in front of the store. So they can still pay in cash. The only place we're struggling to get cash payments is in Puerto Rico because we can't do curbside down there. We're trying to figure that out. We've got a couple of cash payment things being in the works. Hopefully, they will be set up in the next couple of days or not quite yet where you can make cash payments like with Venmo and PayNearMe and a few of those. So we're working on those, and they're close to being ready to help us in Puerto Rico, but that's the only place that the payment stream, cash payments is a problem and is in about 30 stores in Puerto Rico. Otherwise, we can take cash payments still and then there's -- but most of our customers still pay with a card either online or over the phone.

Okay. And then I do want to open up for questions. So just one more for the time being from me, which is, I guess, on the subject of the essential/nonessential, Florida yesterday finally caved into the pressure and is going to stay-at-home model. But does that change how you're operating, for example, in Florida? Yes or no. And what's the likelihood with everything that's going down -- and maybe you could share New York, for example, what you're doing, where the virus is acute. What comfort can we take that you'll still be essentially operational as we get these rolling shutdowns by state?

Well, even in the worst place in the country in New York, we're doing business with a closed showroom, as I described earlier. And in Florida, Miami-Dade County, we're doing business with a closed showroom. Everywhere else is open as usual. But certain restrictions like down in Miami-Dade County, they said, "Hey, we know you're essential, we agree you're essential, we need you to service the customers with these products, and -- but close your showroom and just do it over the phone." And we show them that we're doing doorstep deliveries, not going in customers' homes. We show them the safety precautions we're taking with gloves and sanitizer and wiping down product and so forth. And so I think that the -- and again, even having said all that, it's a minority of the stores that are operating in a -- with a closed showroom environment. But I think the -- and those stores have a lot of demand over the Internet or over the phone. So we haven't seen any push to say, if you think about the products, it's -- when you think about essential and you just think about refrigerators and you think about laptops for working from home, those are essential items. And as long as we do it in a safe way and in some cases, we have to do it with a closed showroom, then we'll do it. So we have a lot of comfort that it will continue that way. Could the closed showrooms go from a small number to a little bit bigger number? Yes, I guess it could, but that's probably the worst-case scenario, just that, that number goes up a little bit on the closed showrooms. But even in Florida last night, nothing -- that order didn't change any closed showrooms. We were already in closed showroom in Miami-Dade based on their local order. So the Florida order, as our legal team reads through it, doesn't change anything. And what happened -- what we do with these, we get the order, and then we arm the stores with the order, a letter because you'll get different people trying to enforce that order coming in the store. And sometimes, they don't really know what the order exactly says. So we have the order in the store, whether it's the state order or the local order for the employees to show. First of all, we want to show our employees why we're staying open, that we're not going against any ordinances or orders. And then we show anybody who comes in to enforce it, even a customer will show them this is why we're still operating. And by the way, if we have an employee that doesn't want to come to work for understandable reasons, and we would all understand why somebody might be a little -- not want to come -- go to their job, we have a temporary leave opportunity for the employees, and they can take it any time. We've only had a couple of hundred people in the country out of about 13,000 take us up on that. Now there's been others we had to furlough if the stores on a closed showroom or the Preferred Lease side, some stores closed and so forth. So we've had to, but voluntarily, there hasn't been that many people say, "Oh, yes, I don't want to come to work." But that is an option for our employees where we would cover their insurance and let them go take unemployment. And if they're more comfortable doing that, fine, and then come back when this thing is over and we'll cover their insurance in the meantime. So we're -- we believe we're doing the right thing for our employees and trying to stay there to serve our customers who need our products during this tough time.

Okay. Operator, if you could provide instructions as to how to ask a question, please?

[Operator Instructions] Your first question is coming from Barry Haimes.

Sage Asset Management. I had 2 questions. One, I get the logic of why things held up pretty well in the '08, '09 period. But just in the last couple, 3 weeks, have you seen any change -- uptick in missed payments or not seeing that at all yet? And then the second question is really more of a long-term question. As we go through this challenging period and you think about the competitive landscape, what percent of the market is in relatively big companies like you guys and Aaron's versus what percent is mom-and-pops? And do you think the financial stress might cause consolidation where some of this mom-and-pops go out of business and the big guys end up with more market share? So love your thoughts on those 2.

Sure, Barry. On the missed payments, certainly haven't seen anything significant. I can't tell you there's -- I wouldn't tell you there's not a slight uptick in these uncertain times. People are waiting on unemployment for the first check or for us, they have to be unemployed 15 days for this -- an unemployment benefit to kick in and so forth. So certainly nothing material, nothing that scares us. Are payments coming in a bit slower? Yes. I mean you wouldn't believe me if I told you they weren't anyhow. And they're coming in a bit slower, but certainly nothing we haven't seen before. You get a little bit of an uptick before people start paying. Of course, yesterday was the first of the month. We saw a lot of payments come in because a lot of people get their income on the first. So yesterday was a large uptick like we would expect to see. So a little bit higher, but nothing that scares us to answer your question. As far as the mom-and-pops, I think in the -- on the Rent-A-Center side, in the brick-and-mortar side, there's not all that many stores outside of us and Aaron's. And I don't see the disruption honestly on the -- because we can operate as an essential business. I don't see the disruption being so high on the Rent-A-Center brick-and-mortar side that would actually put some with a lower -- with a lesser balance sheet out of business, honestly. Now on the Preferred Lease side, with -- there's more competition over there, and there's some small start-up companies that have just gotten going. And I could see a bit of a thinning out on the Preferred Lease side that we compete with. Some awful good companies out there, big companies with good balance sheets, so we compete with 2 that I wouldn't expect to have any problem, but there's a few smaller ones that wouldn't surprise me if they struggled and there was a little less competition on the retail partner side coming out of this.

Your next question is coming from Nate Henderson.

Loomis, Sayles. I have 2 questions as well. The first one, Maureen, you mentioned some of the tax benefits that you might be able to get from the fiscal stimulus and maybe you could talk about that in relation to -- I think you guys have benefited in the past couple of years from stimulus tax-wise. I see that your deferred tax liability balance has built up in the balance sheet. Talk about how that might flow through to cash taxes. And the second question is, as you guys talked about, it's a portfolio business. So in the near term, that is hurt by that. But if demand does soften significantly and the portfolio is lower later this year, can you talk about how you think about the fixed cost deleverage in both sides of your business?

The first part of your question about the tax benefits, there's a number of items that we're looking at in the stimulus package, including things like the payroll tax deferral. There's an NOL carryback, where we can -- there's an expansion of the carryback rules. There's a couple of scenarios that could benefit us this year and result in lower cash taxes that we would pay. And then there's business interest expense limitation benefits that we're looking at. So we're evaluating a number of items. It's a lot to take in, but we've got numerous people looking at what benefits we can take advantage of. And then if there is a decrease in profits from the coronavirus, that would help reduce our cash taxes as well. And then the second part of your question about fixed cost, I'll speak to that a little bit. I touched on a couple of items that we've looked at. Obviously, if revenue declines, we want to make sure we do whatever we can to try to reduce our cost and maintain an optimal level of EBITDA margin as we go forward. So we've done some furlough with our employees as we've closed our showrooms. We've transferred some of the collections activities over to our centralized call centers, which is a good way to transfer a fixed cost to a variable cost and have a highly productive team in our call center that we acquired with Merchants Preferred. And they do a great job, and they've been able to quickly pivot and make some great changes to enable us to reduce some of our fixed labor cost. And then there's a number of other nonessential expenses that we're looking at, trying to scrutinize and postpone different capital investments or other operating expenses that we feel we could postpone without significantly impacting the business. So we're doing what we can to try to make sure that we maximize our profitability and our cash flow during these uncertain times but also looking at ways to be able to take advantage of the opportunity as we come out of this because we do feel like in the recessionary type of environment that we can benefit either from competitors that close or just having a strong balance sheet to be able to make investments and continue to add additional retail partners. There's -- we're still actively talking to retail partners to try to make sure that we've got the demand funnel being filled still so that when we come out of this, we'll be geared up to capture the opportunity.

And do you have any comments on the deferred tax liability, if there's a scenario where that becomes a cash liability?

The impact that we could see there is our inventory purchases reduced with the demand decline. There could be less of an advantage as far as the bonus tax depreciation that we take advantage of. But the overall cash benefit from lower inventory purchases should -- would likely offset the negative cash impact from paying -- not taking advantage or being able to take advantage of the same bonus depreciation from a deferred tax liability. Because it's a portion of the inventory purchases that we're able to accelerate depreciation on, which helps our cash taxes, but buying less inventory would be the full cost of the inventory.

I think the only thing I would add to your answer on the fixed costs, Maureen, is we're talking about the demand coming out of this, and even the demand today, keep in mind, I think everybody knows what's happening in the e-comm world as far as -- I mean some of those companies are skyrocketing. And our Preferred Lease option is also available for e-comm partners and -- that are only selling online and their business is booming in most cases. So we're talking to retailers about how we add on the e-comm side. We already have some anyhow in our normal course of business. But brick-and-mortar could be closed, but we still have opportunity on the e-comm side. And then the only other thing I'd add on the fixed cost side, we don't have that many fixed costs. We're talking to John about this yesterday. We don't have that many fixed costs. We are making our labor in the stores much more variable. Of course, real estate leases are fixed costs. And I think Maureen mentioned it earlier. That's something else we'll look at. And as we need to -- this is an opportunity to renegotiate leases and so forth, and we'll take advantage of that as well.

Your next question is coming from Abi Jain.

Nantahala Capital. And my question is just on the operations side, in terms of repossessing items, if somebody kind of misses a payment, are you still able to kind of get to people's houses and kind of take back your inventory?

We are. There's a couple of states where we're not doing it. We're doing that in New York City, for instance, right now, unless a customer requests it. And keep in mind, Abi Jain, the majority of our returns are customer requests. I think there's a vision that we've got these big collectors out there, knocking on the door saying, "Hey, I need my product back when somebody doesn't pay." Most of this is done over the phone and you arrange a time to pick up. And in certain places, we're getting the customer to put it at their doorsteps, so we don't have to go into the house and so forth. But most of it is done agreeing that if you can't afford it anymore, you don't want it anymore, here's how we do the return. Keep in mind the customer that can't afford it anymore, if they give it back to us, we -- they can come back and pick up where they left off at any time, something we call lifetime reinstatement for that customer. So there's a lot of reasons for it to be done just through a requested pickup by the customer. But as far as some of the harder accounts, which is a small percent of the business, maybe the 5% to 10% of the business that we do have to go out there and knock on the door and talk to the customer about a return. We're still doing that less than we were for obvious reasons, and not at all in a couple of cases, like in -- I believe it's New York City and Massachusetts where we're not doing it at all. So we're still running our business with a tweak here or there, but for the most part, it's -- we're running at normal with those few exceptions.

There are no further questions in queue.

Thank you, operator. And again, my apologies for the late start to the call but appreciate all of those tuning in. And we will -- I want to thank Maureen and Mitch for their time on agreeing to do this. And please feel free to reach out to me, [email protected], if you have any follow-up thoughts or questions. Again, thank you, everyone, for participating this afternoon.

Thanks, John.

Thanks, everyone.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.