CURO Group Holdings Corp.
Q2 2018 Earnings Call Transcript

Published: 31 Jul 2018

[Operator:]

Good morning, and welcome to the CURO Group Holdings Second Quarter 2018 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Gar Jackson, Investor Relations for CURO. Please go ahead.

[Gar Jackson:]

Thank you, and good morning, everyone. CURO released results for the second quarter 2018 yesterday evening after the market closed. You may obtain a copy of our earnings release from the Investor Relations section of our website at ir.curo.com. With me on today's call are CURO's President and Chief Executive Officer, Don Gayhardt; Chief Operating Officer, Bill Baker; Chief Financial Officer, Roger Dean; and Chief Accounting Officer, Dave Strano. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Don, I would like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it as of today, July 31, 2018 and as such, does include certain risks and uncertainties. These statements relate to our view of our customers' financial health, our expectations for loan demand, our expectations regarding number and timing of opening new branches in Canada, and the deployment of our Open-End product in Canada, our expectations related to the impact of the 2017 tax act and our 2018 full year financial and effective tax rate outlook. Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to US GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in our earnings release. As noted in our earnings release, we have posted supplemental financial information on the IR portion of our website. With that, I would like to turn the call over to Don.

[Donald Gayhardt:]

Great. Thanks, Gar. Good morning everybody, and thanks for joining us today. This call will follow pretty much the same drill as in the past. I will offer some high-level thoughts on the quarter, a few strategy notes and a few brief comments on the regulatory environment. Roger will then give you much more detail on the numbers, and then we'll take some questions. I would characterize our second quarter in two ways; first, from an operational standpoint we had an excellent quarter. We made great progress on our new loan products, our MetaBank relationship and probably most importantly the early stage of a very successful introduction and transition of a big part of our Ontario lending business from a legacy Single-Pay loan product to a line of credit product that has been very well received by our customers. We will unpack the Ontario transition in some detail later on, but it is a big undertaking that is going very well and is running well ahead of schedule. We did all this while maintaining our credit and other financial disciplines. These are big projects that require many people from many departments to work together and we are incredibly proud of all of our CURO team members for giving us a huge effort this quarter. From a bottom-line perspective the quarter is very good, but the revision bill associated with the second quarter asset growth, increased advertising expenses for our newer brands, and the expenses related to the ongoing affordability settlements in the UK combined to keep earnings from coming in at a level that we would characterize as excellent. But the good news is our US business is extremely strong and performing in a way that more than makes up for any shortfall from our international operations. We are affirming our guidance today and Roger will go into that in more detail in his prepared remarks, but before he does I will just make a few comments on that. As I said, we are very pleased with the performance of our US business and we have a very high degree of confidence in achieving our guidance objectives, and obviously today we are about 60% of the way through the year. So that certainly helps. And our confidence in our core business and products is very high. It is probably just that the Canadian product transition and the UK affordability issue are both too fluid for us to completely discount a bit of downside risk on both those fronts. So looking at our current forecast, we expect our Canadian and UK operation to fall short of our operating earnings plan for the full year 2018 in the range of $10 million, US $10 million. So sitting here today we do think as I just mentioned the US business will be able to more than make up for these projected financial shortfalls and we believe that there is a good likelihood that will come out ahead on our internal forecast and our published guidance. Turning to some quarter and year-to-date highlights. Revenue was $249 million, which was 14.8% above our year-ago quarter. For the six months, total revenue came in at $510.7 million, which is 15.7% ahead of prior year six months total. There is still strong growth and running a bit above our longer-term growth goals. Adjusted EBITDA for the quarter was $48.6 million or 8.6% behind last year. For the six months, adjusted EBITDA was $123.8 million, which is 1.6% ahead of prior year, and Roger will go through this in more detail, but the loan loss provision based on strong asset growth and the ad spend investment in newer brands offset the very good revenue growth. The provision for the quarter was also [comping] against the second quarter 2017, when we released some of the over-provisioning from the first quarter of 2017 when we changed the reserving methodology for non-Single-Pay loans. And we realized that it is a lot of elevated now to keep up with, but the underlying credit trends, or fundamental credit trends are still very favorable and both Roger and I will have some more detail on that point. Adjusted net income was $18.1 million, just slightly off of last year, but still up an impressive 18.9% for the six months versus the prior year. Gross combined loans finished the quarter at $513.8 million or 24.6% greater than the balances at June 30, 2017 and $70 million or 15% higher than the sequential March 31, 2018 balances. As expected, Single-Pay balances fell year-over-year and we had low double-digit growth in our secured installment and CSO portfolio. However, our combined installment and line of credit portfolio as we call the multi-pay products grew by $87.6 million and 47.9% year-over-year and by $47.5 million, or 21.3% in just the last quarter. The rest of my remarks will focus on five topics, Canada, UK, Meta, credit and Ohio and the broader regulatory and legislative climate. First in Canada, as I mentioned early, ongoing changes in the provincial regulation of Single-Pay lending in Canada coupled with our growing competencies in marketing, underwriting and servicing line of credit products brought us to the decision to accelerate the transition of our product offerings, particularly in Ontario, which accounts for about two thirds of our Canadian revenue. Although we anticipated introducing a line of credit product in our Ontario locations during 2019, early test results we initiated in February this year were incredibly favorable in terms of acquisition cost, credit performance, take-up rates, line utilization and really the whole deal. So we simply moved up our conversion schedule. So what does that mean? It means higher earning asset balances and a line of credit portfolio in Canada than previously forecasted, but lower yields and lower revenue on the book builds and higher provision and larger balance dollars originating. We started the quarter with just over $53 million in non-Single-Pay - these are all US dollars by the way. We started the quarter with just over $53 million in non-Single-Pay balances, and we ended the quarter with $74.7 million and having begun a larger marketing convergent plan in late June, the balances today sit over $115 million. So great growth all driven by tremendous customer communication and service by our store and call center teams in Canada. As I mentioned, short-term this approach diluted earnings for the quarter. There was really no question we could have had better earnings had we taken a more incremental approach, and will impact earnings for the full year versus our plan, but long-term if the portfolio continues to build through the remainder of the year, our exit rate will be very high and we will have a much more diverse and stronger business in Canada that will drive substantial operating earnings gains in Canada in 2019. To talk about the UK for a second, like our Canadian team are really proud the second quarter that our team in the UK produced. Loan balance is up 31% year-over-year, 29,000 new customers, a 45.3% increase year-over-year, stable credit and good control of operating cost, all on the back of an improved customer acquisition and application and approval journey that we think puts us ahead of our UK competitors and positions us for continued strong growth. Unfortunately as you can see in the segment results in the release, we still posted a $2.5 million operating loss for the quarter for a business that we had expected to just about breakeven for the quarter. This is partly due to the provision bill as earning assets grew during the quarter but the biggest variance is the expenses related to the ongoing and somewhat unpredictable issue of paying redress to former customers claiming that we had not adequately assessed their ability to afford to borrow from us. Now I am nearly providing any more - we like to say bulletin board material for anyone in the UK. So if you like to know my true feelings about this issue I will refer you to our April call transcript. Also I don't want to get ahead of myself and say that we don't have any good news to report, but we are cautiously optimistic based on some recent dialogue with regulators that we are beginning to grasp the scope of the issue for UK lenders and this is an issue that affects everybody in the small borrower credit space in the UK. And also they are beginning to understand the fact that this process yields can't benefit to consumers. I hope in subsequent quarters that the financial impact of this process will decline and the operating improvements that our UK team has engineered will finally and meaningfully flow to the bottom line. Some quick thoughts on Meta, where we continue to make very good progress with them and look forward to getting our [Verge] credit powered by MetaBank product in the market soon. As we work with our team and Meta on a daily basis to build the product and customer journey, we think we could be piloting later this quarter, but just kind of a quick reminder that given a fairly measured rollout schedule we won’t see asset growth until the back half of - meaningful asset growth until the back half of 2019, and this product will not meaningfully contribute to earnings until 2020. But we are very excited about where we are with them. Meta is a good partner and we are excited about where we are with them at this point. A couple of thoughts on credit from a macro standpoint, nothing new, but in and of itself we think that is good news because the economy in all of our markets and our customer, particularly in the US, continues to benefit from the breath and the strength of the economic expansion. Consumer confidence remains very high. Wage growth is good and larger credit fundamentals are showing no signs of weakening in any material way. As we called on our release, net charge-offs on unsecured installment loans have improved and underlying this is flat and in some products lower first payment default rates, and delinquency collection and payment rates that are higher than forecast and better than last year. So in a nutshell fewer customers are falling behind and for those that do more are catching up. Finally in terms of legislation and regulation, as most of you have seen, regulations governing small dollar lending in Ohio will be changing as a result of new law that passed last week and was just signed by the Governor. I'm not going to really get down the rabbit hole of politics, but this was a really unusual situation and the term perfect storm is a pretty apt one here. As we saw in California earlier this year where several restricted measures failed and we think our industry continues to be very effective at gathering support for a balanced and sensible regulatory environment for small dollar lending. We are still sensing our options in Ohio, but we currently believe we have until at least May of 2019 to comply. Ohio generated $20.1 million in trailing 12 month revenue for us, but given the growing book provision build and direct expenses such as advertising it contributed very little. Ohio certainly did factor into our growth plans, the old [indiscernible] factor into our growth plans but we are hopeful that some combination of a re-formulated product together with a [Verge] credit option from MetaBank for better customers will continue to make us competitive in Ohio and perhaps even increase our market share there over time. So up close, where I began, we are really, really pleased with the quarter and our progress so far in 2018. We would like to put some more money on the bottom line this quarter, but doing so would probably have cost us a lot more down the road. There really is no question that our Omni channel model continues to take market share from legacy branch-based Single-Pay and installment lenders, and probably even rent to own and pawn shops. So we work very hard with our team and with our board to always balance short-term performance targets with longer-term investment and growth objectives. I generally think that we get it right and I think that the work we are doing developing and transitioning to new products will continue to increase the value proposition to our customers and ultimately make us a better company with stronger more defensible positions in our large and growing markets. And with that, I'll hand it over to Roger.

[Roger Dean:]

Thanks, Don, and good morning, everyone. Thanks for joining us. Don already covered Q2 consolidated results and our country level results at a high-level, so I'm not going to repeat, but I will discuss the US results a little more. US revenue growth exceeded 16% on 23.6% loan growth, but year-over-year increase in loss provisions resulted in 5.7% growth in net revenue. We discussed at length on prior calls and in our filings the effect of our Q1 - of our 2017 Q1 loss recognition change on the first half of 2017. Just a reminder, prior to January 1 of 2017 installment loans charged off upon payment default. We changed that at the beginning of 2017 to a more traditional convention, installment loans began charging off after 90 days of delinquency. So in the first quarter of ’17 we had no installment loan charge-offs since none reached day 91, and in the second quarter of 2017 we had what I would characterize as undeveloped net charge-off levels because of the transition. Looking at loss provisions and allowance levels, we have said several times that with hindsight we were over-reserved for installment at the end of Q1 of ’17 and we had to bring most of that over-reserving down during Q2 of 2017. That allowance release had the effect of lowering prior year P&L provisioning versus normalized levels and created a tougher Q2 comp on the provision line. We also had more sequential loan growth from Q1 to Q2 this year than last year. I'm happy to say that we should expect less noisy comps for loss provisioning in the second half of the year. The growth rate for provision expense should match up better with revenue growth rates for the next couple of quarters. Next I will comment on advertising customer accounts and cost per funded loan. Consolidated advertising expense was up 50.8% year-over-year. That is a $5.9 million increase and was 7% of revenue versus 5.4% of revenue in Q2 of last year. As we think about the rest of the year, we would expect advertising spend as a percentage of revenue to be slightly higher seasonally in Q3, but in the same range for Q4. We added 184,027 new customers globally this quarter. That is up 8.6% versus Q2 of last year. Breaking it down along with related advertising spend by country starting with the US, US advertising rose 57.1% year-over-year. Of this $4.5 million increase, $2.6 million supported the ramp up of our new Avío installment loans, which we didn't have until Q2 of last year. US new customer accounts were up 5.7% year-over-year fuelled by a 21.1% growth in Internet new customers. 50.2% of our US new customers were acquired online this quarter, driven in part by the Avío spend I just mentioned. US store new customers were down modestly year-over-year and site to store added 48,000 new customers there this quarter. Because of the Avío and Internet mix shift, US cost per funded was $95. That is up $32 year-over-year, again because of the mix shift and Avío. US advertising as a percentage of revenue was 6.5%, the range we expected given the ramp up of the Avío and some of the mix shift online. Canadian advertising rose 19.4% for three reasons. Number one, mix. We are targeting and acquiring more installment loan and open-end customers than a year ago. Two, the marketing channels we are using. We have expanded cable TV and direct mail spend in Canada, and three, new product expansion - supporting new product expansion, including the LendDirect stores in Canada and increased spend to support that ramp up of our LendDirect brand. Canadian new customer counts were down 2.9% but that comp really isn't apples to apples. Last year a much higher percentage of new customers acquired were too weak single pay customers and because single pay customers first scored I'm sorry because non- single pay customers are scored more extensively, we do have more declines in the open-end and installment products. As a result Canadian costs were funded was $87 that's up meaningfully from the same quarter a year ago but it is down sequentially from $96 in the first quarter and $119 in the fourth quarter of 17. UK advertising rose about a million dollars a year-over-year and UK new customer counts were up almost 43% year-over-year. UK cost for funded was $86; that's up $12 compared to Q2 of last year but it's flat sequentially pretty much all of this year. Next I'll spend a little time covering overall loan growth and portfolio performance. Don already discussed consolidated loan growth. I'll cover a few highlights at the product level. Company unsecured installment loans grew to $179.4 million that's up 23.3 million or 15% versus the same quarter a year ago. Origination increased 7.1% to the same quarter. Loan growth on the company owned unsecured installment loans was affected by mix shift from installment opened in Canada. We saw a mix shift up there where unsecured installment balances in Canada were actually down 19.4 million year-over-year. So when you unpack it the U.S. unsecured installment loans were up almost 36 million or 35.5% year-over-year in the U.S. Open-end loan balances finished the quarter at 91 million an increase of 64.3 million or 240% year-over-year fueled by growth. So that's fueled by growth in the season markets like Kansas and Tennessee in the U.S. where the growth was 26.9% and 20.6% respectively. We did introduce the product in Virginia as we mentioned previously in the third quarter of 17. We've got that growth and then in Canada. Don mentioned that open-end adoption in Canada accelerated this quarter. The open-end balances actually grew 34 million sequentially from first quarter and it was encouraging that even with this acceleration of the open-end product Canadian single pay balances shrank sequentially just $1.4 million. Moving on to loan loss reserves and credit quality as I mentioned previously the 2017 Q1 loss recognition change affected year-over-year comps for installment, loan loss provisioning, allowance coverage levels and net charge off rates. So I'll focus my comments on sequential trends and net charge off rates ,vintage performance and resulting allowance levels. I'll also comment on FPD rates which obviously weren't affected by the accounting change. For company unsecured installment we saw meaningful improvement in vintage loss development in net charge off rates, the net charge off rates which improved 488 basis points sequentially. FPDs were stable year-over-year for this product. We saw even more improvement sequentially in that charge off rates for the CSO unsecured installment portfolio which improved nearly 2000 basis points sequentially and FPDs here improved 140 basis points or 8% year-over-year. We have seen the favorable -- this improvement is attributed to basically three things; first origination mix. With our successful credit line increase initiatives we were learning more like for like to our best customers. Secondly, we're seeing the effect of seasonally tighter credit score and approval rates last quarter from during tax season and three, we just continue to see general improvement - continued general improvement in our scoring models. The improvements led the lower required allowance coverage for both unsecured and for both unsecured installment products versus the end of last quarter. For secured installment net charge offs were up 282 basis points while delinquencies improved modestly sequentially. In addition here the first pay defaults improved almost 200 basis points or almost 12% versus last year second quarter. For the open-end portfolio first pay default for the U.S. open-end portfolio have improved 50 basis points or about 2% year-over-year because of seasoning and improved scoring in our mature states, sequential improvement in the newer Virginia market and with the launch of open-end in Ontario over 56% of our open-end receivables are now Canadian where open-end first pay default are much better than expected and much lower than in the U.S. Closing out the discussion of P&L, adjusted EBITDA on adjusted net income this quarter were pretty much limited to share-based compensation while the prior year included a litigation settlement. And our effective tax rate for the quarter was 25% bringing the year-to-date effective tax rate on adjusted basis to 26.5%. We still believe the full-year adjusted effective tax rate will be in our previously communicated range of 25% to 27%. Finally, I'll close with our full-year outlook for 2018. Like Don mentioned we are reiterating or we are affirming our full year 2018 adjusted earnings guidance that's a Non-GAAP measure that excludes one-time items like the aforementioned share-based compensation. We continue to anticipate revenue in the range of a $1.25 billion to $1.8 billion with continued solid growth in the U.S. and UK being offset partially by modest declines in Canada from the additional regulatory changes and mix shift there. In fact if you do the first half -- second half math at this point we'd be surprised if we weren't already at the top end of the revenue guidance range. Adjusted EBITDA in the range of our adjusted EBITDA will fall in the range of $245 million to $255 million and our adjusted net income will be in the range of $110 million to $116 million with adjusted diluted earnings per share in the range of $2.25 to $2.40. One other thing to point out about the full year, if you look at our last year numbers adjusted EBITDA for the first half of the year was higher than the second half of the year. There's a lot of reasons for that but our guidance for this year implies that that will flip this year. In other words we reported $124 million of adjusted EBITDA through the first six months of 2018. At the midpoint of our guidance that means we would exceed 126 million of adjusted EBITDA for the second half of the year with related higher year-over-year growth rates. With that this concludes our prepared remarks and I will now ask the operator to begin the Q&A.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Vincent Albert Caintic of Stephens Inc. Please go ahead.

[Vincent Albert Caintic:]

Hey thanks, and good morning guys. I was wondering if you could touch on the meta bank partnership more. So at least from the limited press release it does seem like it's a great opportunity and particularly when it highlighted a $350 million potential sizing of that I think that's doubling your portfolio. So maybe understanding that the cadence might take a while but maybe if you could give us a sense of the economics and the potential that could add to your business. Thanks.

[Donald Gayhardt:]

Hey this is Don, I will just give you some -- a few highlights and Roger can fill in some of the details. I'd sort of have to my certain [indiscernible] it's we haven't launched yet and I think that as I said in my remarks this is likely going to be a product that we're sort of the roll-out and the ramp up and we will likely be in a bit more of a major pace than what we typically have seen. We want to be it's a new kind of partnership for us. It's somewhat of a different product. It's obviously wanted credit project experience with given the sort of the great structures built around sort of the amount of times customers drawn the line and how much they have outstanding, the yields are going to be a bit lower -- it will also probably involved what we will be getting online credit product in Canada just as a frame of reference, but lower than what we get in most of the places where we offer a similar installment product in the U.S. So we are going to be kind of a little bit more measured about letting it build, let me put forward kind of watching credit as we go along. So having said all that and I think we have made a lot of good progress with it as I mentioned there's a good really good partners to work with. We really think they understand our business. I think this is a the way this partnership is structured is somewhat unique in the industry and I think it should work out to both of our benefits. You mentioned at 350, so I think we're about 515 of gross combined loans right now. So if that rolls forward if you're looking at sort of a 20/20 things sort of max out on where we are with the 350 you know we're probably if that continue to grow in above 20% clip you know you're going to have them, you are probably going to add another a couple of hundred million dollars at least to that 515 numbers. So maybe as we start to add meta bank we will be sort of you know North to 700 million in and we will add 350 to that. So it's probably a 50% build to that $700 million dollar number. So not necessarily a doubling of average earning assets. In terms of the way it's structured I think we've said you know [indiscernible] return on assets as is still. They said it will take some time. There's advertising expenses and as we continue to say that the way the provisioning works in this there will be credit losses. It would be in kind of the waterfall that we'll have to come kind of work through before it starts returning to either meta or to us but you know as we said we think we can get a [indiscernible] return on that earning asset base once it builds up and we get through kind of a call facility to start up and rollout phase of the product. So on 350 million of earning assets you know north of $100 million of the essentially net revenue to us and again that's after ad expenses and provisioning. Now there will be a little bit of associated overhead we have to what we’re doing some of that already hiring kind of product managers and product specialist to help and certainly continue to hire people on the credit, the underwriting and the IT team to help manage this role and so there will be a little bit of an incremental overhead against that you know $100 million of net revenue but by and large a very high percentage, but by-and-large a very high percentage of that auto flow to the pre-tax line just as a reminder meta is going to balance sheet the first $350 million of the program. So there will be no associated interest expense. So it'll be a net revenue share with a little bit of associated overhead but it should be the increment profitability and it should help our overall kind of profit margin adjusted EBITDA margin continue to and ultimately the pre-tax and after-tax margins to grow as well. So I think you know there could be a little piece of this that overtime is maybe starts to - impact some of our other products but I think that's we've gotten that question a lot. I think it's relatively modest given where we're targeting this product from a credit standpoint and given that this is a product that allows us to go into a number of states where we don't have options and in certain states particularly two biggest states Texas and California allows us to structure products that are different and fill kind of gaps in the product lineup in two very-very big states for us. Roger? You want to add something.

[Roger Dean:]

No, I think I have covered -- I think I would just add we talked about it before but you know at this point we don't see our - we e don't see this product or this launch contributing meaningfully to 2019. It might late in a year. We also don't think we certainly don't think it's going to be significantly diluted to 19 at all either because just a reminder that we don't have the loans where the loan losses on our books. So if we share on waterfall whenever it becomes positive. So you know so we won't see the dilution you would see if we were launching this product on our balance sheet during 2019 and then obviously we have said before we expect it to contribute meaningfully in 2020 and using the numbers that Don just laid out it's anywhere from you know a $1.50 to $1.70 a share and by then -- so if you just kind of rollout the, again we haven't even, I certainly haven't thought about 2020 guidance at this point and we're not given 2020 guidance but if we just look at the meta program and its potential you know that's I think that's the right range.

[Vincent Albert Caintic:]

Okay. I appreciate that units. That's helpful to think about it like a $1.50 to $1.70 run rate EPS accretion so that's really helpful. Thank you. Maybe shifting a little bit more near-term so appreciate the updated guidance you gave on 2018 and also the commentary that maybe there's a good chance that you might come out ahead of that. If you can maybe kind of what assumptions on maybe the low end to the high end of the EPS guidance range and what would it take to get maybe beyond that and then also if you could help just since you're relatively new, if you could help us understand the cadence of what happens in the third quarter and the fourth quarter in terms of seasonality. Thanks.

[Donald Gayhardt:]

Yes. This is [indiscernible] the first half of that and what Roger felt to be details the first half of your question when Roger fills the details in the second half of the question. You know just if you look at the midpoint of our guidance range you will get the top line it's 1052 in total revenue. The first half isn't much we did 510.7. So you know we really and I think that and we grew the first half of the year we grew 15.7% top-line year-over-year. Our expectation is that our revenue in the second half of the year will probably - and I think we grew 14.8% for the quarter, it'll probably come in somewhere in that range for the back half of the year and if you just do the math out on that that gets you to sort of - it gets you to about $1.1 billion. So it's even above as we mentioned kind of gets you above the top-end of the guidance range. So now again there's, as I mentioned there's the pretty meaningful chain of two thirds of Ontario is a big piece of Ontario, Canada last year just in context and again we give you for the full segment details up in Canada last year that 108 and this is in U.S. dollars of $186 million of revenue. We think that's still going to grow the top-line [Canada] is going to grow about 7%. We're talking about transitioning two thirds of that P&L from a product standpoint. I think that just gives you a sense of why we're just a little - we just want to make sure we're just a little cautious in terms of you know we're really happy with where things are going but we all want to despite the ball at the 10-yard line here in terms of over promising on over projecting on what's happening in Canada other than say well we're really happy with that teams done a great job. So that's kind of top-line. We would also expect, Roger we would expect that our provision in the second half of the year would run about with revenue.

[Roger Dean:]

Yes because we will be much closer and much less noisy than the first half.

[Donald Gayhardt:]

Right. Exactly so again the context of first half of year revenue grew 15.7%, provision grew 36%. So revenue is going to grow in that 15%, 14% to 15% range. Provision grows on average. Your net revenue growth should run about with gross revenue growth. The other bigger piece of P&L from an advertising standpoint given the continued transition in Ontario there's some added support for that and again that's transitioning existing customers but we are getting a really good take-up rate from new customers. So we're going to continue to advertise as Roger says if you live in Ontario it's very - unless you're kind of living in a cave we think we've reached you multiple times with this advertising but we're to continue to push that so we would expect and that and our view of product in the U.S. we would expect that our ad spend as a percentage of revenue last year I think it was about 6.5% in the second half and likely go up you know maybe 140, 150 basis points maybe you know in seven 7.8% to 8% range for the back half of the year. So that would be a bit higher than last year but again the revenue growth is there and the provision should be in line with revenues. So and the rest of it you know we'll see some G&A growth from public company costs etc. but the rest of it we always talk about is this call centers and stores and we just aren't seeing a lot of increases in the growth rate of the expense line there. So and that's just you know some high-level thoughts how - why we think we're pretty you know optimistic about the back half of the and then Roger kind of address kind of the way the earnings progression.

[Roger Dean:]

Yes. The good point on the newness and the seasonality you know as you guys know first quarters is very high seasonally in terms of earnings and adjusted EBITDA, second quarter is the low point of the year seasonally and then we kind of build back Q4 gets up you know a little - Q4 seasonally should be in the same range or higher than Q1 seasonally and then you know third quarter is kind of right in the middle. So if you just you know if you look at our guidance and think about that seasonality you know you get fourth quarter and first quarter of the two highest quarters of the year. If you choose the lowest and Q3 is kind of just kind of right in the middle.

[Vincent Albert Caintic:]

Okay. Great. Thanks very much.

[Operator:]

The next question comes from Robert Paul Napoli of William Blair. Please go ahead.

[Robert Paul Napoli:]

Thank you. And I guess the Canadian the growth, the conversion of the Canadian business Don and Roger I mean that is you know the pretty - what gives you the confidence this early on you're ramping it up at a much faster pace, what gives you the confidence that that business is going perform as you expect from a credit perspective and why has the single pay held in as well? Do you expect that to drop off more aggressively?

[Donald Gayhardt:]

Yes Bob. I think so we ran a pilot in Windsor, Ontario that we started I mentioned we started in February and you know so it was sort of big enough to be kind of meaningful as a sample size and a learning exercise and we saw really good take break good conversion rates in existing customers and I mentioned you know a really healthy number of new customers and if you look at our revenue in Windsor in the second quarter those stores have actually grew the total revenue base grew there versus the prior year. The first pay default rates on the new products were in the 6%-7% range which is really-really good and again you got to a product that's going to be a meaningful [indiscernible] PR rate, so as I say credit has to get better. It's not just an academic exercise. I mean the credit has to get better and your margins are going to get squeezed. So the product performance has been, the credit performance has been really good. And as the acquisition cost you got to install base stores you get good local awareness in the plan and we have been advertising since we bought that business in May of 2011, we have been advertising really consistently there on TV but what we also continue to get I think we had over 15% of our new customers in Canada and the quarter came on line which is a - that percentage continues to take up. So the Omni channel side of the business and the advertising benefits you get from the Omni channel, I think is really starting to take hold. In the U.S. we are getting two thirds of our new customers are coming online some way, shape or form. So you got a long way to go to catch up with the U.S. but I think that it's not just the numbers look good but the operational side of it is really-really good about and I think that's the testament of the work our people are -- our call centers are kind of always done with customers and I think we, if we have time to communicate new products and services and new options to customers I think they exhibit a pretty high degree of trust in what we do for them and I think they understand and appreciate the value proposition, line of credit is more credit at a cheaper rate and more flexible repayment terms and it fits kind of well in their budget and they are using online tools and the mobile tools to help them kind of manage that. So I think it's kind of a - it’s kind of touches all those bases.

[Roger Dean:]

Yes and Bob I would add that we started doing installment loans in Canada in the beginning of 2016 and so we obviously we have that experience and if we match that up with our open-end experience in the U.S. where we have been doing open-end for over five years, if you match all that up we expect the open-end to perform a little bit better - to perform better than the installment and so far that's exactly what we are seeing.

[Donald Gayhardt:]

Just one more comment in just the context. So as I mentioned we did 186 million revenue in Canada last year U.S. dollars our forecast is we will do right on full year this year we will do right around 200 and but so we will see some revenue growth but just the EBITDA last year and this is in U.S. dollar was $54.6 million and we can see in the range of $20 million reduction in that adjusted EBITDA number. We were initially thought it was going to be down in the 10 million range, it could be more than double that down given the acceleration of this of the transition. So you know that's a really meaningful hit on the earning side but you know the flip side of that is as I mentioned if we get through this transition the exit rate should put us on a path to get back to that that 2017 EBITDA number. Now I'm not and this is not a forecast and I just make very clear but that's you know when we talk about objectives internally and think about things it's our idea we're going to get back to that 2017 adjusted EBITDA number. We may not get all the way back there in 19 but we're certainly going to be - we will get a large measure of it back and that's you know that when we look at that from an earnings grow to standpoint fortunately the U.S. side of the business is doing well enough for us to be able to sort of I just feel forward to do that transition and still have our overall numbers be really-really positive.

[Robert Paul Napoli:]

Thank you. And I just I mean the other part of my question was why did the single pay and then I'll turn it over, why did the single pay hold up as much as it has and do you expect that to decline of single pay to accelerate?

[William Baker:]

Hey Bob it's Bill Baker. I mean I think when we ran a test and we did 21 test stores in Ontario starting in February and what we experienced there with single days we did see a decline due to all the things that Don just talked about with a line of credit but we did see it start to come back and we expect to see the same thing in the broader Ontario roll-out. So we actually built the model to allow for that and so what we wanted the idea is to provide the line of credit which is a much larger loan, lower yield and then still allow for the payday products for kind of the emergency use for a segment of customers. So it's very carefully scored and kind of registered in this system. So we expect that to come back a bit and I think that will temper the decline on single pay but clearly there's a big transition and probably if you look at the yield it's even with the extended payment plan and net income limitations it still yields around 200%, so it's an extraordinarily viable products and we don't necessarily want to be out of that business in Ontario. So it's a bit of a balancing act to make sure we offer the right product to the right customer.

[Robert Paul Napoli:]

Yes. Thank you.

[Operator:]

The next question comes from Moshe Ari Orenbuch of Credit Suisse. Please go ahead.

[Moshe Ari Orenbuch:]

Great. Thanks. Most of my questions actually been asked and answered but could you talk a little bit about the yield on the open-end product and you know how that's going to develop over the next couple of quarters?

[Donald Gayhardt:]

Yes. For the Canadian product that products regulated nationally in Canada and in the way it all works out against those national exist is the interest yield is about somewhere around 47% to 48% annually and then we offer optional credit protection insurance and about 70% of the customers buy that. It is a good - it's a real insurance but it's a good product. About 70% range, 3/4 of the customers you know buy the credit protection insurance and that adds about 12 points of yield in quotation marks. So you wind up, the portfolio winds up you know adding on a revenue basis about I don't know the lowest around right around 60% to 62% on an annualized basis and then the U.S. obviously then just to reiterate the U.S. open-end products are regulated at the state level and that the rule - the regulations there generally are something in the range of 0.8% per day of interest. So much higher yielding product in but with much different credit performance in the U.S. and in Canada.

[Moshe Ari Orenbuch:]

Okay. Great. Thanks very much.

[Operator:]

The next question comes from John Hecht of Jefferies. Please go ahead.

[John Hecht:]

Good morning guys. Thanks. A lot of my questions have been asked. Question though the first of all at the product level looks like domestically the unsecured loan product have a lot more demand and good credit. I'm wondering if you could talk about what you're seeing in terms of the customer level demand patterns? And is there any geographic area where you saw more of that than you expected?

[William Baker:]

Hey John it's Bill Baker and good morning.

[John Hecht:]

Morning.

[William Baker:]

So I think the demand on the unsecured products is really almost more of a testament to our underwriting and scoring due to the fact that we can offer customers more money with more confidence than we did five years ago for example. So they don't need to bring a title to do a secured loan. We just have better scoring, better underwriting, better credit data and so we can offer them more money with an unsecured product and I think that's really a big part of what we see in California and Arizona. You still see demand for it but it's growing slower because I think of what we've done. I don't think it's necessarily a market issue. I think it's more of we've just gotten more confident. I do think you see more confidence in the customer in places like California and Arizona where and in Nevada for example where you see incomes higher minimum wages going up at a fairly drastic rate and people just have more secured assets to pledge quite frankly and what we're seeing growth in Arizona that we haven't seen in years for example which is basically a tidal state. So it's a bit of a mix of I think what we've done also what's happening in the market.

[John Hecht:]

Okay. And then second question, thinking about the Omni channel any change in composition of how consumers are finding you guys and reacting to marketing and you're starting online or in the store and how you closing out as well.

[Donald Gayhardt:]

Yes, I think as we disclosed in the release it's about it's just about 51% of people are finding us online. Again some of those go to the store most of them close online. I think it's you know it's fairly consistent but we continue to see it's leaning toward more and more online although we're extremely happy that we have 214 branches in the U.S. that we can funnel people to. I think Roger mentioned it was, he mentioned the number in his statements and most of those customers we could not have closed online. So the slightest [indiscernible] program remains extremely viable. I won't get into a ton of detail but we have a number of channels that we're testing right now that are really positive and I would say that the thing about that is those channels or what we from our analysis are unlocking a new customer. So we see very little overlap with the internal database that we have over 70 million applications. So we are what I think we're very bullish on the back half of the year with new channels and a really efficient cost of funding.

[Roger Dean:]

I just add to that that if you look at our store basis not only we think it performs very well it's they are very large format stores really high margin stores and we've really Bill and his teams have really work to sort of reorient those stores to be a big part of an Omni channel program where customers we couldn't close online can feel comfortable bringing information in the store and meeting somebody in the store and closing a loan there and if you think about that store from sort of like a positioning and a share standpoint you know if you look at that just in the last five years in California the number of branches has fallen about 19% and in Texas is even more pronounced as falling about 32% in the last five years. So really and actually that's kind of accelerates. So I am talking about you know a thousand stores are closed in Texas and from 3000 to 2000 and in California it's gone from somewhere 2200 to 1700. So now our stores not only are good in and of themselves they're sort of standing out and more viable given from a share standpoint and an awareness standpoint given what's gone on the overall industry.

[John Hecht:]

Okay. I appreciate that guys. Thanks.

[Operator:]

The next question comes from John J. Rowan of Janney. Please go ahead.

[John J. Rowan:]

Morning guys.

[Donald Gayhardt:]

Hey John.

[John J. Rowan:]

I am just to be clear the $100 million figure that you gave for the full run rate on the meta deal that's pre-tax, correct?

[Donald Gayhardt:]

Yes. That would be pre-tax John, yes.

[John J. Rowan:]

Okay and then you know the bonds are still well above par but they are below kind of the peak on - you've seen over the past few months. Does that change your appetite to possibly refinance those?

[Roger Dean:]

I think what they're doing John I think what they're doing John I think it's kind of trading to the if you look at the first call and you know which is in March we had [indiscernible] one plus you know half the coupon so it's you know it's a 106 call in March. So I think you know so I think there's you kind of look at you know the what you get between now and 106 call I think they're kind of trading for that towards and I haven't looked at them in the last you know ten days or so. I think they are trading closer to that line. So I think we still have a big appetite to do it. It just becomes a question of when to do it. You want to do it sooner and obviously make some pay call or you want to wait for the call date and I think that just becomes an exercise and where do you think you can do -- where do you think the new bonds are going to price out. So we're - our idea here was kind of get through the quarter, get through obviously reporting etc. and follow the Q and all that kind of stuff and then went on some more bandwidth here to take a harder look at the fixed income market but we'll be doing a lot of that work between there really over the next six months. So we had a very strong appetite, just a question of where we can get done right now.

[John J. Rowan:]

Okay and Don while I have you going is there, is there a legislative session for California in the fall or is it you just remind me of how the seasons run.

[Donald Gayhardt:]

California is still has I don’t [indiscernible] exact expert on this John, so I'm going to measure follow up with our GR folks but they do have some limited session in the fall but really given the way if bills don't cross over from the assembly to the Senate basically by Memorial Day then they have to start over again next January and so [indiscernible] process starts again in January.

[John J. Rowan:]

All right. Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Donald Gayhardt for closing remarks.

[Donald Gayhardt:]

Great. Thanks everybody as always for taking time to join us today. We will look forward to talking to you again after we report our third quarter.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.