CURO Group Holdings Corp.
Q4 2018 Earnings Call Transcript

Published: 1 Feb 2019

[Operator:]

Good morning, and welcome to the CURO Group Holdings Fourth 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:]

Great. Thank you, and good morning, everyone. After the market closed yesterday evening, CURO released results for the fourth quarter and full year 2018. 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 it 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 contains forward-looking statements based on the business environment as we currently see it and, as such, includes certain risks and uncertainties. These statements include our expectations regarding growth of gross margins and total cost of providing services, earnings for our Canadian operations, performance in certain U.S. markets, the financial health of our customers and macro conditions in our market, levels and timing of earnings contribution from our relationship with MetaBank, the results of our recent reduction in force, the impact of recent U.S. government shutdown, timing of transition of certain markets to installment in LLC, our liquidity and sources of capital and our ability to finance our growth plans, our financial guidance for 2019 and its underlying assumptions and our change in methodology for recognizing net charge-offs and delinquencies and its impact on our net earnings. 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, February 1st, 2019, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. 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.

[Don Gayhardt:]

Great. Thanks Gar. Good morning, everyone, and thanks for joining us today. In general, this call follow the usual format. I'll offer some high-level thoughts on the quarter and the year, 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 we'll take some questions. Overall, we are really pleased with our fourth quarter and the momentum that it gives us going into 2019. We saw very earnings progress in the U.S. and the U.K. and, while, as expected, Canada earnings for the quarter were down year-over-year, our Canadian business did make substantial progress on a sequential basis and exits the year in a very strong position both operationally and from an earnings perspective. We also included in our release an update on our ongoing efforts to resolve redress claims in the U.K. Few more detailed comments on highlights. First, our U.S. business had a really solid quarter, growing revenue and adjusted EBITDA by 14.3% and 10.6% respectively and loan balances grew 14% over year-end 2017 balances to $441.9 million. And particularly good growth in open-end and unsecured installment products, with revenue in these products - and earnings growing quarter-over-quarter by 41.1% and 23.4% respectively. Both ad spend and loan loss provision grew at a higher rate than revenue, which reduced gross margin growth but these relationships are now closer to growing at the same rate, which will help revenues flow to gross margin as we move through 2019. Just a quick word on our cost of providing services in the U.S. As we discussed on our October call, we did moderate ad spend in the U.S in the fourth quarter, with total spend declining from $17.6 million, $13.6 million sequentially, which helped keep ad spend growth at 18% year-over-year and closer to the revenue growth of 14.3%. But most of this year-over-year growth is channel mix shift as online revenue grows faster than store revenue and online requires more ad spend as a percentage of revenue. Conversely, our non-advertising costs of providing services - we just call it COPS as an acronym, grew only 3.8% quarter-over-quarter. So the total cost of providing services which is ad spend plus COPS grew 6.9% versus 14.3% revenue growth for the quarter. Looking ahead to 2019, with the cost reduction measures that we've recently taken in our North American operations, which I'll discuss more in a minute, we expect to see very little growth in total cost of providing services as some ad spend increase will be offset by flat to down COPS. I mentioned Canada earnings were down year-over-year, but the results were in line with our expectations and we made a strong return to profitability in the fourth quarter, following our Q2 and Q3 product transition. And quarterly revenue for the fourth quarter and adjusted EBITDA were $52.4 million and $8.8 million respectively. Roger will talk a little more about currency, but we did see the Canadian dollar fall versus the U.S. dollar in the fourth quarter and despite ended the year 5.7% lower at 12/31 than the rate as of September 30th, so the headwind for 4Q results in Canada. Nonetheless, we did see solid earnings improvement on a sequential basis, driven by a $6.2 million revenue increase and a $2.7 million reduction in loan loss provision. Reduction in loan loss provision is a result of a 280 basis point sequential improvement in net charge-offs on our open-end book and lower allowance build as the open-end portfolio season and move to a more steady growth rate following our Q3 product transition. Sequential open-end loan growth for the fourth quarter was $19.4 million versus $87.4 million of asset growth in the third quarter. So we're very proud of the work that our store and contact center and corporate support people are doing to make such a big change work for our customers and we would expect to see steady sequential quarterly earnings improvement in Canada as we move through 2019. In the U.K., we had a very solid quarter and adjusted EBITDA for the quarter was $2.2 million, and improved $2 million versus same quarter a year ago. Gross margin expanded 30.7% as a 31.8% increase in advertising costs was offset by lower costs in other areas. Turning to credit quality. Overall credit quality was in line with expectations, and total Company charge-offs were down modestly about 60 basis points from the fourth quarter of 2017. Our Canadian charge-offs were lower year-over-year, while U.K. and U.S. was slightly higher. In the U.S., we saw higher net charge-offs in the unsecured installment and line of credit portfolios. The unsecured installment portfolio was impacted by selective availability of higher credit installment in certain states. On the line of credit book, in Virginia, experienced strong growth but came at higher charge-offs as we are building this business. We expect Virginia will continue to grow nicely in 2019, but contribution should be strong as charge-offs and loan loss provisions moderate were seasoning. Overall, we continue to believe our customer is in good shape financially as evidenced by both macro indicators such as wage growth and employment levels and our own microcredit factors such as our customers' debt to income ratios and FICO scores. While we see some signs of weakness in forward-looking consumer confidence level, overall, we feel good about the outlook for our environment. We continue to work hard with our partners at MetaBank to launch our verge credit card by MetaBank product. As we said in October, we're very happy with the product development, IT and credit score work that our teams have done. We're still running a bit behind on our rollout schedule and for probably looking at a 2Q 2019 launch right now. We don't have any more updates in terms of financial impact other than to say we don't expect any meaningful contribution from this relationship until 2020. As we noted in our release, we did take some steps early in this - early this year - sorry, this was late in 2018, to eliminate approximately 120 positions in our North American operations, about two-thirds of which were in our U.S. branch operations. Most of these reductions were related to aligning branch staffing with customer accounts and traffic and I should point out here that while more customers are choosing to do business with us through and online channels, a significant part of the foot traffic reduction at the branch level comes from customers who no longer use a sort of to make a cash payment and [indiscernible] for auto pay by their debit card or ACH authorization or use our mobile app. The remaining eliminated corporate positions come at variety of departments and related efficiency initiatives, which give us the flexibility to continue to invest to support our growing product set and brands. These were some really tough decisions that involved some people who've worked really hard for us, but we think these were the right steps to take right now. We discussed our U.K. operational results, and as we described in the release, we continue to work to find a solution to cap - a solution to cap the potential exposure for historical redress claims. It's an important and complex discussions and I would refer you to the 8-K that we filed concurrently with our earnings release for more detail, and Roger will outline some of the related charges in his commentary. A final note on our operational highlights - but related to government shutdown. On the shutdown itself, we've not really seen any meaningful change in demand in part because we don't have operations concentrated in the areas with large segments of federal government employees. We do have good - we see good, growing online business in Virginia, that's not enough to move the overall needle. Second, our existing loan book, we do have a small segment but it's less than 2%, who are federal government employees, and we did allow these employees to waive - not defer, but to waive, payments, similar to what we did in Hurricane Harvey 2017. We'll see a few more charge-off dollars from this in Q1 2019, but nothing material. We've got a bunch of questions on tax refunds on that front. We are, like most people in our sector, waiting for final confirmation and we continue to monitor the situation. We currently expect the IRS to issue refund checks close to normal schedule, and it should have little or no impact on our 2019 first half expectations and results in the U.S. A few regulatory comments and I'll wrap up. Canada, we completed the transition to installment line of credit in Ontario and Alberta, and they transition British Columbia, which has 26 locations during 2019. We do - convert British Columbia, this will cover 174 of 190 Cash Money brand locations in Canada, so have limited exposure to any further changes in provincial regulation of single-pay lending. In the U.S., a couple of developments we're watching, and see if had been widely reported and discussed, we are expecting to see it - to put out sometime in the near future. There is small dollar lending levels for further public comment. Some of the stories we've seen speculate about what may or may not emerge from this process, but we won't add anything further to that speculation. And we're working hard with individually as a company and through our trade associations to add our thoughts and comments on the most important components of the rule making. Now, as a reminder, the CFPB proposed rules focus mostly on the single-play product and we continue to reduce our reliance on single-pay, with U.S single-pay accounting for 9.6% of our Q4 total revenue. Finally on state level, as we always do at this time of the year, we're beginning to see some bill activity and some of that bill activity is in key states of Texas and California. But the sessions are just getting started, so expect to have more to discuss in our second quarter call. So I'll close by thanking our employees for their dedication and for helping us through 2018 by making substantial progress to grow and strengthen our Company - your Company. Among other achievements from 2018, we continued to diversify our product offerings; we strengthened our information technology, risk analytics and payments platforms; we almost completely refinanced and remade the right side of our balance sheet to extend maturities and reduce interest expense; and we reduced operating expenses in key areas to continue to allow ongoing investments in growth initiatives. We're still making great progress in a number of areas and look forward to reporting on that progress when we talk again in April. And with that, I will hand it over to Roger.

[Roger Dean:]

Thanks, Don, and good morning. Consolidated revenue for the quarter was $300.6 million, which was up 12.6% and near the high end of the range implied in the revised - in the revised guidance that we provided in our October 24th Q3 earnings release. Adjusted EBITDA came in at $55.6 million, also at the high end of the revised guidance, but it was down 5.7% versus the same quarter a year ago. The decrease was driven by Canada, which Don already mentioned and I'll discuss more in a minute. Adjusted net income was up 26.2% year-over-year, but we incurred a GAAP net loss of $40 million, primarily because of $10 million of debt extinguishment cost for our previously announced October repayment of the U.S SPV facility and $57.4 million of U.K. redress and related cost for our proposed scheme of arrangement. Don mentioned as an - and the related - and we also filed an 8-K on this scheme of arrangement last night as well. The U.K. charges comprised of - the U.K. charges comprised of a $22.5 million non-cash goodwill impairment charge, that's the full remaining balance of goodwill related to the U.K.; a $4.6 million fourth quarter run rate redress claims that we incurred; a $23.6 million fund to settle historical redress claims under the proposed scheme of arrangement; and $6.7 million in advisory and other costs and some accrued fees for the financial on budget service that will be required to execute the SOA. We also had a lot going on from a transaction cost perspective in both fourth quarters. Rather than go in all the detail here, I'll just point you to the related pages of last night's earnings release. Next, I'll comment on advertising, customer counts and cost per funded loan before moving on to loan portfolio performance. We added about 210,000 new customers globally this quarter. That's pretty much flat to Q4 of last year. Breaking it down along with the related advertising expense by country

[Operator:]

[Operator Instructions] We will now take our first question from John Hecht from Jefferies. Please go ahead.

[John Hecht:]

The first one, you had pretty strong growth in the U.S. Roger, you gave a lot of details about new customers and your online versus store base changes. I wonder if you can - you also talked about credit line increases and new versus recurring customers. I wonder if you kind of break down the growth, how much of it is tied to credit line increases versus new customers and what kind of trend should we think about that through 2019.

[Bill Baker:]

The addition of the incremental assets in the U.S. that we put on, in the fourth quarter there was an additional $2.8 million of incremental assets that we put to work with credit line increases. That number is about $14.6 million for the entire year, for 2018. So it is - again, we think about that as - existing customer has an $800 loan, the incremental cash moving to about $200. So in relation to our overall assets it may not seem like a lot but the number of customers impacted are. It's also something we look at - we've talked a lot about net charge-off increases. We just did destock on this a few week ago. Although we do see net charge-off rates slightly elevated with credit line increased customers, the actual cash that comes out of the incremental cash that we make. It 's risk adjusted revenue increases. But certainly we made a good decision for us. It is going to continue to - as we think about migrate customers into the CLI, we look at conversion rates, we look at the health of the customer, I think overall we continue to be very comfortable with the program not just in the U.S but also as the Canada portfolio season, it will become increasingly important that we manage CLIs properly in that - in that geography.

[John Hecht:]

And then second question. U.K., you obviously are working to address the redress issue. Assuming everything gets solved there, how do you perceive kind of the long-term opportunity there, maybe in terms of - you've been growing nicely there, but what do you see as kind of steady state EBITDA and revenue contribution, assuming all the issues are resolved?

[Don Gayhardt:]

Yeah, John - we don't yet have a resolution. We sort of have outlined - we sort of think we have at least outlined sort of what potential steps are available to us and obviously we've highlighted some of the charges involved with that. But in terms of the business, look at the full year, we did, in U.S dollars, which is just a shade under $50 million. We did a 2.2 - before redress claims, made about $2.2 million in adjusted EBITDA in the fourth quarter. I think we talked about that business in kind of the near-term being a $10 million adjusted EBTDA business for us. It's been growing at the top line in the low 20s. We see a little bit currency impact from that as well. Brexit has kind of driven the pound down, although it's come back a little bit in the last few weeks. So there is some impact from that as well. But I think growing that business - if you maybe just take a 36-month kind of time frame, growing that business at a - in the low 20s, and it's just a 20% - roughly 20% adjusted EBITDA margin business. I think we see that business, that could be an $80 million to $100 million business at a 20% adjusted EBITDA margin. I think some of that is - there are no secret that people to follow - I mean we had probably the two largest companies in the space from, maybe even three years ago are both out of the market now. And I think there are - there are a handful of players who could have had some scale. I think we're probably in the lower end of that handful of companies in terms the size of our business. Now, we see the competitor now being really good. And we're hopeful that we can figure out a way to set to resolve the - and the redress claims and move on and continue to grow that - grow that business. We love our team over there, who worked hard on the technology, on the credit, on the - getting, working hard at the call center, contract level to get good outcomes from consumers and we really hope that we can sort of stay in the market and continue to build that business.

[John Hecht:]

And then a final question is - the open-end product at the consolidated level, has been growing nicely, and yeah, as it's been growing, you've seen migration in the yield, anyhow, and that obviously lower charge-offs as in before. What do we - how do we think about kind of intermediate and long-term, yields and loss rates on that product mix?

[Roger Dean:]

Yes. If you look at the open-end yield on a quarterly basis, just for perspective, first quarter of '18, it was the mid 50s and the fourth quarter is right - just under 25% expressed as a quarterly yield. I think that - I think that that run rate is probably the right way to think about it. Canada is going to grow a little bit - should grow a little faster than the U.S, but it wouldn't be - and I don't think it would be enough to take that 25% quarterly yield down to 18% or anything like that. But I think - I think that that 25% by fourth quarter of 2019 could be 22%. Hope that makes sense?

[John Hecht:]

Yes. And what about loss rates?

[Roger Dean:]

So we think that similarly - we expect - we would expect that the loss rate on the Canadian product, I think we've said a number of times, and as we took - and the more we look at it, it's probably by late next year, by the fourth quarter, it's in the high 20s, it's in the 30 - the low 30s.

[John Hecht:]

For annualized charge-off...

[Roger Dean:]

Yes, I'm sorry, that's an annualized number, forgive me. So it's stabilizing at that level and kind of - kind of notching down to that level over the course of 2019. And we do - I would expect the U.S NCO rates for the open-end product to improve year-over-year because of the seasoning of - entirely because of the seasoning of Virginia - of the Virginia market.

[Don Gayhardt:]

I mean, if you look at it in terms of the P&L, Canada probably in '19, we think that comes - loan loss provisions, including, allowance growth - loan loss - revenue probably comes down by 200 basis points to 300 basis points. The U.S number probably goes up a little bit. And then - but in the aggregate, loan loss percentage as a percentage of revenue should be relatively stable full year '19 on full year '18.

[Operator:]

We will now take our next question from Moshe Orenbuch from Credit Suisse. Please go ahead.

[Moshe Orenbuch:]

Just a follow-up on the open-end. Maybe just - can you just talk a little bit about the reserving needs? How that reserve will be reflected in the next couple of quarters?

[Roger Dean:]

I feel, I think the reserving and allowance levels will be pretty stable. Our charge-offs - the charge-offs are starting to come down, but not - they'll come down over the course of the year and the allowance level for the Canadian open-end coverage is about 10 - right around 10% right now. So I don't expect - I surely don't expect that to go down any further.

[Bill Baker:]

Yes, this is Bill. I think for the Canada - one of the things we talked about their quarter is just the - the stability of the portfolio. If you look at the number of new customers, certainly put into the line of credit throughout the quarter and then the number that we converted, so existing customers we converted, that number was incredibly stable through the entire quarter. So I think from an operational perspective, we feel good about that mix, how they're converting it and how they're performing.

[Moshe Orenbuch:]

And maybe just to follow up on the change - on the accounting change, how should we think about how that's going to be impacting - you said it's going to add to revenue because I guess you're going to be billing more. Is that you're saying it's going to add to revenue and to charge-offs and comparable and how should we...

[Roger Dean:]

Exactly. So now we've got - we've got loans that previously charged off [indiscernible] the balance sheet for 90 days and accruing interest. And so the loan balances - so we've got the revenue from accrued interest on aged, on delinquent loans, but also the charge-off dollars go up too because you're charging - for the loans that charge off, you're charging off the loan balance plus accrued interest. And as we model this - and we'll be able to give you guys very clear transparency on this when we release quarter because it will be in the numbers. But as we look at January so far and we look at - and the way we've modeled it, we expect that that increase in revenue to be offset by the increase in net charge-off dollars and thus the risk adjusted revenue impact should be minimal for the year.

[Moshe Orenbuch:]

Your comments with respect to MetaBank, in terms of the small delay in the start time, can you just talk a little bit about the time to ramp and has that changed or like it's just pushed further out - I mean, is it just pushed a couple of quarters out or is there also a change in time? Maybe talk about a little bit about what the underlying cause of that might have been?

[Don Gayhardt:]

Yes, Moshe, it's Don. I think it's really just a - I think it's just a timing. At this point, we see the development of the program - we are still very optimistic about what it's going to do for us and obviously it's a - we think it works well for the bank as well. So I think it's really just - we are just kind of pushing out the launch date a little bit. And I think that we try to be really - this is - it's a bit of a new product for us and it is a bit of a - certainly a new product for them. Even though we have done credit lines before, sort of the pricing structure on this product, it's more of a fee-based product and kind of a straight rate product than a lot of our products. So I just - I think we've been pretty clear that we are - that there is going to be a little bit of a learning curve for both of us to see how customers use the product and see if the usage patterns and payment patterns are different than what we have experienced in our - in our other line of credit products. And long-term, I don't - our long-term expectations have not - have not changed. It's just - it's just the starting point.

[Moshe Orenbuch:]

Do you have an expectation as to what you would expect - you know, think would be on the balance sheet or on their balance sheet by the end of '19?

[Don Gayhardt:]

I just - I think once we get going, I think it will be easier to forecast that. I mean, we continue to have the - upside of $350 million of total earning assets there - the funds that are - so we've been - we've been - we hadn't given any guidance on balances and probably prefer not to do that until we kind of get going and have really - again, just a little better sense of how customers use the product.

[Moshe Orenbuch:]

And the last thing for me is just in terms of the U.K. redress settlements, if you will, what are the stress points from here? Like how do we watch and see what - what's likely to happen from this point forward?

[Don Gayhardt:]

Yes, it was in fact - we've been talking about this for a while. We have been working really hard with the regulators there who have given us a ton of time and attention on this. As I said in my remarks, it's really complex set of discussions here with them. Going on, I think we would expect to have a strictly, very clear resolution on this before the end of February, so really over the next few weeks. And we've simply outlined there is a path to us to be able to settle the claims by contributing some additional capital to the U.K. and there is a path where we aren't able to do that and that leads to our not having an operation over there anymore. But we should have clarity on that kind of the fork in the road in - over the next couple of weeks.

[Operator:]

We'll now take our next question from Vincent Caintic from Stephens. Please go ahead.

[Vincent Caintic:]

Just wanted to focus back on the guidance range. So appreciate you giving us a range of the $2.50 to $2.80. And even at the low end of the range, so at $2.50, your stock's trading at five times that earnings number. So I'm kind of wondering if you can give us some sense of the safety around that $2.50 number. How readily achievable is that and sort of what's the - what's built into the range, when you think about the $2.50 to $2.80? What moves you to the high end and the low end? Thank you.

[Don Gayhardt:]

This is Don. I guess just - first of all, we've - incorporated in our guidance is that we have a U.K. business and that that business generates circa $10 million of adjusted EBITDA. That's about $0.15 a share, so just to make sure it was clear on that point. We'll have more clarity on where that's going when probably this month is out. In terms of sort of the - high end, low end, I mean, I think we feel really good about the business that if you look at the - at more of kind of the moving parts of things this year, '19 versus '18, I think we talked about we expect loan loss provision as a percentage of revenue to be relatively flat; a little bit lower in Canada, maybe a touch higher in the U.S. just given kind of the mix shift. Ad spend dollars, for '18, were about 6.2% of revenue. We expect it to be just right in that range for '19. The other costs - other store operating costs, which are both stores and contact centers. Given some of the expense reduction measures we're taking in North America, we expect that number to be pretty, pretty flat in dollars and maybe down a little bit in '19 over '18. And then corporate expenses, likewise, we don't expect to see - we had some step-up in corporate expenses as we went public, D&O, insurance, reporting, all that kind of stuff, so sort of SOX compliance stuff. But those are - we're now sort of lapping a year where we had that step-up in corp from that level and we are - we think we'll be making some reductions in corp to allow us to continue - so particularly in risk analytic product - risk and analytics, IT, product development, et cetera. So there is, from an operating leverage standpoint, I think we have done a lot of stuff to sort of keep expenses very, very - very, very controlled. And if we see revenue growth that we are talking about, which - just to put in context, I think Roger talked about the impact of the - some of the revenue growth - we will see revenue growth from the change in the accounting policy around the open-end, but absent that we're expecting kind of total revenue to grow in the high single digits, consolidated across the Company. If that stays the same, we should be able to get to the low end of that earnings guidance. I think that's a very, very achievable number. And I think in terms of sort of what can be better, we talked particularly about sort of some of the newer stuff, the deal credit, which is a larger, longer-term some kind of credit right we do online and we sort of dial back to growth on that as we wanted to see - we wanted to make sure credit on that was - we saw the curves kind of mature in a way we want it to and not to take sort of a risk that charge-offs would get elevated there beyond what our expectations were. So I think that was just a way - we have I think a much more sort of I think controlled sort of product growth and product development pipeline as we get into '19. It's maybe a little above the total revenue growth, but in terms of the clarity of it and the achievability, we feel really good about that.

[Vincent Caintic:]

So yes, I guess if I take out the $45 million from the accounting change from your revenue guidance, it's 7% to 9% year-over-year growth. And so that revenue growth is just kind of your existing product set organically growing. There isn't anything particularly new or a big ramp-up in growth that you have assumed with your loan growth there, right?

[Don Gayhardt:]

Exactly, yes.

[Vincent Caintic:]

What's your - anything changes in the cost of your funding in 2019 that you've built in there? So I know you've done a lot of great actions over the course of 2018. Anything more that you might have built into 2019?

[Don Gayhardt:]

Yes, we haven't modeled any changes at capital structure for 2019, I mentioned we certainly have plenty of free cash flow to support what we need to do. And so I think - that gets you total interest cost for the year in the low 70's, kind of just under in a range of low $70 million range.

[Vincent Caintic:]

And then finally just on the guidance again, so the Ohio CSO roll off, so I, assuming the revenue guide you and the EPS guide you have that completely coming off or is there any replacement where you are trying to look for another product that might fit the those Ohio customers?

[Don Gayhardt:]

Yes, this is, it's a really question. So we have not built into our guidance and our any revenue from the new product. We are working hard on some options and we are hopeful, we will - that will work for customers and work for us and have, but it's - too early to sort of talk about exactly what the specifics on that and then we still feel too early to sort of put it into the guidance for 2019.

[Operator:]

We will now take our next question from Bob Napoli from William Blair. Please go ahead.

[Bob Napoli:]

Just on the guidance just to follow up most of my questions have been asked but I mean really important part of next year obviously is Canada and you saw good improvement in Canada this year. And I think you probably and I am guessing you have around 50 million of EBITDA something like that modeled for Canada for next year. I mean you've made dramatic changes it's still relatively early - good signs in the fourth quarter, but what gives you the confidence in that business that it's going to be a stable predictive business going forward and is the amount of EBITDA that I mentioned around what you have modeled?

[Don Gayhardt:]

Yes, so we’re being specific we’re not going to argue with the number you threw out. But I think just a general having run a business up there mature in 2011 my prior lives having run a business up there for close to 20 years is where 15 years. I think the overall our customer in Canada tend to be generally bit higher income and the stability metrics, the timing in your job, the timing you’ve lived it’s the same residence those metrics tend to be a little bit higher. And the customers tends to be much closer to medium income customer that are customer in the U.S. which is - it lend itself to just much more stable credit charge off kind of pattern and then credit performance. And I think that I think just - kind of less sort of volatility in what we’ll see and fluidity in what we’ll see for customers in the states. So I think just as baseline measure we sort of feel like we’re and we’re not involved where Roger talked about we’re expecting the kind of quarterly charge-offs rates on that the Canadian product to come down by 150 basis points or something as we get through 2019. So all that is improving its not sort of we’re not expecting a sea change improvement there. So we have a lot of operating history up there. We have a really good team underground, the confidence that our system both sort of loan managing stuff and all the mobile crews are going to look really well for customers. So while we’re expecting improvement again - just as we - and remember Canada doesn’t have sort of seasonal patterns that the U.S. has that are driven. You have some holiday borrowing but for it - further to run numbers $9 million with U.S. EBITDA for the fourth quarter. And we’re again I’m not forecasting just use your number, 50 million number like you know from an exit range to that number for the full year. It certainly improved but it’s not sort of wholesale sea change. We’re not really controlling the long-haul in Canada from a planning standpoint in 2019.

[Bob Napoli:]

Also follow-up question on the adjustments you're making to the U.S in-store employment base based on customers paying in-store versus online. What has been the mix and what kind of changes are you seeing between in-store and online payments?

[Bill Baker:]

I think if you look at the new customers about 52% of new customers are actually Internet customers in the U.S. I think what we see the shift or the increases what Roger mentioned around sites to our programs. So actually the number of customers originated online continue to be increase. Like so many things we talked about it depends on the state some of our products you’ll lend themselves to - our convenient pay it online payments more than others. So for example on the single paper type you still see about 80% of the customers maybe cash payment in the store and that reflects for the multi pay products. So we’ll get into rough numbers but I think it also stays specific as well and I think that’s really what we look to make a decision and we did think a very analytical approach - despite the fact there is difficulty going through we really did about the transaction by store and made decisions. And of the cases it was one or two people and some cases we saw store continue to grow our transactions again lending ourselves to the state product. But I think stable folks do see migration happening and that maybe adjustments appropriately but on the new customer side it's still pretty consistent about 52%.

[Roger Dean:]

I think we’re if you look at sort of debit card capital rates but I think we’re in the mid 80s now high 80s in terms of the number of customers that are giving us the debit card and also signing up for it. And that’s not just similar from what that you see broadly speaking in terms of bill pay for new deployment and prime customer. And I think our customers in particularly be tied to the mobile tools really gives them ways sort of see that and control that on a regular basis.

[Bob Napoli:]

And just last question beat the U.K. to debt if you would is - I mean with that agreement is that been what you have put out has there been is the discussions I mean what are the odds that - I mean what do you feel like the odds are that you are going to get an agreement on this. Is this something that the U.K. regulators have suggested or is this like hey here is our best offer if you cannot don't do this we’re out?

[Roger Dean:]

Yes, I’m really not going go there on that other than say we’ve been in discussions with them for a while now and they - it’s pretty complex and we appreciate all the time back and forth that we had with them and we’re just we’re hopeful we’ll get a resolution that allows us to continue there but I’m not going to sort of handicap right now. But remember and but - we still believe that we’re going to have a resolution that we can disclose and talk to people about in month of February.

[Operator:]

[Operator Instructions] We will now take our next question from John Rowan from Janney. Please go ahead.

[John Rowan:]

I feel like I am going to be the dead horse here, but on the U.K. So, you have to get the regulators approve the deal and your bond holders have to approve the deal for you to keep that - for that portion of the $0.15 of guidance to stay in the guidance range for '19 correct?

[Don Gayhardt:]

Correct, yes.

[John Rowan:]

So if anyone of the parties says no to this deal, you leave the U.K. market as - do you just shout - switch off and leave as they are wind down period. I am just trying to handicap how would it happen throughout the year if and when we get - if there is an announcement later in the month that one or two of these parties are not agreeing to the terms outlined?

[Don Gayhardt:]

John it would happen very quickly and it’s just doesn’t make sense to go sort of - insolvency laws in the U.K. a very complex and practices - just a mix up to everything. But other than say if we are not able to find a solution to address the reverse claims, our rank from the business would be relatively quickly, relatively quick and not entail very much in the way of additional cost for us almost for nothing.

[John Rowan:]

And the permission for the bond holders is just a permission right? There will be no other change to the bond economics as - because of this, correct?

[Don Gayhardt:]

Correct.

[John Rowan:]

And then two housekeeping questions. Roger you gave the number of the CSO loans in Ohio that were going to roll off. Can you just repeat that, I didn’t quite get that down?

[Roger Dean:]

Yes, 5.2 million at the end of the year, at the end of December on the books and we think that stays fairly constant - through April and then it takes about - it’s a short book so it takes 60 to 90 days to wind down.

[John Rowan:]

And then also the diluted share account that you reported for the quarter is 47.8, is that basic because of the GAAP loss in the quarter or is that the actual diluted account?

[Roger Dean:]

The share account?

[John Rowan:]

Correct.

[Roger Dean:]

Diluted for the adjusted EPS.

[John Rowan:]

[indiscernible]?

[Roger Dean:]

Yes it is, 48 is correct.

[Operator:]

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

[Don Gayhardt:]

Again thanks everybody for joining us. I appreciate your time. And we look forward to talking to you again in April.

[Operator:]

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