Popular Inc (BPOP) 2003 Q1 法說會逐字稿

Good morning and welcome to the E-LOAN First Quarter 2003 earnings conference call. All participants will be able to listen only until the question and answer portion of the call. This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Chris Larsen, Chairman and CEO. Sir, you may begin.

Thank you for joining us for E LOAN's first quarter 2003 earnings call. With me today are Joe Kennedy, our President and Chief Operating Officer and Matt Roberts, our Chief Financial Officer. Let me begin by giving you a very brief overview followed by Matt who will review our financial results and forward guidance followed by Joe, who will provide some further cover on our marketing and operating tactics. The first quarter of 2003 was another outstanding quarter for E-LOAN. We achieved another record profits of $6.3 million or 10 cents per share on record revenues of $36 million. This exceeds our prior guidance by 2 cents share. Overall, our revenue increased 73 percent from the same period last year and 9 percent sequentially as we delivered our sixth consecutive profitable quarter.

We also continued to make steady progress to diversify our product revenue. In the first quarter, diversified revenue totaled $16.1 million exceeding our guidance of $14.6 million and showing an increase of 104 percent year over year. The first quarter was somewhat surprising given that the strong refinance market continued unabated in Q1. As such, we saw a quarter where refinance volume was stronger than expected and home equity volume was conversely less than expected. As we have talked about many times before when refinance conditions are strong, more people will choose to take cash out using first mortgages rather than home equity financing. In the auto business, we made several tactical changes to our operations, including a decision to relocate the entire auto operation from Jacksonville, Florida to our headquarters here in Dublin, California.

We believe this will give us greater management efficiency as well as closer coordination among our various operating groups. The move reflects are continued commitment to making the auto operation a major part of our diversified revenue strategy and a key driver for acquiring customers. Looking forward, we are particularly pleased with the operational performance we are seeing with the continued strength in our purchase mortgage business, as our purchase advertising campaign continues to ramp well. As Joe will discuss in a moment, we continued to be encouraged by our ability to drive direct purchase and diversified revenue and we will continue to expand these campaigns in to the current quarter. Because of our greater confidence in our performance, we are increasing our financial guidance for 2003. We now expect full year revenue of $144 million and profits of 17.5 million or 27 cents per share. With that, let me turn the call over to Matt, who will discuss our Q1 financial -- financials and detailed guidance.

Thanks, Chris. Before I begin the financial review, I would like to remind you during this call, we may make forward-looking statements based on current expectations and involve risks and uncertainties, even as actual results may differ from the results described in the forward looking statements. Factors that could cause actual results to differ include, but are not limited to, general conditions in the lending industry, interest rate fluctuations and the impact of competitive products. These and other risk factors are detailed in E-LOAN's filings with the Securities and Exchange Commission.

Now, I would like to review a summary of our financial results for Q1, 2003. Our earnings press release include a detailed presentation for your review. During the first quarter, we closed 1.3 billion and sold 1.4 billion in loans. The mix of sold loans among our three primary products was 77 percentage mortgage, 12 percent auto and 11 percent home equity. Refinance mortgages accounted for 55 percent of total closed loan volumes, consistent with the prior quarter. On slide four, you can see the highlights of the first quarter of 2003. Revenues totaled a record 36 million, an increase of 73 percent compared to the 28.8 million in the same period last year and up 9 percent compared to the 33.1 million in the prior quarter. Of the total revenue, 80 percent was mortgaged including interest income, 7 percent was auto and 12 percent was home equity including interest income. Prime refinance mortgages accounted for 58 percent of total revenue, again consistent with the prior quarter.

Net income was 6.3 million or 10 cents per share on 63.2 million of diluted shares compared to net income of 1.6 million or 3 cents per share on 60.3 million diluted shares for the same period last year. Direct margin which is defined as revenue less our variable and fixed operations expense totalled a record 90 million, an increase of 92 percent compared to the 9.9 million in the same period last year and an increase of 14 percent compared to the 16.7 million in the prior quarter.

On slide five, you will see an outline of our financial model targets and the significant progress that we have made toward those targets over time. As for our balance sheet, total assets at the end of the quarter were 318.9 million which includes cash and cash equivalents of 33.9 million of which 2.5 million is restricted and loan per sale is 250.5 million. The cash balance decreased in the current quarter due to general increases in working capital, but we expect it to increase to approximately 40 million by the end of Q2 of 2003. Total liabilities at the end of the quarter were 256.2 million and included 243.7 million in borrowings related to mortgage, home equity and auto loans per sale. Total stock holders equity at the end of the quarter increased to $62.7 millions. During the quarter, we also renewed our 400 million warehouse line of credit with Greenwich Capital and entered into a new 75 million warehouse line of credit with RFC. These warehouse lines along with an existing line totalled 625 million in mortgage and home equity warehouse line capacity. Now, I would like to update you on our financial guidance for 2003. Our earnings press release again include a detailed presentation for your review. As Chris mentioned earlier in the call, we are increasing our 2003 revenue and net income guidance.

As shown on slide six of the presentation, the following assumptions support our 2003 financial guidance. According to the most recent Mortgage Bankers Association forecast, the average refinance volume of the remaining three quarters of 2003 is expected to decline approximately 37 percent from a record high level in the first quarter of the year. We expect to grow our refinance market share during the remainder of the year, resulting in a decline of 2 percent in our prime refinance loan volumes during this period. Our revenue per mortgage loan and interest spread is expected to trend down throughout 2003, towards historical levels.

Home equity loan volume is expected to grow as consumers opt for that loan type versus a cash out refinance to meet their needs. And our auto loan assumptions continues to factor in manufacturer incentive financing and the impact of reduced liquidity in the sub-prime lending market. We expect to continue an aggressive marketing spend to build on the demand momentum in our diversified revenue products and capture a continuing refinance mortgage opportunity. Our longer-term goal is to grow a diversified products revenue by 50 percent per year through 2005, while increasing our share of the prime mortgage refinance market each year. A compound of 50 percent annual growth rate on that diversified product revenue over 2002 results would produce a 150 million in revenue on just the diversified products alone by 2005.

Moving to slide seven, we expect 2003 total revenue to grow to approximately 144 million, representing a 40 percent improvement over 2002 results on a substantially different revenue mix. We expect 2003 net income of approximately 17.5 million or 22 cents earnings per share on a approximately 66 million diluted shares in 2003, representing a 64 percent improvement over our 2002 net income. We expect revenue in the current quarter and in June 30th to grow to 39.5 million with net income of 5 million or 8 cents earnings per share. Q2 will include approximately 1 million in remaining cost to transition the auto operations from Florida to California and we also intend to increase our marketing expense by 2.5 million in Q2 compared to Q1.

As shown on slide eight, the anticipated revenue in 2003 continues a trend of significant revenue growth for the company versus our 1998 base.

Slide nine highlights our anticipated progress on diversified revenue as prime mortgage refinance revenue is expected to account for 49 percent of our total revenue in 2003, down from 58 percent in 2002.

Also as shown on slide ten, revenue from diversified product is expected to total approximately 73 million in 2003.

Slide 11 provides an overview of the improvements we have made in two key areas of our business model, operations and marketing efficiencies. From 2000 to anticipated 2003 results, we have increased our direct margin from 12 percent to 49 percent of revenue while decreasing our cost to acquire customers from 79 percent to 26 percent of revenue. Now, I would like to turn the call over to Joe for his operational review.

Thanks, Matt. I would like to focus my brief remarks on two topics that cover our top operational priority and our top strategic priority. As the next slide shows, operationally, the most important thing we are doing right now is scaling demand and capacity and keeping the two in sync with each other. As we have talked about on each of the last few calls, we have been shifting to a more aggressive growth posture and we continue to do so. We are scaling our demand using a fuller ray of media that have proven productive for us, including online, direct mail and TV. We accelerated our spending in March in preparations for a strong spring season and expect to spend at least 11 million in marketing during Q2. We are spending a bulk of this increase on TV and direct mail. To be in sync with this demand growth, we completed a significant increase in our mortgage capacity during Q1, which will enable us to fund 15 percent more volume in Q2.

We also have built sufficient home equity capacity to support a similar increase in that business. In fact in the home equity business, our capacity growth got a bit ahead of demand growth in Q1 and our margin suffered a temporary setback as a result. We are off to a strong start in both mortgage and home equity in Q2 and expect quarterly fundings in both groups to use almost all of the additional capacity.

As the next slide shows strategically, the most thing we are doing is growing our diversified product. We expect a very good increase in Q2 revenue from these products with 20 percent sequential growth versus Q1 and a 73 percent increase compared to Q2 of last year. We expect this growth to be driven by growth in purchase mortgage, non prime mortgage and home equity volume. This growth is enabled by our increased marketing in combination with sufficient capacity to serve the increased demand. In the area of our other diversified product - auto loans, we are focusing Q2 on completing the geographic transition of the operation from Jacksonville, Florida to California. As Chris noted, moving this operation out to be with the rest of the business will enable us to better leverage the resources and knowledge that are available at California. Once this move is completed, we will then turn our focus back to growing the auto business as well. It is important to note that since launching our own prime auto portfolio, we have seen excellent growth in our prime business.

Q1 prime funding were up 24 percent versus Q4. Q4 was up 30 percent versus Q3 and Q3 was up 22 percent versus Q2. In fact, total prime auto fundings have almost doubled over the three quarters since we launched the QSPE. These increases in our prime business have enabled us to maintain our overall auto funding volume despite substantial decreases in sub-prime funding, which have been driven by the significant reduction in overall sub-prime liquidity industry wide in the auto business. And it is not just the increased prime volume that we like. We are very pleased with the early performance of this portfolio in terms of the key drivers of value, trade and prepayment fee. As a result, we look forward to the auto unit becoming a significant contributor to our diversified revenue growth in the second half of the year. In summary, we are very excited as we continue to scale our business and we are very excited about our prospects in Q2. We would now like to open the call up to any questions that you may have.

Thank you, Sir. At this time, we are ready to begin the questions and answer session. If you would like to ask a question, please press *1, you will be announced prior to asking your questions. To withdraw your question, press *2. Once again to ask a question, please press *1. One moment please. Our first question comes from Mr. Richard Repetto with Putnam Lovell NBF. Sir, you may ask your question.

Yeah. Hi, guys. First congrats on a nice quarter.

Thanks, Rich. Good morning.

Good morning. I guess the first question is, you know, the revenue forecast is for about 144 million and if you look at, you know, you did 36 here, 39.5 is what is projected, so its looks like Matt in the second half, you know, that's about 50 percent of the 44, a little bit more. So, its looks like you don't foresee a big revenue drop off in the second half, would that be correct?

Yeah, we see some falls with refinance, but we obviously see growth in our diversified products to help counter that.

Okay. And then, are we just being then very conservative on the EPS side, because if we get 10 cents this quarter and we get 8 cents, you know, may be more next quarter, you know, assuming, so that's 18 and the guidance is 27, so that will leave you, you know, 9 cents for the back half with revenues are pretty much, you know, flat with the first half. So, are we just being very conservative on the EPS or do we have some expenses that are, you know, the margins on the diversified product is that much different?

But I think, Richard, it's Matt again. But one of the things that I would mention or remind you of it that we are taking down our revenue per loan assumptions in the forecast, pretty significantly over the back half of the year and that does have an impact on margin. As you know, the industry as a whole has been enjoying relatively large margins in this kind of over capacity situation and at the end of the refinance boom comes about, there is a general compression in margins. So, that is definitely factored into the equation and we are going to have a shift towards some of our diversified products that have a lower margin than refinance right now and those margins will improve over time, but there is an initial mixed shift.

Okay. But you can see what we are seeing here is that the run rate of EPS at least what your forecast and I probably think you are conservative is, you know, much different than the first half, correct?

That is true. That is true. And we also are as you noted, we are also increasing our advertising spending and we will be doing that in the current quarter as well as the back two quarters as well.

Okay. Then, I guess more on the operational side. Joe, you talked about more capacity during the first quarter. Could you talk about, you know, how you got that capacity, what was, was it through technology, was it through, you know, increased you know, head count or so or how do you get that capacity increase?

Rich, the technology is essentially instantly scalable. So, scaling for us really revolves around scaling the people component. Again our business is multi tech and hi-tech since we do take customers all the way from application through the funding of their loan and its our experience that most consumers would not complete a 50 or $500,000 loan without well trained customer focus people. So when we talk about scaling the operation, the work for us is really in terms of the planning, the recruiting, hiring, training the people and making sure that we have the right people in position to give the service levels that we want to deliver. A crucial part of our success in growing diversified product revenues on the purchase mortgage side and that quality of service that we deliver or what I call confidence-inspiring service is crucial to our ability to have a culture that we have in the purchase business, the confidence that we get from consumers, the confidence we get from Realtors and so that is part of the people component and that is the work that we accomplished in the first quarter.

Okay and then could you just walk us through headcount then from I guess the end of the year through the end of the first quarter?

Sure. At the end of last year we had 652 total focus. Today, as of March 21st, excuse me, we had 755. The break out of that is, there were 635 in operations, 26 in marketing 54 in technology and 40 in G&A.

Rich, the one thing to understand in the headcount front is that because we are transitioning the auto operation, again out of Jacksonville and out here to California, we do have some duplicate headcount where we obviously begun hiring for the auto side out here in advance the operation closing down in June in Jacksonville, so that probably accounts for may be 20 to 25 of the headcount at the end of the quarter.

So in another quarter, say the end of the second quarter or may be even the third quarter, headcount would most likely be down from here, is that what you are saying a little bit?

no I am just ... I don't think we are going to ... we are not planning to stop growing completely here, so I would expect the headcount may well continue to trend up but not at the level of growth that we saw from the end of Q4 to the end of Q1.

Okay. And then I guess my standard question here is any, on the technology front as you work towards, you know, improving the fulfillment process in automating, you know, you guys made great headway, but any new developments over the first quarter on any advances you have made in that area.

Let me talk about where I am there, Rich, because we are excited at the continued progress. We are just in a process over the course of the next week, we are actually in file QA testing of putting the closing documents for our mortgage and home equity transactions online, which would enable consumers to view those documents prior to their actual signing closing and again given the historical anxiety about closing the number of documents involved in a real estate related loan, we think that's a big win from the consumer's standpoint. Second thing, we have talked before about the virtual loan advisor which helps consumers understand what the best loan product is for their specific situation.

We have continued to see good traction there, good acceptance and in fact we are using it more widely on the web site because we find that knowing that it helps consumers get to the best loan product for their situation, consumers that use that can work better than those who just do a simple unguided rate (quote). So we are excited about that. In the operation we talked some about our sophisticated phone capability, we continue to roll that out in terms of linking our systems with computerized dialing in a number of cases not in a traditional auto dialer telemarketing application but to actually enhance the speed and ease with which our people are able to contact customers when we want to contact customers.

And the last item we are excited about is continued development of the data warehouse. Again that's something that consumer does not see per se, but we now have over 75 million records in that data warehouse and the data ware house is crucial to our marketing effectiveness in terms of continuously being able to understand what's going on with our e-mail campaigns, direct mail campaigns, online partnerships, Direct Response TV and that continued sophistication enables us to shorten the time period with which we learn, try things, learn and refine and we continue to make some good improvement in the functioning of the data warehouse.

Okay. And then this would be the last question. A little bit of follow on to, I think that some I related to what you just went over, Joe. This would be more to Chris, I guess. You know, in this quarter and the last quarter and probably in 2Q, you know, coming up, you know, it's been super re-fi friendly environment but I guess I am just trying to get a feel for the overall, E-LOAN's overall debt management strategy, you know, how is it worked, you know, during the big re-fi period, I would imagine you really did not have to work well just because, you know, you had plenty of volume. But how would you expect it to work, maybe in three 3Q and 4Q, how does this all tie together with the strategy of E-LOAN being a debt manager for the consumer.

Yes, great question Rich, you know, again obviously great refinance environment but again our focus has not been to just shape every bit of refinance volume and it's really been more around, be opportunistic, but we really are looking ahead towards a couple of things, first of all the diversification from a tactical kind of, stabilizing our revenue stream over the long term, that's very important but also as we talked about before diversified revenue is actually a key component of the debt advice strategy because we really see the defensible market that we are in as really the entire, you know, in the right side of the balance sheet of consumers particularly for collateralized loan products, that's really the sweet side of what we operate in and that's the best debt for consumers but you really have to be, you can't be in any one of those we have to be strong in auto, we have to be strong in equity and mortgage to really give consumers the right advice.

So as we continue to actually to put those in place, get better and better in each one of those categories, we are also continuing to make progress and overlaying that with a broad advise strategy as you have seen the loan advisor, as we talked about in the last call continued to do very well. We continued to see more and more consumer interest in that and quotes being used through that and driving that directly to applications and complete a loan and again we see significantly higher conversions of people coming in that way, I think underscoring that when consumers see that, it gives them more confidence that this is not just a black hole but in fact there is a lot of thought, a lot of trust, a lot of integrity, let's sort of stand behind that and by the way I think that plays nicely and fits in well with our transparency progress on things like showing credit scores, really shepherding privacy those fit in very nicely overall with an advice strategy which again is, it only works if your have the trust of the consumers.

So I, I characterize this quarter as a continuation of working towards lot of things we talked about in the past. We will continue to have, to your question about what's coming next, we will continue to have, I think, some key steps made in our, what is a long-term, continuing theme for us, will be this idea of really being a great advisor to consumers about their debt and then overlaying that advice with the ability to transact more efficiently, faster in a more trustworthy way than anybody else out there. Again that really is who we are and I think we can make a progress on that.

And is it too early to have any matrix or you know anything that quantified the progress there, or are we still ... you know, early stages for that.

I'd say it is probably too early, Rich. Again we use a track, you know, usage levels on the virtual loan advisor, we track kind of differential conversion of people who use that versus who don't use that but I think that we're still very early in the game here, we have as we talked about in our last call another substantial piece of technology in development that will help analyze consumers total debt portfolio and work to optimize it and I think we need to go little bit further down the path to understand what the right dynamics are to quantitatively measure it.

Okay that's all. Thanks guys and congrats again on a good quarter.

Thank you Rich.

Thanks Rich.

Our next question comes from Mr. Jim Fowler with JMP securities. Mr. Fowler, you may ask your question.

Great, thank you. Good morning everybody. Just a couple of detail questions from the press release. First you comment, you made two comments that I'd just like some clarification on, the first is that you expect the market share for re-fi business to increase over the next bit of time. I like to kind of understand strategically how you do that, and secondly you made a comment on the liquidity of the sub-prime market. I am wondering what you are seeing there and with regard to your conversation overall with your liquidity lines, are those for all of your products or your prime mortgages only and maybe you could just give an outline of what your committed lines are for each of your production channels. Thanks.

Jim, this is Joe. I will take the first two parts of that and then hand the third part over to Matt. In terms of refinance share and kind of our prospective on where we are relative to the industry. For background as we talked about on our last call, for most of the second half of last year, we were able to generate substantially more refinance demand than we had the capacity to fulfill. As we talked about with 20-20 hindsight, we were just too conservative with our capacity planning. With additional capacity now in place, we are managing the demand side to take advantage of it and while industry refinance application levels are down from their peak, the absolute level is still very high and we are aggressively pursuing it.

We feel our marketing capability has never been greater and we are confident in our ability to gain share as that demand continues to exist. So far this quarter we are tracking a double digit increase in re-fi versus Q1 and we will, that provides us with the initial evidence and we believe we are gaining share. Second question you asked was a reference to sub-prime liquidity that is limited to the auto business and as a specific reference to historically we sold our subprime auto loans almost immediately after funding to players such as MERit credit in fact most of last year MERit credit was our dominant sub-prime take out. As you may know a MERit credit as well as many of the others in the sub-prime market encountered a lot of difficulty last year. We actually cut loose form MERit credit in October as a partner. While we continue to work with the remaining sub-prime auto players, clearly the liquidity levels that are available in the sub-prime auto market are not anywhere close to what they were a year ago. Let me turn it over to Matt just to walk through the line by line funding liquidity and warehouse capability that we have.

I mentioned, the number that I mentioned earlier Jim is 625 million total warehouse line capacity to support our mortgages and home equity business and that is with the 400 million with credit capital, a 150 million with GMAC and 75 million is the new line we added with RSP. We separately have a facility, a $10 million facility with Merrill Lynch that supports the interim funding of our auto loans and we support our prime auto loan production with a $540 million credit facility through QFD structure with Merrill Lynch.

Thank you very much. Good job this quarter, guys.

Thank you.

Thank you. Our next question comes from Mr. Ted Janus with Palo Alto Investors. Mr. Janus you may ask your question.

Well we have a few questions here. Starting off I'd like to talk a little bit about the auto division move from Florida. You said it was going to cost one million I think in the second quarter and 300000 in the third quarter, is that correct?

Correct. Actually no. 300000 was last quarter -- Are you asking about first quarter.

I am sorry. First quarter. Is that the in-charge of the SG&A.

The in-charge of auto operation.

Auto operations, okay. And you said that can be finished by June.

Correct.

How many employees in the move?

Approximately a 100.

So the 100 people are actually moving out or ...

Actually only a very small number probably less than 10. We will actually make them move next reference by previous remarks of which that we are rebuilding operation in terms of people out here than actually hiring new people out here, training them, running simultaneous for a healthy part of this quarter, and then closing down the auto operation in June in Jacksonville.

Okay. has a question here.

Hi. When can we expect the diluted share to kind of stabilize?

The recent increase in the share price had the impact of pulling in more options to our diluted share count calculation. It pulled in the current number of total outstanding options is a 11.4 million as of December 31st and it pulled in a significant portion of those with a recent run up in the flat price, so I think that you have seen a significant amount of it already. The guidance that you saw before for the full year for EPS or starting for diluted shares was 55 million, we only needed to increase that to 66 million with the recent price change.

Yes thanks.

This is Roberts. Thank you.

Thank you guys.

Thank you. Once again if you would like to ask a question, please press *1. One moment please. Thank you. Our next question comes from Mr. Jim Fowler with JMP securities. Mr. Fowler you may ask your question.

You might have mentioned this, I was trying to make a call, could you talk ... you touched on MERit credits, could you talk a little bit more broadly in terms of what the opportunity is given the positioning of their business today and what you see prospects are?

Yeah, we know, MERit credits you know, in a board sense, MERit credits are in a different business from we, I mean in MERit credits historically 95 percent of America's business is indirect, some prime lending through established car dealership. We happened to do some business with them, that was consumer direct and then we sold the loans to them, so I really couldn't comment much on kind of MERit credit's overall prospects. Speaking about our prospects in sub-prime auto lending again, we continue to be pretty conservative there since all of the players are in kind of a pull back conservative mode so even not looking to see any kind of growth in our sub-prime auto lending. As I mentioned we have seen very good growth in our prime auto lending over the past three quarters. We don't expect to see much growth this quarter, quite honestly we are not really trying to grow the auto unit this quarter because we are focused on making the transition. But we will be very focussed on reestablishing growth and very excited about prime auto growth in Q3 and beyond.

Okay, great. Yeah, I was speaking more about your opportunity given the nature of the market, not of MERit credit specifically, but that covers it. Thank you very much.

Thank you.

Thank you. Our next question comes from Mr. Peter with Peninsula Technology Fund. Mr. , you make ask your question.

Well, first, congratulations on a great quarter.

Thank you.

I am curious about two things. One, the gain on sale in the auto sector was about the same as it was last quarter. I am just wondering if you all are trying to run that business to have about that same when possible to have about that same level of gain, and secondly, it looks like you are increasing your marketing expenses, is that something we should see. I missed out on the first part of the call, is that something we should look see for the rest of the year.

Peter, this is Joe, I will take that. In terms of auto gain on sale, I mean, we are looking with the one exception I just talked about in terms of this current quarter Q2 because the auto transition we really not trying to grow the business. But in general, we are looking for continued growth and excited about the opportunity for continued growth in our prime auto business and would expect to re-establish that growth in Q3 and beyond and that would show up in the gain on sales figure into the QSPE. Second, relative to marketing expenses, we did talk about that a little bit earlier in the call, we see a lot of opportunity right now both in terms of momentum that we have on our diversified products as well continuing refinance opportunity and we are pretty aggressively going after that. We will spend at least 11 million in marketing this quarter and on the mortgage side, we have capacity in the home equity side as well and we are looking to fully utilize that capacity given what we find to be a very good environment right now.

Great. And finally on the re-fi side, you probably have a pretty good idea of what your pipeline is going into this quarter. How does that pipeline look versus last quater?

We are tracking over a 10 percent increase quarter-on-quarter, thus far in Q2 and so we are feeling good about the prospects for refi growth as well as our diversified product growth in the current quarter.

Great. Congratulations, thanks a lot.

Thanks, Peter.

Thanks.

Thank you. Our next question comes from Mr. Mike with Peninsula Technology Fund. Mr. , you may ask your question.

Sure. Congratulations guys, nice quarter.

Thank you, Mike.

So a follow-up on Pete's question, for a second, just because I am little bit confused here. You are going to spend 11 million in marketing and the guidance for this coming quarter is 39 million and so that is outside the 25 percent which I thought was kind of where you guys were sort guiding things and then to get to 144, you know, you go to go back down on the revenue line for the back half of the year. So, can you kind of am I thinking about that right or can you kind of walk through that?

We are increasing the marketing pretty good step up about 2.5 million increase at least Q-on-Q. We do see a lot of opportunity here and, we hope to deliver more revenue than the guidance, but we recognize that's pretty good step up in marketing and we also recognize that some of the benefits from that marketing will come in the second half of the year. But again, our basic posture right now is we see a rich opportunity for all of our products with the exception of auto where we are not really focused on growing, but in all the mortgage and home equity products, we like the opportunity and we are going out pretty aggressively consistent with what we have talked about in the last few calls. As we begin to move into the second half of the year, we have got to begin to take down the level of refinance business and we got to take down the margins that we will see from that business and that affects the revenue that you are seeing in the second half of the year.

So from your prescriptive, are you changing the model of 25 percent marketing expense?

No, I think Mike from what you see is if you look at the total guidance for a year, its 26 percent, our model is 25 percent. We are still committed to a 25 percent model as a long term. I think we will be opportunistic when it's make sense and as we have in the past, we will deliver less than 25 percent at times as well.

Okay. Good, well, congratulations, great quarter guys.

Okay. We appreciate it.

Thank you. At this time, I am showing no further questions.

Okay. With that, let's close the call. We just want to thank you all for joining us today. Thank you.