CURO Group Holdings Corp (CURO) 2018 Q1 法說會逐字稿

Good morning, and welcome to the CURO Group Holdings First 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.

Thank you, and good morning, everyone. CURO released results for the first quarter of 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 business environment as we currently see it as of today, April 27, 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, 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 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.

Great. Thanks, Gar, good morning, and thanks for joining us today.

We had a really good quarter and we're pleased to be with you to share some of the details. We'll manage this call in a fashion pretty consistent with our year-end call. All of us have compiled some 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, then we'll take some questions. A reminder that this is our seasonally slowest quarter in terms of originations as many of our U.S. customers use income tax refunds to pay down their loan balances.

We curtail marketing spend in the U.S. during the first quarter and a bit into the second quarter until we see demand -- good higher volume demand pick up in the second quarter.

Our first quarter was very good with solid performance across the board. Revenue was $261.8 million, which was 16.6% above our year-ago quarter. Adjusted EBITDA was $75.2 million and 9.6% ahead of last year.

Adjusted net income was $35.6 million, up 34.5% ahead of last year. Gross combined loans finished the quarter at $446.9 million or 23.2% greater than the balances at March 31, 2017. Revenue growth of 16.6%, it was essentially in line with our 16.3% revenue growth for the full year 2017.

Current 4 key drivers for this growth: First is the continued mix shift in our products to install the (inaudible) lines of credit, which, together, accounted for 71.4% of our total revenue, up from 57.2% in the prior year quarter; second, an ongoing shift in our -- of our originations to online and mobile channels; third, we continue to have higher but still very efficient marketing spend. Roger will go through the numbers by country but cost of funds loaned in the U.S. was $49, in line with the prior year and ad spend grew in the U.S. at a slower clip than revenue growth.

Canada and the U.K. saw higher cost-per-funded loans and gross ad spend, but mostly related to brand launch and product migration.

And fourth and finally the loan balance is well ahead of last year in line with our expectations. We mentioned on our February 2 call that we were closely watching loan balances, and we had seen a few very preliminary signs of accelerated paydowns resulting from tax reform and related payments of bonuses and higher hourly wages. And with our U.S. tax season largely complete we're pleased the balance of paydowns in the U.S. came in largely in line with our budgets, and we did not see evidence of any -- of an unexpected paydown related to tax reform.

We've quite a bit of detail in the release and Roger will go through a bit -- to some of it on the credit side, but we continue to see very stable performance across all of our products and geographies. First-payment default rates and underlying conditions in the (inaudible) continue to be in line with or better than our expectations. Overall, provision rates are up a bit sequentially, which is following normal seasonal trends.

In general, as we said on our last call, we believe that our customers are in very good shape financially. (inaudible) in the U.S. is almost at an all-time low, job creation and wages are strong, and all of this translates into consumer confidence levels that are very well above pre-Great Recession levels.

While credit card delinquencies have ticked up over the past 2 quarters, their ratios are several hundred basis points below those seen in 2006. We think that loan demand will remain strong across all 3 of our geographies, and given that we operate in the less competitive sub-prime areas, we don't foresee a meaningful shift in performance of -- on either the consumer -- the customer acquisition or credit side of the ledger.

Turning to the regulatory front, those of you who have endured these calls in the past will remember our usual caution that we take a just-the-facts-ma'am approach to our regulatory comments and steer away from any speculation. In the U.K., we continue to see a very stable environment with the [SA] looking to ensure compliance with new rules that came into place in early 2015. Like everyone else in the sector, we continue to see claims for redress for loans made well in the past, and we're working with [law] regulators to try to rein in some of these inquiries, some of which we suspect are driven by unscrupulous debt management actors who take a meaningful part of any settlement payments.

While these settlements are not material to our overall results, they are meaningful to our small U.K. operation and a big part of why we continue to struggle to keep the U.K. results consistently in the black.

In Canada, new rules came into effect in Ontario and lowered the maximum rate from $18 per $100 lent to $15 per $100 lent effective January 1 of this year. And we're working to incorporate a new extended payment plan and an ability to repay guidline for release on July 1. We had anticipated these changes and believe that Single-Pay lending remains viable in Ontario, although we will continue to expand our Installment and Open-End offerings in Ontario and other provinces.

In the U.S., there's not much new at the federal level as the CFPB continues to analyze data and prepare to collect public feedback after its announced pullback of the small-dollar lending rules. U.S. Single-Pay revenue accounted for 10% of our revenue in the first quarter of 2018.

At the state level, we continue to see the most meaningful legislative activity in Ohio and California. Ohio is not material to our current results. In California, there's 4 separate bills that have been filed with too much detail to review here. But so far, these bills have only advanced to the committee stage and we're actively involved with other industry partners to make individual and industry-wide views known to key legislators. A fair amount of activity in California last year so nothing new in terms of legislative activity there.

Just before I wrap my thoughts, just a quick note on bank partnerships. As you recall, we discussed on our last call, we're in discussions with a bank to partner up to offer more line of credit options to our consumers in some of our existing markets and potentially some new markets. These discussions have continued to be very positive and very productive, and while nothing -- there is no formal agreement in place yet, we do hope to have some more news on this front very soon.

Turning just a couple of strategy notes here, no surprise that not much has changed in our strategic focus for 2018. Our main development focus is to continue to make good credit decisions that bring about good outcomes for our customers, and continue to grow our newer brands. That's Avío Credit in the U.S., LendDirect in Canada and Juo Loans in the U.K.

As a reminder, Avío and Juo are online brands while LendDirect we have an online offering. We've also opened 5 smaller-format loan offices in Ontario. The first of these branches opened in November so still early days. We're very pleased with the foot traffic, the take-up rate and particularly the first-pay default rates on our new LendDirect line of credit offer. We think line of credit is somewhat unique in the Canadian market. So we're excited about the prospect of opening more of these branches and are currently targeting up to 15 more during the balance of 2018.

Roger will give you some more details on the numbers and guidance, but we're very happy to affirm the guidance we gave you in January. Our first quarter was excellent, and our second quarter has started well. And we see demand and loan balances exhibiting normal seasonal trends, meaning a significant pickup in demand in the U.S. While we're not changing our guidance right now, I'm relatively certain we have a much higher degree of confidence in delivering on those numbers, and we look forward to discussing guidance in more detail after our June quarter.

I'll close as I always do by thanking our more than 4,400 employees for their efforts that have helped get us off to a great start in 2018.

And with that, I'll turn it over to Roger for a deeper dive on the numbers, and then we'll take some questions.

Thanks, Don. And good morning, everyone. Don already covered consolidated results so I'm not going to repeat that here.

Looking at first quarter results by country. For the U.S., 17.4% revenue growth and an 18.4% increase in gross margin growth, almost 65% growth in segment operating income and 14.1% growth in segment adjusted EBITDA.

Advertising was seasonally low but up a bit year-over-year, while non-advertising costs of providing services rose just 1.1%. U.S. corporate, district and other costs were up 21.9%, but that includes nearly $2 million of additional share-based and other compensation cost versus Q1 of last year.

Excluding that, U.S. corporate, district and other was up 13.9%, mostly on higher headcount in IT, analytics and seasonally in collections.

In Canada, we had 11.3% revenue growth despite the impact of the Single-Pay rate, which, the rate grew 100 lent, dropped 17% on January 1. Canadian Single-Pay revenue was flat year-over-year, while non-Single-Pay lending revenues, Installment and Open-End grew 84% in Canada. This growth was driven by loan growth and, in part, by additional advertising, which was up 53.1% as we supported expansion of the LendDirect products and also increased Single-Pay customer acquisition in the wake of the price change in Ontario.

The remaining cost base in Canada rose $2.7 million year-over-year on higher seasonal collections headcount, 5 additional LendDirect stores, support for the further expansion of those LendDirect stores and contact center support of the continued shift to non-Single-Pay products in Canada.

For the U.K., reported revenue grew 25.6%, but that was 11.8% on a constant-currency basis. Provisioning on loan growth, higher customer acquisition spend and a customer redress cost Don mentioned earlier caused U.K. operating income and adjusted EBITDA to be modestly negative this quarter. But as we've said in the past, we expect the U.K. to contribute modestly for full year 2018.

Moving on to customer counts and cost per funded data, we added 147,000 new customers globally this quarter. That's up 5% versus Q1 of last year.

Breaking that down by country, U.S. new customer counts were up 4% year-over-year, fueled by a 19.5% growth in Internet new customers. 45.4% of first quarter U.S. new customers were acquired online. Further, in a seasonally low customer acquisition period, we still drove 17,000 new customers to our stores using our lease-to-store capability, and that's about 1,000 more than the same quarter a year ago.

Canadian new customer counts were generally flat with the same quarter a year ago, but that comparison's affected by mix shift. Last year, a higher percentage of new customers acquired were 2-week or 1-month Single-Pay customers as opposed to Installment, Open-End customers.

U.K. new customer counts were up almost 31% year-over-year on higher ad -- customer acquisition spend.

Moving on to cost per funded, our consolidated cost per funded loan was $63, which is up $11 versus first quarter of last year. Again, breaking that down by country, U.S. cost per funded loan was $49. That's up $3 year-over-year but again, on seasonally low levels of acquisition spend. Canadian cost per funded was $96. That's up meaningfully from the same quarter a year ago, again, because of that mix shift away from Single-Pay in terms of customer acquisition. But it's down sequentially from $119 in the fourth quarter. Canadian cost per funded is higher because of mix. We're targeting and acquiring more Installment, Open-End customers. Also because of the marketing channels, we've expanded cable -- the use of the cable TV and direct mail spend in Canada and new product expansion, including the LendDirect stores.

U.K. cost per funded was $87. That's up $16 compared to Q1 of last year, but it's flat sequentially to Q4 of last -- of 2017 and about -- and slightly below the range we would expect out of the U.K.

Next, I'll spend a little time covering overall loan growth and portfolio performance. We finished the quarter with $446.9 million of combined loans receivable. That's up $84.3 million or 23.2% over March 31, 2017. And the owned loans were up 28%. The total loan book shrank $64.7 million or 12.6% sequentially because of seasonality. In the first quarter, customers pay off at a higher rate because of tax refunds.

Earning asset levels at the end of this first quarter were in line with our expectations as Don mentioned earlier, but it's worth mentioning that this seasonality was obscured a bit in the first quarter of 2017 because of our change on January 1 of last year to age past-due Installment loans for 90 days. That change added $50 million to the loan book at March 31, 2017 versus December 31, 2016.

Breaking down loan growth a little more, company-owned Unsecured Installment loans grew to $171.4 million, up $40 million or 30.5% versus the same quarter a year ago. If you recall from our last call, this is right in line with our Q4 2017 to Q4 2016 growth rate of 30.1%. The related growth and the average receivables since last year's first quarter resulted in a 28.9% increase in the related revenues. Originations here were seasonally low and flat to the same quarter a year ago.

CSO Installment loan balances at period end were flat versus the end of Q1 of 2017, but the related revenue rose 14.9% because the average balance for the quarter was higher.

CSO balances were really the only area where we saw payoffs that were higher than we expected late in the quarter, and that was concentrated in Texas.

Secured Installment loans grew to $82.5 million, up $11.4 million or 15.9% compared to last year's Q1. And the related growth in average balances resulted in 13.5% Secured Installment revenue growth.

Open-End loan balances finished the quarter at $51.5 million, an increase of $25.9 million or 101.2% year-over-year. And that's on loan growth -- organic loan growth in our mature markets of Kansas and Tennessee of 12.2% and 8.6%, respectively. And we also introduced, as you know, Open-End in Virginia late last year and in Canada late last year as well.

Single-Pay loan balances ended the quarter at $87.1 million or up $6.7 million or 8.3% almost entirely from Canada. U.K. -- U.S. and U.K. Single-Pay loan balances were basically flat year-over-year at $33 million and $5 million, respectively. Despite the loan growth, Single-Pay revenues were flat because of mix shift to Canada where Ontario statutory yield dropped 17% on January 1.

Moving on to loan loss reserves and credit quality, some overarching remarks first. As I mentioned earlier, all of our loan balances, except Open-End, declined from December 31 because of U.S. income tax refund season. And Q1 seasonally has the lowest origination volume because of tightening of credit and seasonally reduced advertising spend. With the combination of balances that paid down late in the quarter and seasonally lower origination volumes, it's easier to focus on quarter-end allowance coverage than some of the other provision metrics this quarter.

But I'll start with first-pay defaults. As you know, we consider the -- for our short-duration portfolios, we consider first-pay defaults would be a really good predictor and leading indicator on credit. In the U.S., first-pay defaults were flat at 13.4% to the same quarter a year ago. And first-pay defaults improved 50 basis points in Canada from 7.9% to 7.4% on seasoning of the Installment portfolio and better relative performance of the Open-End portfolio.

For company-owned Unsecured Installment, allowance coverage and delinquency rates remained consistent with Q4 with the (inaudible) coverage being 22.1% sequentially -- in the same -- basically the same as Q4. And that's what we would have expected given the underlying vintage performance. Net charge-off dollars for the quarter were about the same as last quarter, but the rate's higher because the denominator paid down seasonally.

For CSO Unsecured Installment, allowance coverage of 18.2% is lower by 450 basis points sequentially because delinquencies and underlying performance in the CSO book, predominantly in Texas, have improved after the effects of Hurricane Harvey worked their way through the portfolio late last year.

For Secured Installment, delinquency rates were stable to the past 2 quarters, while net charge-off dollars improved. Allowance coverage also remained consistent at mid-teens, which is what we would expect for the type of product.

For Open-End, I mentioned previously, the growth we are seeing here and the beginning of a mix shift to Canada where we expect lower loss rates and required allowance levels over time. But overall, allowance coverage remained the same as year-end at 13.3% for that portfolio.

And then the Single-Pay credit quality provisioning net charge-offs and allowance coverage remained stable seasonally as has been the case for quite a while.

To close the discussion of the P&L, you saw our net income comps were affected by a handful of onetime items, 2 of which we discussed on our last call. One -- the first one, share-based compensation was up nearly $2 million because of the restricted stock units that were issued in connection with the IPO in December of 17.

Also, as we've -- as expected, on March 7, 2018, we incurred debt extinguishment losses of $11.7 million on the redemption of $77.5 million of our high-yield bonds using the IPO proceeds. This was the so-called equity clawback in our bond indentures and was done at a premium of 112% (sic) [12%].

Third, we added $1.8 million of additional tax provision true-ups as a result of the 2017 tax act. The IRS issued new guidance during the first quarter that caused us to adjust our estimates on several items. Needless to say, the 2017 tax act will continue to be interpreted by the IRS and clarified, but we expect that the material related onetime impacts are probably behind us at this point. But there will still be some tweaking, no doubt, in the future. Without this quarter's adjustments, our effective tax rate was 27.8%.

Finally, I'll close with our full -- Don talked about our outlook and guidance earlier, but I'll close with our full year outlook for 2018. We are affirming full year 2018 adjusted earnings guidance. We continue to anticipate revenue in the range of $1.025 billion to $1.080 billion and with continued solid growth in the U.S. and U.K. being offset partially by declines in Canada from the additional regulatory changes in the middle of the year.

Adjusted EBITDA. We're affirming adjusted EBITDA in the range of $245 million to $255 million, adjusted net income in the range of $110 million to $116 million and adjusted diluted earnings per share in the range of $225 -- $2.25 to $2.40. And additionally, we expect our effective tax rate to settle out in the range of that 25% to 27%.

With that, we'll conclude our prepared remarks and ask the operator to begin the Q&A.

(Operator Instructions) And the first question comes from Bob Napoli with William Blair.

Just a couple of questions. The credit quality trends, are you -- and the first-payment defaults and I appreciate that, but as you look, I mean your portfolio was adjusting more Unsecured, less Single-Pay, the Canada regulatory, U.K., are you seeing anything -- are you needing to tighten in any areas? And where are you tweaking models? And what is your confidence level that credit losses, provisions as a percentage of revenue, I guess, would be relatively stable with a year ago as we go through 2018?

Yes, Bob, so -- yes -- you've hit on a couple. So you do, today, have the mix shift and obviously, on the -- with the Installment line of credit side of the business, there's sort of the upfront provisioning. So you -- there -- as that business is growing, the revenue and profitability from those products will lag a little bit just because of the way you have to provision upfront. So those are growing faster than -- and becoming a bigger part of the portfolio. So there's still some of that, but we're also starting to sort of lap some growth in those products. So it's -- I think what we're kind of getting is what I call a little bit more of a normalized phase. If we're growing revenues in the mid-teens, and a lot of that is consisting of the shift in the Installment line of credit stuff and we're starting to kind of normalize on those trends a little bit.

Canada, as you mentioned, we are seeing much more pronounced kind of mix shift from Single-Pay to Installment. We went through that in Alberta. We're growing the LendDirect business in the stores, met online in Ontario, which is about 2/3 of our overall Canadian business. You'll start to see more of that as well, so there'll be some of that provisioning, but I think we're -- we had anticipated that and when we developed our forecast and our guidance, we -- there's nothing really going on in terms of mix shift or the overall kind of growth trends, it's that it's out of line with our forecast.

So I think there's a -- as I mentioned, margins would -- at the core of it I think our customers' in very good shape. I mean, the cure rates, our collection rates, the kind of the performance post-delinquency, we continue to see really, really good numbers and recovery numbers, from delinquent balances continue to be very, very strong. So -- and we feel really, really good. I mean, I think we try to be really sort of thoughtful and measured in the way we provision in this quarter. But we don't -- I think part of it is that the overall customer behavior gives us the opportunity to sort of be fairly conservative with those numbers, and I think we feel really good about those trends for the rest of the year.

Great. The bank partnership, you've been working on this for quite a while, and I mean, it sounds like you're on -- you're at the goal line here. Do you -- what is your strategy when you get that? Will you be able to roll that product out quickly? Or is this going to be like a several-year process where the bank is going to want to see performance before -- walk before you run kind of thing?

Yes, again, I want to be a little careful about it because it's not -- in some respects, I just don't want to jinx it. But we're -- we haven't had the conversations for a while. We feel really good about where it is right now. If we can get something going, again, get something -- actually get something going in the next month or so and just in terms of having a program -- developing a program, we still don't see it being a meaningful contributor into the balance of this year. We'll start -- and this is -- we talked about this a little bit. I think on the last call, we talked a bit of the credit news.

There's a -- really some of the stuff is kind of multiyear because you have to sort of -- you have to launch the product, you have to watch the credit. Once you feel better about the credit, the acquisition cost, then you can really start to ramp the ad spend. But then you start getting what I just talked about where the provisioning you start to see loan growth, but then the provisioning is going to sort of dampen the profitability until you kind of get through a couple of quarters there. So we're hopeful this will be a really meaningful product for us in '19. You'll see originations and some balanced growth hopefully in the back end of '18 but really kind of setting us up. We like to call it the exit rate. The exit rate off of '18 ought to be pretty good in this product and set up to be a meaningful contributor in '19 and beyond.

Great. Just last question quickly. Store opening, closing plans for this year and just kind of strategy, given you're doing more online U.S. and Canada, obviously?

Yes. So we mentioned we're going to continue to open the LendDirect branches. We want to kind of watch this a little bit more just to make sure we understand sort of the -- we offered sort of a variety of different loans out there to sort of test the retail model. And we just want to sort of hone in on the retail model before we start to open more of those. Otherwise, I think in the States, no plans to close any branches. We may open a few de novo stores in the U.S. But we're also looking at various markets.

We still think we'd like to have some more retail in the U.S. I've mentioned, Northern California is a market that we had 39 stores or 38 stores in Southern California around L.A., but we have nothing in San Francisco, Stockton, Modesto, Sacramento, all those markets. So we routinely kind of look up there and potentially maybe that's a place for us to do some small kind of targeted M&A. But there was nothing, I just want to -- there's nothing sort of imminent there. We're just kind of scouting around there and a few other markets.

And the next question comes from Vincent Caintic with Stephens.

Nice strong quarter to start the year and particularly the nice year-over-year earnings or loan growth that you've had. I'm just wondering if there was anything in particular that you might've seen in terms of a surge in demand in the quarter, and if you could speak to any demand that was better than what you might have expected. And what might be driving that?

I guess I'll let Baker take that one for you.

Good morning, Vincent. So I think if you kind of look through the quarter, we saw very good demand through the full month of January, and I think Don did a good job of talking about how tax refund season impacts our loan book. But we did -- similar to 2017, we did see a delay because of the government's decision to hold earned income credit tax refunds. So we really didn't see tax refund -- our customers get tax refunds until late in February. As a result, we saw terrific demand through the entire month of January and through part of February. What we did in February was, we started to taper off our marketing in a meaningful way, something like 90% reduction in spend. As that sort of happened a couple of weeks later, we then tightened our credit model. So obviously, we saw a demand drop at that point. But it was obviously calculated internally to do that.

And then obviously, once the customers start to get tax refunds, you see that demand go away. So -- and then, I think we saw a great demand entering the quarter. We saw the demand that we expected due to tax refund season. And then today, we're seeing a nice return of -- again, as Don outlined, good demand.

Yes, and probably a little bit -- I think as we're kind of exiting tax season there's probably demand that's above our forecast. And the biggest driver of that is just is if you're kind of -- and this over -- a lot of people have studied this, and consumer confidence is really the biggest kind of driver of that. People see more money in their paychecks they kind of watch that for a month or 2, and then they feel better about borrowing money. And that's -- I think that's not just in our business but credit cards and other kind of unsecured offerings, whether it's prime, near-prime, subprime, it's kind of across the board, again, consumer confidence is the big driver there.

Perfect, that's really helpful. And then in terms of the bank partnerships, actually on a -- maybe on a related note, we saw from the OCC this past Wednesday that they're thinking about relaxing standards for banks to underwrite small-ticket loans for small time periods. I'm just wondering what you think about the competitive environment maybe that results from that or maybe that drives more bank partnerships. Just kind of your thoughts there.

Yes, I guess, I've got a number of emails, a number of questions on that and I answer them the same way which I don't -- I still don't think banks are going to be competitive with what we do. And again, we continue to focus on an under-banked customer where you're in a sort of high 500s to mid-600s FICO range. And I just don't see banks dipping that far down. And part of it is just the -- there's credit quality issues and then ultimately you just want to bank the cost of -- I think their cost structures are not conducive to making small loans that are going to have high charge-off rates and high kind of servicing costs. So I think you've said there in the Installment business it will probably be in, I would say, maybe, near-prime stuff and prime stuff is maybe what'll be more on the Installment side.

So in terms of partnerships, I think it's not -- I think that there's kind of ongoing rethink of some of this stuff at the -- with the federal regulatory agencies. In fact, I think it was maybe a month or so ago there was a kind of a standing order that issued when ACE was doing a bank partnership, ACE Cash Express was doing a bank partnership a few years back, and they've sort of formally withdrew that guidance. So I think we continue to talk to banks who continue to talk their regulators. And if they're properly structured deals that are with the right kind of credit, the right kind of underwriting, the right kind of sort of servicing arrangements, the right waterfalls and rev shares and cost shares, it seems as though what we're hearing, again kind of second hand, is that the regulators are looking at those more favorably than they have in the past.

Perfect, very helpful. And just the last one for me. So you -- just in terms of seasonality, so you had a very strong first quarter and reiterate annual guidance. If you could just remind us of the cadence of earnings through the year and what drives the seasonality so we can kind of think of how to think about quarterly earnings for the next 3 quarters?

Roger, take that. Will you?

Yes. Well, yes. So seasonally, you're right, Q1 is always the -- is a high quarter relative -- especially relative to Q2. If you kind of ventured, if you kind of recalibrate based on where we closed first quarter in terms of earning assets and kind of you start to roll that forward, we'll see growth -- we see good growth in Q2 in earning assets coming out of that trough, and we already are. And that growth in Q2 puts pressure on provision providing on that loan growth coming out of the trough. So Q2 is always seasonally our lowest earnings quarter of the year. And then we pop back up in Q3 and Q4 tend to be -- the balances build through the end of Q2 and into August to peak kind of late in the third quarter and kind of stay there. So -- and so if you think about it, you think about the Open-End and Installment growth in Canada, it basically -- you've got Q2 in a much -- is depressed. Q3 starts to come out of that provision on loan growth pressure, and then Q4 tends to be another high quarter. So -- and typically, Q1 and Q4 are the 2 highest.

And the next question comes from Moshe Orenbuch with Crédit Suisse.

Great. I guess the -- just an observation. I mean, I think when the banks were able to compete in that deposit/advance business, I mean, there were basically 3 of the larger banks that did it, and they were probably collectively probably smaller than CURO is now. So it wasn't like -- I mean, they did it, but it wasn't like a game-changer across the country, I guess, is what I would say.

Yes, I think it was well...

And probably 1 of those 3 less likely to get back in, I would imagine.

That's true. That's a fair -- I'd take that spread.

Right, there you go. I guess, I don't know, you kind of pull up to 25,000 feet and you look at the revenue growth, and it was really strong. But if you actually -- the Single-Pay -- I think you alluded to this was the Single-Pay revenues were actually flat year-on-year. And so everything else was up 25% and maybe talk a little bit about the development of that kind of everything else. I mean, is that something that we can see kind of continue to grow at 25%? Is there -- what -- could maybe -- that's sort of the way I was approaching it just looking at it from a high-level.

Yes, I think that some of that -- you sort of had -- maybe if you take the break to 25% and sort of look at what is organic growth and then what's maybe substitution or just mix shift. So there's an element of that where particularly I think in Canada would be the biggest piece of that where you're seeing mix shift from Single-Pay to Installment products. So I think we've said -- I think probably organically, we feel like -- I mean, we can certainly grow it faster than the mid-teens. But that's -- I think right now, it sort of feels to us -- and maybe it'll grow a little bit faster this year because consumer confidence is better, our customers in a bit better shape, and obviously the biggest determinant of how much money we can lend you is how much money you're making. So as incomes are going up particularly on the -- for the sub-prime customers, we can lend a bit more money sort of like-for-like.

But I think if I look at it over an -- we look at it over an extended period, I would say that probably on the Installment side of things or pure organic growth for getting mix shift, a number that's in the mid-teens, say, 15%, in that range probably feels about right to us. Why? We can grow like -- we can grow at that level but keep credit quality in a range where we're comfortable because I think it's still -- the adage the lender that grows the fastest has the highest losses. I think that's -- we've certainly seen that hold true with a lot on the marketplace lenders and a lot of other people that've sort of kind of exploded their balance sheets over the past few years. So we sort of feel like organically Installment 15% is a good number for us. But we'll see higher than that this year given some of the mix shift and maybe a little bit from the consumer confidence and higher wages.

Got it. And maybe just kind of to round things out a little from an expense standpoint, talk a little bit about your kind of expense outlook into '18?

Yes, I'll make a couple comments and let Roger sort of fill in. So the one thing that sort of like-for-like new for us is going to be just public company expenses. And I think we said last quarter maybe it was kind of $4 million a year roughly all in sort of to be a public company. And so that'll show up in sort of corporate district and others. Otherwise, that number we think would grow kind of a little bit at a rate a bit lower than revenue.

The big driver of the operating leverage for us is going to be -- and if you kind of go down the P&L -- is non-advertising cost of providing services. That's essentially branch and call center expansion. If you look at this quarter in the U.S., you can see in the segment analysis. Advertising grew 9.9% so at a lower rate than revenue and then that number, non-advertising cost of providing services, grew 1.1%. So we're continuing to get really good operating leverage. Some of that is customers self-helping on the website and through the mobile apps.

So if you go on the branch level payroll, we're just not seeing any real growth there. So where we continue to provide really good service, make a lot of the outbound calls from the branches to drive the leads to sort of business without adding a lot of payroll dollars there. So I think that -- Roger will unpack it a little bit more. There is -- Canada and U.K., we saw more ad spend and ad spend grew in excess of revenue in this quarter. That really has to do with brand launch in the U.K. and the mix shift in the store launch in Canada to the LendDirect line of credit product.

Yes, I would just add there that the cost for low gross margin, the corporate district and other expenses, the growth rate I think we've signaled pretty consistently there in what we're seeing, but if you take the share based comp out of it, mid-teens type year-over-year growth, and that's 2 things. One, the public company cost that Don just talked about but we -- headcount is up in certain areas. I mean, analytics are up. Just for some examples, our analytic headcount is up 12 FTEs year-over-year. IT headcount's up 10 FTEs year-over-year. So as you might expect, as we become -- as we continue to become -- invest more in analytics and IT, in the platform, the headcount -- it's good. We're pleased to be in a position to be able to invest in that.

And those are expensive, expensive FTEs, yes.

And the next question comes from Kyle Joseph with Jefferies.

Congratulations on another good quarter. Just in terms of the mix shift in Canada, can you guys talk a little bit about consumer demand, how consumers are reacting to those products as well as credit performance?

Yes, I mean, I'll give you a couple of comments and maybe Bill can fill in a little bit on some of the details. But I think we have a great -- we were sort of -- somewhat I guess, with the regulation change if we go back to Alberta, we had 28 stores or something there. So it's not a huge market for us and it's 12% of our revenue, 10%, 12% of our revenue. So when they changed the Single-Pay rules there, going back they put the rules in place and the launchings and then we didn't the final regulations there and that was the fall of, I guess, '16, right? So we got the final regulations from December -- November 15 and December 1, we had to put them in place. So we had this kind of -- a little bit of a trial by fire. But our customers responded great to it.

So we talked about existing Single-Pay customers we converted to that was the first Installment product there. They liked the product a lot. We were able to give them like-for-like, more credit, longer time to pay off and the headline -- the rate was lower. So kind of across-the-board, those are check, check, check. Demand was really good. And then credit performance from our existing customers and again, you worry you're going to get more -- you're extending more credit. But given the fact that the payments were really managed with the credit performance, converting existing customers was excellent.

We then sort of set about to sort of get new customers in that product. And I think that also worked very well. Again, the credit performance there was a little bumpier because these are new customers. We didn't have quite the same -- and in Canada, I think we talked about this before, the ability to sort of aggregate the data the way we do in the U.S. There just isn't the availability of kind of the non-bureau data, the FactorTrust and Claritys of the world, both of which have been acquired by the big 3 credit bureaus. So there's just not the same availability of whether it's mobile phone payment data, a used car, your [biker pay] pay your lot data that you can get from some of these kind of alternative bureaus. So it takes a little longer to sort of have the credit kind of season in Canada. But as we've kind of gotten through that process, it's worked out great. So our loan demand in Alberta we're making more money than we made in the Single-Pay business.

And then the final element of this is the competitive piece, which is we have -- how many? I'm going to give a rough number, Bill, maybe it's in the range of about $1.5 million per branch in an Installment book there across 28 branches, and that's just not something that every lender could do in Canada. So I don't like the government to sort of -- we like to say that we don't want the government to put our competition out of business. We'd rather do that ourselves. But the fact is, that's kind of what's happened. While I think there's a couple of lenders in Alberta that have the capability of financing a loan book like that across multiple locations, a lot of small lenders have not been able to do that and so the competitive dynamic, they are shifted to really be kind of 2 or 3 companies in Alberta that are making those Installment loans.

We'll see some of the same things in Ontario. There are more competitors in Ontario; obviously a much bigger market. But I think like for like, we are going to see the competitive dynamics sort of shake out the same way. And we don't -- in early days in the LendDirect product where we're having both existing and new customers in -- convert from Single-Pay to both and that's a -- we're going to have an installment offering and a line of credit offering. We're seeing really good credit performance there. So Bill, if you have any thoughts on that?

I think that's -- I think that's all consistent with what I would say. I guess the only thing I would add, though is just, particularly in Ontario, so as Don mentioned, we effectively phased out the Single-Pay product in Alberta. With the new regulatory changes in Ontario, we still think Single-Pay is going to be viable. So really, that becomes an overall or a customer-based underwriting exercise where you say, "Some portion of your customers could qualify for both products, Single-Pay and a line of credit. You just have to manage that from kind of overall credit extension perspective." I think that's the first thing -- so we think that's a real opportunity.

Now keep in mind that the line of credit is -- it is a much lower rate than the Single-Pay but you can also loan a lot more. And the early results and the early feedback from customers is they really like the line of credit because they can take the amount of capital they need that day that they utilize. And if they want more, they can just go on the mobile app and draw it down. They don't have to go to a branch; they don't have to call a contact center. So I think all of that has been received as we would expect. As we move into July 1 extended payment plan and the 50% net income limit, that's really where we will deploy our underwriting and scoring capabilities to segment customers and decide which customers get what. But we think that, that's going to be a real opportunity. And again, I just stand behind that line of credit practice. We say every quarter, it's our customers favorite product and we feel like we're in a fairly unique spot in Canada to be able to offer it.

That's helpful. And then you touched on the competitive environment in Canada answering that question, but can you provide any sort of update in the U.S. basically since the last call because you did address it last call?

Yes. It's, obviously, not long since that call. So we still feel like the overall competitive environment hasn't changed a lot. We still see, from our vantage point, more capital and both kind of equity and debt capital flowing into people that are doing near-prime and prime stuff. You know, some of the newer kind of online entries still continue to kind of focus on those products or those segments. In Delta we see -- again, our customer -- again, it's a hard quarter to sort of show it to you because this is in the U.S. our seasonally slowest quarter in terms of acquisitions. A customer acquisition with $49 cost to fund it, even though it's a slow quarter in terms of acquisition, still we see -- we still see more of the competition in the higher FICO ranges.

So I mean, I will see -- if you look at sort of direct mail stats, et cetera, direct mail went kind of through the roof going back to when the marketplace lenders were sort of exploding their stuff. It pulled back for probably a 12- to 18-month period. And now direct mail, adding the direct mail solicitations in financial services are above where they were at sort of the height of the marketplace lending boom. So that continues -- that channel continues -- that's a competitive channel although we feel like our product offering makes a lot of sense there in the way we sort of target it on a prescreen basis continues to be really sort of effective for us.

But there really isn't anything on the acquisition side we see domestically that leads us to believe that competition is sort of increasing in any kind of meaningful way. And hopefully, we'll be able to sort of demonstrate to you in the numbers as we get -- as we report the second quarter where demand really starts to pick up again and be able to show you kind of both good quality demand in terms of acquisition cost and credit performance.

And then Roger, you gave us first statement default data by geography. Can you give us a sense on a product breakdown?

Not off -- I could get back to you with that, yes. Off the top my head, I can't. Sorry, no, I think...

There's also competitive concerns we have there about (inaudible) and that starts to get a little granular in terms of where we like to go. But I think offline Roger can give you some sense of kind of the overall kind of -- the proportionality of it, at least.

Totally fair. And then one just last one from me, going back to the mix shift and going back to more of a high level question here. In terms of the mix shift of the portfolio, do you guys have any sort of targets? Is it all just sort of more based on consumer demand, regulatory environment and your thoughts in terms of portfolio composition going forward?

Yes. I think -- so some of this -- we've talked about this before. If you look at it, a market like California where that -- if U.S. Single-Pay is 10% of our total business, again, that's down from 11.7% in the year-ago quarter, so a big drop there. California represents probably just -- probably more than half of that 10% number in the U.S. is in California where we don't have a small dollar alternative. We continue to like California. I mentioned maybe some -- where we looked at, add some more stores in Northern California. So hopefully, we can get a small dollar alternative going, whether under state law or with a bank partnership in California so it will allow us to sort of reduce our -- the amount of Single-Pay lending we do in California and offer a better product, a better alternative for customers.

So Canada is 13%, Canada Single-Pay is 13% of total revenue, that's down from 15% last year. I suspect you'll see that Canada number probably cut in half over the next couple of years and maybe even go lower than that depending on how -- what the take-up rate and success rate of our line of credit product is there. So I think U.S., that number's going to continue -- if you look at our kind of long-range forecast, that's going to be a low single-digit number 2 or 3 years out.

And Canada, I suspect that 13% will be cut in half over the next couple of years as well. So you could see 23% between Canada and U.S. Single-Pay revenue. I think you could see that number go, that combined number go below 10% in the next couple of years. And not -- again, some of this is kind of regulatory driven stuff, but a lot of it is just you give consumers an option, they kind of vote with their feet for the line of credit and the Installment products. Again, generally more credit, like-for-like, lower rate, longer term to pay it off so more manageable payments. That's a win for them and a win for us.

And the next question comes from John Rowan with Janney.

Roger, I think you said in your prepared remarks if I'm not mistaken it was 44% of new customers were coming online. Did I hear that correctly?

It was 45%, but yes.

45, now is that 45% of total new customers? Because I remember you guys had said I think you were trending around 1/3 of new customers in your branches were generated through a site to store. So is that 45% a comparable number or did it go from 1/3 to 45% or is that 45% just inclusive of online plus 1/3 that you get in your stores that are from a site to store?

So that number was just pure online and completed online originations as a percentage of the total. I also said we drove -- seasonally it's a low number but we drove 17,000 customers to the stores. Those would be considered store new customers.

Okay. And you guys have been, it was like over 30,000 recently, wasn't it?

Yes, yes.

It's a seasonal number. I'm just trying to get the trend for foot traffic coming into the stores that are generated online.

John, this is Bill. It's still about -- depending on the market it's 25% to 30% of new store customers are originated online. So that's like the store program. And then we did put a model in place that basically helped us tighten credit last year. So that number will grow this year but it'll be controlled growth.

Okay. I'm not going to ask you about the California regulations. But I did try to put out an order earlier this week trying to handicap what the larger balance Unsecured Installment revenue exposure was to California. Can you guys just, I don't know, not necessarily confirm my number but give us a number anyway just so that we kind of know what the exposure is in case that one bill, 2500 does continue to advance?

John, I think we were impressed with your ability to connect the dots there, well done. But again, I hate to sort of speculate about this kind of stuff. I will say that the same sponsor had introduced a bill last year, a similar measure. And we are active in California not just individually, but across -- there are a whole bunch of companies that are active out there and have been active out there for a long period of time. And we still feel really good about our ability to sort of make our case for why a measure that would dramatically restrict the availability of unsecured credit is not in the best interest of California consumers.

And part of that is making sure people understand sort of the whole sort of lending dynamic out there between the Single-Pay and the Unsecured and why an increasingly competitive environment with more companies has been making credit cheaper for California consumers. And continuing on that sort of path is better than introducing a measure that's going to radically change the unsecured lending environment out there.

Okay, and last question for me. Don, you joked about us enduring these calls. I have a feeling that my next question, you're going to be enduring this question. But I got a couple of questions about this whole notion of having Post Office act as a small dollar lender. Can you remind me, is that a rehash of a prior bill? I'm thinking that this might be a decades-old rehash of an idea. Obviously, I don't necessarily think your local postman is going to serve as a debt collector. But can you, I don't know, opine on this proposal, I believe, came out of New York a few days ago?

Yes, it was Senator Gilbert, I forgot -- Kirsten Gillibrand, yes. This is a -- it's kind of a rehash of an idea I think that Elizabeth Warren maybe sort of promulgated first and then it got more traction when I think the Post Office Inspector General had put out like a white paper saying that the Post Office could easily do this, make small loans available at 30,000 post office and they could do it at basically a prime rate and could make a whole lot of money off it. The Inspector General sort of conveniently forgot to address the whole issue of credit losses in the proposal that they wrote up.

So look, I would say if they want to do it, go ahead, knock yourselves out, Post Office. Have at it. It is 1 thing to write a white paper and another thing to actually sort of put this in place. And I get that there are Post Offices in Japan and the U.K. and all kinds of places that actually lend money out of it but I think it's a dramatically different law that's going to be sort of salary advances and getting people money deducted out of people's paychecks directly. So there's a ton of things to worry about in this business and we do worry about them all the time. I truly don't spend a minute worrying about the Post Office competing us out of business. I think the bill has 0 chance of getting anywhere, particularly in the Congressional and administrative makeup we have now. And if it were ever to get there in a new administration, let's see what they could do.

Thank you. And this concludes our question-and-answer session. I would now like to turn the conference back to Mr. Don Gayhardt for any closing comments.

Okay, great. Thanks, everybody, for joining us and again, enduring another one of these calls. We appreciate the thoughtful questions and your time and attention. We'll look forward to talking to you again after our June quarter.

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