CURO Group Holdings Corp (CURO) 2018 Q4 法說會逐字稿

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.

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 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 and LSE; 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 1, 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.

Great. Thanks, Gar. Good morning, everyone, and thanks for joining us today. In general, this call will 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're really pleased with our fourth quarter and the momentum that it gives us going into 2019. We saw very good 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 exited the year in a very strong position, both operationally and from an earnings perspective. We also include in our release an update on our ongoing efforts to resolve redress claims in the U.K.

A few more detailed comments and 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.

In particular, we had good growth in Open-End and Unsecured Installment products with revenue in these products 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, you know, 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 to $13.6 million sequentially, which helped keep ad spend growth at 18% year-over-year and closer to the revenue growth of 14.3%.

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 nonadvertising cost of providing services, we'll 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 the spot ended the year 5.7% lower at 12/31 than the rate as of September 30, some of 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 billed as the Open-End portfolio seasoned and moved 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, our 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 the same quarter a year ago. Gross margin expanded 30.7% as a 31.8% increase in advertising cost 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. were slightly higher.

In the U.S., we saw higher net charge-offs on our Unsecured Installment and line of credit portfolios. The Unsecured Installment portfolio was impacted by selective availability of higher credit limits in certain states, while the line of credit book in Virginia experienced strong growth but came with higher charge-offs as we're building this business. We expect Virginia will continue to grow nicely in 2019. The contribution should be strong as charge-offs and loan loss provisions moderate with 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 micro credit 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 scoring work that our teams have done. We're still running a bit behind on our rollout schedule and are 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 out of this relationship until 2020.

As we noted in our release, we did take some steps early this year, in fact, it was late in 2018 to eliminate approximately 120 positions in our North American operations, about 2/3 of which were in our U.S. branch operations. Most of these reductions are related to aligning branch staffing with customer counts and traffic. And I should point out here that while more customers are choosing to do business with us through mobile and online channels, a significant part of the foot traffic reduction at the branch level comes from customers who no longer use the store to make a cash payment and instead have signed up for auto pay via their debit card or ACH authorization or use our mobile app.

The remaining eliminated corporate positions come from a variety of departments and related efficiency initiatives, which give us the flexibility to continue to invest to support our growing product set and brands. And these were some really tough decisions that involved some people who've worked really hard for us, but we think that these are 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. These are 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 operational highlights related to the 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 areas with large segments of federal government employees. We do have a good -- as we mentioned, a good and growing online business in Virginia, but that's not enough to move the overall needle.

Second, our existing loan book. We do have a small segment, 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 in 2017. We'll see a few more charge-off dollars from this in Q1 2019, but nothing material.

We've gotten 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 this 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. In Canada, we completed the transition to Installment line of credit in Ontario and Alberta and may transition British Columbia, which is 26 locations, during 2019. If we do convert British Columbia, this would cover 174 of 190 Cash Money brand locations in Canada. So we 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. The CFPB has been widely reported and discussed. We're expecting the CFPB to put out sometime in the near future their small-dollar lending rules for further public comment. Some of the stories we've seen have speculated about what may or may not emerge from this process, but we won't add anything further to that speculation. We're working hard individually as a company and through our trade associations to add our thoughts and comments on the most important components of the rule making.

As a reminder, the CFPB proposed rules focus mostly on Single-Pay product, and we continue to reduce our reliance on Single-Pay, with U.S. Single-Pay accounting for only 9.6% of our Q4 total revenue.

Finally, on the state level, as we always do at this time of year, we're beginning to see some bill activity and some of that bill activity is in key states of Texas and California, but sessions are just getting started. So we'll expect to have more to discuss on our second quarter call.

So I'll close by thanking our employees for their dedication and effort to helping us through 2018 by making substantial progress to grow and strengthen our company -- your company. Among other achievements during 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've reduced operating expenses in key areas to continue to allow for ongoing investments and 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.

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 guidance that we provided in our October 24 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 this and the related, and we also filed an 8-K on the scheme of arrangement last night as well.

The U.K. charge is comprised of a $22.5 million noncash goodwill impairment charge -- that's the full remaining balance of goodwill related to the U.K.; $4.6 million of 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 ombudsman 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 into 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 spend by country, U.S. advertising rose 18% year-over-year, driven entirely by online. Store spend was flat. Part of the online increase related to continued support of our relatively new Avío Installment loans and -- for the Avío product.

U.S. new customer counts were down 4.8% year-over-year, split evenly between store and online. Site to store -- our site to store initiative added 38,000 new customers for the stores this quarter compared to 25,000 in the same quarter last year. Because of Internet mix shift and the effect of Avío on application to funded conversion rates, U.S. cost per funded was $84.76 this quarter and that was up almost $17 over the fourth quarter of 2017.

Canadian advertising decreased by 60% year-over-year. That's because in the fourth quarter -- partly because in the fourth quarter of '17, we increased our store marketing significantly exiting the quarter versus the prior quarter run rates in anticipation of a market impact of regulatory changes in Ontario. Because we had more normalized spend this fourth quarter and better customer conversion rates, Canada cost per funded was just $50 for the quarter.

U.K. advertising rose $0.5 million and new customer counts were up almost 43%. The cost per funded in the U.K. was $80, that's down $7 compared to the fourth quarter of 2017 and it was actually down $6 sequentially from the third quarter of '18.

Next, I'll spend a little time covering overall loan growth and portfolio performance. First, I'll cover a few highlights at the product level. Company-owned Unsecured Installment loans grew to $214.1 million, up 9.1% versus that same quarter in the prior year. Like last quarter, loan growth and portfolio metrics were affected by mix shift from Installment to Open-End in Canada, where Unsecured Installment balances were actually down $29.3 million year-over-year.

U.S. Unsecured Installment balances grew $38 million or 27.9% year-over-year and U.K. Unsecured Installment was up 61%, which was $9 million.

Open-End loan balances finished the quarter at $207.3 million, an increase of $159.4 million year-over-year and $23.3 million sequentially from third quarter. Open-End balances comprised 30.6% of our managed loan balances at the end of 2018 -- 30.6% of our managed loan balances at the end of 2018 compared to just 9.4% at the end of 2017.

U.S. Open-End balances grew $8.5 million or 20.9% year-over-year, fueled primarily by growth in Virginia where we launched the product in Q3 of last year, if you recall.

Canadian Open-End balances grew $150.9 million year-over-year and $19.4 million sequentially from third quarter. That sequential growth was in line with the expectations that we expressed to you during the fourth quarter.

CSO loans grew 2% year-over-year, but that growth was affected negatively by Ohio. Texas CSO balances grew 6.1%. But with a pending law change in Ohio, effective at the end of April, the Ohio portfolio is down from the end of last year -- or the end of 2017, because we've reduced advertising support there. We had $5.2 million of loan balances outstanding in Ohio at quarter-end. We expect those balances to remain fairly flat through April and then they will run off -- those CSO balances will run off over the succeeding 60 to 90 days from the law change.

Single-Pay loan balances declined 17.1% versus the same quarter a year ago, concentrated in Canada, where the balances declined $16 million or 30.5%. U.S. Single-Pay loans grew $2.3 million or 5.6% versus the same quarter a year ago.

Moving on to loan loss reserves and credit quality. Loan growth boosted loan provisioning this quarter. We had $30.7 million of sequential loan growth from the third quarter and the loan loss provision exceeded net charge-offs at a consolidated level by $9.9 million.

Looking at the underlying net charge-off rates. As Don mentioned, at the consolidated level, CURO's net charge-off rate improved 60 basis points year-over-year. As a general or overriding comment to start, I'll just remind that we have about 73 loan products in 28 states in the U.S. and 3 loan products in Canada and the U.K.

Payments are due on the customers' pay dates, so differences in the calendar, for example, the number of Fridays in a month year-over-year or sequentially, can affect net charge-off comparisons, along with the fact that we have a lot of very small loan portfolios making up our total portfolio with widely varying loan characteristics. These characteristics and factors can cause our net charge-off rates to fluctuate more than in the case of, for example, very large homogenous portfolio.

For company-owned Unsecured Installment, the quarterly net charge-off rate rose 340 basis points year-over-year. This was driven by 3 factors: First, mix shift from Canada, where the net charge-off rate is lower, the same phenomenon we talked about in the third quarter; second, broader eligibility for credit line increases, which initially increases the net charge-off rate; and third because of statistical quirk in the prior year's quarter that caused the NCO rate count to be a little unusually low. I'm happy to elaborate on any of these in the Q&A.

For CSO loans, the net charge-off rate increased 394 basis points year-over-year, in part due to the same statistical quirk in Q4 '17, but the NCO rate for CSO improved 319 basis points sequentially, which we were pleased with. The CSO past due rate improved 150 basis points year-over-year and 90 basis points sequentially. So again, we were pleased with the overall trends for the CSO product.

For Secured Installment, net charge-offs rates increased during the fourth quarter as a result of mix shift to Arizona, where both our yields and the loss rates are higher than, say, California.

For the Open-End portfolio, the NCO rate -- the net charge-off rate improved 379 basis points year-over-year and 399 basis points sequentially.

U.S. Open-End net charge-off rates improved sequentially by 316 basis points, a bit more than we expected, but are still up year-over-year primarily because Virginia is a relatively new and unseasoned market.

The net charge-off rates in Canada for Open-End improved 280 basis points sequentially -- Don already mentioned that -- and we are pleased with that sequential improvement after the major transition in Ontario during the third quarter.

Moving on to capital structure. We mentioned on our last call the U.S. SPV Facility was extinguished completely in October 2018. Coupled with our successful debt refinancing, this temporarily used all of our excess cash and caused our U.S. revolver to be drawn $29 million at the end of Q3. We paid down $9 million of the revolver in December and we would expect it to be paid down completely by the end of this first quarter.

With the capacity of our Canadian SPV Facility to finance loan growth in Canada, our $50 million senior revolver in the U.S. and implied 2019 free cash flow, we believe we have more than adequate liquidity and sources of capital to finance our growth plans.

Finally, I'll close with our full year outlook for 2019. We expect meaningful growth in all key measures. We anticipate revenue in the range of $1.215 billion to $1.240 billion, that's 11.1% to 13.3% growth; adjusted EBITDA in the range of $250 million to $270 million, that's 14.8% to 24% growth; adjusted net income in the range of $120 million to $135 million, that's a range of growth from 34.1% to 50.8%; and adjusted diluted earnings per share in the range of $2.50 to $2.80, again that's a growth range of 34.4% to 50.5%. We expect our effective tax rate to continue to be in the range of 25% to 27%.

In addition, I want to preview an accounting methodology change that we have made with respect to recognizing net charge-offs and delinquencies for Open-End loans. Effective January 1, 2019, our Open-End loans charge off when past due for 91 consecutive days instead of upon payment default. We believe the change better measures when an Open-End loan is deemed uncollectible and we also believe it will improve comparability and the related past due aging buckets will provide additional insight into portfolio performance trends. The change has the effect of increasing Open-End loan balances as well as related allowance revenue, net charge-off dollars and provision expense. We expect that the net impact on our earnings should be minimal in 2019 because of this change.

Our guidance -- our revenue guidance incorporates our expectations of the impact of the change on revenue. It adds about -- it adds approximately $45 million of additional Open-End revenue for 2019.

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

(Operator Instructions) We will now take our first question from John Hecht, Jefferies.

The first one, you had pretty strong growth in the U.S. Roger, you gave a lot of details about new customers and 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 can kind of break down the growth, how much of it is tied to credit line increases versus new customers and what kind of trends would we think about that through 2019?

It's Bill Baker. We look at this as the additional -- 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 would have put work with credit line increases. That number is about $14.6 million for the entire year for 2018. So it is -- again, when you think about that -- if an existing customer had an $800 loan, the incremental cash moving it to $1000 is $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 talked a lot about net charge-off increases. We just did a deep dive on this a few weeks ago. Although we do see net charge-off rates slightly elevated with credit line increased customers, the actual kind of cash that comes out of that or the incremental cash will be made...

In terms of risk-adjusted revenue...

In risk-adjusted revenue increases. So certainly, it makes it a good decision for us. It is something that we continue to as we think about migration of 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 seasons, it will become increasingly important that we manage CLIs properly in that geography.

Okay. And then the second question, U.K., you're obviously 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 -- 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?

(inaudible) We don't yet have a resolution. We sort of have it outlined. We sort of think we have kind of that resell line, sort of what potential steps are available to us and obviously, we've highlighted some of the charges involved with that. So -- but in terms of the business, if you look at the full year, we did in U.S. dollars, we did just a shade under $50 million. We did 2.2 -- before redress claims, we had about $2.2 million in adjusted EBITDA in the fourth quarter.

And I think we've talked about that business in kind of the near term being a $10 million adjusted EBITDA business for us. It's been growing at the top line in the low 20s. We should have a little bit of currency impacts 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, maybe just take a 36-month kind of time frame, growing that business in the low 20s. And if it's 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 is no secret that people that follow it, I mean, you've had probably the 2 largest companies in this space from maybe even 3 years ago are both out of the market now. And I think there are a handful of players who could have some scale. I think we're probably in the lower end of that handful of companies in terms of the size of our business now but we see the competitive dynamic being really good, and we're hopeful that we can figure out a way as I said to resolve the redress claims and move on and continue to grow that business. We love our team over there. We've worked hard on the technology, on the credit, on the getting -- working hard at the call center contact level to get good outcomes for consumers and we really hope that we can sort of stay in the market and continue to build that business.

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

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

Yes. And what about loss rates?

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

For annualized charge-offs.

Yes. I'm sorry, that's an annualized number, forgive me. So it's stabilizing at that level and kind of notching down to that level over the course of 2019. And we do expect -- I'd 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.

But if you just -- this is Don. So 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 provision as a percentage of revenue probably comes down by 200, 300 basis points. The U.S. number probably goes up a little bit. And then -- but both in the aggregate, loan loss percentage as a percentage of revenue should be relatively stable full year '19 over full year '18.

We will now take our next question from Moshe Orenbuch from Crédit Suisse.

Just a follow-up on the Open-End, maybe just -- can you just talk a little bit about the reserving needs, and how that reserve will be reflected in the next couple of quarters?

I think the reserving -- the allowance levels would be pretty stable. Our charge-offs are starting to come down, but they will come down over the course of the year. And the allowance level for the Canadian Open-End, the coverage is -- right around 10% right now. So I certainly don't expect that to go down any further.

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

And maybe just to follow-up on the change -- on the accounting change. I mean, 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 in a comparable amount? Like how should we...

Exactly. So now we've got loans that previously charged-off at first payment default, that are on the balance sheet now for 90 days and accruing interest and so the loan balance -- 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've modeled this, and we'll be able to give you guys very clear transparency on this when we release first 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.

Got it. Okay. 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 is it just pushed further out? I mean, just pushed a couple of quarters out, or is there also a change in time and maybe talk about a little what the underlying cause of that might have been?

Yes, I think it was just on -- I think it's really just -- I think it's just a timing. At this point, we see that the development of the program, we're still really optimistic about what it's going to do for us and obviously, it's -- we think it works well for the bank as well. So I think it's really just -- we're just kind of pushing out the launch date a little bit. And I think -- and we tried to be really (inaudible) this is -- it's a bit of a new product for us and it's a bit of a -- and certainly a new product for them. Even though we've done credit lines before, sort of the pricing structure on this product, it's more of a fee-based product than kind of a straight-rate product like a lot of our products.

So I just -- I think we've been pretty clear that we are -- 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. But long-term I don't -- our long-term expectation is not -- has not changed on this. It's just the starting point.

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

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

Okay, that's fine. And then the last thing from 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's likely to happen from this point on?

Yes, it was -- in fact, just everybody has just been -- we've been talking about this for a while. We've been working really hard with the regulators there who've 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. And the only other -- I think we would expect to have a very clear resolution on this before the end of February, so really over the next few weeks. And as we've said, we've 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 fork in the road over the next couple of weeks.

And we'll take our next question from Vincent Caintic from Stephens.

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 5x 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 built into the range when you think about the $2.50 to $2.80? What moves you to the high end or the low end?

Vincent, I guess, just -- first of all, I'd make sure -- 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 I just want to make sure everybody is clear on that point and we'll have more clarity on where that's going when hopefully 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. If you look at the -- what I'll call the moving parts of things this year, '19 versus '18, I think we've talked about it 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, we were about 6.2% of revenue. We expect to be just right in that range for '19. The other costs -- I think we call them other store operating costs, which are both stores and contact centers, given some of the expense reduction measures we've taken in North America, we expect that number to be 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 when we went public: D&O insurance, reporting, all that kind of stuff. So SOX compliance stuff, but those are -- we're now sort of lapping a year where we've had that step-up in corp from that level and we think where we've made some reductions in corp to allow us to continue, particularly in risk and analytics, IT, product development, et cetera.

So there is -- from an operating leverage standpoint, I think we've done a lot of stuff to sort of keep expenses very, very controlled. And if we see revenue growth that we're talking about, which just to put it in context, I think Roger talked about the impact of -- we just want to make it clear, some of the revenue growth -- we'll see revenue growth from the change in the accounting policy around the Open-End, but absent that, we're expecting total revenue to grow in the high single digits consolidated across the company. If that debt 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 with Avío credit, which is a larger longer-term installment line of credit, right, we do a line. And we sort of dialed back the growth on that as we wanted to see -- we wanted to make sure credit on that was -- we saw the curves kind of maturing the way we wanted 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, kind of controlled sort of product growth and product development pipeline as we get into '19. It's going to be a little bit lower total revenue growth, but in terms of the clarity of it and the achievability, we feel really good about that.

Okay. That's really helpful. So, I guess, if I take out the $45 million from the accounting change from your revenue guidance, that'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?

Yes.

Okay, perfect. 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 on that you might have built into 2019?

No, we haven't modeled in any changes in capital structure for 2019. I mentioned, we've certainly got plenty of free cash flow to support what we need to do. And so I think, Vincent, I think that's get you interest -- total interest cost for the year in the low 70s, kind of just under -- in a range of -- low $70 million range.

Okay, perfect. That's helpful. And then finally, just on the guidance, again. So the Ohio CSO roll-off, so I assume in the revenue guide and the EPS guide you have that completely coming off? Or is there any replacement where you're trying to look for another product that might fit those Ohio customers?

It's a really good question. So we have not built into our guidance any revenue from a new product. We are working hard on some options and we're hopeful we'll have something that will work for customers and work for us. And -- but it's too early to sort of talk about exactly what the specifics are on that and we still feel too early to sort of put it into the guidance for '19.

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

Just on the guidance -- just to follow up. Most of my questions have been asked, but, I mean, a really important part of the next year obviously is Canada, and you saw good improvement in Canada this year. And I think you probably -- and I'm guessing you have around $50 million of EBITDA or something like that modeled for Canada for next year. I mean, you've made dramatic changes. It's still relatively early, I mean, 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? Is the amount of EBITDA that I mentioned around what you have modeled?

Yes. So without being specific, we're not going to argue with the number you threw out. But it's -- I think just in general, having run a business up there with CURO since 2011 and in my prior life having run a business up there for close to 20 years as well, or 15 years, I think overall, our customers in Canada tend to be generally a bit higher income and the stability metrics, timing in your job, the timing you've lived at the same residence. Those metrics tend to be a little bit higher, and the customer tends to be much closer to a median income customer than our customer in the U.S., so it just lends -- it lends itself to just a much more stable credit charge-off kind of pattern and credit performance.

And I think that -- I think just -- just kind of less sort of volatility in what we'll see and fluidity than what we see for customers in the States. So I think just as a baseline measure, we sort of feel like we're -- and we're not -- while we're -- Roger talked about it, we're expecting the kind of quarterly charge-off rates on that -- the Canadian product to come down by 150 basis points or something as we get through 2019. So while that's improvement, it's not sort of a -- 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 on the ground. We're confident in our systems both the sort of loan management stuff and all the mobile tools that are going to work really well for customers.

So and while we're expecting improvement, again, just to be -- and remember Canada doesn't have sort of the seasonal patterns that the U.S. has. You have some holiday borrowing, but if we're -- let's say you have round numbers $9 million of U.S. EBITDA in the fourth quarter and we're -- again, I'm not forecasting this, but if I just use your number, the $50 million number, from an exit rate to that number for the full year, it's certainly improvement, but it's not sort of wholesale sea change improvement. We're not really trawling the long haul in Canada from a planning standpoint in '19.

Right, that's helpful. 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?

Yes, this is Bill. When you look at new customers, about 52% of new customers are actually Internet customers in the U.S. I think where we see the shift or the increases of what Roger mentioned around the site and store program, so actually the number of customers originated online continues to increase. Like so many things we talk about, it depends on the state. Some of our products lend themselves to our convenient payer of online payment more than others. So, for example, on Single-Pay products, you still see about 80% of the customers making cash payments in the store and that sort of flips for the multi-pay product. So again, those are rough numbers, but I think it's also state-specific as well.

And I think that's really where we look to make a decision. I mean, we did take a very analytical approach despite the fact that it was very -- it was really difficult to go through. We really did look at transaction by store and made decisions. And in often cases, it was 1 or 2 people. In some cases, we saw stores continue to grow transactions, again, lending itself to the state and product. But I think it's still stable. We still see a migration happening and make the adjustments appropriately. But on the new customer side, it's still pretty consistent, about 52%.

I think if you look at sort of your debit card capture rates, I think we're in the mid-80s, now high-80s in terms of the number of customers that are giving us a debit card and ultimately signing up for an auto pay and that's not dissimilar from what -- that you see, broadly speaking, in terms of bill pay for near prime and prime customers. And I think our customers and particularly if you tie it to the mobile tools, it really gives them a way to sort of see that and control that on a regular basis.

And just last question, the U.K. [debt], if you would, is -- I mean, with that agreement, has that been -- what you've put out there, 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're 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 don't do this, we're out?

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

(Operator Instructions) We will now take our next question from John Rowan from Janney.

I fear I'm going to beat a dead horse here, but on the U.K. So you have to get the regulators to approve the deal and your bondholders 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?

Correct, yes.

Okay. So if any one of those parties says no to this deal, you leave the U.K. market, do you just shuttle out -- switch off and leave? Is there a wind-down period? I mean, I'm just trying to handicap how it would happen throughout the year if and when we get -- if there is an announcement later in the month that 1 or 2 -- both of these parties are not agreeing to the terms outlined?

John, it would happen fairly quickly. And I'm not -- it doesn't make sense for me to sit here and go through sort of -- insolvency laws in the U.K. are very complex and practice is very complex. It just doesn't make sense to go through everything, but other than to say, if we're not able to find a solution to address the redress claims, the -- our exit from the business would be relatively quickly -- relatively quick and not entail very much in the way of additional cost for us, or almost nothing.

Okay. And the permission from the bondholders is just a permission, right? There'd be no other change to the bond economics as -- because of this exit, correct?

Correct, yes, we're (inaudible).

Okay. And then 2 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.

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

Okay. And then also the diluted share count that you reported for the quarter, I think it's 47.8 million. Is that basic because of the GAAP loss in the quarter, or is that the actual diluted count?

The share count?

Correct.

That's diluted for the adjusted EPS.

What was the number for the -- so the, can you repeat that? 48 is correct one for...

Yes, it is, 48 is correct.

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

Yes. So again thanks, everybody, for joining us. I appreciate your time, and we look forward to talking again in April.

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