CURO Group Holdings Corp (CURO) 2019 Q1 法說會逐字稿

Good morning, and welcome to the CURO Holdings First Quarter 2019 Earnings 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. After the market closed yesterday evening, CURO released results for the first quarter 2019. You may obtain a copy of our earnings release from the Investors section of our website at ir.curo.com.

With me on the 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, which include our expectations regarding the financial impact of exiting the U.K. market; macro factors impacting the U.S. economy and the advertising and customer acquisition market; our financial guidance for 2019 and its underlying assumptions; time to get the MetaBank product launch and the potential for arrangements with other banks impacting timing of regulatory activity; the prospects of our Revolve Finance demand deposit product, the financial performance of Zibby; timing of commencement, execution and outcome of our share repurchase plan; timing of the runoff of CSO revenues and commencement of private launch for new online product in Ohio; and level of U.S. tax benefits, resulting from exiting the U.K. market and timing of realization.

Please refer to our press release and the SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the statements made in today's call. 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 investor portion of our website.

With that, I would like to turn the call over to Don.

Great. Thanks, Gar, and thanks, everyone, for joining us today to discuss what's a really solid first quarter and a really good start to 2019.

We exceeded our expectations by executing well in a number of key areas and saw good growth in earning assets, revenue and net earnings. Our new customer accounts are very solid, including in our expanding leads to stores program, and we invested about the same amount in our ad spend in Q1 as we did in Q1 2018.

Our omnichannel model gives us a lower cost per funded loan, which is a fancy way of saying the new customers who come to our store don't cost as much -- don't cost much in a way of ad spend dollars. But we spent just under $60 million in advertising in the U.S. and Canada in 2018 and expect that number to grow modestly in 2019 to help us to continue to grow the top line. Credit results were in line with our expectations, and we exited the quarter in good footing across our bigger and more seasoned portfolios.

Overall, our revenue grew 10.8%, with the U.S. growing 10.5% and Canada growing 12% in U.S. dollars. But I should point out that Canada actually grew 13.9% at constant currency so a really terrific quarter turned in by our Canadian colleagues.

In the U.S., we had a very solid quarter as we managed our way through the uncertain timing of tax refund season quite well. By being a bit delayed at the start, personal tax refunds, particularly those related to earned income and child tax credits, came in about as expected overall. We do think that some of the uncertainties fueled in part by a lot of media attention, much of which was a bit off base, led to some lower volumes later in the quarter, and our earning asset base was a bit smaller than planned as we exited the quarter. Overall, we believe the U.S. economy continues to perform quite well as employment and earnings trends remain strong and, in some cases, at record levels.

For the quarter, revenue in the U.S. was $226.1 million, which is a record for the first quarter in the U.S. as we saw solid performance in our larger core markets, such as Texas and California, and really good growth in newer markets, such as Virginia. Loan loss provision increased as a percentage of revenue in Q -- versus Q1 of 2018 in part due to the change in our loss recognition policy for open-ended loans, which Roger will review in more detail later, as well as ongoing mix shift to longer-term products and channel shift to online originations. We continue to invest in our risk and analytics personnel and technologies, and we've begun to incorporate some advanced machine learning methodologies into our latest underwrite -- series of underwriting models.

As we discussed over the past couple of quarters, an important focus in Canada is the ongoing product conversion in Ontario where we introduced a line of credit product in February 2018 and converted a substantial portion of our customers to this product, which provides a very flexible open-ended contract with generally more available credit and a lower rate structure. We were confident that our customers in Canada would like and appreciate this product, and we think that this quarter's results validate that approach.

As I mentioned above, Canadian revenue grew 12%, and adjusted EBITDA grew 8.9% year-over-year. Further, adjusted EBITDA from Canada was $11.7 million for the quarter versus $8.8 million in 4Q 2018 as we met our goal and seen another sequential increase in earnings from that market, and credit performance for the Open-End product met our target for the quarter.

We continue to release that we are affirming our guidance for the full year. We're a bit ahead of those targets after Q1 and feel good about the full year numbers that we have out there today. We don't believe that any major gating elements in terms of product or process development can prevent us from meeting or potentially exceeding our current guidance. However, we're mindful and we continue the need to execute our operating plan, allocate ad spend dollars correctly. So we're very disciplined on credit and collections and most of all continue to deliver great value and service to our underbanked customers, and we think we'll have a very strong year.

And I'll note a few other key topics before turning it over to Roger. In terms of regulation at the state level, we're spending most of our time in California where there is again a bill in place to -- a bill to place uneconomical rate cap on loans over $2,500. The first hearing of the assembly was held just the week before last. So we don't expect a floor vote in the assembly until later in May. So a long way to go in what's a comparatively long state legislative season.

I should note that a similar bill did not pass out of the assembly last year. And we're actively engaged in California and in other states with a broad coalition of lenders and service providers, and we'll continue to support legislation that helps our underbanked consumers access fair and responsible credit.

We should note that Oklahoma recently passed legislation and added a new installment loan to the state finance code. And we'll begin offering this product when the new regs take effect there next year.

On the federal side, we're working to submit comments on the new post-CFPB rulemaking, and that comment period closes May 15. The current effective date for rulemaking is still uncertain as a court order is still in place staying the current August 2019 implementation date. And the new rulemaking process is likely to result with -- in a new implementation date.

On the new product front, we continue to work with Meta to move to an eventual product launch. We're standing by and waiting for Meta to clear some internal hurdles. But we also continue to have good discussions with other potential bank partners, and we'll remind you that our agreement with Meta does not contain any exclusive dealing provisions.

We are very pleased so far with the launch of our demand deposit, or DDA, account called Revolve Finance, which is sponsored by Republic Bank based in Chicago. This product provides our customers with a full functionality of a bank account, direct deposit of a customer's paycheck, debit card bill payment and even optional overdraft protection in addition to an FDIC-insured accounts for their deposits.

The early uptake rates are above our expectations as our payroll direct deposit rates. Revolve demonstrates our ability to partner with banks' new product design and introduction and also demonstrate the ongoing value of our branch network.

Also in the new business front, we recently participated in a follow-on investment run in Zibby, an online lease-to-own platform, which brought our pro forma ownership of approximately 35%. As a reminder, we account for Zibby as a noncontrolling equity investment under new leadership that we helped recruit in the fourth quarter 2017. Zibby has made great strides stabilizing their operating platform, improving credit results and developing key new online retail partners, such as Lenovo and Affirm. Company is expecting to more than double its lease originations this year to between $90 million and $100 million with total revenue of between $70 million and $80 million.

A quick word about our decision, which we came about reluctantly, to exit the U.K. We had a very long and what we thought was very productive discussions with our U.K. regulators. But in the end, they were unwilling -- or unable to give us the necessary clarity on a process to resolve consumer redress claims. We hated to part ways with our U.K. colleagues as we worked hard together to build a very good business.

But 2 benefits have come of this action: first, an ability to focus all of our corporate resources on our North America operations, the U.K. had become almost a daily commitment for our senior team from about September on; and second, increased free cash flow in 2019 from the likely small recovery from the administration process and more importantly an estimated $47 million increase in cash from the elimination of federal tax -- for cash tax payments in the U.S. for 2019 and part of 2020, resulting from tax deductions for the disposable -- the disposal of the U.K. subsidiary.

Finally, on April 29, 2019, our Board of Directors authorized a share repurchase program, providing for the repurchase of up to $50 million of our common shares. I think it's important to reiterate our ongoing focus on cash, liquidity and our leverage levels and do affirm that we feel confident that we have the -- we'll have more than adequate liquidity and cash flow to fund our growth initiatives. It's worth noting that the bulk of the funding for this buyback program is coming from the expected elimination of federal cash tax payments in the U.S., which I mentioned above, and the benefits of which was obviously not in our previous cash flow guidance.

So in summary, 2019 is off to a very good start for us. And I think this quarter has once again demonstrated the strengths of our company and our operating model. We're a strong and growing company with strong cash-generation capabilities, we have the strongest omnichannel model in the consumer finance industry, we continue to prove our ability to successfully navigate and rapidly adapt to regulatory and competitive changes across the markets, we serve and we continue to invest in our people, processes and technologies to remain at the forefront of innovation and to use this innovation as well as our scale for the benefit of our underbanked consumers.

And with that, I will turn it over to Roger.

Thanks, Don. Good morning, everyone. Thanks for joining us.

Our consolidated revenue for the quarter was $277.9 million, which was up 10.8% compared with last year's first quarter. Adjusted EBITDA came in at $72.9 million. That was down 5.1% versus the same quarter a year ago. Canadian-adjusted EBITDA was up 8.9%. But as expected, U.S.-adjusted EBITDA was down a bit year-over-year because of last year's favorable provision expense from some allowance adjustments concentrating in the CSO product. The current quarter's higher advertising and variable compensation and higher professional fees associated with completing our first year-end as a SOX Section 404 fully compliant company. Adjusted net income was up slightly year-over-year on lower interest expense following last summer's refinancings, and adjusted EPS rose 2.6%.

As you know from our filings during the quarter and as Don mentioned earlier, we are now out of the U.K. completely, and all U.K. financial results have been deconsolidated and treated as discontinued operations. We previously disclosed that we expected to incur an additional noncash charge this first quarter to write off our remaining net investment in the U.K. However, because of the favorable U.S. tax consequences of the disposal, the net write-off actually resulted in a credit of $8.4 million. And you can see that on page 9 of our release in the results of discontinued operations.

Next, I'll comment on advertising, customer counts and cost per funded loan before moving to loan portfolio performance. We added almost 123,000 new customers in the U.S. and Canada this quarter. That's pretty much flat to Q1 of last year. Breaking it down, along with related advertising spend by country, consolidated cost per funded was fairly flat year-over-year at $60. That's up $0.75 versus same quarter a year ago.

Breaking it down by country. U.S. advertising rose 23.2% year-over-year driven entirely by online. Store spend was flat year-over-year. U.S. new customer counts were up 2.9% with Internet customers up 17.5% and stores down 9.3%. 51.9% of our U.S. new customers were acquired online this quarter. Our site-to-store capability added 23,000 new customers for the stores this quarter. That's compared to 18,000 in the same quarter a year ago. Because of Internet mix shift and the effect of -- and pretty much because of Internet mix shift and the effect of our Avío product application-to-funded conversion rates, U.S. cost per funded was $60. That's up $11 versus the same quarter a year ago.

Canadian advertising dollars increased almost 50% year-over-year, and cost per funded in Canada was very similar to the U.S. at $61. Advertising in Canada was elevated in the first quarter of 2018 because Ontario rate changes went into effect on January 1, 2018, and we were spending at higher levels to attract returning customers at reduced rates and gain market share from any related market disruption from that big change in Ontario. All Canadian customer account and cost metrics are affected by the product mix shift there this time last year when we were acquiring a much larger percentage of small dollar, short-term, Single-Pay loans.

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. U.S. company-owned Unsecured Installment loans grew $28.4 million. That's up 23.8% in the U.S. versus the same quarter a year ago. However, Canadian installment balances shrank because of expected mix shift to Open-End, so consolidated Unsecured Installment balances grew 3.7%. CSO loans grew a healthy 8.4% year-over-year. As we've discussed, the law change in Ohio eliminating the CSO model became effective last Saturday, April 27. At quarter end, we had $5.1 million of our $61.9 million of CSO loan balances in Ohio. We expect those balances to pretty much run off by the end of this second quarter, and that was built into our expectations for the balance of the year. We were the first licensed for a direct loan product in Ohio, and we expect to begin piloting the new product online next month.

As expected, Single-Pay loan balances were affected by Canadian regulatory change and transition to multi-pay loan products. Canadian Single-Pay balances declined $15.4 million or 31.5% versus the same quarter a year ago. U.S. Single-Pay loan balances actually grew 9.3% year-over-year.

Now for Open-End. As we previewed on our last -- on our year-end earnings call, we extended to 90 days the past due aging period for Open-End loans. The change is explained in full on Page 7 of our release, and it affects year-over-year comparability for loan balances, net charge-offs and loan loss provision. We added supplemental information in our release to help you understand and recalibrate to the implied new level of NCO rates, provision rates and allowance levels as a result of the change. As a reminder, our 2019 earnings guidance incorporated the expected effects of this change on revenue and net revenue. Excluding the effect of this change, Open-End loan balances grew $156.8 million. That's over 3x -- grew over 3x versus Q1 of 2018.

Moving on to loan loss reserves and credit quality. At the consolidated level and excluding Open-End where the rates aren't comparable because of the aforementioned aging change, CURO's overall net charge-off rate rose 143 basis points year-over-year. As a general or overriding comment to start, as I've said in the past, we have over 70 loan products in 28 states in the U.S. and 3 loan products in Canada. Payments are due on the customers' pay dates, so differences in the calendar can affect NCO comparisons. And of course, in the U.S., tax refunds and credits affect the metrics. Along with the fact that we have a lot of small loan portfolios with varying characteristics, these characteristics can -- and factors can cause our NCO rates to fluctuate more than in the case of very large homogenous portfolios.

In terms of year-over-year credit quality metrics, I'll just take a minute to discuss our Unsecured Installment. For company-owned Unsecured Installment, the quarterly net charge-off rate rose 377 basis points, and past dues also rose modestly year-over-year. This was primarily driven by 2 factors: first, as we've talked about in the past, part of the increase continues to be due simply to mix shift away from Canada where the absolute level of NCO and delinquency rates are lower; second, NCO rates for the U.S. Unsecured Installment book rose 280 basis points because of credit line increases and our immature Avío product portfolio. Because of these upticks, we also increased allowance coverage for company-owned Unsecured Installment by 100 basis points versus where we were at the end of the year.

For CSO, I'll also talk a little bit about CSO loans. The NCO rate for CSO improved by 314 basis points year-over-year, and past dues improved 220 basis points versus Q1 of 2018. This is partly due to seasoning and better performance in the Ohio portfolio, but we also saw modest improvement in credit quality year-over-year in Texas. Accordingly, we lowered allowance coverage a bit for CSO.

Moving on to our capital structure and liquidity. Our total available liquidity position at the end of the quarter was nearly $170 million. This is comprised of unrestricted cash at $83 million, U.S. revolver capacity of $50 million, Canadian revolver capacity of $7.5 million and undrawn borrowing base availability on our Canadian SPV Facility of $28 million. In addition, after considering that undrawn borrowing base availability that we have today in the Canadian facility, we have additional capacity in that facility of $70 million, which takes our liquidity and funding capacity up to $240 million. This month, we also extended the revolving period for our Canadian SPV Facility by 12 months to August 2023.

On a related note, Don mentioned earlier that we feel good about our full year guidance because of healthy cash flow generation. We're borrowing less than planned right now. That's on the Canadian SPV Facility. And that reduction, if we maintain these levels, could add $0.03 or $0.04 to EPS for the year. And if we execute a good portion of the buyback program, that could likely add a like amount of EPS accretion, so we do have some potential tailwinds there.

Finally, Don mentioned earlier that the U.K. disposal generated favorable cash tax consequences for the U.S., which should add to our previous estimates of 2019 cash flow generation. It's important to point out that these tax benefits are estimates at this point, but we estimate the full benefit on U.S. cash taxes to be up to $47 million, which would extend the benefit into 2020 at this point.

This includes our prepared -- this concludes our prepared remarks, and we'll now ask the operator to begin Q&A.

(Operator Instructions) And we will now take our first question from John Rowan from Janney.

Roger, just to be clear, the buyback is not in guidance, correct?

No.

Okay. And then when you say a reduction -- no cash taxes in 2019, [remember] that cash tax is not GAAP tax, but I assume you're still going to be accruing a tax expense.

Oh, yes. Absolutely. The no change on the effective tax rate, it's just -- this is all just cash.

Okay. Have you done the BC rollout yet of the Open-End products?

No, John. We have not yet.

Okay. And then there's a lot of growth in Unsecured in California. Can you tell me if that's changed the concentration of that -- I assume that's all a plus $2,400 in Installment product. Has that changed the kind of 10% EBITDA concentration of that product in your consolidated results?

No. That was -- we -- that would be incorporated in that range that we talked about.

Okay. And then last, Don, how do you feel about getting the MetaBank product off the ground by the end of the year?

It's -- we said -- I guess I'll kind of leave it at what we said. I mean we continue to -- we're -- we've worked hard with them from the system standpoint, from an underwriting standpoint, from a process standpoint. And as I've said, they've got some internal hurdles to clear, so we continue to have a lot of good dialogue with them. And we'll remain hopeful we'll get it going here soon.

We will now take our next question from Kyle Joseph from Jefferies.

Actually, guys, it's John here. First question is related to the accounting change in the open-ended line of credit. Is -- I guess is there more kind of residual effects we should observe in the coming quarters? Number one.

And number two is -- I think you kind of got to a 19.5% ALL, is that the kind of run rate ALL we should think in that product?

Exactly, John. Yes. I mean there won't be any more -- it will affect -- this is -- it will affect year-over-year comparability similarly every quarter of this year. But you're right on kind of the recalibration that, well, allowance coverage in that 19.5%, 20% range, plus or minus, and charge-offs -- net charge-off rates in the teens.

Okay. And then how should we think about your run rate expenses? I know you guys tightened up some expenses. How do we think about run rate expenses coming out of the first quarter here?

Yes. I think we incurred some extra -- as we've mentioned, we incurred some extra cost in Q1, both from a variable comp perspective that affected year-over-year and also from some extra fees around -- professional fees. But I think if you take all the noise out of our quarter, corporate OpEx was in the mid-30s, probably 37-ish range, if you take all the noise out of it. And that's up by -- maybe that's up by about 8% year-over-year. That -- sequentially, there's nothing that's going to cause that to jump around very much. So similar between $30 million and $40 million -- $35 million and $40 million for corporate cost on a run rate basis. And then on the -- and then for the nonadvertising cost of providing services, Q1 was pretty good. There's nothing that's going to cause that to jump around quarter-to-quarter on a sequential basis.

Okay. And then final question is you guys announced the Revolve Finance product sponsored by Republic Bank. I'm wondering can you talk about revenue opportunities there and how you see -- I guess just generally speaking, the growth opportunity tied to that product?

Sure, John. This is Bill. I think we're most focused right now on just on the rollout of it and getting it to our branch customers. We do think -- obviously, there's an overdraft protection component with it that offers a nice opportunity for our consumers, additional revenue streams. But I think the current plan is to get it rolled out in our branch network and then consider a broader rollout beyond the Speedy Cash branch network in the U.S. We think there are opportunities there. So it's probably a little early to give guidance on what the revenue opportunities are, but we would say that none of it is in our plan. So everything that we do with Revolve will be additive to what we do in 2019.

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

Great. I guess you guys had mentioned that you're in kind of discussions with some other potential partners. Are they for similar type products? Are there different products? Like are there -- could you just talk a little about that? Obviously, you did announce the debit card product, which is an extension. Are there other things like that? Or just give us some thoughts on that.

Yes. Hey, Moshe. It's Don. I think it's -- I think for the most part, they would be for a credit product. I think in terms of the -- we have our -- when we -- we have our Opt+ kind of reloadable card product that we're the program manager, and we've been -- that's a product we've had out for how long?

8 years now.

8 years now. And we've added a DDA product that would give you some additional functionality and features and, as Bill mentioned, including overdraft protection over and above what you can get on a reloadable debit product. So I think in terms of those kinds of, what I'll call, the account-based kind of transaction products, I think we're probably good for now with bank partnerships. I think that the additional partnerships we're looking at would be for additional credit products. So whether it's a line of credit product or -- it's probably focused in the line of credit product, in the Unsecured Installment products are the conversations we're having right now.

Got it. And I may have missed this, if you said it at the beginning of the call, I had some other things going on this morning. But the pace of buyback, like how are you thinking about it? Does it -- cause you talked about better cash generation, so how should we think about what you're likely to do?

Yes. I think one should -- I think we're just -- it's -- we've got some mechanics to do to kind of get the plan in place. So to be safe, the impact from it will likely be in the back half of the year. And I think the -- we're looking at kind of a -- probably it'll be more of a dollar-based plan as opposed to a specific number of shares. And I think we're in a -- again, it's important we've -- this is -- as I mentioned, in my remarks, it's largely funded by the reduction in cash taxes in the U.S. So it will pace to that, the tax benefits that we see. And so I think you'll like -- it probably is a -- it's fair to look at it as maybe kind of an 18-month kind of program as we run through '19 and into '20, starting kind of late 2Q this year. Whether it averages exactly over that period of time, it's hard to say.

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

Don, just over the -- what is the right top line growth rate for this business over the medium to long term? And which -- what do you -- what are you guys confident with as far as EBITDA margins are concerned?

So on the top line side, I think our -- it's a -- it should be -- it will take a low double-digit number. And I think that's -- we've -- you take the U.K. out where -- which was growing faster, it wasn't a lot of business, but that probably took a point or so out of the overall top line growth rate. So -- but as we talked about, we're going to continue to spend money on the ad spend side. We don't think -- we think ad spend is a percentage of revenue. Or I would look at it as a percentage of revenue or in a cost per funded loan, we don't see a lot of sort of variability in that. I mean obviously the first quarter is always seasonally slower because we don't spend as much ad money in the U.S. because of the tax refund season but it ought to range in that kind of 6%, 6.5% range. So if we continue -- we think that we spend ad dollars in that range. So at $60 million to $65 million of total ad spend this year, we should be able to generate low double-digit growth across the U.S. and Canada.

And I think an adjusted EBITDA margin that's in that kind of 25% range is a fair number. And as Roger talked about, this first quarter was -- there's a little bit of noise in the operating expense number. So some of that is just we generate -- it's seasonally the biggest earnings quarter for us. So we allocate more just bonus dollars and sort of accruals on the comp side in the first quarter just to account for the fact that we earn more money in the first quarter. So it does put a little bit of noise into the OpEx numbers. But I think that by and large, we're seeing a little bit of wage pressure here and there. There's some minimum wage laws we're -- that are in some of the markets that we operate in. But by and large, I think from a cost structure standpoint, things should -- and we should be able to get a little bit of operating leverage in -- all the way down through the P&L. And obviously, as we talked about, we think below that line, interest expenses come down as we refinance. And we've -- we paid off -- we had some corporate revolver borrowings we paid off in the first quarter. We paid down our Canadian SPVs. So we think that versus our guidance, we've got some ability to outperform from an interest expense -- on the interest expense line as well.

Is there any interest in tuck-in acquisitions at this point or probably not given you're more focused on the buyback at this valuation?

I would say, generally, that's true. But -- in a static environment, that's probably true. But I think as we say a lot, never say never. But we're not -- there's nothing -- we've got some things we're looking at here and there. But I think there's nothing that I would consider that's on the front burner from an M&A standpoint right now.

(Operator Instructions) We will now take our next question from Trent Porter from Guggenheim Securities.

I have some technical issues. I was hoping you could repeat the commentary you made with regard to Ohio and how you've adapted to the new rule and how material any impact would be in terms of your volume and profitability there. And then relatedly, can you update us on the progress of California's AB -- I think it's AB 539 and what your playbook would be there if that were to pass?

Yes. So first of all...

Sorry. This is Don. Let me -- I'll take the end of -- the last part of the question first and let these guys comment on Ohio. What we've talked about in our -- my part of the comments, the bill was -- is passed one committee in the assembly. It hasn't gone to a floor vote in the assembly, and things have to cross over by May in there, so the house of origin by May 31. So it has to get out of the house by May 31 before it goes over to the Senate.

It's a long -- California is a comparatively long session, for instance Texas, if you're able to be in Texas, this kind of runs January to Memorial Day. A lot of states like Virginia, places like that, have operated very relatively short sessions. So California is a long session. And we're working hard on it. And there's a broad coalition of lenders that are working on it out there. And we haven't given any guidance about potential impacts. And I think it's probably too early in the process. And there's a lot of other -- there's some -- we're -- there's some other bills that have consumer protection measures that we're in favor of out there. And again, part of the -- being sponsored by the coalition we're part of. So I think it's a bit early to sort of talk about exact impacts because it's a -- now there's just too wide a range of outcomes right now.

Okay.

I'm sorry, about Ohio.

Yes. So I think -- this is Bill. On Ohio, as Roger said, we transitioned from a CSO model to a direct license model. And as he said, we were the first licensed lender in Ohio. We actually accelerated our plan and kicked that off last weekend. So it was really a seamless transition for our customers from the fact of transitioning to a CSO-offered product to a direct lender product. We've -- like I said, we've transitioned to that. We will run off the CSO model, and that's what's in the financial model for the year. So anything that we do in Ohio above and beyond is additive to the plan. We've implemented a new model. We also picked up a direct relationship from another lender who was not able to obtain a license. And we think that will be additive as well. So we -- although the yield is about half of what we used to offer, we believe that the competitive environment will be reduced, certainly the demand will remain, and I think as we've proven over the years. But in the end, we'll end up as a winner in that deal.

Okay. I think the local papers talk about, I guess, a number of players have already exited. So you stand to benefit from that volume, I would think.

Correct. I mean if you look at the -- there's -- just based on the local media, there are currently, I think, just 10 licensed lenders in Ohio. There are another 10 applications pending. But there were, I believe, something like 7 -- nearly 700 brick-and-mortar locations. So yes, I think what you said is correct. We would assume that the competition will be far less, the demand will remain the same. And I think that the -- those who can remain and operate under the new model will tend to benefit.

Which we see -- we see that dynamic in a lot of markets where there's regulatory change, in larger companies of scale and capital and ability to adapt from a share standpoint and the benefit. And I think that's been the hallmark of a lot of the improvements we've made in the business here over a really long period of time.

Okay. And is there a possibility in states like this or California or wherever to use your MetaBank partnership with the view that the federal -- they're subject to the federal law rather than the state? First question. And then the second is, in a case like this where, say, Ohio's capped the rate at a lower level, do -- is there any maybe offset in terms of also a lower default rate because you're tightening underwriting standards or what have you?

This -- I think from a -- I think the question, I mean there are people with -- not us, but there are lenders with bank partnerships models in California now. And that is one of the benefits of a bank partner, you can get 50-state solutions. And one of the complexities of our operating model, so we operate under -- we probably manage 70 to 75, or similar to our view of the last count is, products across different states and provinces in Canada. So there's a lot of complexity in complying with state laws and designing products and contracts, et cetera, that -- to again comply with all the state law. Bank partnership gives you a single product you can operate with across -- potentially across all 50 states, and there are people are doing that in California now.

From a default standpoint, I think really I wouldn't expect it -- the products -- if your -- you work with a bank partner to design products and look at underwriting and default sort of guidelines and models, so you may have an operating model that from a yields perspective and a cost-sharing perspective and a funding cost that may guide you to a bit more restrictive credit and lower default rates just because the operating model, kind of the economic model for that product requires slightly lower default rate. But I don't think, just sort of by definition, having a bank partner is going to give you a lower default rate right out. Just absent any other changes, it won't necessarily give you a lower default rate.

Got it. I'm sorry, my second question was sort of separate or distinct in that. So now you're in Ohio without a bank partner, the rate is now capped at 28%. So do you -- are you going to -- because of that, you've got a lower yield. Do you tighten your underwriting standards? And so you can offset that lower yield with a lower charge-off rate. I'm sorry.

Yes. It's a good question. Although I would say that the initial rate is 28%, but there are additional fees that are allowed under the statute that get the yield considerably higher than that. But as I've said, it's still about half of the yield that we charge under the CSO model. So yes, of course, we did have to implement a new model that has tighter approval variables in it. And as Don said, it's just -- approval kind of moves with the yield. So half of the yield, and you got more restrictive -- it's more restrictive credit.

And it's a lower principal amount.

Exactly.

Well, it's a lower yielding product but it is a smaller, shorter-term loan that are under the CSO. So that kind of helps with the default characteristics as well.

Right. And as you think about profitability, as Roger said, we had a, say, over $5 million open, active and in good standing book of business there. So just to be able to service that even at half of the yield is still going to be, we think, additive to the business and something that we're really interested in doing.

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

Okay. Great. Thanks everybody for joining us today. We will talk to you again at the end of our second quarter. Thanks.

And this does conclude today's call. Thank you for your participation. You may now disconnect.