Enova International Inc (ENVA) 2014 Q4 法說會逐字稿

Good day and welcome to the Enova International fourth-quarter 2014 conference call and webcast. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference call over to Ms. Monica Gould. Ms. Gould, the floor is yours, ma'am.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us.

Enova released results for the fourth quarter of fiscal 2014 ended December 31, 2014, today after the market close. If you would like a copy of the release you can access it on the IR section of our website at ir.Enova.com.

With me on today's call are David Fisher, Chief Executive Officer, and Robert Clifton, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our website.

Before David begins, I would like to remind you that the information we are about to discuss today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. Factors that could cause these results to differ materially are set forth in today's press release and on Form S-1 filed with the SEC on December 4, 2014. Any forward-looking statements should be considered in light of these factors.

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.

Additionally this presentation contains GAAP measures and certain non-GAAP or adjusted financial measures as defined by the SEC. Per SEC requirements, you will find additional disclosures regarding non-GAAP measures including reconciliations of these measures with US GAAP in our press release issued today.

As noted in our press release, we have posted supplemental financial information on the IR portion of our website at ir.Enova.com.

And with that, I'd like to turn the call over to David.

Thanks. Good afternoon, everyone, and thanks for joining us for Enova's first earnings conference call as a public company. Since some of you may be new to the Enova story, let me start off with an overview of our business and our growth strategy and then I will review our recent achievements and performance.

Enova is an established technology company with a leading-edge technology and online lending platform that addresses a segment of the credit market that is not being served by traditional lenders. The strength of this online lending platform helps us achieve our mission to close the world's credit gap by helping hard-working people fulfill their financial responsibilities with fast, trustworthy credit.

Our typical customer is an employed working-class homeowner with kids and some college education who likely had an unfortunate event over the past few years that impacted his or her credit rating and ability to borrow from traditional lending sources. For example, they could have lost their job during the financial crisis resulting in missed mortgage payments or had a medical issue that caused the family to fall behind. And now that customer has a short-term borrowing need. Perhaps a car needs repairs or the kids have a bunch of expenses as they prepare to go back to school in the fall.

By successfully addressing these needs of these consumers, we have processed more than 31 million transactions and funded over $15 billion of loans over the last 10 years. We've been able to achieve this success by leveraging our highly scalable and flexible technology. A component of this technology is our advanced analytics which we have continuously enhanced and improved over our 10-year history. Today the decision logic in our analytics platform employs over 100 proprietary algorithms and runs more than 30,000 rules and models per hour. These models use over 1,000 history data points ranging from the most obvious to the very unexpected.

We also have the advantage of having amassed over 9 TB of proprietary consumer behavioral data during the past 10 years. The combination of this data with our sophisticated algorithms produces high quality underwriting tethered on making affordable loans that our customers can repay.

Another aspect of our underwriting capabilities I would like to highlight is the importance of our significant lending history through various market and credit cycles. This includes of course the financial crisis that began in 2007. I think it's also important to point out that we utilize our advanced analytics capabilities in every step of the loan lifecycle not just the credit decision. This includes product design and pricing, marketing, fraud prevention, servicing and collection.

Our highly scalable and flexible technology has enabled us to expand our product offering well beyond the short-term loans in the US where we got our start. At the end of 2014, we operated established products in 35 states, the UK, Canada and Australia. We have also piloted programs in China and Brazil. And regulatory compliance has always been a focus of ours wherever we lend. We are licensed in each jurisdiction that requires licensing and abide by industry best practices.

We view our competition as primarily traditional brick and mortar lenders who still make up a majority of the industry in most of the markets in which we operate. Given the busy lives of our typical customers, there are clear advantages to our online model which allows them to apply for a line anytime anywhere in as little as 10 minutes. Compare this to the inconvenience of having to drive to a brick and mortar lender typically with the kids in tow with the potential to having to do it all over again if they forgot a document at home or are not approved.

In addition to the convenience, our customers really appreciate the privacy and security of applying for a loan online.

With that, I will now provide a brief overview of our key accomplishments in 2014 and our strategy for 2015 and beyond. Later in the call Rob Clifton, our CFO, will discuss our fourth-quarter financial results in detail.

In 2014, we achieved record profitability driven by strong double-digit growth in our US business. We also launched four new businesses in four different countries all while managing through significant regulatory changes in the UK. Accomplishing all of this in a single year was possible because of our ability to leverage our flexible technology and analytics platform. This allowed us to rapidly adjust to changes in market conditions and regulatory requirements and grow our business by expanding our product offering into new segments and markets in an efficient, low-cost manner.

We closed the year with a successful spinoff from Cash America into a separate publicly traded company with a strong balance sheet and cash position.

For 2015, we expect continued growth in our US business driven by the rollout of additional installment products and the further expansion of NetCredit, our near prime product in the US.

In the UK, we are focused on optimizing our product offering now that the regulatory changes there are finalized. The competitive environment there has weakened significantly from a year ago and we hope to be able to show growth in the UK in the second half of the year.

During 2015, we will also analyze the results from the pilot of our four new initiatives and determine which efforts we will ramp and which we will discontinue. The four initiatives we launched last year included a near prime installment loan product in the UK called On Stride. We are encouraged by the results we have seen from this product so far. Credit performance has been very good and we've seen acquisition costs come down to a level where the unit economics on the loans are now profitable. We want to spend a little more time capturing data on this product given the longer terms of the loans. But if these results continue, we could be in a position to start meaningfully expanding this product by the end of 2015.

The second product we launched in 2014 was a short-term installment loan in Brazil. We have seen extremely strong demand for this product so far. We are now focused on building a new credit model based on the data we capture today and further tailing our operations to conform to the Brazilian market. Assuming these efforts are successful, we'd expect to begin ramping up this product in 2015 also.

The third product we launched was a medium-term installment loan in China. Given the many cultural, regulatory and operating differences in China relative to the US, we have purposefully chosen to go very slowly with this initiative. As a result, I think it will likely take us much of 2015 to collect enough data through our pilot to make any real determination about the future viability of the product.

That being said, we are optimistic about what we have seen so far and remain excited about the size and potential opportunity in China.

Our final product launch in 2014 was a small business offering in the US marketed under the Headway Capital brand. This product is a line of credit targeting businesses with $50,000 to $1.5 million in annual revenue. We found that our vast experience in underwriting and data analytics is highly relevant in analyzing the credit performance of small businesses as a small business owner shares many characteristics with our retail customers. The results have been better than expected credit performance and we are now focused on further automating underwriting and building new acquisition channels.

As we look forward, we intend to launch additional new initiatives from our pipeline throughout the year, the first of which is a thin file line of credit products in the US. We believe that as a whole these efforts will enhance our topline growth, drive further product and geographical diversification and reduce our regulatory risk.

Before wrapping up today, I would like to provide a brief regulatory update on the US and the UK. In the UK, as many of you know, the Financial Conduct Authority, known as the FCA, took over in April from the OFT, a former regulator. With the new regulator came a new set of rules for the industry.

In addition, the FCA finalized rules around a rate cap in the fourth quarter and those rules became effective January 2. We believe we have implemented all necessary changes to our products and underwriting models and are compliant with these rule changes.

Moreover, we are in the process of finalizing our application for full authorization to continue to provide consumer credit products in the UK as we like all other lenders in our space have been operating under interim permission since the FCA took over.

While adapting to the new rules in the UK required significant changes to our products and had the effect of shrinking the overall addressable market, we appreciate the transparency and focus on better practices brought on by the new regulation and believe this could even be beneficial to us in the long run.

Historically we have had competitors in the UK who had products and business practices we weren't comfortable with. This put us at a competitive disadvantage. These former practices also shed a negative light on the entire industry.

Under the new, more prescriptive regulation, other lenders will now have to rein in their approach allowing us to compete on a more level playing field. In addition, we have already seen reduced competition as many lenders have been unable to comply with the new regulations and were forced out of business.

In the US, the CFPB is expected to publish initial guidelines for our industry later this year. A lot of speculation exists as to the changes that may be forthcoming. We believe that Enova is well-positioned for continued success based on our strong business practices, high quality underwriting and leading regulatory compliance. In addition, we have been through numerous audits both at the state and CFPB level over the years and we feel confident in our ability to successfully navigate through additional regulatory changes as demonstrated by our recent accomplishments in the UK.

To wrap up, we are very pleased with our results and accomplishments this quarter and in 2014 as a whole. Our ability to substantially increase our profitability while one of our largest markets contracted and competitors exited is a testament to the strength of our business model and product diversification efforts.

We are also excited about the large opportunity ahead. We plan to continue to invest in our technology and analytics and introduce new products which will further diversify our revenue base and drive sustainable long-term growth and profitability.

Most importantly, we have an extremely talented team at Enova that is prepared for future growth and any challenges we may face along the way. Many companies talk about their top talent. At Enova attracting and retaining that talent is one of our core values and the primary reason behind our past and continued success.

A little later I will be happy to answer any questions that you may have but now I will turn the call over to Rob Clifton, our CFO, to go over the financials in more detail. Rob?

Thank you, David, and good afternoon, everyone. I will first walk you through our financial and operating performance for Q4 and then review our outlook for the first quarter and full year of 2015 before turning the call back over to David for his closing remarks.

As David already mentioned, Q4 was another strong quarter for Enova. We achieved record fourth-quarter profitability at a time when revenue contracted due to regulatory changes in one of our largest markets. Total revenue of $194.7 million in the fourth quarter declined from $208.8 million in the same quarter last year.

As we anticipated, international revenue declined due to the impact of the UK regulatory changes primarily those involving new affordability lending rules. Now that the regulatory changes have been finalized and we have adjusted our products and underwriting models accordingly, we anticipate this revenue to stabilize over the coming quarters.

Our US business which accounts for two-thirds of our total revenue generated very strong results in the quarter. Revenue rose 17% year-over-year to $130.7 million driven by growth in our installment and line of credit products. We have seen significant customer preference for these products particularly NetCredit, our near prime installment product. We expect our US business to remain strong through 2015 as we introduce additional installment products and continue to grow NetCredit.

Our continued product innovations have contributed positively to our topline growth and have led to a further diversification of our revenue base. During the fourth quarter, our line of credit offering remained our largest product category at 39% of total revenue. Our installment loan product grew to become our second-largest contributor at 32% of total revenue. Meanwhile, short-term loan revenue declined and now accounts for 29% of total revenue.

With the implementation of the rate cap rules in the UK, we expect our international revenue mix in 2015 to be more heavily weighted toward short-term and installment loan products.

Consumer loan balances outstanding continues to be a key driver of our financial performance. We ended the year with a gross consumer loan balance of $424.8 million. Even with the contraction in gross loan balances in the UK, this represents only a $2.4 million decrease from the prior year ending balance due to good growth in our NetCredit installment loan portfolio.

We saw continued strength in our gross profit margins in the fourth quarter. Gross profit margin increased to 68.9% from 58.6% for the fourth quarter of 2013. Our US gross profit margin rose 200 basis points to 62.6% while our international gross profit margin increased significantly to 81.7%, up from 56.3% for the fourth quarter of last year. Consistent with the third quarter of 2014, the increase in international gross profit margin was driven by stricter underwriting in the UK and was the result of the regulatory changes.

In addition to the impact of the UK regulatory changes, we have seen significant improvements in gross profit margins for all major products in 2014. We believe a number of factors contributed to these results including continued enhancements to our underwriting models, a higher mix of returning customers versus new customers, the performance improvement derived from a seasoning of installment loan and line of credit portfolios, and general macroeconomic trends.

Also contributing to the strong quarter on a year-over-year basis was a 2% decrease in total operating expenses. Marketing expenses declined 1% due to lower spend levels in the UK while general and administrative expenses increased 12% for the quarter driven by growth in analytics and technology personnel added during 2014. Adjusted EBITDA increased 26% from a year ago to $54 million in the fourth quarter while adjusted EBITDA margin rose more than 700 basis points to 27.9%.

And net income increased 14% to $22.5 million in the fourth quarter or $0.68 per diluted share. Non-GAAP adjusted earnings remained steady at $0.68 per diluted share for the fourth quarter in both years.

Our balance sheet continues to be very strong. We ended the quarter with $75 million in cash and long-term debt of $494 million. We also have over $68 million of borrowing capacity on our credit facility.

Moreover, the business continues to generate substantial cash flow which we reinvest to grow our loan portfolio. Free cash flow defined as cash flows provided by operations less cash flows invested in consumer loans and capital expenditures was $117.5 million for 2014 compared to $34.6 million for 2013. The increase in free cash flow was driven primarily by the contraction of loan balances in the UK.

With that, I would like to turn to our outlook for the first quarter of 2015 and the full year. As noted in our earnings release for the first quarter of 2015, we expect total revenue to be between $165 million and $185 million and adjusted EBITDA to be between $45 million and $60 million. For the full year, we -- for the full year, we expect total revenue to be between $750 million and $830 million and adjusted EBITDA to be between $180 million and $240 million.

This outlook reflects the significant investments we continue to make in new initiatives and includes the full impact of the regulatory changes we have seen to date in the UK.

Consistent with guidance David provided during Cash America's earnings conference call in October, this guidance is based on several key factors including, one, how the UK competitive landscape evolves and the ultimate size of the addressable market there; two, the rate of growth and continued loan performance improvement for our longer-term installment loans offered to near prime customers in the US; and three, how our new initiative launched in 2014 and those planned for 2015 develop.

This guidance is also based on several key assumptions including that any rules issued by the CFPB this year are not effective until 2016 and that the state legislative and regulatory environments in the US remain stable.

Looking beyond 2015, we expect to see topline growth accelerate as the new initiatives we launched in 2014 begin to gain traction.

And with that, I will turn the call back over to David for his remarks. Thank you.

Thanks, Rob. Thanks, everyone, for joining us today. We look forward to updating you on our progress next quarter and we will now open the line for questions.

(Operator Instructions). Henry Coffey, Sterne, Agee.

Good afternoon, everyone, and congratulations. That's a great way to get the first public quarter going. Could you give us some insight into what things look like between -- and particularly in the UK -- but between September and December to sort of get an effect of where you stand given the changes in that market?

Yes, I would say between September and December is really a period of stabilizing, making sure that the changes we made in our products were working and working effectively. We did not spend a tremendous amount of time really trying to build volume in the UK during that time period and we are still not today. We are getting comfortable with the new rules and that our products are working effectively with the new rules.

As we get deeper into the year, we will begin optimizing those products but from an operational standpoint as well as from an underwriting standpoint and as we mentioned, we see any growth in loan volume in the UK likely not happening until the back half of the year.

Unfortunately I'm in a train station with a late train. When you look at the opportunity set, do you have any way of quantifying how many people have entered or left the business in the UK and how long it's really going to take before they start handing out licenses?

There was about -- there was over 100 lenders in the UK a year ago and I don't have an exact account as of today but dozens have gone out of business and that's even before the authorization process which is really kicking off like right around now.

It is clear that that authorization process is substantial and difficult and it's going to be highly scrutinized by the FCA and we think many of the existing lenders will not survive that process.

Keep in mind the FCA when they came out with their new rules anticipated that only three to four lenders, that's a combination of online and brick and mortar, would survive. We think that was overly negative. We think there will probably be a dozen or so but we've seen a couple dozen already go out of business but there's certainly more to come.

And then in terms of corporate spending, can you give us a sense of how much money you have spent in the UK, how much more is likely to be spent and what your public company costs looked like this quarter?

Yes, in terms of the UK spend, look, we obviously have hired all the right advisors to walk us through this process and make sure that we are complying with the new rules. So those dollars are in our numbers.

They are huge -- I mean, they are not huge. Most of them are not recurring but they weren't even significant enough for us to break them out here. So while we spent real money here, in the scope of our overall business, highly manageable and largely not recurring.

The big recurring expense in the UK is the establishment of our office there. We do have an office. We'll probably have somewhere around a dozen people there by the end of the year but most of those people are replacing roles that we would've had here or have here in Chicago and they are not incremental so the expense isn't incremental.

So again in total when we look at 2015, the incremental expense for the UK we do not anticipate to be a particularly meaningful number. So it's not something that we felt the need to break out or highlight.

Great, thank you very much.

David Scharf, JMP Securities.

Good afternoon. Thanks for taking my question. Dave, a couple things. First, just wondering if you can comment a little more on what you are seeing competitively here in the US? And in particular as you build out the near prime product, NetCredit, what you are seeing from some of the other prime marketplace lenders, some of the early adopters in the online space and whether you see them moving down the credit spectrum potentially?

So in the US on the shorter-term, higher interest rate products, we haven't seen much new on the competitive landscape. No big new entrants, the business is probably still 60% brick and mortar which is a huge market share opportunity for us. We talked about the conveniences of the online model versus the brick and mortar model and that's probably our biggest focus in the US.

In the near prime space, there obviously are some new players in the industry. But the traditional lenders and even the peer-to-peer guys who have not made any entrances into that near prime space at all, the banks actually seem to be getting further and further away from focusing on truly prime and high prime borrowers. We really think that's created a large opportunity for us to move up market into the near prime space without competing with the banks and the larger traditional lenders in any way. That's a market opportunity that we think is very substantial and could generate some meaningful growth for that NetCredit product.

Got it, got it. As we think about the channels and how they are developing, I know it's been a couple year process to bring more of the lead generation internal, direct marketing and less use of outside lead generation. Can you just talk about where you are in that evolution and ultimately when you get to the point where the vast majority of your customer acquisition is done internally, how we ought to be thinking about marketing spend?

Yes, great question. If you looked at the business five years ago, it was almost all lead gen driven and even if you look a couple years ago, two or three years ago, we were still probably two-thirds lead gen business but that's now flipped to where it's two-thirds internally driven and only one-third lead gen.

I would say for now that number has stabilized somewhat. I think it will come down a little bit this year, not dramatically unless there is significant regulatory pressure on the lead generators which actually is -- could be likely. But that's the big unknown. I think at some point both state regulators as well as the CFPB are likely to focus much more significantly on that channel which could significantly impact that lead gen business which for us is actually a very good thing.

The lead gen providers, they are largely our competition. We do work with them obviously because they do provide business to us but when we look out and we are bidding on TV or bidding on key words online or SEO, they are our competition out there and to the extent they have to comply with the same kind of rules that we need to comply with and level that playing field, it really provides a nice opportunity to further ramp up our internal marketing and direct marketing channel.

So we feel like we've really built out those capabilities now to the extent we are able to generate two-thirds of our business internally and to the extent there is any disruption to those lead channels, we think we are very well positioned.

Got it, got it. Last question, you referenced among the contributing factors to improving credit and gross margins is an increasing mix of more returning customers. I'm curious, in the US, are you seeing the bulk of returning customers basically accessing the same product or are you seeing a mix shift among returning borrowers where they might be borrowing larger amounts at longer durations?

We see a little bit of everything depending on the credit profile of the borrowers. We certainly think customers whose credit has improved move from our short-term products to our NetCredit product. In states where we have been able to roll out an installment and line of credit products, we've seen high preference for those products from existing customers. It's a little bit dependent on the profile. That's why we like to offer as many products as possible in as many states as possible to meet those needs of those customers because they do all differ.

Got it. Thanks so much and congratulations.

Dan Furtado, Philadelphia Financial.

Most of my questions have been answered; I just have two brief ones. One, do you have an expectation of a loss provision in the US versus the UK this year?

I would say generally in the UK once the growth in loan originations kicks in, we certainly expect the margin -- gross profit margin to moderate. So I wouldn't expect that the Q3 and Q4 2014 margins to be repeated for fiscal year 2015.

From a US standpoint, as we continue to roll out additional installment products, I would generally expect some moderation from what we've had in 2014 but generally I would still expect strong GP performance in the US.

Could you -- since you've given guidance for the next fiscal year, can you say the range of loss provisions in those guidances for both the US and UK?

No. I don't think we are going to give guidance that specific.

Okay. And my second question is when you look at your stock versus OnDeck, how would you compare yourselves -- because you both seem to be online lenders targeting an underserved population?

I think our businesses are very similar. We both are balance sheet lenders. We both have online lending models and use advanced analytics to address those customers.

If you look at for example some of their lending metrics and compare it to like NetCredit, our near prime product, they look extremely similar. Again, they focus a little bit more -- they focus more on the small business space, we focus more on the consumer space although we do have Headway, our new small business product. But other than the slight difference in customers, the businesses are actually very, very similar.

Could you just talk briefly about your small business product that directly competes with them?

Yes, it's a line of credit; it's a line of credit product up to six months. We are attracting customers all through direct marketing in that business. We are not using any brokers or advisors to go after that business and that combination of the direct marketing and offering a line of credit versus the installment loans which are more typical in that space or the merchant cash advance products which are more typical in that space, we think is a nice entry for us.

And in your 2015 numbers, how big does that business get?

We are not breaking out our new initiatives at this time but that business is so brand-new to us and it's not going to be too significant in 2015.

Got it. Thank you.

Bob Napoli, William Blair.

Thanks. Good afternoon and, David, welcome back to the public markets.

Thanks, Bob. Good to hear your voice again.

I was going to ask about the small business that Jordan was just hitting on there. But have you hired a team in small business or what is the strategy around building that business?

With all of our new initiatives, we have a -- we set up a dedicated team, we give them dedicated space. We treat it almost like a startup but they get to leverage all of our experience in our technology platform.

We talked about the similarities and differences to OnDeck. One of the differences is we've been doing this for 10 years and have a very large team and lots of resources that our new initiatives can leverage.

So we really try to strike that nice balance where they get to leverage all that experience and expertise of Enova as a whole but kind of separate them and segregate them as a little startup enterprise to really give them the freedom to go out and build those businesses quickly. That's what we've seen with Headway and all of our other new initiatives as well.

Okay. And then do you have any thoughts around selling portions of your loans, retaining servicing, the investor marketplace model on the agenda at all?

Sure, it's a great question. So historically the high velocity of our shorter-term loans just made that not necessary. They cash flow fast enough that we could redeploy that money and they yielded strong enough that there really wasn't any advantage to moving them off balance sheet.

As we move into some of the lower yielding products, whether it's the small business initiative, China or NetCredit or other near prime products, that is something we will look at going forward. We don't have the need to do it yet. We still have plenty of lending capacity on our balance sheet. Again if those businesses continue to grow whether it is whole loan sales or the securitization market, I think there's some nice opportunities where the attractive yields on those products could make them very viable products in those markets.

And just last question, what is your target leverage ratio? How do you think about the size of the balance sheet?

So right now we have a net leverage of 1.7 and I think we've got plenty of opportunity to increase that leverage. I think over time I see our debt to equity leverage potentially approaching 100%.

Great. Okay, thank you very much.

Trent Porter, Guggenheim Securities.

You took care of most of mine. Just a couple quick questions. One of the comments on your anticipation revenue stabilizing in the coming quarters, that's happening quicker than I anticipated. So I was just hoping you could build around your assumptions there a little bit. In your installments, for example, in the second quarter when you reported I think your originations were declining at about 14% because of the affordability rules offset by the improvement in the provision. But I was hoping you could just characterize that a little bit.

So the affordability rules went into effect in July and they went into effect all at once. So one day you are -- so on that date all your loans had to be under the new rule and so given the shorter-term nature of a lot of our loans, that rolls through your model relatively quickly. And so when we talk about stabilization really what we've talked about in the third quarter and then again today is kind of volume originations stabilizing and we really saw that in the third quarter that originations weren't dropping significantly. They were more stabilizing and we saw that again in the fourth quarter.

And then that with originations stabilizing, you'll then see that roll through the rest of the income statement and the balance sheet with the old loans getting paid off and then the new loans coming on. We talked about growth in the back half of the year. Obviously the growth will come first from the originations and the loan volume and then the later effect of that will be an increase in revenue.

Oh, okay, okay. The next one is your forecast, one of the assumptions was that the CFPB rules don't become effective until 2016 which I don't think most of us agree with but wouldn't you sort of start to adapt as soon as you get the proposed rules coming out in midsummer which would still have an impact?

We will obviously -- when we see the proposed rules we will start working on contingency plans and implementation right away but we don't think the proposed rules are likely to come out until the back half, maybe in the back quarter of the year, maybe the fall. October, November is the last estimates I saw with implementation not likely until mid-2016 or later. Again the latest estimates I saw are maybe not even until 2017.

So we really wouldn't expect -- there is a chance that those rules don't have a significant impact on the business at all but even if they do, we certainly don't see any material impact from those rules until well into 2016 if not later.

Okay, okay, understand. Just quickly on that, the estimates that you are seeing in terms of when they're coming out, where are you seeing those estimates? Is there -- from someone authoritative like a CFPB or just --?

Not from the CFPB themselves. You hear a bunch of different industry sources, press releases. There was an article in the Wall Street Journal about it not too long ago. You're just trying to triangulate from various sources and for us we are just focused on running our business in the interim. We feel confident about our business practices in the US today, feel confident in our ability to adapt to any new regulation and to do it quickly and better than our competitors.

And so again, we see the information, we try to have an idea of it but it's not a huge focus of it. Our focus is on running our business as best as we can and when we see the rules we will analyze them and figure out what we need to do to adapt to them.

Mike Taiano, Burke & Quick Partners.

Great, thank you. So just I guess going back to the UK, and is it fair to say that the deceleration that you guys have had the last couple quarters is the worst behind you? In other words, do you expect that to basically flatten out in the first half of 2015? And then as you talk about growth in the back half, are you thinking along the lines of a new growth rate not consistent with what it had been in the past or do you think it's possible that you could return to the growth rates that you had previously?

Yes so in terms of loan origination volume in the UK, we do think it is stabilized now and the worst is behind us. As to the growth rate, we do see the opportunity for significant growth in the UK going forward. Predicting exactly where that growth rate will be is difficult right now. It's going to be easier once we see what competition falls out as we get deeper into this authorization process. But the market is still a large and viable market. There's going to be reduced competition and so we still think there's real opportunity in the UK.

Got it. And then I guess on the NetCredit product in the US, it sounds like you guys are getting good growth there. Just curious, I don't know if you guys have ever disclosed how big that is relative to your overall portfolio. Maybe you could give us some sense of how to think about that in terms of maybe how big it could get or relative profitability to the core products that you have. Any color around that would be great.

Sure, so it has gotten meaningful to us. 2014 was a very nice year for that business. We really became confident in the unit economics. We had enough data with enough history to feel good about significantly ramping up that product. So longer-term installment products we wanted to make sure we had a clear view not only on the default curve over time but also the prepayment curve which is a meaningful part of the economics of that product. We just needed more history to get.

Once we had that history, we did start ramping it up pretty significantly. At the end of the year, the AR balance was somewhere around $100 million and that's a number that can grow very meaningfully from there. We are seeing really nice demand for that product. We have good unit economics there and we've just scratched the surface in terms of our marketing efforts.

Great. And then, I guess lastly, just curious given what's going on in the overall, the P2P marketplace lending, just wondering if you are seeing any challenges in terms of finding talent, the need you guys have for quantitative folks and obviously the pull from Silicon Valley as well. Are you getting any pressures in terms of -- I know -- I guess the former Enova -- the founder has his own company. I think he is in a different space than you guys but based in your neck of the woods, are you seeing any sort of challenges on that front?

Well I think thankfully, look, there's always a battle for top talent and when you want the best of the best you're always going to -- no matter what market environment you're in you are going to have to work hard to get them.

But we certainly have the advantages of being in the big city of Chicago that's really having a technology revolution right now. It's really a strong focus of the city in developing that top talent.

We also have a lot of talent coming out of the financial markets and the financial technology companies that have not gone as well over the last several years and especially analytics talent has been a nice source for us recently.

So it's always work but we have great platforms that people love to work on. We invest extremely heavily in our analytics tools and our analytics technology, the platforms that underlie the models that these super smart people build and really creating that great toolset and a great environment, it helps attract that talent.

For example, we spent in 2014 a couple million dollars on our analytics platform, just the tools that our team gets to use to help them build and use the newest and greatest modeling techniques out there and our commitment and our willingness to spend that kind of money on those tools really helps us attract that talent and very few companies are willing to do that. So we've been really successful in attracting that talent and we expect to be going forward.

Great. That's helpful, thanks.

Henry Coffey, Sterne Agee.

I just had a follow on. If you had asked me two days ago when I thought CFPB was going to release guidelines, I would have said this month, February, but I think I heard March and now you're hearing later. I also know they said (inaudible) nine-month comment period that they have to go through. So I know you sort of talked about it but I thought we could revisit it. Your expectation is that we won't hear anything from them till when? March?

Again, this is all speculation and you are trying to triangulate from multiple sources but the latest that we are hearing and again, I wouldn't give it a whole lot of credence, is sometime in the spring. They are likely to issue some form of white paper in conjunction with putting together their small business panel which they are required to do in connection with any rulemaking.

Then their actual published rules likely are not to -- won't come out until much later this year. For a while we were hearing the summer; lately we've been hearing more like fall and then again, final rules could be sometime in mid to late 2016 with possibly effectiveness in 2016. But again, more recently we are hearing possibly not until 2017. But this is a lot of speculation. Again it's not a big focus of ours. We are keeping our heads down, running our business, knowing that whenever they do come out we think we are very well positioned to adapt to them.

And there's not -- I know in the UK there's a lot of dialogue. And my impression and you can correct me if I'm wrong, is that this is not a situation with a lot of dialogue going on but they are sort of just churning inside trying to figure out what to do.

Well the US and UK processes are different. In the UK there's a lot of dialogue before the rules are published and very little after. In the US, that practice is very different. There is not a lot of dialogue before but their comment period and the way they must take into account those comments is much different than the UK. In the UK, they ask for comments but they don't do anything with them really and they are not really required to do a lot with them.

In the US, there's much more attention paid to the comments made to the rules both by us and by others. And so that's -- there's a much longer period for comments in the US to take that into account. I think that's where you'll see more of the dialogue.

Thank you very much.

Gene Fattore, RBC Capital Markets.

Gentlemen, thank you for taking my call. I would like to ask a couple of questions on sort of a sector approach to the various business lines. First with regard to the UK and the implementation of the FCA rate caps and rollover caps that started January 2 in contrast to what you've been operating under. And then going to the US, I've got some questions.

So first, if we can go to the UK, so you have had three business lines. You had short-term loans which was your QuickQuid. You had the line of credit and QuickQuid Flex I believe per your website is going to be wrapped up because it perhaps doesn't qualify. And then you'll have the On Stride near prime product that you've discussed that in sum and my understanding is in the UK you had the Pounds to Pocket. I don't have precise and I don't know if you've ever supplied precise WAC APRs for those three products but I believe that the QuickQuid in the neighborhood of 1,000+ I'm getting that correctly or anywhere near there is going to be knocked out because all these I believe are going to be held to 100% cap.

On Stride is near prime. I think your site says it's 25% to 89%. Again I'm just looking at website information. This could be wrong. And that should qualify.

And then Flex is gone, so here's what I'm trying to get some granularity. In terms of the attributable EBITDA that you had UK, ex-UK, I haven't had a chance to look at the fourth quarter and drive through it but basically if I look at this your ex-UK EBITDA for the third quarter was $20 million at 9/30. Again I haven't done the fourth quarter. It was $48 million prior so notwithstanding you're having a runoff. Based on the information I have if I understand this correctly, it seems to me that most of the legacy product lines you have or the current product lines are not going to be allowed certainly not at the rates that have historically been used to drive these results in the UK.

So I'm wondering if we need to be potentially flattening that business right out unless you can give us some idea what you think you can make on eligible products in the UK.

And then further if we go to the US as you look at the CFPB, again none of us know when this will be implemented. But if you look at what was done in Colorado under Udis who has now been brought in to head this division at CFPB, if we get any type of look out of the CFPB that is in line with what she did in Colorado -- what has been championed by some advocates like Pugh, we might be talking about maybe 100% or 120%, 150% effective APR or maybe it's going to be -- since we can't promulgate rates maybe it will be a qualifying basis like educational loans for profit today.

So what is your APR for the division lines you have in the US? What you seeing near prime charging on an average APR?

So Gene, maybe we can spend some time with you off-line because it seems like you're missing a few large things in both markets and don't really understand the business.

So for example, the 100% cost of credit in the UK is for the term of the loan; it's not an annual APR. So you can charge 100% cost of credit for a two-week loan. Obviously the APR on that would be much, much higher. And so for example, our QuickQuid product in the UK survives almost entirely intact under the new rate cap rules as does our installment loan product in the UK.

So if you look at our volume in the UK in the third quarter and into the fourth quarter, the rate cap rules we don't think are going to have a huge impact on either the volume or on the profitability of those products.

And then in the US and again we're happy to spend some time off-line providing you more of an overview of the entire industry to get you up to speed, the CFPB can't impose rate caps. They are specifically prohibited from doing so in their charter. And so we operate in 35 different states in the US each with their own set of rules and their own set of rates and that really provides a nice set of diversification to any potential regulatory changes.

Jason Adler, GMP Securities.

Hi, thank you for taking the question. I just want to focus in on cash flow for the fourth quarter a little bit. I think about the bridge from EBITDA to cash flow from operations and free cash flow. EBITDA was obviously up year-over-year and sequentially but it looks like cash flow was a little softer than the comparable quarters. Obviously a lot going on in the quarter with the spin-out and the shift in mix. Can you help me understand a little bit about what was different this quarter and what our expectations for cash flow should be in 2015 given guidance and expectations for mix going forward?

Yes, the cash flows were very strong but we did have a lot of payments to make in Q4. We had an interest payment, the significant interest payment to make on our bonds as well as we terminated our long-term incentive plan. So most of the contraction in the UK balances was earlier than Q4. We had a little bit there but then also December does have some uptick in loan demand in the US and the UK and so it's seasonal increases. So that does affect the overall cash flows but when you look at our free cash flow, it's still very strong for the full year.

Okay. Thank you. I guess also turning to some of the pilot programs, can you talk a little bit about the competitive landscape in Brazil and China and what are the questions that need to be answered by these programs before you hit the gas and look to ramp them up?

Yes, good question, Jason. So in Brazil, as far as we can tell, we are the only company providing 100% online loans. In some ways that's great because it provides wide-open landscape and in other ways it's scary going in because you don't know why no one else is providing 100% online loans.

But as I mentioned in my prepared remarks, we've seen extremely strong demand in Brazil and as long as we can get comfortable with the loan performance and tweak some of our operational practices over there to conform to some of the differences between the Brazilian market and the US market, we see a large opportunity. Brazil is a country of 200 million people with a growing middle class, a very stable government, a surprisingly advanced banking system. It really ticks a lot of the right boxes for us in terms of a great market opportunity.

So we are only about six months in to that product and so we still have some work to do but given the demand, we could see that product ramping up fairly quickly as we move forward as we move into 2015.

China obviously a huge market, 1.2 billion people again growing middle class with very fast rising income levels and clearly becoming a very much consumer-oriented society. If you've spent any time in China, you will see that there is vast amounts of consumption going on from that growing middle class and that creates a great opportunity for credit in a country where there has not historically been a ton of credit.

Now there are -- in a country the size of China, there are lots of people trying to address this market. Nobody we've seen have a tremendous amount of success so far. No one doing it in a purely online automated way but the market is very, very different from anywhere else we've operated and it's why as I mentioned we're going much, much slower there to make sure we understand the regulatory environment, we understand the operational differences, we understand the different credit profiles of customers over there.

But we like what we've seen so far and we certainly love the potential opportunity over there in terms of the size of the overall market.

That will conclude our question-and-answer session and today's conference call. We would like to thank the management team for their time today and thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you and have a great day, everyone.