Enova International Inc (ENVA) 2016 Q1 法說會逐字稿

Good afternoon and welcome to the Enova International first-quarter 2016 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Monica Gould, Investor Relations for Enova. Please go ahead, ma'am.

Thank you, Frank, and good afternoon everyone. Enova released results for the first quarter of 2016 ended March 31, 2016 this afternoon after the market closed. If you did not receive a copy of earnings press release, you may obtain it from the investor relations 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 the website.

Before I turn the call over to David, I'd like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it and as such does include certain risks and uncertainties. Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

In addition to US 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 today's press release.

As noted in our press release we have posted supplemental financial information on the IR portion of our website. And with that I'd like to turn the call over to David.

Thanks, Monica, and good afternoon everyone. And thanks for joining our call today.

I'm going to start off today by giving a brief overview of the quarter, then I will spend some time updating you on some of our initiatives and finally I will share perspectives looking forward. After my remarks, I will turn the call over to Rob to discuss our financial results and guidance in more detail.

We had a good first quarter and are happy with the continued momentum we are seeing at Enova. In addition to strong financial results we achieved a number of milestones that position us well for future growth.

We received full authorization for all of our businesses in the UK. We completed our first securitization and we launched a partnership with Republic Bank. I will discuss this partnership in more detail in a few minutes.

But first, for the quarter, revenue was $174.7 million, an increase of 5.4% from Q1 of last year and above our guidance range of $150 million to $165 million. Our US business was again a strong contributor to our results.

Q1 is generally a slower quarter for US lending but we saw strong demand, especially for our installment loan and lines of credit. Solid credit performance was another highlight of the quarter as we were able to buck any larger macroeconomic trends that it seems some other lenders are experiencing.

We were also very pleased by the continued growth of our new initiatives, particularly NetCredit our US near-prime product as well as our Brazilian operation and our two small business offerings. Adjusted EBITDA for the quarter was $37.8 million which was also above our guidance of $25 million to $35 million. The higher-than-expected EBITDA was driven by the good loan performance I just mentioned as well as more efficient marketing spend across most of our products.

We believe that our Q1 performance is confirmation that our strategy is sound and our talented team is doing a great job of executing. This is not new but it has been difficult to see the last several quarters with all the changes in our businesses. For example, the rapid growth in NetCredit last year masked its true profit potential based on the strong unit economics we are seeing in NetCredit loans.

In addition, the drop in UK originations early last year and the winddown of the UK line of credit portfolio both as a result of changes in regulations imposed in 2014 it is difficult to see the successful adjustments we made in the UK market. As we execute on this strategy our business continues to become more diversified which gives us multiple opportunities for growth and significant hedges against regulatory changes. Our large subprime US business generated another strong quarter of profitability.

Even within this business, we're becoming much more diversified with 25% of our US subprime loan portfolio consisting of single pay products, 31% installment products and 44% from line of credit products. Our UK business continues to recover and NetCredit has become a substantial business for us generating significant growth targeted at different credit segments of consumers. And we are successfully developing our new initiatives into real long-term opportunities highlighted by Brazil and small business financing.

With total company-wide originations up over 11% from the prior year our diversification strategy is working. This marks the third sequential quarter of year-over-year growth and the strongest growth we have seen in total originations since before the new UK regulations went into effect in 2014.

The growth in our revenue and originations continues to be led by our installment loan and line of credit portfolios and reflects our focus on creating alternatives to our short-term single pay products. During the quarter, our total loan book grew 47% year over year. The largest contributors to this growth were NetCredit and our small business products which led to a 44% year-over-year increase in US installment loan and finance receivables revenue.

In addition, installment loans and lines of credit now comprise 72% of our total revenue and 86% of our portfolio. NetCredit's growth has continued at a rapid pace with originations up 22% from the first quarter of last year and loan balances up 67%. Due to the sustained growth of our US near-prime offering, more than 45% of our total US loan portfolio is now near-prime loans and 46% of those loans have an APR at or below 36%.

In order to take advantage of the large market opportunity we see in the US near-prime space, late in the first quarter we launched a NetCredit program with Republic Bank & Trust Company. This program leverages Enova's online lending platform by providing technology, loan servicing and marketing services to Republic Bank with the objective of expanding their online consumer lending. The loans originated by Republic will have an APR below 36%.

We launched this program with a pilot in a single state so it wasn't material during the quarter. However, we continued the rollout in early Q2 and expect to be in over 10 states by the end of the quarter. From there we intend adding additional states throughout the year.

Under the program, Republic has the ability to sell the loans it originates to NetCredit. As Rob will discuss in more detail shortly, our recent securitization positions us well to support this growth of the NetCredit portfolio. For those of you not familiar with the Republic Bank they are a state-chartered commercial bank with over $4 billion in total assets, supervised by the FDIC.

Turning to the International front, we are pleased with the progress we've made in the UK since the drop in originations in late 2014 and early 2015 from the changes we implemented there to comply with new regulations. We believe that business is now on stable footing and looking forward we expect to see meaningful growth. In addition, the business is solidly profitable and should provide over $20 million of EBITDA contribution this year.

During the quarter, we made a decision to exit Canada and Australia as a lender due to the limited market opportunity we see in those countries. As a result, we have slowed originations and will soon begin to wind down our loan portfolios.

These businesses never became significant drivers of our growth or significant contributors to revenue. And given the relatively small size and each of their challenging regulatory environments, we didn't see this changing in the foreseeable future.

To give you a better sense of their size, Canada and Australia together comprise less than 2% of our Q1 revenue. While our operational costs there have also been relatively small, we want to focus all of our resources and our people on our highest growth opportunities.

Turning to our new initiatives, we're making good progress with our installment loan product in Brazil. We have been aggressively ramping up growth in Brazil and gross AR is up 91% just from the end of Q4.

In China, we still see a significant opportunity there given the size of the market and the proliferation of online lending. But we remain cautious due to the challenging regulatory environment and uncertainties around repatriating capital from China.

To address these issues, we have shifted our model from direct lending to providing services through Enova Decisions, our analytics-as-a-service business. In late March we signed a two-year agreement with our former China joint venture partner for these services and see a great opportunity to address the growth in this market and deliver value out of relatively low cost.

We are also pleased with the growth of our small business financing initiatives which include two complementary products: our receivables purchase agreement product under The Business Backer brand and a line of credit product under our Headway brand. We grew small business originations sequentially in the first quarter despite the typically seasonal softer loan demand this time of year as businesses regroup from the holiday season. As a result, our portfolio increased by more than 20% from the fourth quarter and our small business offerings now represent 13% of total portfolio.

Now I want to turn briefly to the ongoing CFPB rulemaking. Our mission at Enova is to help hard-working people fulfill their financial responsibilities with fast, trustworthy credit. As detailed in a recent survey by the Federal Reserve Board, 47% of Americans said they didn't have sufficient savings to cover a $400 emergency. We believe the CFPB recognizes this need and we remain convinced that the CFPB will maintain access to credit for the many millions of Americans who need it allowing us to continue fulfilling our mission.

As we have discussed in the past, we are confident in our ability to manage through the forthcoming regulatory changes in the US and continue to believe that Enova will thrive under any likely regulatory construct and remain a large and profitable player in the industry. Over the last two years, we have successfully managed through substantial regulatory changes in the UK. Our sophisticated analytics with more customer history than any other online lender will also be extremely valuable in addressing any required changes and our diversification efforts position us well to mitigate the impact from proposed rule changes on our overall business.

In terms of the CFPB's process, the current consensus is that the proposed rules will be public in the next few months, possibly as early as mid-May. As a reminder, following publication of the proposed rules, there will be a comment period followed by a CFPB response. Once final rules are published, there will be an implementation period of up to a year.

This makes it likely that the new rules will not take effect until late 2017 at the earliest. We have done significant preparatory work to be able to quickly assess the impact of the proposed rules on our business. Accordingly, once the rules are published and we have an opportunity to review and evaluate them, we intend to probably communicate our assessment of the potential impact on our business to you.

To summarize, we are very pleased with our strong performance both from a financial standpoint as well as our ability to achieve important milestones. And so far, Q2 appears to be off to a good start with a demand picking up earlier following the tax refund season than we've seen in recent years.

Enova was one of the earliest entrants in the online lending market and has more than 12 years of lending experience. Our success is a testament to the strength of our proprietary technology platform, our advanced analytics and our very talented employees. We have succeeded during significant changes in regulations and drastic changes in the economy including the Great Recession.

We believe that our strategy to grow our core offerings while diversifying into new profitable products is working. We know regulatory changes are coming in the US and we believe we are well prepared and will emerge a winner. In the meantime, our UK business is doing well and our new initiatives are driving growth and beginning to contribute meaningfully to our bottom line.

Now I will turn the call over to Rob Clifton, our CFO, to go over the financials in more detail. And following Rob's remarks we will be happy to answer any questions that you may have. Rob?

Thank you, David, and good afternoon everyone. I will first review our financial and operating performance for the first quarter and then provide our outlook for the second-quarter 2016.

We are pleased to report our first year-over-year increase in revenue since the third quarter of 2014 when new regulations began to have a significant effect in the United Kingdom. This performance is a testament to our ability to navigate changes in regulatory environments and diversify our product offerings.

Total revenue of $174.7 million in the first quarter increased 5.4% from $165.7 million in the first quarter of last year and came in above our guidance range. The increase in revenue was driven by our domestic operations, primarily our installment loan and receivable purchase agreements or RPA products which rose 44.5% in the current quarter compared to the prior-year quarter.

Total origination volume also increased on a year-over-year basis, up 11.3% in the first quarter. Similar to the fourth quarter, we saw a higher mix of new customer originations relative to total originations on a year-over-year basis. This is positive long term because new customers drive additional future revenue.

On a constant currency basis, revenue increased 7% compared to the prior-year quarter. Sequentially, revenue was essentially flat despite the fact that we typically see a seasonal decline in demand during Q1 due to the tax refund season in the US.

Domestic revenue accounted for 82% of total revenue in the quarter and rose 21% on a year-over-year basis to $143.4 million. This increase continues to be driven by the growth in our domestic installment products, primarily led by our near-prime NetCredit brand.

On a year-over-year basis, UK loan originations increased 33% during the first quarter on an efficient marketing spend. While we haven't seen any major changes in the competitive landscape in the UK during the first quarter, we did see several competitors pull back on their advertising levels.

Year over year, international revenue declined 33% to $31.2 million and accounted for 18% of total revenue in the first quarter. The decline is primarily due to the changes in the regulatory environment in the UK that occurred after March 31, 2014. If we exclude the revenue contribution from the discontinued UK line of credit product, international revenue increased 14.7% on a year-over-year basis in the first quarter.

Moving on to asset levels, we ended the quarter with total combined loans and finance receivables balance outstanding of $523 million, up 47% from the $356 million in the first quarter of last year. Domestic loan and finance receivable balances were up 61% on strong growth from our NetCredit installment loan portfolio and our small business offerings.

International loan balances were essentially flat on a year-over-year basis and rose 1% sequentially, marking the third quarter of sequential growth since UK regulations began to take effect in 2014. On a constant currency basis, international loan balances were up 4% year over year.

Excluding the discontinued UK line of credit balance of $16.7 million at March 31, 2015, our international loan balance was $63.2 million at the end of the prior-year quarter. This results in a pro forma year-over-year increase of 26.5%.

Turning to gross profit margins, first-quarter gross profit margin for the total Company decreased to 60.2% for the current quarter from 76.7% for the prior-year quarter. The decrease in gross profit margin was primarily driven by the growth of our domestic loan -- domestic installment loan, RPA and line of credit portfolios as well as a higher mix of new customers which require higher loss provisions because new customers default at a higher rate than returning customers with a successful history of loan repayment as well as the gross profit contribution in the prior-year quarter from the winddown of the UK line of credit product. Although the growth in our domestic near-prime installment portfolio contributed to the lower gross profit margin, as the portfolio continues to scale, and the underlying longer-term loans continue to season, we expect to achieve increased marginal profitability.

We expect the consolidated gross profit margin will continue to be influenced by the mix of loans and financings to new and returning customers, the mix of lower yielding and higher-yielding loans in financing products and loan originations for our international operations. We expect our consolidated gross profit margin to remain in the range of 55% to 63%.

Domestic gross profit margin declined to 57.8% from 71.5% in the prior-year quarter for the reasons previously noted. Our international gross profit margin declined to 70.8% from 90% in the prior-year quarter. The decrease in international gross profit margin reflects an anticipated return to more normalized gross margins after stricter underwriting standards from regulatory changes in the UK in 2014 that lowered originations and loan balance levels.

Excluding the discontinued UK line of credit product, our international gross profit margin was 65% in the current quarter which is down sequentially from the 69% we achieved in the fourth quarter due primarily to higher growth in Brazil. We believe loan originations will continue to grow in the UK and depending on the level of originations and the mix of new and returning customers we expect our international gross profit margin to remain in the range of 65% to 75%.

Turning to expenses, total expenses were essentially flat year over year at $73.2 million while marketing expense decreased 12.3% or $3 million to $21.2 million as our marketing spend was very efficient during the quarter. Adjusted EBITDA, a non-GAAP measure, totaled $37.8 million in the first quarter compared to $61.1 million in the prior-year quarter and also came in above our guidance. Our adjusted EBITDA margin was 21.6% for the first quarter compared to 36.9% in the prior-year quarter and 16.1% in the fourth quarter of 2015.

On a sequential basis, adjusted EBITDA increased 34% from a $28.3 million in the fourth quarter. Our stock-based compensation expense was $2 million for the first quarter compared to $1.7 million in the prior-year quarter due to additional restricted stock unit grants. Net income totaled $9.9 million in the quarter, or $0.30 per diluted share compared to net income of $24.5 million, or $0.74 per diluted share in the prior-year quarter.

Our effective tax rate in the current quarter increased to 43.6% from 38.4% in the prior-year quarter. Due to the significant decline in the intrinsic value of restricted stock units previously granted we evaluated and adjusted the deferred tax asset balance related to those units that have vested to date, resulting in the higher effective tax rate. Vesting events in future purpose will also impact each period's effective tax rate. We would expect that our full-year 2016 effective tax rate to approximate 40%.

Adjusted earnings, a non-GAAP measure, totaled $10.3 million in the quarter or $0.31 per diluted share compared to $26.2 million or $0.79 per diluted share in the prior-year quarter. We ended the quarter with cash and cash equivalents of $112.2 million and total debt of $594.4 million which is now presented net of $14.5 million in debt issuance cost. Our debt balance includes $113.9 million outstanding under our $175 million securitization facility which was closed in mid-January of this year.

Total borrowings under the securitization facility during the quarter were $135.1 million while repayments were $21.2 million. Because principal payments are being made on the debt outstanding based on a waterfall of customer payments received, borrowings under the facility can exceed $175 million over the life of the facility. As a result, we believe that the current securitization facility will provide us with a long runway to support the anticipated growth of our NetCredit product.

As per our statement of cash flows, cash provided by operations increased to $98.6 million in the first quarter, up from $87.9 million in the prior-year quarter. During the quarter, we paid off the outstanding balance on our unsecured revolver and continue to maintain over $33 million of borrowing capacity on that credit facility. We believe our strong cash flows, availability under our credit facility and availability under our existing securitization facility will be sufficient to satisfy our working capital needs in 2016.

With that, I would like to turn to our outlook for the second-quarter and full-year 2016. As noted in our earnings release, in the second quarter of 2016, we expect total revenue to be between $155 million and $170 million and adjusted EBITDA to be between $23 million and $33 million. For the full-year 2016, we now expect total revenue to be between $680 million and $730 million and adjusted EBITDA to be between $125 million and $140 million.

Our outlook reflects continued strong growth in our NetCredit portfolio, a continued higher mix of new customers, no changes in the competitive landscape in the United Kingdom, the winddown of our loan portfolios in Canada and Australia and no impact to our US business from proposed CFPB rulemaking since any new rules will likely not take effect until late 2017 or beyond. We expect that the program that NetCredit launched with Republic Bank this quarter will incur a moderate loss in its first year as we make investments in marketing spend and build appropriate loan-loss allowances on the loans that NetCredit purchases from Republic but we see the program turning profitable in 2017. We expect the combined operations of NetCredit will continue to be profitable in 2016.

Lastly, I would like to note that in order to provide a better view into the contribution of our US and international operations, we changed the presentation of our reportable segment information in the supplemental schedules that accompany our earnings press release on our investor relations website. We did this to report corporate services separately from our domestic, international and international operations. Corporate services expenses which primarily include personnel and other operating expenses for shared functions were previously allocated between domestic and international segments based on revenue but are now included under the heading corporate services.

With that, I will hand the call back over to David for his additional remarks.

Thanks, everyone, for listening to our prepared remarks. We will now open it up for any questions.

(Operator Instructions) David Scharf, JMP.

Thanks for taking my questions. First off, Dave, just curious the marketing spend in the quarter came in as you noted very efficiently. It looked very light to us, especially given the fact that demand seemed to pick up sooner than usual on a seasonal basis.

Was there anything in your mind that we should think of as being deferred marketing? Is there going to be a material pickup later in the year? Just trying to gauge how we ought to think about that line item on an annual basis and whether Q1 is a good jumping off point or if it was unusually low.

I would not say it was unusually low. There is no deferred marketing other than a little bit on the NetCredit side you will see as ramp up as part of the program with Republic Bank.

In terms of dollars not as a percentage of revenue though. If you're thinking about it in terms of percentage of revenue I think it was a pretty good where we were in Q1 is kind of I think where we see ourselves at least in the next few quarters.

Okay, got it. That's helpful. And wondering if you can also comment on your take on the US consumer and demand.

In recent quarters it seemed like sometimes it would be two, 2.5 months into the quarter you weren't quite sure what the uptake would be. It sounded like you saw much more favorable demand than expected and it also sounds like that's continuing into Q2. And I'm trying to get a sense for whether, notwithstanding the formal guidance whether you think there's a potential upward bias to your revenue and origination targets?

The Q1 there's always a drop from Q4 and we certainly saw that. But the drop wasn't as severe as we've seen in past years and we attribute that largely to good consumer demand as we don't believe much changed on the competitive front in the US.

The Q2 early demand we've seen is encouraging. It's early and so it's hard to say where the next where the rest of the quarter can go.

It's also important to remember at least from an EBITDA perspective if demand gets too strong it can actually hurt EBITDA in the short term while helping it longer term, especially with the longer-term product. So, I think both of those the fact that it's still very early in the quarter and the fact that demand can be strong enough that it could actually start negatively impacting EBITDA is what you see reflected in the guidance.

Got it. And then one last question on the guidance, I will get back in queue.

If I look at the midpoint of EBITDA for both Q2 and the full-year guidance, it looks like the second half is going to be largely flat with the first half. Is that correct and is there any reason just based on the ongoing origination growth and your comments about marketing coming in pretty efficiently?

Yes, good question. So Q3 is usually a great origination quarter, not a great profit quarter so that's part of what you are seeing in that. And Q4 is a little bit of a wildcard.

We've had very strong Q4s and we've had ones that are less strong. And that's obviously extremely difficult to predict this far out.

In terms of anything other than that demand, the other thing to think about is the program with Republic Bank. Early on in that program to the extent Republic does sell us loans there could be some early losses as we add a bunch of provision. Again not that those loans aren't profitable, but just as we're putting on a bunch of provision as we're building up the portfolio.

And so as that program ramps up in the back half of the year, as Rob mentioned we could expect that portfolio to have some accounting losses for the year, even though it will be a very profitable we expect it to be a very profitable portfolio. So that I think that weighs on the second-half guidance as well.

Got it. Thank you very much.

Bob Ramsey, FBR.

Hey, good afternoon. I just wanted to follow up a little bit on David's question about the marketing efficiency. I think you said it's fair to sort of think about it consistent to this quarter as a percent of revenues.

Looking at it that way, it was 12% of revenues I think this quarter and last year you all averaged 18% and it was actually higher in the back half of the year. Wondering if you could give any additional color on what's driving the efficiency or that drop in marketing expense?

Yes, I think part of it is we did see a reduced competitive environment in the UK, not in terms of the players but in terms of their spend. And so that's kind of assumed in my statement of where that marketing spend might be the rest of the year.

Obviously if the competitors in the UK begin spending more we will our marketing could become less efficient there. But we've also had really good efficient spend on our NetCredit product. And so as that product grows it's helped us to keep those marketing costs low.

Okay, fair enough. And congratulations on the Bank partnership, I know that's something you guys have been working on for a while. I know you said you expected to still be I guess not quite profitable this year, but could you talk about sort of any thoughts around origination expectations as we go through 2016?

We're not going to make any guesses on originations there but it opens up a lot of additional states that we weren't lending in on the near-prime products, so we were only in about 13 states before. As I mentioned in my prepared remarks we will be in at least 10 we think by the end of Q2 and many more by the end of the year. So there's real significant volume that we could see from that program as it fully rolls out.

Okay. And given that I guess the focus of that program as I said is the sub-36% APR loans, could you maybe talk a little bit about unit economics and if that's different than I guess where your business today sits sort of what should we think about in terms of losses and marketing cost on those products?

Unit economics on those loans are similar to the other loans in the NetCredit portfolio. The way we underwrite those products is they have to have lower loss rates to correspond with the lower APRs. So they're very similar from the unit economics standpoint and it's good profitable business for us.

Okay, I guess I don't know what they are on the NetCredit product either. Is it similar gross margins to your overall business or is a NetCredit a little different?

We've always talked about for really all of our products we target low to mid-20s EBITDA margins. And that's kind of our way of managing risk and managing our use of our capital. And so we expect that both for the NetCredit for the entire NetCredit portfolio as well as sub-36% portfolio.

Okay, all right, thank you.

(Operator Instructions) Henry Coffey, Sterne Agee.

Good afternoon and congratulations on a great quarter. It seems you've broken the pattern, you're moving forward again now. Is that a fair assessment?

I mean there were some real big changes in the UK, you've shifted, you got those working. Is it just is -- this an overly simplistic question but is it fair to assume that you've kind of broken the pattern and that now going forward absent something unusual from the CFPB that we'll just be continued progress?

Look, we think we been making continued progress. As I said earlier, I think a lot of that was masked by all of the changes that were going on. I think it was a very clean quarter in terms of there not being a lot of changes and so I think it was easier to see the progress we made.

I think next quarter as we've lapped even more of the changes in the UK from last year that will be even more clear. So we've been talking about our strategy, our diversification efforts being the right strategy to drive this business forward both in terms of additional growth but also in terms of reducing regulatory risk. And I think that it's really becoming clear that it's paying off.

And as we look forward to the changes to regulations in the US, we think we're extremely well prepared for that standpoint. We have a nice diversified portfolio base by product type, customer type and geography. We have significant experience now adapting to new regulations both on the state-by-state level in the US and on the country level in the UK, and so we think we're extremely well positioned for the future.

David, as you kind of start to move forward we've got old product, new product, old countries, new countries. If we were to jump forward say two years, can you give me a sense of what the primary products would be and which existing products would be sort of either very small or shrinking?

Sure. So I think our UK business will keep growing. I think it will be steady growth.

I don't think it will be exponential growth unless the competitive dynamic in that market changes over there. So you can kind of look where that business is now. It's a stabilized and kind of nice steady growth from here.

The US business will obviously be smaller -- the US subprime business will be smaller than it is today three years out is my guess. We haven't seen the CFPB rules but that will be my guess. But it will still be a big business, it will still be a viable business.

My guess is there will still be a single pay product as well as an installment and/or line of credit product but combined somewhat smaller than it is today. I think NetCredit will be a very large business, looking out probably our largest business if you look out kind of three years, three to five years. And then I think Brazil will also be a very large business and significant contributor to the profitability of Enova.

As you look at the funding equation, right now it's kind of a combination of cash and capital and then of course the securitization vehicle that you set up, do you think you'll be able to set up additional asset-backed or securitization-based facilities for funding other products so that there is less and less capital involved in the equation and more and more just traditional debt?

So the only one of our businesses that generally isn't self funding is NetCredit. The other products are short term enough and high interest rate enough that they are generally self funding and don't require significant amounts of additional capital. Again NetCredit is the one exception.

We believe that there will be significant access to capital either through the securitization market or the whole loan market or other facilities. Yes there's been a little bit of choppiness recently but we think it's more company-specific, specific portfolio base than any long-term market trends. And that includes conversations we've had over the last several weeks.

So we remain optimistic about our ability to fund that NetCredit portfolio. As Rob mentioned, we have significant runway for this year with our existing liquidity and securitization we put in place.

But that again ties back to the nice thing about our diversification efforts. We do have a business where we can use outside capital if it's available but we have a lot of businesses where that outside capital wouldn't be required and again gives us comfort to be able to weather a lot of different environments.

Great, well congratulations and thanks for answering my questions.

(Operator Instructions) David Scharf, JMP.

Yes, thanks for letting me follow up. Couple of questions on the gross margin front. One was to clarify the reiteration of a full-year range of 55% to 63%, that was not domestic, that was for consolidated, correct?

Yes, that's correct.

Okay. And as we think about international, there's still some winddown, correct, on LSE? I'm just wondering that 65% to 75% range, where should we think about that bottoming out when we look out a year?

So I think the international is going to stay in that range. Obviously UK volumes and Brazil volumes are going to have an impact on it. So what's happened is the UK has stabilized.

We really don't have anything left on line of credit. I mean there's still some recoveries coming in every now and then. But so from a growth standpoint the short-term product in the UK is growing faster than the installment and then as we talked about we've got the Brazil is growing at a pretty good clip.

Now it's starting at a smaller base but I think that's going to have an impact on the gross profit margins. And so the 65% to 75%, which has been a fairly consistent guidance I think, is really reflective of the full international business.

I see. What's your best guess why the short-term product is growing faster?

And I only ask because I think of a lot of us look to the UK as perhaps the behavioral template for how US consumers may ultimately react to the CFPB rules that eventually come out? Is it just because short-term dropped off so much and it's a smaller base? Or are you just finding that there's just inherently more demand for that product and it's likely to be the case in the US as well?

So there's consumer demand for credit and credit for customers who don't have good credit histories and so can't get credit from the banks. And what regulation did in the UK was actually favor the short-term product. The regulator there actually thinks the short-term product is the best product out there because it's the lowest out-of-pocket form of credit for customers.

If you look at a customers say who needs to borrow $300 and they really only need it for two weeks, they can borrow that at $15 per $100 or so on a short-term product and only be out-of-pocket $30. That's cheaper than it's going to be if they take out an installment loan for six months or a year and pay a higher rate of interest for that period of time.

And so what the regulator in the UK looked at is this more of a fee product, not an APR product even though everyone has to disclose APRs. So in that vein they actually in some ways in their regulations favor the short-term product.

In the US, again we don't know what the rules are going to be, but I wouldn't be surprised if some aspects of the rule, particularly the ability to repay underwriting components, make the short-term product an attractive product for certain groups of customers. And while I'm not sure we would expect it to grow the way it did in the UK, it's also it is part of the reason why we don't necessarily expect it to go away in the US after the new rules.

Got it. And without getting specific, David, just in general I'm curious have you changed -- as it relates to preparing for ATR underwriting, have you changed any of the methodologies you've used in the US, maybe pulling some from what you've done in the UK? Or are you just waiting until the rules come out before you bother to take any upfront medicine?

We're always changing our underwriting models. I mean they are continuously updated. And we've certainly have continued to improve the underlying technologies that will make adapting to new regulations easier than it would have been even a year ago.

In terms of the models, the actual models themselves, we don't know what the rules are going to be so there's only so much -- there's very little we can do in advance again other than make sure we have very good high performing models that are very flexible and allow us to quickly adapt to the new rules. And that's exactly what we have in place.

Got it. And then just one last question on the financials.

On the installment loans, it looks like the allowance rate ticked up sequentially, looking at 10.6 to 11.7. Credits seem to be performing quite well. Is that just a function of a bigger mix of new borrowers versus repeat?

David, yes I think that's certainly part of the equation. We've had several quarters here where it's been stronger for new customers. I think you also have some of the influence of beyond NetCredit because NetCredit actually continued to do very well there.

So you have the influence of the RPAs that come from Business Backer as well as with a lot of high growth there as well as on our higher cost products in the US through CashNet. So just really stronger demand than we expected and that mix was heavier in new customers.

Got it. All right, thanks so much.

This concludes our question-and-answer session. I'd now like to turn it back over to David Fisher, CEO, for any closing remarks.

I just want to thank everybody for their time today. We appreciate that and your questions and we look forward to updating you on our progress next quarter. Have a good evening.

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