Enova International Inc (ENVA) 2016 Q3 法說會逐字稿

Good afternoon, and welcome to the Enova International third quarter 2016 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note that this event is being recorded.

I would now like to turn the conference over to Monica Gould, Investor Relations for Enova. Please go ahead.

Thank you, operator, and good afternoon, everyone. Enova released results for the third quarter of 2016, ended September 30, 2016, this afternoon after the market closed. If you did not receive a copy of our earnings press release, you can 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 Steve Cunningham, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our 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 earnings 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, and good afternoon, everyone. Thanks for joining our call today. I'm going to start off by giving a brief overview of the quarter. Then I will update you on our strategy and initiatives, and finally, I will share perspectives looking forward. Then I'll turn the call over to Steve Cunningham, our CFO, to discuss our financial results and guidance in more detail.

We continue to be very pleased with the strong performance and momentum we are seeing in our core businesses as well as the sustained traction of our new initiatives to drive additional growth. For the third quarter, our revenue was $196 million, an increase of 19% from Q3 of last year and above our guidance of $175 to $190 million. Our higher-than-expected revenue was driven by strong originations across almost all of our products.

We believe the continued strength in our originations this year is due to a combination of factors. First, our team has done an excellent job of continually improving our products to meet customers' needs and pairing those products with efficient marketing that is resonating with our customers.

Second, we are likely benefitting from where we are in the economic cycle. The economy is still in good enough shape that our customers feel comfortable borrowing when necessary, but it's not so strong that savings have increased meaningfully. As we have discussed before, over 47% of Americans don't have sufficient savings to cover a $400 financial emergency.

Finally, we are winning on the competitive front. As a result of our significant experience and solid diversified funding, we've been able to be aggressive this year as others have had to pull back in the face of credit concerns and liquidity issues.

Adjusted EBITDA for the quarter was $34.2 million, which is at the high end of our guidance of $25 million to $35 million. Our strong EBITDA performance was driven by a combination of the good customer demand I just discussed as well as very efficient marketing and good credit performance.

Our sustained solid credit metrics remain a substantial competitive advantage for us. The sophistication of our analytics and the extensive experience of our team has allowed us to effectively manage credit quality through product launches, multiple economic cycles and substantial regulatory changes. We have been doing this for 12 years, and we continue to get it right.

Total originations were up 7% from last year. This marks the fifth sequential quarter of year-over-year growth in total originations since the new UK regulations went into effect in 2014. As a result of the strong originations, our total loan book grew 38% year over year and 12% sequentially.

The growth in our revenue and originations continues to be led by our installment and line-of-credit portfolios as we create and customers embrace alternatives to our short-term, single-pay products. This led to a 34% year-over-year increase in US installment loan revenue and a 40% increase in US line-of-credit revenue. Installment loans and lines of credit now comprise of 73% of our total revenue and 87% of our portfolio.

I want to make an important point about our originations in Q3. We actually had the ability to grow originations even faster in the quarter, but we throttled our marketing in the back half of the quarter in the face of very strong demand from new customers. As we have discussed in the past, we manage our portfolio to deliver both near-term and long-term profitability, and rapid growth in originations, especially originations to new customers, can impact near-term profitability from a GAAP perspective, as we incur upfront marketing expenses as we as higher levels of loan loss provisions.

Steve will discuss this in more detail in a few minutes, but in Q3, we made the decision to moderate growth to maintain strong profitability for the quarter. As an online business with a focus on direct marketing, we have the flexibility to respond to demand by adjusting our marketing spend to either accelerate or decelerate growth in order to maintain our profitability and margin targets.

Our ability to dynamically adjust to changes in demand has some limits, but we clearly saw the benefits of our online direct model this quarter. That being said, even with our scaling back, you can see the impact with the high originations and our somewhat lower gross profit margin for the quarter.

Turning to some additional detail on our products, our large US subprime consumer business generated another strong quarter of profitability, with revenue up 13% year over year. This business is becoming more diversified, with 28% of our US subprime consumer portfolio consisting of single-pay products, 26% installment products, and 46% line-of-credit products.

Despite its size, we still had single-digit market share in the US, and so we believe there is still a lot of opportunity to generate substantial growth in the business, and we will continue to focus on maximizing this opportunity.

While the new CFPB rule will impact this market, as we've discussed in the past, the larger and stronger we are going into those exchanges, the larger and stronger we believe we will be coming out of them.

In the UK, we continued to successfully grow our business following the regulatory changes that were implemented there in 2014 and 2015. UK loan originations were 7% higher than Q3 last year and 26% higher on a constant-currency basis. We have maintained our number one market share position, having taken share from our competitors since the new rules became effective. Moreover, our UK business remains profitable, with over $20 million of EBITDA contribution so far this year.

In addition to growing our core businesses, we remain focused on the expansion of our initiatives to further diversify our revenue base and provide additional growth while reducing regulatory risk. Our strategy is focused on the three initiatives that we believe have the potential to become really big businesses, each potentially exceeding $100 million in annual adjusted EBITDA. These are our NetCredit near-prime offering, our installment loan business in Brazil, and our small-business financing solutions.

NetCredit continues to grow at a rapid pace, with originations up 26% from last quarter and 55% from the third quarter of last year. Loan balances are now $275 million, which is 66% higher than Q3 of last year. Due to the sustained growth of our US near-prime offering, 47% of our total US loan portfolio is now near-prime. As I mentioned last quarter, we expect NetCredit to generate over $20 million of EBITDA contribution this year, and that number could be meaningfully higher next year.

Finally, our small-business financing portfolio now represents 14% of our total loan book at almost $90 million. Given the differences in the small-business products versus our consumer products, as well as the significant competitive shakeout that is going on in the small-business industry, my guess is that we're still several quarters away from feeling confident enough about our underwriting models, our operations and our portfolio management to significantly ramp up the rate of our small-business originations.

Now I'd like to turn to our Brazil operation and provide a little more detail on our business there. As you may recall, we launched a short-term installment loan pilot in Brazil in mid-2014. Our good progress in that market led us to take the business out of the pilot phase at the end of last year, and since then, we've been focused on growing more aggressively.

As the seventh largest economy in the world, with a population of over 200 million, Brazil represents a very large untapped market opportunity for us. Our target customer is the new middle-class, consisting of approximately 74 million people who are underbanked by the country's mainstream financial system. This represents an addressable market estimated at approximately $115 billion in unsecured personal loans.

We enjoy a first mover advantage in Brazil, as there is very little online lending in a favorable regulatory environment. Our product offering consists of a short-term installment loan product with a term of three to twelve months and a loan size in the range of BRL500 to BRL2500, or approximately $150 to $800 US.

I would characterize our products in Brazil as near-prime. Our rates are generally at the high end, just slightly above credit card rates there. This is also reflected in the demographics of our customer base. The majority of our customers are under 34 years old and represent the up-and-coming middle-class. They are over three times more likely to have a college education, and their average incomes are about 40% higher than the median average income in Brazil.

Our Brazilian loan portfolio has grown to $14 million at the end of the third quarter, which is up nearly 19% from the end of Q2. Based on the strong unit economics we are currently generating in Brazil, we have been meaningfully increasing original levels, and in the third quarter, we grew originations by 28% sequentially. This is continuing in Q4. In fact, we had a record funding day last week with almost 300 loans.

While our Brazilian business will have a small EBITDA loss this year, we expect it to be EBITDA positive next year, and as we mentioned last quarter, we believe Brazil presents a significant opportunity for us with the potential of generating $100 million of annual EBITDA contribution down the road.

Turning briefly to our marketing, you may recall that Google recently implemented new policies for AdWords, which restrict the promotion of short-term loans around the world and loans with APRs over 36% in the US. As we noted on last quarter's call, AdWords accounts for just a small percentage of our new customer volume, and as anticipated, we've not seen a material impact from the new policies, and we do not anticipate one going forward.

Despite not having anticipated any significant impact from the Google AdWords change, we did modestly increase marketing spend on direct mail and TV at the beginning of the quarter to provide additional protection. However, as I mentioned a minute ago, our marketing spend was very efficient in the quarter, and we've pulled back on our marketing in the back half of Q3.

The result was that our overall marketing expense rose only modestly on an absolute basis from Q2 and actually declined as a percentage of revenue sequentially, to 13.6% from 14.8% in the second quarter. This is counter to what we have historically seen, as our Q3 marketing spend usually is much higher than Q2. As a result, our marketing spend as a percentage of revenue decreased and outsized 8 percentage points year over year. For Q4, we expect marketing to more closely approximate historic levels for the quarter, so I would anticipate that it would modestly rise from Q3 levels as a percent of revenue.

To summarize, we are very pleased with our financial performance so far this year, and given the great progress on our new initiatives, creating diversification and additional growth, we are equally excited about the future. We see the success we've had so far this year continuing into Q4 and 2017 given our focused growth strategy, strong competitive position and solid balance sheet with diversified funding.

As we look to the pending regulatory changes in the US in 2018, our continued success and market share gains reinforce our confidence that our proprietary analytics and deep experience navigating past regulatory changes will enable us to emerge a winner.

Now I'd like to turn the call over to Steve, our CFO, who will go over the financials in more detail. Then following Steve's remarks, we'll be happy to answer any questions you may have. Steve?

Thank you, David, and good afternoon, everyone. I'll start by reviewing our financial and operating performance for the third quarter and then provide our outlook for the fourth quarter.

As David mentioned, we are very pleased with the Company's strong performance in the third quarter, the continued momentum we are seeing in our core businesses, and the traction of our new initiatives to drive additional growth. Total revenue was $195.9 million in the third quarter, an 18.6% increase from the year-ago quarter and above our guidance range of $175 million to $190 million. On a constant-currency basis, revenue increased 21.4% year over year.

In the third quarter, total Company origination volume increased 7.6% on a year-over-year basis and 12.7% sequentially. This drove ending total Company loans and finance receivables balances to $667.3 million. That's up 38.4% year over year from $482.2 million in the third quarter of last year, and up 12.1% sequentially.

New customer acquisition continued to drive a significant amount of our originations during the quarter. The dollar amount of new customer loan originations has exceeded 25% for two consecutive quarters, with increases across all of our significant products. Domestic revenue increased 23.7% on a year-over-year basis and 17.8% sequentially, to $165.3 million in the third quarter, and accounted for 84% of total revenue.

In particular, year-over-year revenue growth for domestic installment loans and receivable purchase agreements and for line-of-credit products increased 34% and 41%, respectively. During the quarter, we continued to see increased demand for our domestic near-prime installment product and line-of-credit offerings, which drove our domestic loan and finance receivable balances up 44% year over year.

International revenue declined 3% on a year-over-year basis to $30.6 million and accounted for 16% of total Company revenue in the third quarter. On a constant-currency basis, international revenue increased 11.6% on a year-over-year basis.

The decline was primarily due to the wind-down of our Canadian and Australian businesses as well as the UK line-of-credit product following the changes in the regulatory environment there. Excluding revenue impacts from these wind-downs, international revenue increased 8.1% on a year-over-year basis in the third quarter.

International loan balances were up 7.6% year over year, marking our fifth quarter of sequential growth. On a constant-currency basis, international loan balances were up 18.7% year over year. Excluding Canada, Australia and the discontinued UK line-of-credit product, international loan balances increased 15.3% on a year-over-year basis in the third quarter.

Turning to gross profit margins, our third quarter gross profit margin for the total Company was 51.3%, which compares to a gross profit margin of 60.3% in the third quarter of last year. The year-over-year decline in gross profit margin continues to be driven by three primary factors -- first, the continued strong growth of our domestic near-prime installment loan portfolio, resulting in a higher mix of those products in the total portfolio.

Second, a higher mix of new customers in originations, which requires higher loss provisions upfront, as new customers default at a higher rate than returning customers with a successful history of loan performance. And third, the wind-down of the UK line-of-credit product in the prior-year quarter.

As David mentioned in his remarks, rapid growth in originations, especially from new customers, creates long-term value to Enova but can impact near-term profit measurement due to the timing of recognizing revenues and expenses under generally-accepted accounting principles.

New loan originations will provide substantial profit over their lives, but during the quarter of origination, the effect will be dampened by upfront marketing expenses as well as the need to build an allowance for expected loan losses. In subsequent months, GAAP profit measures for these originations will turn more positive. For example, it would typically take about three months for a new CashNetUSA line of credit customer to achieve break-even gross profit because of upfront provisioning.

As we've guided in the past, we expect the consolidated gross profit margin will be in the range of 55% to 60% and will be influenced by the growth in originations, the mix of new versus returning customers in new originations, and the types of loans and financings in the portfolio. Our domestic gross profit margin was 48.1% in the third quarter, compared to 55.8% in the third quarter of last year, for the reasons previously discussed.

Excluding -- we expect our international gross profit margin to remain in the range of 65% to 75% and will be driven by the pace of growth in both the UK and Brazil as well as the mix of new and returning customers.

Turning to expenses, we continue to see strong operating leverages. Total expenses decreased 10% year over year to $72.5 million. Marketing expenses totaled $26.7 million in the quarter, or 14% of revenue, compared to 22% of revenue in the prior-year quarter.

As David mentioned, very efficient marketing and strong customer demand led to a 25% decrease year-over-year in marketing spend. In the quarter, we saw lower online marketing, television advertising and revenue-sharing costs, which were partially offset by higher direct-mail costs.

Operations and technology expenses increased 11% year over year in the third quarter, primarily due to higher software costs, higher underwriting costs for our domestic installment and receivables purchase agreement products, as well as higher domestic transaction costs as a result of higher origination volumes. General and administrative expense decreased 6% to $21.3 million in the third quarter, primarily due to a higher rate of capitalized labor expenses and lower third-party legal, consulting and outsource costs.

Adjusted EBITDA, a non-GAAP measure, increased 35% year over year, to $34.2 million in the third quarter from $25.2 million in the third quarter of last year. It also came in at the high end of our guidance range of $25 million to $35 million. Our adjusted EBITDA margin increased to 17.4% from 15.3% in the third quarter of last year. Our stock-based compensation expense was flat sequentially and totaled $2.3 million in the third quarter. Net income increased to $7.8 million in the quarter, or $0.23 per diluted share, from net income of $4.4 million, or $0.13 per diluted share, in the prior-year quarter.

Our effective tax rate for the third quarter increased to 35.4% from 18.8% for the third quarter of last year. Our effective tax rate for the nine months ending September this year increased to 39.6% from 36.5% in the prior-year nine-month period. We continue to believe that our full-year 2016 effective tax rate will be approximately 40%, as the rate continues to be heavily influenced by the significant decline in intrinsic value of previously granted restricted stock units, resulting in adjustments to the deferred tax asset balance related to those units that invested to date.

Adjusted earnings, a non-GAAP measure, increased to $9.3 million in the quarter, or $0.28 per diluted share, from $6.2 million, or $0.19 per diluted share, in the prior-year quarter.

Turning to our balance sheet, our consistent operating cash flows and the recent extension and upsizing of our installment loan securitization facility give us the financial flexibility to execute on our strategic growth plans and further strengthen our competitive position.

As we disclosed yesterday, the total capacity of our installment loan securitization facility has increased by $100 million to $275 million. In addition, the monthly variable interest note or warehousing component of the facility has been upsized to $30 million. We also extended the maturity of the facility out to October of 2017.

Cash flows from operations for the quarter totaled $120.2 million, and we ended the third quarter with cash and cash equivalents of $45.7 million and total debt of $635.2 million. Our debt balance includes $137 million outstanding under the $275 million installment loan securitization facility.

Now I'd like to turn to our outlook for the fourth quarter and full-year 2016. Our outlook reflects continued strong growth in our new initiatives, including NetCredit, a continued higher mix of new customers, no significant changes in the competitive landscape in the UK, and no immediate impact to our US business from proposed CFPB rule making, since any new rules are not anticipated to go into effect until late 2018. Any significant volatility in the pound at current levels could also impact our results.

As noted in our earnings release, in the fourth quarter of 2016, we expect total revenue to be between $185 million and $205 million and adjusted EBITDA to be between $32 million and $37 million. For the full year, we expect total revenue to be between $728 million and $748 million and adjusted EBITDA to be between $139 million and $144 million.

With that, I'll hand the call back over to David.

Great. Thanks, Steve. At this time, we're happy to take any questions you might have.

We will now begin the question-and-answer session. (Operator Instructions). Bob Ramsey, FBR.

Good afternoon, guys. This is actually Kyle Peterson on for Bob today. I just want to touch on the G&A. I know it went down, and you guys mentioned in your prepared remarks that some of that was kind of the capitalized labor costs. Is this type of run rate something we might be able to expect moving forward, or is G&A going to drift back up a little bit?

Yes, I would -- this is Steve. Hey, it's nice to have you on the call. I would expect that to drift back up. There was some one-time catch-up in that, but, yes, you should not take that reduction as the run rate.

Okay, great. And then I guess just switching a little bit on NetCredit, do you guys have the average yields that you guys are getting on that credit available?

Yes, the average yields on the total portfolio is in the low 50%.

Did you say low 50%?

Yes.

Okay. And then I guess just finally on the credit here, I know you guys upsized the securitization. Is that going to be kind of your primary vehicle for funding that book going forward? I just kind of wanted to get your thoughts on funding and that credit.

Yes, our securitization facility -- as you know, NetCredit is really our business that doesn't benefit from a self-funding type of mechanism, so we rely on that securitization facility to fund the bulk of the NetCredit originations.

Right. Right. I guess I was just trying to get at about how -- do you guys have any kind of leeway or runway in terms of what the upsize gives you guys before maybe you guys would consider tapping the market again or kind of exploring some other financing options, because you're obviously growing very quickly?

Yes, I think -- well, I think this structure and size will take us through our needs for 2017.

All right. Great. I think that's all for me. Thanks, guys.

Great. Thank you.

David Scharf, JMP.

Dave, I'm wondering if you can talk a little bit about, well, maybe the quality -- credit losses are, obviously, holding it nice and stable, but as we think about the ending allowance rate going forward and the consolidated gross margin going forward, was the pull-back in origination, the intentional pull-back at the end of the quarter, partially based on the quality of the applications that were coming in, or was it just sort of managing capital liquidity and volume?

Yes, it was absolutely not based on the quality of the applications. The quality we saw was really good. Credit quality has consistently -- has been consistently good this entire year. It was really just based on the extremely strong level of demand we were seeing, particularly new customer demand, as Steve mentioned in his remarks.

We had the highest level of new customer originations this quarter, and if we continued at the pace we were running, it would have been great top-line growth and great long-term growth, but it would not have been good for Q3 profitability, so really just pulled back on those origination levels purely to maintain that profitability level for the quarter, nothing at all to do with credit quality.

Got it. Perfect. And along those same lines, as we think about the ending allowance, which was up at 14.5%, obviously reflective of a bigger mix of newer borrowers, since you, as you said, sort of throttled back a bit at the end of the quarter and possibly into the fourth quarter, as those newer borrowers season and you get a better read on them and, presumably, they start generating more repeat borrowing in the first half or throughout next year, is that 14.5% -- should we think of that as a high watermark? Should it be trending downward from here?

Well, it depends on mix going forward, but as we mentioned, Steve mentioned, we had very high new customer mix this quarter. That's why that number was higher. It's why gross profit margin was lower this quarter, and Steve guided to a higher expected gross profit margin, all things equal, going forward.

Got it. Got it. Hey, switching to small business, before your comments, I had noticed that the origination volumes sort of tapered off a bit. I'm just curious if you can expand upon your comment regarding the discipline you're showing with respect to just confidence level in the model just yet and how competitive it is out there. I mean, reading between the lines, I got the sense you were implying that it's still a -- if not frothy, a very, very competitive market right now that you don't want to necessarily jump in feet first.

Well, it is a competitive market. That's not necessarily our biggest concern. We actually think there's a little bit of a competitive shake-out going on right now. Some of the kind of smaller competitors are starting to run into some funding issues, and I think people are finally stepping up from a regulatory standpoint and providing better disclosures and making better products available, which will help us, because we certainly didn't play on the fringes like some of the people did out there.

But until that shakes out, and if we had been at this ten years like we have on the consumer side, maybe we'd be more aggressive, but as we're still refining our operations and our credit models, really understanding lifetime value, we're happy to go a little bit slower while that shake-out is happening, continue to refine and kind of -- we fully expect that still to be a good business for us long term, and I would expect sometime in 2017, there's a good chance we become more aggressive in growing that business.

Got it. And then, lastly, just on the UK and what's going on competitively, I know you've talked about how during the whole sort of regulatory shake-out, you sort of vaulted maybe from third or fourth to first in terms of market share. Any anecdotal commentary about Wonga, DFC Global's brands? Did you feel like you're growing simply because you're emerging from the darkness, like everybody else, after that first year post new rules, or do you feel like competitors are actually losing share to you?

We feel like competitors are really losing share to us. We can see it in some of our marketing and customer reach numbers, as well, beyond the origination numbers, and if you look at the UK growth, on its base, it doesn't look spectacular in Q3, but if you look at it on a constant-currency basis -- and Steve gave you some of those numbers -- it's actually really strong growth in the UK. The market isn't growing in the UK, it kind of grows at the rate of population, but our business certainly is, and we think that's largely from taking share.

Got it. Great. Thank you.

Yes.

John Hecht, Jefferies.

I guess just getting a little bit more to the new customers and the higher composition of your customers in the quarter, you've hit a -- I guess if you were going to hit an optimal balance of new and recurring customers, where are you in context to that? And then the second question is which -- were they across all products and geographies, or maybe can you tell us where the new customer benefits came from, from a product perspective?

Yes, so let me -- let's do the first part first. Absent having public guidance out there quarter to quarter and being a public Company with kind of expectations, we take as many new customers as we can possibly get every single quarter. While it does hurt near-term profitability, it's very near-term, and so we do not think -- we wouldn't be putting the business at risk by taking as many new customers as we possibly could, because those new customers turn into returning customers pretty quickly and become great profit drivers for us.

Managing that balance is really more about kind of one of our themes for this year, which is doing what we say we're going to do, and once we have those expectations out there, we certainly work hard to meet them. The second part of your question --

Yes, in terms of like which business we're driving it, both the US and the UK core businesses either saw gains in the quarter or held constant from an already strong second quarter. Same thing with NetCredit, so really our largest businesses, most significant products, we're seeing those new customer acquisitions.

Yes.

Yes, so balanced across all products, then.

Yes.

Yes.

And it sounded like -- as you mentioned, David, to deliver on what you set forth with respect to guidance, you kind of throttled back. Are you able to tell us month end of this quarter, is your interest in new customer -- the appetites of new customers as strong as it was kind of through last quarter at this point in time?

Yes, we are still seeing good new customer volume.

Okay. Great. Thanks very much. And last question -- you mentioned the upsized credit facility. Any changes with covenants or anything worth noting in that? I know that was just yesterday, I think, you announced that.

Yes, no changes in covenants.

Great. All right, guys. Thanks very much.

Uh-huh.

John Rowan, Janney.

Steve, I just wanted to make sure I understood. Gross profit guidance for 2017 is between 55% and 60%. Is that correct? That's total consolidated?

Yes, well, that's not guidance for 2017 necessarily, but that's sort of where we (inaudible). Quarter to quarter, it can vary, and we would expect a full year to sort of fall into that range.

And do you think that it's more of a -- it's a seasonal number, where maybe you have a higher gross profit in the beginning half of the year or trailing out for the last half of the year?

That's correct. That's how our -- that's how the gross profit pattern works in the business.

Okay. And then an earlier question mentioned some one-time catch-up items in the G&A. Can you kind of just go over that again? I didn't really catch what you said. How big were the items that -- I guess it seemed like they were reversed out of G&A in the quarter?

Well, we capitalize labor that's related to the development of technology in the firm, and in this quarter, there was a little bit of a catch-up, which created some of the goodness that you saw on that line item. If I had to sort of guide you a little bit, between the items that I mentioned in my comments, there's probably about $1.5 million of goodness -- $1.5 million to $2 million of one time-ish type items in that G&A line item.

So that reduced the $21.3 million G&A line item.

That's correct.

Okay. Versus your initial guidance when you came out -- when the CFPB put out the rules, you were saying 60% to 65% of your products would be impacted in some way, shape or form. You've obviously grown ancillary products. You've been generating loan growth out of the UK. Can you maybe update us just on what that number is today? I think you said there was, if I'm not mistaken, 28% of your US portfolio was in payday lending. Can you just help me square out what the overall buckets of business are that are exposed to that rule? David, you went through a bunch of numbers earlier today. I just didn't get them all down as you were going through them.

Yes, we're probably not going to update that number every quarter. It took a momentous amount of mass to get to that number on the back end of the year, but I think it hasn't changed a tremendous amount. We've gotten some outsized growth from Brazil since that time, but it's very small. NetCredit has grown maybe incrementally faster than CNU has, but both of those businesses have grown on an absolute basis. CNU has actually probably grown faster than NetCredit. So it hasn't changed a ton since June, when we first put that out there.

Okay. And then just a last question -- when did Google actually change their policy on marketing? Because I had heard that the ads are actually still showing up on Google, and I know, obviously, you don't get a lot of direct marketing from Google, but I know some of your lead gens also do use Google. And that will be my last question.

It was -- they were a couple weeks late in getting it out, so it was right around the 1st of August.

Okay. Thanks.

Uh-huh.

Tom White, Macquarie.

I hopped on a little late, so I apologize if this was already covered, but Enova Decisions, maybe just could you give us kind of an update there on number of customers, any new customer wins? And just kind of stepping back, I'm just kind of curious how you guys are differentiating or trying to differentiate that product with some of the other kind of online lending platforms that are looking to provide kind of outsourced credit decisioning. And then just a housekeeping on the guidance, the full-year guidance. I'm just curious, the strengthening of the dollar versus the pound. Can you kind of call out sort of what the headwind since you guys last kind of gave a full-year guidance number and how we should be thinking about that headwind in the new guidance?

Yes, so Enova Decisions has actually been doing really well. They have a nice pipeline. We have a few signed customers now, but more importantly, we have half a dozen or more in kind of what we -- in data studies or prototyping, which is kind of like the first step to a long-term signed agreement.

So really, it's obviously very, very small, in its early stages, but we like the traction we're getting in our conversations with customers, which kind of leads into the second part of your question about how we differentiate that product, and it's not a lending platform. That's not what Enova Decisions is. It's a decisioning platform, and the focus for Enova Decisions and how we differentiate ourselves is really to provide real-time transactional decisions to customers.

So we're not doing big data studies for them. We're not writing custom algorithms. We're using our existing tools, whether it's customer acquisition, credit decisioning, fraud prevention, to help these companies make decisions about their own customer bases in real time.

And Steve, do you want to address the pound?

Yes, kind of on the pound, just to give you some context, the third quarter this year versus last year, the pound is down about 14% -- 14%, 15%. And clearly, the line items associated with the pound are going to be worth less, whether it's a P&L or a balance sheet line item, and I think our point is our guidance is just highlighting that we are subject to volatility from the pound-dollar relationship, but that's really all we're trying to communicate. And we try to give you some color on the constant-currency measures back in our commentary so you can get a feel for more of an apples-to-apples comp.

Okay. Thank you.

Yes.

(Operator Instructions). Gregg Hillman, First Wilshire Securities.

First of all, Steve, when you say near-prime 47% originations in NetCredit, does that mean 36% per year, annum, interest and below when you say near-prime?

No, we're not talking about AAPR cutoffs. We're talking about customers that we think are between -- above our credit quality for subprime but not -- obviously, not in the prime space, so it's broader than just the NetCredit sub-36.

Okay. Well, then just overall for domestic US lending, what percentage is 36% or below at this point in terms of APR?

We don't break that out.

Yes, we don't break out and disclose that separately.

Okay. So it's hard for an investor to know for your installment program, your installment products and your line-of-credit products what the exposure is to regulatory risk with the new regs. Is that right, it's hard to tell? That's a guess?

Well, we actually gave specific guidance back in June about the percentage of our revenue that was subject to the new rules, and I think once the rules -- once we have final rules from the CFPB next year, that's the guidance that we'll likely update.

Okay. But anyway, you're sticking with that guidance from June at this point?

Yes. Like we said, it hasn't moved a lot in the three or four months since then.

Okay. And then the other thing I wanted to touch on was the so-called credit cycle when -- at certain times when lenders pull back because they're getting into bad losses on their loans. In particular, I think the loss rate on second mortgages in auto loans is trending up right now, and since you're just a 12-year-old Company, the last time there was a pull-back, tightening of credit standards, you were kind of a fast-growing Company and just had single-pay loans, and now you have long-tail loans that go -- some go on as much as, I don't know, three to four years, so you haven't really been stress tested in a period when you have a significant percentage of long-tail loans in the portfolio. Is that correct?

We had installment loans back in 2008, 2009, 2010, shorter term than some of the loans that we have today. That is correct.

Yes, but -- okay, but the whole composition of your portfolio -- well, just going back, how did those loans perform in that period, the installment loans? What was the longest term for installment loans back then?

A year.

Okay, but -- and you have loans now that go for as long as like three or four years. Is that correct?

That is correct, yes.

Okay. So you haven't gone through a period where you've kind of stress-tested your really long-tailed loans.

Is that a question?

Well, no, no, I'm just -- yes, is that true, you have not gone through a period --

I mean, we've had -- those loans get stress-tested at more micro levels on a very regular basis. We have states with different economic cycles. We see kind of towns with big factories that shut down where we can see the impacts of default. So that's one of the great things about our model -- it can be very micro-focused, so we can learn from the impacts of some of those smaller changes and adjust our underwriting, our collections, our portfolio management so that we can adapt when they're wider spread, and that's certainly what we saw in our shorter-term portfolio back in 2008 and 2009.

Our models were good enough that they were able to anticipate -- they had seen smaller shocks throughout the first four or five years of our existence, and we performed very, very well through the recession that started in 2008, so we feel very, very confident in the quality of the analytics behind our longer-term installment loan models and think we are in a great position to be able to withstand economic changes.

I think the other thing that certainly differentiates that portfolio versus the subprime auto portfolios or certainly mortgages is, obviously, the much higher interest rates on that portfolio, with an average APR north of 50%. It gives us a lot more cushion to withstand a downturn than, say, a single-digit interest rate on a mortgage.

I mean, for the entire book of business, for a series of loans.

Yes. Yes, that's right.

Okay. And then going back to your earlier (inaudible) about macro environments, so basic -- so if I'm correct, you said you could -- let's say if a particular town, I don't know, loses their main factory or something like that, that you could go to that particular town and then see how your loans performed in that geographical area as kind of a -- as a mini stress test, if you will, for how those particular loans perform in an economic downturn for that geographical area.

Yes, we're doing that virtually every day here. Yes, absolutely.

Okay, so that's interesting. So in a way, you're saying you could simulate a general economic downturn by all these mini things that happen around the country.

Yes. Yes, that's absolutely right, and we saw the effectiveness of that, again, through 2008, 2009, 2010.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to David Fisher for any closing remarks.

Great. Thank you, and thanks, everyone, so much for joining us today. We look forward to updating you on our progress next quarter. And most importantly, go Cubs.

And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.