Enova International Inc (ENVA) 2018 Q4 法說會逐字稿

Hello, everyone, and welcome to the Enova International Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) Please note that today's 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, Brian, and good afternoon, everyone. Enova released results for the fourth quarter and full year 2018, ended December 31, 2018, 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 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 U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in 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, Monica, and good afternoon, everyone, thanks for joining our call today. I'm going to start by giving a brief overview of the quarter, then I'll update you on our strategy and outlook for 2019. After my remarks, I'll turn the call over to Steve Cunningham, our CFO, to discuss our financial results and guidance in more detail.

A strong fourth quarter capped off with terrific year for Enova, robust new customer growth drove our top line outperformance, which again exceeded the high end of our guidance range. And stable credit, combined with efficient marketing, enabled us to deliver solid profitability even with a high mix of new customers.

Fourth quarter revenue was a record $313 million, an increase of 28% over last year, as we saw healthy demand across all of our products. Adjusted EBITDA in the fourth quarter rose 27% to $48 million and adjusted EPS doubled year-over-year to $0.52. These results reflect a strong execution and solid operating leverage inherent in our online model. The solid demand we have seen all year continued in the fourth quarter. Clearly, our diverse product offerings are resonating with new and returning customers.

During the fourth quarter loans to new customers represented 29% of total originations. As we've mentioned in the past, these new customers ultimately expand our returning customer base and our revenue potential going forward. Also contributing to our strong fourth quarter results was stable credit across our portfolio. While our net charge-offs were higher than last year, this is largely a result of the higher mix of new customers over the last several quarters. We feel very confident in the quality of our analytics to manage credit quality changes in customer mix, product mix and importantly, through economic cycles. We performed pretty well through the Great Recession, and our credit analytics are much more sophisticated today than they were then.

Total company-wide originations in the fourth quarter increased 12% year-over-year and declined 1% sequentially. During the fourth quarter, we could have grown much faster with profitable unit economics given the strong demand for our broad product offerings combined with the efficiency of our marketing. However, we pulled back on our marketing spend in the back half of the quarter to maintain strong company-wide profitability. Steve will provide more detail, but this moderation in growth allowed us to achieve our EBITDA and EPS guidance, while still delivering very strong revenue growth.

Managing growth can be challenging, but our sophisticated analytics models can respond rapidly to demand by adjusting our marketing spend and credit cut-offs up or down. Our ability to manage growth versus profitability is a significant strength we have developed and a key reason we have been able to repeatedly meet or exceed our guidance. Additionally, we believe this balanced growth approach is prudent given how late we are in the current economic cycle.

As we have discussed, credit quality still looks excellent, but late in the cycle is definitely the time to ensure you have very strong unit economics across your products. Our success and positive results across our short-term line of credit and installment and receivable purchase agreement segments is attributable to our focus on our 6 growth businesses: namely, our U.S. subprime business; our U.S. near-prime offering; our U.K. consumer brands; U.S. small business financing; our installment loan business in Brazil; and Enova Decisions, our Analytics-as-a-Service business. We remain focused on actively building out each of these businesses and adding additional products within them to drive further growth.

Our large U.S. subprime consumer business generated another strong quarter of profitability, as we remain committed to helping hardworking people get access to fast trustworthy credit. Originations in this business increased 20% year-over-year. And the portfolio remains well diversified, consisting of 48% line of credit products, 35% installment products and only 17% single-pay products.

For the year, our U.S. subprime originations grew 19%, showing our ability to drive growth in this business even with its large size. Our net credit product continues to take share from brick-and-mortar lenders. Net credit loan balances increased 27% year-over-year to $470 million and originations increased 2% year-over-year. Our U.S. near-prime product represented 45% of our total portfolio at the end of Q4, up from 43% in Q4 of last year. With 26% origination growth in 2018, NetCredit has become a substantial business for us in a fairly short period of time.

In the U.K., we're also seeing solid growth. Our fourth quarter U.K. revenue increased 9% compared to the fourth quarter of last year, primarily driven by strong growth in our installment loan product there. As we have discussed in the past, we have been cautious with growth of our small business products over the last couple of years as we waited for pricing in the market to rationalize.

Over the last couple of quarters, we've seen a strengthening of demand at attractive unit economics. As a result, we become moderately more assertive in expanding in this space. The result was good growth in our small business financing products during Q4. Originations increased 32% year-over-year and represented 8% of our total book at the end of Q4.

Turning to Brazil. On a constant currency basis, fourth quarter originations rose 76% year-over-year. This contributed to our Brazilian loan portfolio increasing 31% year-over-year to $22 million at the end of the fourth quarter. We continue to see a large opportunity in Brazil with a huge population, growing middle-class and stable regulatory environment.

Lastly, Enova Decisions, our real-time Analytics-as-a-Service business, continues to gain momentum. Our technology platform is highly sophisticated and we've been able to leverage this technology to expand into different industries. While this business remains in the early stages, we are active in building out the pipeline and believe there is ample opportunity to do so.

Before wrapping up my remarks, I want to provide a brief comment on Federal rulemaking. There hasn't been an update from the CFPB since back in October when they announced their intention to reconsider the small-dollar rule. At that time, they expected to issue a notice of proposed rulemaking in early 2019 that would address reconsideration, specifically the ability to pay provisions as well as changes to the compliance date. And the CPB (sic) [CFPB] has not officially changed that guidance. Shortly after that announcement in November, a Texas Federal District Court granted a stay of the rules previously scheduled August 2019 compliance dates. As a result of these 2 actions, it remains unclear what the final rule will consist of and when it may become effective.

But the flexibility of our online platform, our extensive experience in adapting to new regulations and our proprietary analytics provides us with a significant advantage in adapting to any changes as compared to storefront lenders. In addition, since the initial rule was released over 2.5 years ago, we have significantly diversified our product offerings, resulting in reduced regulatory exposure under the rule.

Overall, we are very pleased with our financial performance in 2018 and the considerable momentum we have entering 2019. The strong new customer growth we have been generating, combined with a solid base of loyal returning customers and stable credit across the portfolio creates significant tailwinds for us. As I mentioned earlier, we will continue to balance growth and profitability as we build Enova for long-term success.

Our product offerings are resonating very well within the market, and we believe, our focused growth strategy, ongoing diversification and scalable online model coupled with prudent management of the business will ensure long-term, sustainable and profitable growth.

Now I'll turn the call over to Steve, who will provide more details on our financials and guidance. And following his remarks, we'll be happy to answer any questions that you may have. Steve?

Thank you, David, and good afternoon, everyone. I'll start by reviewing our financial and operating performance for the fourth quarter of 2018 and then provide our outlook for the first quarter and the full year 2019. As David mentioned, we closed 2018 with another quarter of strong financial results with revenue above our expectations and adjusted EBITDA and adjusted earnings per share at the midpoint of our guidance. Our performance this quarter and for the year reflects our continued ability to deliver meaningful growth with efficient marketing while leveraging our superior analytics, flexible online operating model and balance sheet to deliver strong bottom line results.

Total fourth quarter 2018 revenue increased 28% to $313 million, exceeding our guidance range of $290 million to $310 million and rose 6% sequentially. On a constant currency basis, revenue increased 29% year-over-year. Revenue growth was driven by a 22% year-over-year increase in total company combined loan and finance receivables balances, which grew to $1.05 billion from $862 million at the end of the fourth quarter of 2017. Installment loan and line of credit products continued to drive the growth in total loans and finance receivables balances. Quarterly originations in our installment and RPA and line of credit products increased 12% and 41%, respectively from the prior year and drove the 12% year-over-year increase in total company originations during the quarter.

Installment loans and lines of credit now comprise more than 80% of our total revenue and 90% of our total portfolio, demonstrating our customers' preference for these products. The ongoing diversification of our receivables portfolio continues to generate faster receivables growth in our line of credit and installment loan products. These products have longer durations and higher average loan amounts. As a result, we are able to drive higher total company receivables and revenue growth with fewer originations, which generally should result in less effort and lower cost to grow over time. This is a leading factor of the ongoing trend of lower operating expense as a percentage of revenue.

Domestically, revenue increased 31% on a year-over-year basis and rose 7% sequentially to $269 million in the fourth quarter of 2018. Domestic revenue accounted for 86% of our total revenue in the quarter. Revenue growth in our domestic operations was driven by a 41% year-over-year increase in line of credit revenue, and a 28% increase in installment loan and finance receivable revenue. Continued strong demand for these products drove our domestic combined loan and finance receivables balances up 24% year-over-year.

Driven by the strong growth of NetCredit, domestic near-prime installment loans grew 27% year-over-year and comprised 45% of total company combined loan and finance receivables balances at the end of the quarter.

International revenue increased 14% from the year-ago quarter to $44 million and accounted for 14% of total revenue in the fourth quarter. On a constant currency basis, international revenue rose 20% on a year-over-year basis. Year-over-year installment -- year-over-year international revenue growth was driven by a 33% increase in international installment loan revenue, partially offset by a 6% decrease in short-term loan revenue, reflecting our ongoing diversification strategy and expansion of installment lending in our international markets.

Total international loans increased 9% compared to a year ago, as international installment loan balances rose 27% year-over-year. International installment originations rose 49% compared to the year-ago quarter. On a constant currency basis, international loan balances increased 17% year-over-year.

Turning to gross profit margins. Our fourth quarter gross profit margin for the total company was 43%, which compares to 48% in the year-ago quarter and 44% in the third quarter of 2018. As we have highlighted for some time, we typically see a decline in gross profit margin during the second half of the year, as we move into our seasonally higher growth periods. This can be especially pronounced during periods of accelerating growth as we saw for most of 2018 and if a higher proportion of growth is coming from new customers, which was again the case in the fourth quarter. A higher mix of new customers and originations requires higher loss provisions upfront, as new customers default at a higher rate than returning customers with a successful history of payment performance. Originations from new customers across all of our businesses were 29% of the total during the fourth quarter, and new customer originations accounted for 22% of the quarterly year-over-year change in total company originations.

On a full-year basis, new customer originations totaled 29% of total company originations in 2018 compared to 27% in 2017, and 24% in 2016. New customer originations accounted for 39% of the full year 2018 year-over-year increase in total company originations.

Net charge-offs, as a percentage of average combined loan and finance receivables, increased in the fourth quarter to 15.9% from 13.4% in the prior year quarter. This increase was expected, given the rising proportion of new customers in our portfolio over the past 2 years. Similarly, at the end of the fourth quarter, the allowance and liability for losses for the consolidated company, as a percentage of combined gross loan and financing receivables, was 15.7% compared to the year-ago quarter of 14.5%.

As you can see in our supplemental earnings release tables, the increase in the consolidated net charge-off ratio is driven primarily by increases in the line of credit segment. That segment has been experiencing the fastest growth and highest portion of new customer volume and originations.

Overall, the credit performance of the portfolio continues to be stable and in line with our expectations, given the increase in new customer volume and portfolio mix shifts this year. We continually monitor unit economics across products, and across vintages and remain comfortable with the returns we are generating on our originations.

For 2019, we expect our consolidated gross profit margin to be in the range of 45% to 55%. Slight decline from our prior year's gross margin guidance is driven primarily by the expectation of continued growth in originations coming from new customers.

Quarter-to-quarter, our gross profit margin will be influenced by seasonality and growth characteristics, including the pace of growth in originations, the mix of new versus returning customers in originations and the mix of loans and financings in the portfolio. We expect the gross profit margin during the first quarter of 2019 to be somewhat lower than prior years, as significant new customer growth from recent quarters continues to season and as a result of our ongoing portfolio mix shift to installment and line of credit products.

Our domestic gross profit margin was 43% in the fourth quarter compared to 47% in the fourth quarter of 2017 and was flat when compared to the third quarter of 2018. Our international gross profit margin was 43% in the fourth quarter compared to 52% in the prior year quarter. The decrease in international gross profit margin from the year-ago quarter was driven primarily by the growth in new customers and the portfolio of mix shift towards installment loans.

We expect our international gross profit margin in 2019 to be in the range of 47% to 57%. Quarter-to-quarter, the international gross profit margin will be influenced by seasonality in growth characteristics, including the pace of growth in originations, the mix of new versus returning customers in originations and the mix of loans and financings in the international portfolio.

Turning to expenses. Strong operating leverage this year from our scalable online model has allowed us to continue to maintain attractive levels of EBITDA, even while fulfilling strong customer demand. While we typically experience meaningful variations from quarter-to-quarter, total nonmarketing expenses for the full year 2018 grew 12% compared to revenue growth for the full year of 32%.

During the fourth quarter of 2018, total nonmarketing operating expenses of $59 million increased 25% from the year-ago quarter, and our total operating expenses, including marketing, were $91 million or 29% of revenue in the fourth quarter compared to $79 million or 32% of revenue in the fourth quarter of 2017.

We continue to see efficiency in our marketing spend as well. Marketing expenses in the fourth quarter grew just 2% compared to the year-ago quarter to $32 million or 10% of revenue compared to $31 million or 13% of revenue in the fourth quarter of 2017. We expect marketing spend will range in the low- to mid-teens percentage of revenue in 2019 with the highest spend during our seasonal growth periods in the second half of the year.

Operations and technology expenses totaled $31 million or 10% of revenue in the fourth quarter compared to $23 million or 9% of revenue in the fourth quarter of 2017 and were higher primarily from volume-related variable expenses, ongoing expenses associated with complaints in the U.K. and a one-time $1.7 million decrease in the prior year quarter related to an expense reclassification.

General and administrative expenses were $27 million or 9% of revenue in the fourth quarter compared to $25 million or 10% of revenue in the fourth quarter of the prior year and were higher primarily from modestly higher personnel-related expenses to support strong growth in the business.

Adjusted EBITDA, a non-GAAP measure, of $48 million increased 27% year-over-year in the fourth quarter. Our adjusted EBITDA margin was 15.5% compared to 15.6% in the fourth quarter of the prior year.

Our stock-based compensation expense was $3.5 million in the fourth quarter, which compares to $3 million in the fourth quarter of 2017. Our effective tax rate was 30.8% in the fourth quarter compared to a tax benefit of 70.1% recorded in the fourth quarter of 2017.

Our full year 2018 effective tax rate was 8.3% compared to 22.8% in 2017. We expect our ongoing normalized effective tax rate will be in the mid-20%.

Net income was $8.7 million in the fourth quarter or $0.25 per diluted share, which compares to net income of $6.9 million or $0.20 per diluted share in the fourth quarter of 2017. Net income has benefited from rising EBITDA and a drop in the company's cost of financing.

Net income includes a loss on the early extinguishment of debt during the quarter of $7.8 million, as a result of retiring the remaining $117 million of our 9.75% 2021 notes during the quarter using unrestricted cash and cash equivalents.

Adjusted earnings, a non-GAAP measure, more than doubled to $18.2 million or $0.52 per diluted share from $8.9 million or $0.26 per diluted share in the fourth quarter of the prior year.

On the heels of a number of successful financing transactions during 2018, we finished the year with strong liquidity and a falling cost of funds. During the fourth quarter, cash flows from operations totaled $217 million, and we ended the quarter with unrestricted cash and cash equivalents of $53 million and total debt of $858 million.

Our debt balance at the end of the quarter includes $116 million outstanding under our $575 million of combined installment loan securitization facilities and $24 million outstanding under our $125 million corporate revolver. Our cost of funds for the fourth quarter was 8.9%, a 90 basis point decrease from the same quarter a year ago and 190 basis point decrease from the fourth quarter of 2016. We expect our cost of funds to continue to improve into 2019, as we recognize the cost benefits of recent transactions.

Also today, we announced that our Board of Directors has authorized the share repurchase program for up to $50 million of Enova's outstanding common stock through December 31, 2020. This new program follows on the prior $25 million program, which has been fully executed. This share repurchase program gives us additional flexibility to deliver on our commitment to creating value for our shareholders while reserving adequate liquidity for our primary focus of investing in our 6 growth businesses.

Now I'd like to turn to our outlook for the first quarter and full year 2019. Our outlook reflects continued strong growth in each of our businesses, continued faster relative growth in installment and line of credit products, stable credit, accelerated growth in the mix of new customers and originations and no significant impacts to our businesses from regulatory changes.

Any significant volatility in the British pound from current levels could impact our results. We expect to see our typical quarterly seasonality during 2019. As a reminder, the first quarter is typically our strongest financially as combined loan and financing receivables decline or grow more slowly as originations fall from lower seasonal demand. This leads to a lower level of provision for loan losses and an expanded gross margin. These trends reverse themselves as we move into the second half of the year when seasonal demand and originations increase.

As noted in our earnings release, in the first quarter of 2019, we expect total revenue to be between $280 million and $300 million, diluted earnings per share to be between $0.78 and $0.99 per share, adjusted EBITDA to be between $63 million and $73 million and adjusted earnings per share to be between $0.85 and $1.06 per share.

For the full year 2019, we expect total revenue to be between $1.25 billion and $1.31 billion, diluted earnings per share to be between $2.49 and $3.13 per share, adjusted EBITDA to be between $230 million and $260 million and adjusted earnings per share to be between $2.76 and $3.40 per share.

As David mentioned, we remain very optimistic about 2019 and our ability to generate growth and increased profitability. And with that, we would be happy to take your questions. Operator?

(Operator Instructions) And today's first question will be from David Scharf with JMP Securities.

Wanted to maybe drill down a little bit more on how we ought to be thinking about modeling the credit outlook. Clearly, the increase in new customers is impacting the profile of the portfolio near term. Steve, when I look at the first half of the year of 2018, the loss rate was basically flat versus 2017. Then it was up 200 basis points year-over-year in Q3, now it was up 250 basis points year-over-year in Q4. And just based on your expectation of how long it takes for these sort of new customers to normalize within the portfolio, is 200 -- is the 250 basis point increase sort of a ceiling in your mind? Trying to sort of drill down ultimately what kind of loss profile you're thinking about that gets to your gross margin guidance?

Yes, David, so listen, it's going to depend on a few things and probably most importantly is growth rate, overall. So if you obviously are sustaining a level number of new customer originations while you are accelerating your growth, that's going to contribute, obviously, to some of those increases. I would say, also the mix. So if you just take a look at our segments, you can see the loss rates vary, and particularly they can vary fairly significantly. So the mix of that is going to matter. And then they also climb their seasonal -- I'm sorry, their curves as they season a little differently as well. So you may find some of our businesses that will hit half or more of their lifetime losses for a vintage in the several months and maybe almost all of them in the first 6 to 9 months, whereas a longer-duration loan might take a little bit longer. So it's not -- I'm not necessarily giving you any easy answer, but it depends on all of those various things. What we can tell you is we do expect the continued trend towards installment and the line of credit, as we mentioned, and we do expect that new customers as a percentage of originations is going to increase from what we saw in 2018.

Okay. Within those kind of -- just staying on the topic within the installment versus line of credit, it seems like the loss rate actually within installment, I mean, it did tick up sequentially, but it's been a lot more stable over the last few quarters even with this Q4 performance. It was a pretty dramatic spike in the loss rate in LOC. Is there anything unique about that you can divine about that borrower that's a little different? Or is it tend to be defaults on people that are drawing a second or third time? Just curious if there's anything about that borrower that's distinguishable and whether...

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So David, so I think as you look across, I mean, we've definitely seen, as I mentioned, line of credit has been growing fast and it's probably had the highest proportion of new customers in that year-over-year growth. And you can just look at on a relative basis that's kind of how it's been showing up. And a lot of that is centered in the U.S. CashNet businesses. I would also point you back to the installment segment, which has got a little bit more going on, and you've got some international businesses in the U.K. and Brazil as well as our near-prime product. And you can see those have ticked up year-over-year. There has been new customer growth, but I think there is a little bit more going on in that segment. I think, the line of credit -- one of the reasons I gave you the example last quarter, using line of credit is probably a little bit more of the pure view of how that new customer growth can play out, as those loans in a vintage season over time. So even some of the third quarter loans that we put on, we had rapid growth in the third quarter, great new customer growth. You're still seeing those vintages -- those monthly vintages move up their loss curve. So I think, that's kind of the dynamic you're seeing between the 2 segments. And as David mentioned, we moderated growth somewhat in the fourth quarter from where we could have landed, which obviously will take a little bit of time to play out as we move through 2019.

Got it, that's helpful. And just one last question, and I'll get back in queue. The -- sort of the reengagement on the small business side, I'm wondering if, number one, you can just refresh my memory about the profile about loan, like what the typical sort of loan size and APR is? And then secondly, is there an expectation that the mix 8% of total AR might reach the double digits by the end of this year?

Sure, David. So there's 2 products. We have 2 products in the small business space, one is the line of credit kind of in the $30,000 to $50,000 range. It's kind of like an Amex small business card replacement. And the other is a slightly larger installment loan like product that it can go as large as $250,000 or $300,000, but average loan sizes tend to be much smaller like well under $100,000. And the APRs for both products are kind of in the 50% to 60% range. Yes, the growth rate of that business currently is exceeding the growth rate of our overall business, but the overall business is still growing very quickly. So it really depends on how the year plays out. But right now the growth of that product looks good. We're not going to become overly bullish because we've seen silly stuff in that space over the last few years. And -- so we're going to make sure we don't get overly aggressive too soon. But right now, we're seeing pretty attractive unit economics and good demand and that's allowed us to show stronger growth.

Next question will be from Vincent Caintic with Stephens Inc.

It's nice to see the growth that you have been able to achieve and importantly the profitability that you've got. So you made the comment that you had a lot of growth available to you, and you could have grown more and so you pulled back on the marketing in the second half of the quarter. So appreciate that as a public company. When you get these, I guess, customers coming in and applying and you kind of maybe push back away from marketing or from booking them. I guess, what happens to the customer? Are they still available to you in the first quarter of '19? Or how do you kind of handle that and is that growth still available to you? Or does it go to another lender?

Yes, we definitely lose some kind of -- we lose some market share in the short term. Now, these products, as you know, mostly are -- across the industry are fairly short term in nature. So they come back into the market. So we get another bite at the apple over time. But certainly, we gave up a tiny bit of market share in the fourth quarter. As a proportion of our total kind of loans and total customers that we've engaged with over our 14-year history, it's tiny. But yes, it is -- we -- all things equal, you'd rather not have to do that, but we realize the importance of managing profitability, and so certainly believe it's worth the trade-off.

Right, I think that makes sense. Appreciate that. On the -- separately on the share repurchase program. So it's nice to see that you're re-upping that and also to see that you are growing a lot organically without share repurchases. Just wondering what your thoughts are on how you plan to use your capital? And how much capital you need to maintain your growth rates versus what you think of may be excess capital to return to shareholders?

Yes, Vincent, I think, our intention with the buyback program, as I said, was to be -- to really be opportunistic as you would expect. It's not intended to be sort of a regular return to our shareholders outside of that. We think that, as we talked about, there's plenty of demand for us and for our capital to be plowed back into the business and that's what we intend to do.

Okay, that makes sense. Just last one I have. So appreciate 2019 guidance. Any trends that you've built into 2019 guidance that's different from the trends of 2018? And kind of when you think about the high-end and the low-end of the ranges, other than usual dependency on growth, is there any other drivers between the ranges?

Yes, I think I tried to highlight in my comments, sort of, the key things that underpin that in our guidance outlook. So I think what you're going to see is the continuation of, largely what you saw in '18, the mix shift and diversification, increasing growth from new customers, stable credit. And I don't think there's anything extraordinary to talk about the ranges. Just a reminder that depending on our growth and our mix and the proportion of the growth, you can end up on the high-end of revenue and the lower side of EBITDA. So they're not necessarily linked as we move quarter-to-quarter, particularly as you move through the seasonality of the year.

Next question will be from John Hecht with Jefferies.

Real quick, Steve, for the modeling purposes. What should we think about for stock costs and tax rate?

Yes, so the -- are you talking about the repurchased shares?

No, just the equity compensation.

Oh, I see. Yes, that's going to run what it typically has been around $3 million to $3.5 million a quarter. Tax rate is mid-20s. You'd be pretty safe with a 25% tax rate and I say mid-20s because there are some variations from quarter-to-quarter under the tax rules that can add a point or 2 or take away a point or 2. But that's probably the best advice I can give you.

Okay, another question. I completely understand the mix between new, and call it, recurring or established customers and how that can fluctuate credit. Maybe can you give us a sense of what's the balance rate that you ran through in 2018 of new versus recurring customers and do you think that balance will be consistent in '19? And I just say this because it helps kind of me give context about how I think about modeling for credit.

Yes, we continue to see very strong new customer demand and subject to us, again, making sure we're delivering good profitability, we'd like to take as much of that new customer demand as we can. And -- so we saw 2018 higher than 2017, 2017 higher than 2016. Given the strength in demand, 2019 could very easily have a higher mix of new customers than 2018 did.

Okay, and then final question. Steve, you mentioned the where you kind of left the year in terms of cost of funds and you did some constructive balance sheet and liability management through the end of the year, do you -- I mean, can you give us a sense for is cost of funds this year going to be, on average 50 basis points lower than last year? Or can you give us a sense for maybe how you see interest expense tracking throughout the year, just so we get that line item a little bit more accurate?

Yes, I think it's kind of a little bit more room to go in terms of down just given some of the new deals that we did. Obviously, there's some dependency on 1-month LIBOR, but you should expect probably another, on a quarterly basis, down at least another 50 basis points as we move through the year.

(Operator Instructions) The next question will be from John Rowan with Janney.

So just to be clear, so for 2019, David, I know -- I think as you said stable credit. We're talking about stable credit on static pool basis, but that the actual credit loss might not be stable on a consolidated basis, correct?

Actually, credit loss will be increasing on a consolidated basis both in dollars and percentage. In dollars, obviously, just because of a larger portfolio, on a percentage because of increasing mix of new customers we saw in '18 versus '17, and actually saw accelerate throughout the year. So if that trend continues into 2019, and like I said, we have continued to see very strong new customer demand, that trend can continue. But as we said a couple of times now, at some point, we will keep it in check to make sure that it doesn't overly impact profitability. That being said, we have the wide guidance ranges that we give every year to give ourself some flexibility to take as much of that new customer demand as we can because that provides great long-term growth. And as Steve has said many times and just mentioned a minute ago, it's why frequently when we do see that strong growth and strong new customer demand we can end up in a scenario where we have very strong revenue growth and good, but maybe not as strong, profitability growth.

Okay, and just kind of sort of adjacent to that point, Steve, you gave guidance for the full-year marketing spend as a percent of revenue. I didn't like quite get that down. Can you just repeat what you said?

Yes. We said low- to mid-teens as a percent of revenue is good guidance for marketing.

For the full year?

Yes, for the full year. And I mean, obviously, there's a quarterly variation. We don't spend nearly as much in the first quarter as we do in the fourth quarter, for example, if you just look at our historical trends, but for the year that's a good -- it's going to be a good number.

Okay. And then it looks like you lost a little bit of money in the foreign category for the quarter. Is that in the U.K? I know one of your peers is out tonight discussing -- proposing a settlement for the competition claims. Any update you can provide there? And if that is what's driving the loss?

So I think it's a couple of things. I mean, there are -- is U.K. expense complaints in there. As you can see operational technology expense year-over-year didn't grow significantly as a percentage of revenue. So that today is a very manageable expense, but it is in there. The other thing we saw in Q4 was pretty strong Brazil -- growth in Brazil. I think, we saw 76% growth in Brazil, which obviously led to a lot of additional marketing expense and provisioning expense in Brazil, which impacted international profitability to pretty meaningful extent.

Okay, any -- was there change in trend line as far as complaints from the third to the fourth quarter? Or is it still not a material impact?

I mean, we do see some increases quarter-over-quarter or year-over-year. But as we highlighted, it's in these numbers. It's in our guidance and it's not on a consolidated basis. It's really not moving the needle on the category. And frankly, it's not -- we have both variable expenses related to the growth in the international segment. Obviously, complaints are in there as well. So that year-over-year growth was there as well. And you can see if there's been some pressure because, as David mentioned, the growth but it's not dramatically moving the results in that segment either.

At this time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to David Fisher for any closing remarks.

Appreciate everyone joining our call today. We look forward to speaking with you again next quarter.

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