EZCORP Inc (EZPW) 2011 Q3 法說會逐字稿

Welcome to the EZCORP fiscal 2011 third-quarter earnings release conference call. My name is Monica and I will be your operator for today's conference. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Stephen Stamp. Mr. Stamp, you may begin.

Thank you, Monica, and good afternoon, everyone. This call will address our third-quarter fiscal 2011 results. We issued a press release earlier today that is available on our website, www.ezcorp.com.

I'd like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our expected financial and operating performance in future periods. These statements are based on our current expectations. Actual results in future periods may differ materially from current expectations due to a number of risks, uncertainties and other factors, which are discussed in our press release and in our filings with the Securities and Exchange Commission.

On the call with me today is Paul Rothamel, our President and Chief Executive Officer. Paul will make a few opening remarks and talk about some of our strategic initiatives. I will then cover our results before we open the lines for Q&A. I'll now turn the call over to Paul.

Thank you, Stephen. And good afternoon, everyone. We appreciate you joining us today. Let me start out with a few financial highlights.

The third quarter was another great quarter for our company and we remain on track for another year of outstanding performance. Continuing our trend of consecutive year-on-year earnings growth, our diluted earnings per share for the quarter was $0.53, up 32% from a year ago.

Our quarterly performance was driven by exceptional growth from our pawn operations, as our core business remained strong and our growth initiatives drove results that exceeded our expectations. We again leveraged our operating platform throughout the Company and delivered 33% net income improvement on 17% revenue growth over the prior-year quarter. I should note that we've been able to deliver these results while continuing to significantly invest in our future, through infrastructure investments, new store growth, and developing value-added products and services for new and existing markets.

We continue to execute our multifaceted strategy of delivering strong earnings growth, high returns on equity and capital, and a strong balance sheet, with little to no debt. Our strategic initiatives aimed at growing our core business, diversifying our revenue streams geographically, and exceeding our customers' expectations with innovative products and services, remain our focus. And we are pleased with the progress we have made so far.

To that end, combined loan balances, including CSO balances at June 30, were up 15% compared to last year. As you know, our loan balances are the engine that drives our various businesses. With Pawn contributing more than 80% of revenues and store operating income, it's no surprise that this business continues to be the cornerstone of our company, both in terms of contribution today and expected growth in the future.

Same-store revenue growth in US Pawn of 6% was complemented by 32% growth in Empeno Facil in Mexico in the quarter. US Pawn store operating income increased 24% to $43 million for the quarter, while store operating income at Empeno Facil was $2.5 million compared with $1.3 million in the same quarter a year ago. Nearly doubling store operating income is all the more impressive considering 36% of our stores in Mexico are less than one year old. While still a relatively new market for us, our performance in Mexico validates our belief that there is a significant opportunity there. We believe we have the critical components in place to continue that growth trajectory in the years to come.

Our third segment, EZMONEY, which includes our Canadian and US money stores, delivered 6% revenue growth in the third quarter compared to the prior year. Our Canadian lending operations are maturing nicely, delivering strong revenue and reflecting prudent debt and expense control in the quarter.

I'm very excited about our new strategy in Canada as well. More about that in a minute.

Within our US money business, our results didn't meet our expectations, as we continue the transition of our loan product mix, while also experiencing increased competitive pressures in Texas. Specifically, our Texas loan growth softened and bad debt on our new installment products outside of Texas was higher than expected. Stephen will provide more color on this when he talks about the segment results later in this call. Suffice to say we have taken concrete steps to improve our overall money performance, while continuing to reduce our dependency on the US payday product.

At this point I'd like to take a few minutes to talk about our progress on the key strategic initiatives that we introduced last quarter, beginning with Cash Converters. You will recall last quarter that we announced a proposed strategic alliance with Cash Converters. Our plan is to leverage their network of 600-plus stores in 21 countries to develop and launch a suite of innovative financial services through two joint ventures under the Cash Converters brand. The transaction, including the acquisition of a controlling interest in Cash Converters, is progressing and we expect to close before the end of the calendar year.

In the meantime, in April we acquired the Cash Converters franchise rights in Canada. Our strategy to introduce their buy/sell model into our Canadian stores under the Cash Converter brand is moving ahead as planned. As of today we have transitioned 2 of our Canadian stores to Cash Converters format, and have opened 2 new stores under the brand. We expect to transition our existing Canadian stores over the next 12 months, as well as open new greenfield stores.

The second initiative I want to update you on today centers on US Pawn growth. We continued to execute against our roll-up growth strategy during the quarter, closing 3 transactions for a total of 23 stores at an aggregate cost of $31.6 million. As a result of these deals, we added 3 new states -- Iowa, Wisconsin, and Utah, bringing the total number of states in which we operate pawn stores to 16.

Year to date we have acquired a total of 32 pawn stores at an aggregate cost of $64.8 million and opened an additional 5 greenfield stores. As in the past, we expect these US Pawn acquisitions to be immediately accretive. We also expect to greenfield an additional 5 domestic pawn stores during the fourth quarter. Beyond fiscal 2011 we see a number of acquisition opportunities in these and other states that will broaden our geographic footprint and further diversify our revenue streams.

The third major initiative that I want to update you on is the roll-out of our reloadable debit card, the Change card. At the time of our last call we had just completed our market tests. Based on that success, we began rolling the card into our pawn and money stores in Texas. As of the end of June, approximately 69,000 Change cards have been issued to EZCORP customers. Looking ahead, we expect to continue to roll out of the Change card to all the states in which we do business today. In addition, we believe this unique and differentiated product will provide value to our growing customer base worldwide.

And in the meantime, I'd like to take a moment to elaborate on why we view the Change card as such a strategic imperative for us. For those of you that have followed EZCORP for a period of time, you know in addition to our pawn operations we have a very successful loan business. We've stayed very focused in this business, having chosen not to provide features like check cashing, money transfers, direct deposits, et cetera, that many of our competitors offer.

While many of our loyal customers have utilized and greatly valued our loan products, some of the feedback we've received has centered around adding features such as these. The Change card, therefore, is our integrated product offering designed to serve this growing need. We think this is noteworthy as it not only enhances our product offerings to our existing customers, but attracts new customers as well. We are now able to provide more financial services to more customers in more formats.

Finally, I think it important to note that we have done all the initial work, tested the product, and launched the card with no material negative impact on earnings in 2011. And we do expect the Change card and its services to be accretive to earnings in 2012 and beyond.

I also want to touch on a fourth strategic initiative for the Company that we have not shared with you previously. At the beginning of 2011, we put into place several initiatives to get involved in our communities at a much more significant level than we ever have in the past. We believe vibrant, strong communities that provide upward social and economic mobility to its citizens are great places to do business. We intend to be an integral part of these communities for many years to come. This is important to you as an investor because there are costs to being a good citizen.

Specifically, we did four things that have and will result in a little over 0.5% of pretax profits being spent on charitable causes in 2011 and beyond. First, we have funded several programs that allow our employees to volunteer for their favorite causes. Second, we have given our store teams disposable funds that they can distribute locally. Third, we have opened our locations up for fundraising and community awareness events. And finally, we have established and funded the EZCORP Foundation for the benefit of the communities we serve. I can tell you with great certainty that our 5,000 store employee base has embraced this idea and is, frankly, showing us the way.

Before I turn it over to Stephen, I'd like to update you on the latest news with respect to government relations. We've obviously been active in supporting and defending our business. At the time of our last call, there was considerable uncertainty around the outcome of the Texas legislative session. In the end, as you may know, 2 bills were passed into law. These bills address licensing, regulation, and customer disclosure, but they do not negatively impact our ability to continue offering the products and services our customers want. We, along with our statewide industry association, supported the two bills. And we see their passage as meaningful efforts to enhance oversight of our industry and raise the bar on various industry practices that will improve the customer experience in Texas.

We have also seen positive developments in other states. In Wisconsin we supported industry efforts to reverse the ban on auto title loans that resulted from the former governor's unilateral action last year. Those efforts were successful and auto title loans were reinstated as of July 1st. Our customers had clearly missed this product, as we have seen a quick response for the reinstatement over the last three weeks.

In Nevada, where we have a significant presence of 16 stores, we successfully supported a measure that increases the maximum pawn service charge from 10% to 13%. The new rate will go into effect October 1st.

And in Florida we successfully opposed several bills that would have placed greater burdens on pawn shops to collect and report customer information.

Those are just a few examples of our, and our industry's, efforts to support and defend our business and our customers. And we will continue to do that at all levels -- federal, state and local.

And speaking of the federal level, you probably saw that on Monday President Obama announced that he was nominating former Ohio Attorney General Richard Cordray to be the first Director of the Consumer Financial Protection Bureau, which officially opened for business today. The Bureau is still in the very early stages of formulating, proposing, and adopting rules and we will continue to be actively engaged in our industry association to represent the interests of our business and our customers.

I will now turn the call back to Stephen to talk about the third-quarter financials in more detail.

Thanks, Paul.

I'll begin with our largest segment, US Pawn. The same-store revenue growth of 6% in the quarter that Paul referenced was driven by same-store increases of 8% in merchandise sales, 1% in scrap sales, and 9% in pawn service charges. Close attention to loan values and gold-buying policy led to an increase in scrap margins of 370 basis points.

Revenue growth combined with cost scrutiny allowed store-level operating margins to expand 230 basis points to 49% on net revenue of $87.3 million. This resulted in an operating profit for the quarter of $43 million, up 24% on the prior-year quarter.

Our second segment, Empeno Facil, recorded same-store revenue growth in the quarter of 32%, in this case driven by same-store increases in merchandise sales, scrap sales, and pawn service charges of 29%, 32% and 43%, respectively. Scrap margins increased 350 basis points. Empeno Facil recorded store-level operating income of $2.5 million, an increase of 94% over the prior-year quarter.

New stores continued to perform at or above our expectations, as we build our team and infrastructure in [Queretaro.] We have opened 40 Empeno Facil stores so far this year and are on track to open a total of roughly 60 new stores by year end. And just yesterday we closed on the acquisition of six more stores.

As you might expect, both pawn segments continue to benefit from rising gold prices. In the quarter we saw a 28% increase in proceeds per gram, offset by a 26% increase in cost per gram, on a 12% decrease in volume. As of today, we have locked almost all of our anticipated fourth-quarter scrap at an average price of $1,530 per ounce.

Increases in both jewelry and general merchandise drove our pawn loan balance at June 30 to $134.6 million, up 19% on the prior year. On a same-store basis, pawn loan balances increased 9% on the prior year.

Our third segment, EZMONEY, recorded same-store revenue growth of 4%, driven by same-store increases in signature loan fees and auto title loan fees of 4% and 2%, respectively. The 2% decrease in store-level operating income to $10.7 million for the quarter was the net result of four factors.

First, and we referred to this on our last call, we've been transitioning customers from a payday product to a number of new installment loan products. These installment loans, which incorporate repayment of principal, are generally preferred by customers for a variety of reasons. However, as the installment product builds -- excuse me -- as the installment portfolio builds, we have seen an increase in bad debt expense as a percentage of fees from 28% to 30%. We would expect to see bad debt decrease over time as the portfolio matures and we fine tune underwriting and operational execution. Similar improvements in our auto title business have reduced bad debt as a percentage of fees from 18% a year ago to 11% this quarter.

Second, we have seen a gradual increase in competitive pressures in Texas, driven by increased numbers of payday loan stores, auto title loan stores, and online lenders entering the marketplace. These factors have combined to generate slower volume growth in Texas.

Third, and on the positive side, tight cost control at the store level within the US business meant we were able to hold operating expenses at the same level as the prior-year quarter.

Lastly, and offsetting the US performance, our Canadian operations improved substantially this quarter with the quadrupling of fees, reduced bad debt, and lower operating losses. Added together, the three segments produced store-level operating income of $56.2 million and a blended margin of 46%, up 100 basis points on the prior-year quarter. This drove the increase in our consolidated operating income up 29% to $37 million, with a 260 basis point increase in margin.

Moving down the P&L, the pretax contribution from unconsolidated affiliates increased from $2.9 million to $4.1 million this quarter. Strategic affiliates, which include Cash Converters and Albemarle & Bond, represented 10% of total pretax income for the quarter.

And now onto the balance sheet. We ended the quarter with $27.5 million cash on hand, having spent a total of $33.4 million on acquisitions in the quarter. Debt outstanding at June 30 was $26.5 million.

In May we closed on a new credit facility led by Wells Fargo and BBVA Compass. The $175 million senior secured facility is a revolver with a four-year term. The new facility offers an increased flexibility to pursue our strategic objectives both domestically and overseas.

Our earning assets, which we define as pawn loans, signature loans, auto title loans, and inventory on our balance sheet, combined with our CSO products not on our balance sheet, totaled $254 million at June 30, up from $213 million a year ago. The average annualized yield on these earnings assets during the quarter was 212%.

Lastly, our strategic investments in Cash Converters and Albemarle & Bond are carried on the balance sheet at $114.8 million. Collectively, their market value at June 30 was $194.1 million, representing an unrecognized gain of $79.3 million.

Before we open the lines for questions, I would like to take this opportunity to reaffirm our fiscal 2011 guidance of $2.55 per share before the one-time charge related to the retirement of our former chief executive officer that we recorded in the first quarter. This guidance represents an increase of 30% on fiscal 2010.

And with that, Monica, we're ready for questions.

Thank you. We will now begin the question-and-answer session. (Operator instructions.) John Hecht; JMP Securities.

The first one is just related to the title lending. They looked like pretty flattish growth. I'm wondering was that some of the ramifications of some of the changes in, like, Wisconsin and Colorado or is there something else going on there?

Yes, it was -- this time last year our balance in Wisconsin was in the -- just shy of $1 million range. And so obviously we had $0 in the current quarter of this year. So that's exactly what caused it. We didn't have auto title lending in Colorado.

Okay. And ex that Wisconsin, do you know what the kind of organic growth is ex the regulatory impact?

In the rest of our business, we're cycling out. It's a more mature product for us now. So we're cycling out of the first 12 months in the first roll-out and then the second and third waves that we rolled into the rest of the stores. So it's a mature product for us now.

And a mature product -- what type of growth would you attribute to that going forward?

So high-single digits.

Okay. So similar to the kind of same-store sales to the pawn side?

That's right.

Okay. In the Change card, you mentioned you had real successful growth there. You suggested that a lot of your current customers liked it for some of the features. It was also a source of new customers. Of the portfolio and the Change card, can you break down what is new customers versus just the recurring customers who've chosen to take on that product?

I can't do that today, just because of the way that the structure is set up through a processor and a bank in the background. The specific data related to an individual customer is actually proprietary information to the banking party. So we get trend data information but not specific information.

Okay. Understood.

But I would tell you, John, a vast majority today of the Change card recipients are existing customers, because we have not launched the marketing campaign, any major marketing campaign, around the card yet.

Okay. And then, with respect to the increases in losses as you transition to installment portfolio in certain markets, is the increased losses as a percentage of revenues maybe the fact that the interest accrual on the installment loans is lighter than a payday loan product and is the charge-off rate similar? Or is it actually just a higher loss content product overall?

No, it's a function of two things, frankly. It's a -- the installment products, particularly in Colorado and Wisconsin as examples, are a newer type installment product to us. So they're a newer product. So your losses early on are higher. And then you have the function of your -- we take -- if the customer doesn't make a payment, we immediately write off. And of course you're writing off against a smaller revenue stream because you haven't collected as much as you would on a payday in a shorter period of time.

Okay. So it's a function of both. Okay.

Yes, that's really the function of both. And we do expect it -- we said we were disappointed in the result. We expected it to get higher. It was just a little higher than we expected.

Great. Thanks very much for the color, guys.

Liz Pierce; ROTH Capital.

Question on the -- could you tell us -- I couldn't see it in the release anywhere, but I read it quickly. How many stores now have auto title and how many have installment?

Yes, we'll get -- Stephen's looking for that right now.

Okay.

Can't remember offhand.

And while he's looking for that, in Texas, just so I understand what you were saying, is it -- it seemed to me a variety of factors that are impacting the business. Is there any thought that, particularly if you think that some of the business is going online, would you guys consider closing stores or what's your take on that?

Sure. So in fact the -- and just to be clear, the Texas issue is really a revenue issue for us. So it's not a bad debt issue. It's nothing like that. It's a revenue issue. And the fact is we've seen a -- there's estimates out there anywhere from 5% to 10% new storefronts. I track it by checking the CSO licenses, among many things. And that's both in auto title and in payday. The number one online lending state is Texas as well. So that's the challenge.

Don't misunderstand. Our business still grew in Texas. Our operating income grew in Texas. It just didn't grow at the rate that it has over the last couple quarters or the rate that we wanted it to. So, no, it's a big business for us. We'll defend it. And we've got several initiatives in place, from marketing to lead generation to other things to try to drive that business back.

Okay.

And closing stores is just a normal course of business. But, frankly, I can't remember closing a store in the couple of years I've been here in Texas in the money division.

Okay. So you said, if I understood you, Paul, that from a cost perspective, even on this kind of lower revenue, you feel comfortable with the operations in Texas?

Yes.

Okay.

Yes, I do.

Okay. And then, did Stephen find the --

Yes. As of June 30, 412 stores offered the installment product and 409 stores offered the auto title product. And then, of course, you add Wisconsin back into the auto title, which only happened on the 1st of July. That adds another 35 stores to auto title, bringing it to 444.

Now, some of the chatter that I've heard, like coming out of the CFSA and so forth, was talking about perhaps a pushback on auto title in terms of could that be another target. And I think we talked about it last quarter. I just was curious if there was anything else had surfaced about that in the interim.

Not really. We hear the same thing. Certainly during the Texas legislative session there was discussion around auto title. But it's -- in some states it isn't allowed today. So it's like any other product, we continue to defend it. And Wisconsin's an interesting example where they outlawed it and I can tell you in three weeks our balances have bounced back with very little marketing, bounced back significantly. So the customer obviously values the product.

In the State of Texas, I mean, is there a license that you have to get to do auto title?

Yes. Certainly. And it's a CSO product. So in Texas payday and auto title and the installment products are all CSO products.

Okay. So I'm curious, though, you said that there's more competition coming in. Is there no kind of regulation on the license? Like, are they just handing them out randomly?

I don't know if it's randomly, but, yes, you can get them. As compared to other marketplaces, you can get them -- I would say the barrier to entry is low.

Kind of interesting that it would come up during the regulatory session and yet they're handing them out.

Different agencies, we'll say.

Different agencies. Government, right?

Yes.

Okay. And then in Canada, just to be clear, so you -- 2 have transitioned.

That's right.

Two have opened, so what does that leave us with in terms of the base? I think there were, like, 50-some stores?

Yes. There were 60, so there are 58 to go.

That will convert?

Yes.

That's right.

Okay. And just the rationale behind that is the fact that the Cash Converter name is well known and...?

Part of it certainly is the brand. The other part of it is, frankly, by putting the two together we've got multiple revenue streams.

Okay.

So we think we're capitalizing on opportunities and reducing our risks down the road. And running one brand versus two makes a lot of sense to us. And absolutely it's part of the worldwide discussion on Cash Converters.

Okay, that's all I have for now. I might jump back in in a minute. Thanks.

John Rowan; Sidoti & Company.

You said you have installment lending in 412 stores. That's I assume 412 out of the 496 EZMONEY stores?

That's correct.

Yes.

So is there just one market that you're not in?

Have to think about that. Just in states that don't allow installment-type product. But you stumped me there. I have to think about where that is.

Okay. Can you just give a little more information around the installment product -- what the average size, duration, interest expense are?

The challenge is -- that's a difficult question to ask versus how we used to be able to answer that, because it varies. That's kind of the crux of the installment product today. Depends on the state and it depends on the customer in some cases. Sometimes it's a 5-payment plan. Sometimes it's 7. Sometimes it's 10. So therefore the periods change. Interest rates are different, as are the loan amounts.

And by the way, when we say we have over 4- -- the evolution of this product, at EZ anyway, was if you recall when we first introduced it a couple years ago, it was really a product above a payday loan. So in many cases you had to borrow over $1,500. So today, as we've transitioned -- that product I think was $1,500 to $3,000. And we only had one installment product. So now we've varied this pretty dramatically, depending on state and customer reference, frankly.

So are you still lending $1,500 to $3,000 on installment loans?

In some places we are, but in other places we're now lending them as low as, I think, $300.

Can you remind me if you do traditional credit checks on the larger principal loans?

We do not.

You don't, okay. And just, okay, getting off of the installment loan product for a second, if I'm not mistaken, you guys said you made the acquisition of 6 pawn shops in Mexico. Did I hear that right?

We just did, yes. Closed it yesterday.

Obviously we haven't seen a lot of acquisitions happening in Mexico. Can you give us an idea of how the pricing was, where the stores were, what type of format they are, and if you see more opportunities to make acquisitions in the country?

Sure. So the reason this was attractive to us -- in fact, if you know the history of EZ, the first acquisition in Mexico was Mister Money. The principal at this 6-store chain used to work for Mister Money many years ago. So these 6 stores are actually in Hidalgo and I'll say it wrong, but I think it's Tlaxcala. They're in the southeast.

And they're actually two new states for us, but they're very adjacent to other locations for us. So geography made sense. The fact that the stores looked, acted, and behaved very similar to our Empeno Facil stores was another factor. And we paid -- what I would tell you is we paid very much in the same range as what we paid for our other acquisitions, the multiple.

Are they general merchandise or gold only?

No, no, they're general merchandise. They're full service.

Okay. All right, thank you very much.

(Operator instructions.) Henry Coffey; Sterne, Agee.

As you look at this new installment loan product -- I know a lot of us are familiar with World -- is it a traditional small-loan product that copies or mimics the various state regulations that apply to that product? Or is it more of a longer-term, payday-loan product? How is the product sort of set up vis a vis that traditional small-loan product that World's doing?

Well, I think they're -- from what I understand from the World Acceptance model, is that they are using some kind of a credit score and that the customer base is actually probably a step up from who we deal with. I'm sure there's some crossover, but I think that their demographic is slightly higher than ours. I'm not sure about that, but that's how we view it.

Our product -- as I said, we've not abandoned the $1,500 to $3,000 at all. That's been a very good product for us. Essentially what we're doing is going into -- it really grew out of Colorado where they eliminated the payday loan product and put in an installment product. And I think in Colorado it's a 5-month product and a 10-month -- 5 payments over 5 months, I think -- or 10 payments over 5 months, excuse me.

So we've actually tested and run some different scenarios and run a lower dollar installment loan. And, as I said, some of them are 5 payments over 10 weeks; some of them are 7 payments; some are 10 payments. But the yields are very good. Customer response is good. For the customer, generally they can borrow usually a little more. Their payment is slightly less and they have the comfort in knowing they're paying down their principal when they make the payment. So they're respond- -- when given a choice, they are responding to the installment product.

And the rates are those rates that are set by each state's installment loan product or -- ?

That's right. That's right. So contrast -- Colorado, for instance, has always been the lowest yielding state to us. Yields about, I think, just in the 120 -- 110 range, I believe, in Colorado. And in Wisconsin it's much higher, so there's no cap on it. So it acts more like a payday loan from a yield perspective.

And the sort of dollar sizes you gave -- I think the first breakdown was $1,000 to $1,500 and then smaller?

Right. So in Colorado the maximum I th- -- is $500, whereas in Wisconsin we can do anything up to $3,000.

All right. And obviously you saw higher losses than you thought. How do you-- are you just sort of retweaking your underwriting criteria or do you think this is just a process of kind of getting new customers in, used to the product, more of a training cycle?

Both, I think both. I think we've learned some things in the short term, but it has not behaved any differently than any other new product we've introduced. I think we were, frankly, just a little optimistic that we'd be a little smarter and a little faster. And we weren't as smart and as fast as we thought we were.

Great. Well, thank you and good quarter.

(Operator instructions.) Bill Armstrong; CL King & Associates.

When you say you're transitioning to the installment product from the payday product, does that mean your store people, your store personnel, are actively steering payday customers towards installment loans when it's appropriate?

No, I guess I wouldn't say we're steering them. What I'm saying is, if you look at our business last year, in many cases we didn't offer an installment option to the customer. Wasn't even offered. So in Colorado in the first three quarters of last year we only offered a payday loan. Today we can only offer an installment loan. So they don't have a choice in Colorado.

In Wisconsin we didn't offer that installment product, but we do today and the customer is opting in at very high rates. So it's not because we're pushing them there. It's because the customer, I think, values the product. And even in -- we've run some tests in other states. And that's why we say we're offering it in 400-plus.

So many of the stores in Texas today are on the $1,500 and above, the same product we've always had. But we're running tests in different states on lower installment products, and the customers are the ones making the choice.

Okay. So you're just putting it out there and customers are basically opting for it.

They are.

What's the rationale for offering those, considering that the loan losses seem to be significantly higher?

Well, I think, number one, because the customer is demanding it. And I think we don't believe in the long run that the loan losses will be higher. We think in the long run a combination of loan amount, all the factors, let me just say, inside the yield -- we think the yield will be as healthy as any of our payday products are today.

So you feel you're pricing these installment loans correctly then --

Yes.

-- to adjust for risk?

We do. Yes, we do.

Is this more -- is this a little bit of an accounting issue, where you've got to write off these loans early, as soon as somebody's late and you don't have that kind of situation with payday loans and that as these loans start to cycle you'll have a more, a maybe smoother loan loss experience?

Yes. That is one factor, Bill. And I mentioned it earlier. It's because you've taken a full write-off against a smaller payment, because you haven't received as many payments over the long haul. But that's just one factor. The fact of the matter is it's a newer version of the product and our bad debt is higher. And we don't expect that to continue. We expect that, as in any new product, that it'll get better consistently over time.

But we have -- in South Dakota, for instance, we've offered a low-dollar installment for an extended period of time, I think well over -- almost a year to 18 months now. And I think on a year-to-date basis their bad debt is in the mid-20s right now, which is very similar to the payday product.

Okay, got it. And then, on the auto title loans, I think an earlier question asked about why it looks like volume was flat. I mean, does it look like maybe you've sort of saturated this market a little bit?

Well, remember, if you look at our loan balance on the balance sheet on a consolidated basis, I mentioned that Wisconsin at the end of the third quarter a year ago was nearly $1 million, and it was $0. So if you factor that in, you'll see that we actually did have growth in auto title everywhere else in the Company. But it is a maturing product for us. So the periods where we were running up 30%, 40%, we don't expect that. But we do expect high-single digit growth in the auto title business, plus the effect of Wisconsin getting back into the business.

Got it. Okay. All right. That's all I had. Thank you.

There are no further questions in queue at this time. I will now turn the call over to Paul Rothamel for any closing remarks.

Great. I'll just keep it short. Thanks for your interest in EZCORP. Appreciate your time today and we look forward to talking to you at the -- for us it will be the year-end conference call. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.