EZCORP Inc (EZPW) 2011 Q4 法說會逐字稿

Welcome to the EZCORP fiscal 2011 4th quarter conference call. My name is John and I will be your operator for today's call. At this time all participants are in 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 Mr. Stephen Stamp, Chief Financial Operator. Mr. Stamp, you may begin.

Thank you, John, and good afternoon everyone. I'd first like to apologize for the short delay in starting the call. We had some issues getting the press release on the wires but I hope you have at least had a chance to skim it before the call. Today's call will address our fourth-quarter and fiscal 2011 year end 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 our lines for Q&A. I will now turn the call over to Paul.

Thank you, Stephen, and good afternoon everyone. Thanks for joining us today. I'd like to start by talking about a few financial highlights for the fourth quarter in the 2011 fiscal year. Fourth quarter was another great quarter for our company and provided a fitting end to another year of outstanding performance. Continuing our trend of consecutive year-on-year earnings growth, our diluted earnings per share for the quarter was $0.72, up 29% from a year ago.

For the full year our diluted earnings per share grew 31% to $2.57 on a non-GAAP basis, and on a GAAP basis our earnings per share grew to $2.43 from $1.96 last year, a 24% increase. 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 exceed our expectations.

Our ability to leverage our operating platform generated a 31% net income improvement on 18% revenue growth over the prior-year quarter. While delivering strong earnings results is a core focus, and our success in doing so is an achievement I'm proud of, I should note we are also actively engaged in building a foundation for long-term growth.

To that end we continue to invest in our future through infrastructure investments, new store growth, and developing value-added products and services for new and existing markets. These initiatives enable us to better serve more customers in more markets, increase our earning assets and net income, and ultimately enhance shareholder value.

With US and Mexico combined, pawn is continuing to contribute approximately 80% of revenues and store operating income. It's no surprise that this business remains the cornerstone of our company, both in terms of contribution today and expected growth in the future. In the US we saw total revenue growth of 16%, while Mexico delivered an 87% increase in revenue. Same-store revenue growth in US pawn of 6% was complemented by 32% growth in Mexico during the quarter.

The US pawn store operating income increased 34% to $55.5 million for the quarter, and on a same-store basis the increase was an impressive 22%. We think this all the more impressive considering these core stores are very mature with an average age of 13 years.

Store operating income at Empeno Facil more than tripled to $4.2 million for the quarter, with same-store operating income growth of 140%. Keeping in mind that 110 of our 178 Empeno Facil stores are less than 2 years old, I'm very proud of our team in Mexico. They continue to manage exceptional growth while also delivering outstanding financial results.

Our EZMONEY segment delivered a strong quarter as well. Given the challenges we faced earlier this year due to regulatory changes in key states and the ongoing transition to new products, we were particularly pleased with our Q4 results. We saw solid operating income growth over the prior year quarter and a significant improvement from our last quarter sequentially. This division, which includes our Canadian and US loan stores, delivered a 9% growth in revenue, a 150-basis-point improvement in bad debt, while maintaining excellent expense control.

This trifecta lead led to a 16% increase in store operating income to $17.3 million and a 200 basis point improvement in operating income margin. As a result, with the continual transition of our products, we may experience some volatility in bad debt performance over the next few quarters as customers become accustomed to our product offerings. However, we are confident that we're headed in the right direction.

At this point, I'd like to take a few minutes to talk about our progress on some key strategic initiatives. Beginning with our storefront expansion in the United States, we continued to execute against our market growth strategy during the quarter. We opened 7 stores through acquisitions in greenfields, with 5 of those being in the Chicago Metro market.

Chicago serves as a great example of our approach to geographic diversification within the US. Until June 2010 we had no presence in Chicago; however, over the last 15 months we have added a total of 14 stores, and I'm excited to say that EZCORP is now one of the leading pawn providers in the greater Chicago area. We believe this under-served market has the potential to be one of our largest in the US. In total, we added 44 US pawn stores during fiscal 2011. On a base of 396 that is an 11% increase in our footprint.

We also establish a presence in 3 new states during F11, and added 2 more in October, bringing the total number of states our pawn division serves to 18. In 2011, we invested over $70 million in US pawn acquisitions and greenfields, compared to $25 million in fiscal 2010. This is a growth strategy that we expect to continue in fiscal 2012 and beyond. Already this fiscal year we have closed on 7 Cash Converter stores in Virginia and Pennsylvania, and 15 Money Mart stores in San Antonio, Texas, and another 2 stores in Florida.

Like US pawn, Empeno Facil continues to execute on its market growth strategy in Mexico. During the fourth quarter, a total 23 stores were added, making a total of 63 for the whole of fiscal 2011. This brings the total number of stores in Mexico to 178, which represents a 55% increase over prior year. With the addition of 4 new states this year, we now have stores in over half of the states in Mexico. As a reminder, we entered the Mexico market in 2007 and we continue to believe that Mexico can be a 500-plus store market for us. We expect to continue to expand at a rapid pace while producing high-quality growth in earnings.

Moving onto Cash Converters, we remain a committed 33% shareholder and a supporter of the Cash Converters brand and business model. You will recall in April we acquired the Cash Converters franchise rights in Canada, with the intention of introducing our buy/sell model into our stores. I'm pleased to report that this process is moving ahead as planned.

As of today, we have transitioned 10 of our Canadian stores to that format and have opened 5 new stores under the brand. Each of these stores has added the buy/sell model for the legacy non-collateralized loan business. So far, performance is in line with our high expectations. On September 30, 15 of our 64 company-owned stores in Canada were operating under the Cash Converters brand.

Including the 13 franchise stores, this brand is represented in 5 of the 10 Canadian provinces. We will transition most of our remaining Canadian stores to the Cash Converters brand over the next fiscal year, as well as open approximately 10 new greenfield stores.

In October we acquired 7 Cash Converter stores in Virginia and Pennsylvania, along with the rights to use the brand in other states. We see this as a significant opportunity to meet the short-term cash needs of customers in markets and neighborhoods where the traditional pawn model may not be feasible.

That covers the performance of our core brick and mortar businesses and progress we've made on our geographic diversification strategy. Let me turn now to the third of our strategic initiatives, innovation. Last week we announced a new e-commerce and card services division. This group will be responsible for opening up new digital channels, primarily online and mobile so our technology-savvy customers can transact with us remotely. This is a clear growing need in our current potential customer base, and we will continue to meet the technology demands going forward.

In late October this division began beta testing online lending in the United Kingdom. It's in its early days, and as with our new product and new channel initiatives, we intend to test it thoroughly before committing substantial resources to drive growth. The new division has assumed responsibility for our change card, and we expect to deliver additional enhancements to the program that will benefit our customers.

We expect the change card program to be a key traffic driver in all of our delivery formats and be accretive to earnings beginning this fiscal year. It is our intention that once built our e-commerce platforms will be scalable domestically and internationally so we can reach a customer base not previously accessible to us. I will now turn the call back to Stephen to talk about the fourth-quarter financials in more detail.

I will 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 4% in merchandise sales, 4% in scrap sales, and 12% in pawn service charges. Close attention to loan values and gold buying policy led to an increase in scrap margins of 630 basis points on reduced gram volume. Revenue growth combined with continued cost scrutiny allowed store level operating margins to expand 500 basis points to 55% on net revenue of $101.4 million. This resulted in an operating profit for the quarter and $55.5 million, up 34% on the prior-year quarter.

On the full year basis the results were equally impressive. Store level operating income in fiscal 2011 improved 29% to $194.5 million with a 400-basis-point improvement in operating margin. 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 37%, 24%, and 31% respectively.

Scrap margins increased 13% to 35%. Empeno Facil recorded store level operating income of $4.2 million, an increase of 214% over the prior quarter. At constant exchange rates, the increase was 201%. On a year-to-date basis, Empeno Facil store level operating income improved 147% to $10.7 million, with a 700-basis-point improvement in operating margin.

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 19% increase in cost per gram on a 13% decrease in volume. We also benefited from an increase of $2.3 million in diamond proceeds as compared with the prior-year quarter.

As of today, we have locked approximately 60% of anticipated first quarter scrap at an average price of $1,640 per ounce. Increases in both jewelry and general merchandise drove our pawn loan balance of September 30 to $145 million, up 20% on the prior year. On a same-store basis, pawn loan balances increased 9% on the prior year.

Breaking that down by segment, we saw an 18% increase in total loan balance in the US, or 10% on a same-store bases. In Mexico we saw a 50% increase in total loan balances, or 7% on a same-store bases. In constant currency, loan balances grew 61% in total and 14% on a same-store basis; another quarter of solid same-store pawn loan growth in both Mexico and the US.

Our third segment, EZMONEY, recorded same-store revenue growth of 8%, driven primarily by a 9% increase in same-store signature loan fees. Total bad debts as a percentage of fees decreased to 24% compared with 28% in the third quarter 2011 and 25% in the fourth quarter last year. Store level operating income increased 16% to $17.3 million for the quarter with a 200-basis-point improvement in operating income margin. This is a significant improvement over the prior year as well as over the third quarter. On a full-year basis, this segment produced store level operating income of $62.6 million, an 11% improvement over the prior year with a 70-basis-point improvement in operating income margin.

Added together, the 3 segments produced store level operating income for the quarter of $77 million and a blended margin of 52%, up 440 basis points on the prior-year quarter. This drove the 31% increase in our consolidated operating income to $52.7 million, with a 250-basis-point increase in margin.

Now moving down the P&L, pretax contribution from unconsolidated affiliates increased $0.8 million to $4.1 million this quarter. Strategic affiliates, which include Cash Converters and Albemarle & Bond, represent the 7% of total pretax income for the quarter. And now onto the balance sheet. We ended the quarter with $24 million cash on hand and debt outstanding as of September 30 of $17.5 million. Total 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, equaled $277 million at September 30, up from $236 million a year ago.

The average annualized yield on these earning assets during the quarter was a consistent 218%. (inaudible) investments in Cash Converters and Albemarle & Bond, are carried on the balance sheet as $120 million. Collectively, their market value at September 30 was $145 million, representing an unrecognized gain of $25 million. In summary, fiscal 2011 was another solid year of generating strong quality earnings while maintaining a strong balance sheet with very little debt.

Before we open the lines for questions, I would like to take this opportunity to provide our fiscal 2012 guidance range of $3.05 to $3.10 per share, which represents an increase of approximately 20% over fiscal 2011 on a non-GAAP basis; on a GAAP basis the increases 27%.

This guidance takes into account the expected drag on earnings from recently announced investments in talent and technology. It also incorporates the recently announced acquisitions of the 7 Cash Converter stores in Virginia and Pennsylvania, the 15 Money Mart stores in San Antonio, and the 2 stores in Florida. And with that, John, we are ready for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from John Hecht from JMP Securities. Please go ahead.

Afternoon, guys. Thanks for taking my questions.

The first 1 relates to the kind of dynamics of the scrap volumes. It sounds like you had lower volumes, you had lower cost per gram and higher margins per gram. I'm wondering if you could discuss this. Was this part of a proactive strategy to maintain reasonable loan to values and exercise carefulness with respect to sales in terms of volumes?

Right. So we move our gold lending tables up periodically in line with competitive dynamics in the marketplace and in line with the market price in general. So as the year rolls on, our cost per gram goes up in line with price. So our proceeds per gram goes up.

We continue to qualify our customers, try and ascertain upfront those which are likely sellers as opposed to redeemers. And both of those have driven the improvement in scrap margins.

Okay, and what about the volumes? Is that the volume's down. Is that you just disposing more through retail channel, holding more into the fourth quarter, or is there just less gold coming in the stores as gold goes up in price on a volume basis?

More the latter, John. As you might expect, our customer requires sort of a fixed amount of money, and that's borne out by the fact that our average pawn loan hasn't changed much over the years. It was a little less than $100, now it's a little more than $100. So what they are doing is they are bringing less gold in to achieve the same value.

Okay, and loan balances including CSO were down 7%. Was that a function of the quarter ending on a Friday, or is there any other commentary you might have around the loan balances there?

Yes, John. A little bit of that was the Friday affect. Part of the auto title shift in Wisconsin.

So you will see in the detail, but sort of loan balance was up 7%, and our auto title was off about 10%. Half of that auto title was in the shift in Wisconsin, because we were out of the business for a while and now getting back into it because of the regulatory environment. But the other is competitive challenges in Texas.

Okay. The other question is related to the e-commerce, the investments you're making in the e-commerce and card services segment. Sounds like you're going into the UK, you're just experimenting in the UK, and if, obviously, that channel works out, I'm sure you'll grow that. What about the US and/or other countries? And in the forecast, is this just all drag in fiscal year 2012 in the forecast, or are you assuming some contribution from this segment in that fiscal period?

Right. So the quick answer on the financials is that it is drag in 2012. And we are beta testing in the United Kingdom right now, as we said, and we would expect that to be successful and we expect to leading online in the United Kingdom in a bigger way this year. We also expect to be up and running online in the US this year as well. So we come out of the chutes a little faster in the UK for a variety of reasons, but we expect to lending on both, and we expect it to be a drag.

Great, guys. I appreciate the answers, and congratulations on a good quarter.

Our next question comes from Liz Pierce from ROTH Capital Partners. Please go ahead.

Thanks, can you guys hear me?

Yes.

Okay. Actually, I didn't hear the first part of the last question. So I hope I'm not asking something twice, but a couple things. Can you give us any indication on in Canada how the stores, the different models are performing and kind of the metrics on any of it? And do you eventually plan to convert all those stores in Canada to the Cash Converter?

So the answer on the conversion is yes, and we expect most of that activity to get done this fiscal year. So that would put us, I think, with the 10 we are adding, the conversions, probably in the 65 to 75 range by the end of the year that will be all under the Cash Converters banner. Our early results, we said in the script, that they are achieving what we expected, and I did talk just real specific on 2 parts.

So the evolution of the financial services is really our second full year now, and the performance is in line with the second year of our models that we built. Our bad debt has come way down and in line, and frankly is in line with the United States now. Revenues, all those things are inline, our expense ratio. So that side of the business is more mature and we are very happy with the performance that we have gotten out of Canada.

The less, obviously much less mature is the buy/sell model. And the metrics that we look at primarily, much like the pawn business is driven by PLO, the buy/sell model is driven by merchandise through buys, meaning we buy it from a customer who walks in. We have daily, weekly, monthly models. We've only really been in that business now in any kind of size or scale for less than 45 days, and when I say size and scale, you're still only talking about 10 stories that are doing that today, along with the franchisees, but out of the chutes they are doing well against what we expected.

And again, that model, while it is new to us, we have seen that model in the franchisees, and in fact we have seen it now in the US stores that we just bought. So our initial activity is very much in line with what we have seen those stores deliver in the short term, and then as they become mature. So we are very happy right now with what is going on in Canada.

Okay, and all the other EZMONEY stores will convert this year, the Cash Converters?

The CashMax stores in Canada will convert, yes.

Right, CashMax, yes. Okay.

That's our intention. Yes, that's our intention.

And then in terms of your card services business, is that a business that you expect to do kind of from the ground up Greenfield yourself, or are you also looking at acquisitions to expand that business?

And Liz, I just didn't quite hear. Were you asking about card services, or online, or both, probably?

Yes. Well, actually both, right, in terms of 1 of the platforms to drive, to grow the business. Do you anticipate acquisitions to be part of that?

Right. What I would say is, let me answer a couple ways. So 2 years ago, roughly when I came to the company, we were pretty flat-footed, frankly, on digital strategies in card services. So we brought some talent inside. We have partnered with consultants or experts in the field that have worked with us to get us to this point and are still working with us.

As far as acquisitions, it's like any other part of the business. We are constantly looking for strategic opportunities to get further down the path faster. So that is a very real possibility.

All right, and obviously you've done quite a few lately. My final question is just maybe an update, and I don't know if you mentioned this, I dropped off the call, any update on the legislation situation, specifically in Texas, Boston and Dallas? Thanks.

Yes. Active litigation right now in both cities. So frankly I just cannot comment on either 1 of those situations, other than it is in our guidance, is the best way for me to describe that. But it's active litigation. I cannot make a comment.

Okay. So litigation in the sense that, it's my understanding, it's maybe the industry has brought some suits against the respective city?

That's correct.

Okay. All right. That's all I have for now. Thanks.

Our next question comes from John Rowan from Sidoti & Company. Please go ahead.

I guess, just a few questions, but the quick 1, my phone cut out when you were saying what the average scrap is on a forward-sale basis. Can you repeat the number?

Yes. We have forward sold 60% of our first quarter volume at an average price of $1,640 per ounce.

$1,640, okay. The acquisition for the 15 stores, can you tell us how much it was, and assuming that cash flow was going to come out in the first quarter, am I correct to assume that?

You are correct to assume that. So far this year we have racked up just about $50 million between all 3 deals.

So far, okay, but in the first quarter so far?

Yes. So that's the 15 MoneyMarts, the 7 Virginia, Pennsylvania, and the 2 Florida.

Okay. The stores you bought in San Antonio, you did say that they were highly profitable. Can you give us an idea of what the chain store average, in terms of pawn loan balances, are? Is it materially different? I think your chain store is probably still around $300. Am I right?

Yes. We don't give that out because it gives us problem later on future deals. So -- gave you the purchase price.

Okay, fair enough. Now, you mentioned that you are doing UK online payday lending. Also Cash Converters, as far as I know, also does some UK payday lending. Are you guys at all concerned about the OTF guidelines recently been released regarding collection of single payment loans?

Right. We are well aware of the OTF -- sorry OFT right now It's like any other regulatory situation. We are monitoring it. We're active in trying to impact that as well. So we know exactly what you're asking us about.

The first question you're asking, by the way, on Cash Converters and us is part of the reason that we went first into the UK. While there's of activity there, it is still a pretty underpenetrated market, and your cost structures are very favorable because of that. So we'll see how that comes out.

Some of the things that they're looking at right now, we don't engage in anyway. So we're new to the market. So frankly, to some degree it's like we talked about in Texas. We kind of like some of the cowboy stuff to be regulated out.

Okay. Anything unusual in the admin expense line? It's quite a bit higher than I had expected.

Yes. So we have a somewhat unusual incentive program here, and there are 4 tiers to the program. And they're discrete tiers, and what happened was we had an exceptional fourth quarter, as I hope you've gathered from the press release, which triggered the next tier of the incentive program company-wide. And therefore we had to make a cash out accrual in the fourth quarter which went through the admin line. That was the largest part of the jump.

We also had some legal and professional fees, largely associated with the Cash Converters transaction.

Okay. Does that head down going into the fourth quarter or does it stay elevated? I mean, to the first quarter, rather?

Well, let's see. The Cash Converters fees won't recur. The bonus scheme, you should know, is self-funding. So to the extent we end up paying that out, that's good news for our shareholders.

Okay, and then just the last question. Obviously last quarter the installment loans drove a somewhat higher bad debt expense. It doesn't seem to be the case this quarter. What are you seeing on that? Have you made any changes in your underwriting standards, et cetera?

Yes. The answer is we made changes in underwriting and in collections, and they worked both well. We're in this transition were the customers are choosing that product at a fairly healthy clip right now, not just in states where it's required by regulatory, but where we have offered it. So we are very pleased with this quarter.

We weren't as pleased with the performance last quarter. We expect a bit of volatility here, but yes. It was fundamentally some changes we made in both underwriting and how we collected.

Fair enough. Thank you.

Our next question comes from Bill Armstrong from CL King & Associates. Please go ahead.

Good afternoon. Just a follow-up on the last question. Can you quantify for us how much the catch-up accrual was that's in the admin expense and also the legal and professional fees?

All right. $2.3 million was the cash-out accrual and $1.1million was the professional fees.

So if we backed those 2 out, that should give us kind of a normalized run rate for quarterly admin expenses going forward?

Right. So understand that the difference here is in 2010 we were on a run rate to achieve the higher incentive plan from the get-go, from the first quarter.

In 2011, it looked like we were going to be on the lower tier until the fourth quarter. So we had to do a catch-up accrual. So it's just the fourth quarter that's a mismatch. Year to year those are good comparisons.

I see. So if we kind spread that to $2.3 million over a 4-quarter period, that would be more normalized, then?

It would. You must have had a very detailed model, Bill.

Yes. Well, unfortunately I do.

Second question. In your guidance, can you just run through us your new store opening plans for the year by major category?

So roughly, and Stephen, you'll correct me if I'm wrong, we mentioned about 10 Cash Converters in Canada. And don't forget there will be in an active remodel activity up there as well.

We've got, really, 12 to 15 US Greenfields set aside versus the 10 from last year. So it's stepped up just a little. Mexico Greenfields, 55 to 65. I think we did 57 last year, Greenfields.

Okay, and in the US those are all pawn, right? Not EZMONEY?

They are not EZMONEY, you are correct. They're not EZMONEY. Remember we just bought some buy/sell stores.

Right, okay. Got that, and In Cash Converters, the types of merchandise that you carry, or maybe plan to carry, is that similar to what we have seen in the pawn stores? Or might you be branching out into the different types of merchandise categories, or maybe testing different types of merchandise categories?

It's interesting. It similar to pawn shops. If we kind of blindfolded you and walked you in, you would think you were standing in a pawn shop in many cases. We have been in a lot of these all over the place.

The fundamental difference from a US pawn shop would be the prevalence of gold. So they are a GM-driven model, general merchandise-driven model, versus a pawn shop that has been primarily gold driven. That's really the difference. Otherwise, the categories are similar, but there is, as we'll say, there is opportunities, we think, for them in the gold business, and we think we can learn from them about the general merchandise business, even though we have are pretty healthy general merchandise business.

Okay, got it. Thank you very much.

Our next question comes from Bob Ramsey from FBR. Please go ahead.

Based on your gold lending tables and sort of where you have locked in the forward volume, is it your expectation that the margins remain as strong in that business going forward as they were this quarter? Or do they sort of turn back towards where they've been historically?

Well, recall that I mentioned we had, not a one-time gain, that we had an exceptional gain, of an additional $2.3 million proceeds from diamond sale in the fourth quarter. There were a lot of carats, and the price per carat has been moving up nicely. I think we were about $135 a carat.

Okay. So after backing that out, would you sort of expect gold margin to be where it was this quarter? Are the scrap margins where it was this quarter, or to trend down a little bit?

It's going to trend down from this quarter a little bit. There is also seasonality in this as well, but I think, and this is off the top of my head. Stephen, you can correct me. I think about half of our pickup of the 700 basis point improvement was primarily driven by diamonds.

Correct.

So, and as Stephen said, it's not a one-time, because we will continue to sell diamonds, but we certainly saw a proceed per gram that was better in the quarter. So we are a bit conservative, because we have seen some volatility in that in the last 6 months, but it was favorable to us in the quarter.

Okay, great. And with the online business in the UK, I know you mentioned you all hoped to be rolling out that business and actually lending this year. Did you mean this calendar year or this fiscal year? I just wasn't clear on how quickly you expect to be making loans in the United Kingdom.

Sure. I meant in the fiscal year. We are already making loans in the UK right now, but very small, beta testing going on. We are learning and watching the marketplace, that kind of thing.

But we'll start putting the foot on the gas soon enough. We may see some volume by the end of the calendar year. But I'm talking about, we will be lending online in the UK this fiscal year, and in the US this fiscal year.

Okay, and sort of with looking outside of the United States, how did you decide on the UK versus maybe Canada, where you do also have the retail presence?

I mentioned it earlier -- I would tell you, on all of our businesses, we have a tendency to look very broadly, come back more narrowly with a lot of data. I'd rather not share all of that because, frankly, we think that is 1 of our competencies here, that we have a tendency to study things, you may agree or disagree, but study things like crazy before we jump. The fact of the matter is we think the UK, as busy as it is, is under-served and we also think that the cost structure for us to get up and running is very advantageous to us.

And just to comment about the US, the online lending in the US, the number 1 state is Texas, and we've got a lot of activity in Texas today. So we took the opportunity to try something outside the US first.

Okay, and sort of over the next couple of years, how do you think about the online growth potential in the United Kingdom versus the United States?

Well, let me answer that slightly differently. Look, I think they're both big opportunities. I mean, Cash America has done a fantastic job in the United States and is not going international. They took that route.

You brought up Canada, we think there is obvious opportunity in Canada. So we have sized up all of those countries, English-speaking countries. We've sized up Spanish-speaking countries. Without giving away too much, we've got all of those lined up.

We think in terms of 5 years here. So what are we going to do this year, next year, the following year. But we think there are lots of opportunities, not just in kind of lending as we all see it today, but other types of lending, whether they be collateralized or part of the buy/sell model.

Okay, and also, I guess recently in the United States, the FTC filed a complaint against maybe a marginal online lender, but part of that complaint staled that it violated the Electronic Funds Transfer Act and regi by requiring authorization for electronic payments as a condition for making a payday loan. Have you all had a chance to sort of look into that and see what the implications may be are for US online payday loans?

Yes. The answer to that is we're aware of that, just as we're aware of the Office of Fair Trade in the United Kingdom and their activities, and I go back to the same thing. We have seen in the US, I think there's something like almost 40-some online lenders today of some size scale. And many of them, as far as we've been able to ascertain, many do a good job of operating within the regulatory environment and some of them don't.

So I'm not sure of the specifics of that, and which company it was, but there is certainly opportunity for the online lending industry to do a better job of working within the regulatory environment that's there today. That's my personal opinion.

Okay, and then if I shift gears a little bit. You mentioned, I guess earlier in the call, competitive challenges in Texas. I was just wondering if you could elaborate a little bit on that.

Yes. In the, I guess, in the financial services side, payday, installment, and certainly auto title, and I mentioned it earlier, the number 1 state for online lending is Texas, and it's growing exponentially. So the customer has more choices than they have ever had in the state. They can go online in a way that they've never been able to do for a variety of products.

And then the bricks and mortar influx of auto title lenders has been fairly substantial over the last, really, 18 months. So those are the pressures that we're dealing with in Texas.

Okay, thank you, guys. It's been very helpful.

We have no further questions at this time.

All right. Thank you all for participating on the call today. We look forward to speaking to you again next quarter.

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