Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cash America International, Inc. (NYSE:CSH)

Q1 2009 Earnings Call

April 23, 2009 08:45 am ET

Executives

Dan Feehan - President and CEO

Tom Bessant - CFO

Analysts

David Burtzlaff - Stephens, Inc

Bill Armstrong - CL King & Associates

Elizabeth Pierce - Roth Capital Partners

Jordan Hymowitz - Philadelphia Financial

John Hecht - JMP Securities

Henry Coffey - Sterne Agee & Leech, Inc

John Rowan - Sidoti & Company

Rick Shane - Jefferies & Co

Gregg Hillman - First Wilshire Securities

Ted Allen Mayor - Northstock Partners

Operator

Welcome to the Q1 Quarterly 2009 Earnings Release Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. (Operator instructions). As a reminder, this conference is being recorded Thursday, April 23, 2009.

I would now like to turn the conference over to Mr. Dan Feehan, President and CEO. Please go ahead sir.

Dan Feehan

Thank you, and good morning ladies and gentlemen. Welcome to our first quarter call. Joining me this morning is Tom Bessant our Chief Financial Officer, who will lead of with the review of the first quarter financial performance and updated earnings guidance for the second quarter and full year of 2009. I will then rejoin the call to provide my perspective on the current condition of our business. We will then open the call for questions following my remarks.

Before beginning our comments, please bear with me while I read our Safe Harbor disclosure. While on this call comments made by Tom or me may contain forward-looking statements about the business, financial condition and prospects of Cash America International, Inc. and its subsidiaries. The actual results of the company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including without limitation the risks and uncertainties contained in the company’s filings with the Securities and Exchange Commission.

These risks and uncertainties are beyond the ability of the company to control, nor can the company predict in many cases all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.

When used in this call, terms such as believes, estimates, plans, expects, anticipates and similar expressions as they relate to the company or its management are intended to identify forward-looking statements.

Now, I would like to turn it over to Tom for the financial report.

Tom Bessant

Thanks, Dan, and good morning everyone. As we explained in the January call, we expected a difficult quarter in the first quarter of 2009 with heavy headwinds associated with the changeover in our storefront product offering in Ohio, the economic pressures on customers leading to potentially higher year-over-year loss rates on our cash advance product, and the absence in 2009 of certain profitable markets which contributed in 2008 to our online cash advance earnings in that period.

As a result, we issued guidance in January of between $0.61 and $0.65 a share down from the prior year earnings per share of $0.86. Two weeks ago, we were pleased to report to you that our actual performance in the first quarter of 2009 came in well above expectations, then we revised our earnings guidance between $0.75 and $0.78 a share.

In our press release this morning, we reported that we came in a penny above the top end of that range at $0.79 a share, and I will spend some time talking about the components of the $0.14 per share difference from the top of the initial range as well review each of the company's business activities for the first quarter.

A big part of the first quarter was the strong pawn service charges produced in our pawn loan balances that finished year end 2008 up 11% domestically and 23% overall. Pawn service charges were up 22% in the first quarter and pawn loan yields continue to perform well as redemption rates have been healthy and positive year-over-year.

Aggregate pawn loan yield was 138% for the first quarter of 2009, compared to 135% last year. We concluded the first quarter of 2009 with aggregate pawn loans up 19% year-over-year and inventory up 9%.

Bear in mind that the first quarter of 2009 results include the acquisition of Prenda Facil completed in December 16, 2008, which contributed to our performance in the first quarter. However, our domestic pawn business performed well in its own as operating income was up 9% to $28.8 million on a 3% increase in net revenue for the quarter.

Same-store domestic pawn net revenue was up 3.4% in the quarter and domestic pawn on balances finished Q1 2009, 5% higher than Q1 2008.

Our Mexico's city based pawn operations produced operating income in U.S. dollars equivalent to $1.8 million and added 15 locations during the quarter. For the nine months ended March Prenda Facil has 30 new locations ahead of a quarter-end total of 127 stores, representing a 31% growth rate in new locations since June of 2008.

Because of this high level of recent unit growth over the last nine months my expectations were that Prenda Facil subsidiaries would not have much incremental earnings per share in the first quarter.

However Prenda Facil contributed nearly $0.2 a share in the quarter, which is one of the reasons we exceeded our performance. Likewise, the US pawn operations came in about $0.2 higher than expectation, so it’s safe to say that the performance of both are U.S. and Mexico based operations in the pawn business was stronger than our expectations.

Leading to a 16% increase in operating income from pawn activities in the first quarter compared to the prior year on a 10% increase in net revenue. The pawn segment contributed 71% of the company’s consolidated operating income for the quarter.

Marginal profitability of pawn business also increased nicely during the quarter increasing to 28.2% of the net revenue notwithstanding the number of started stores driven mostly by performance of the pawn on portfolio.

But this position of merchandise was [at 11%] creating a 5% increase in gross profit dollars. Gross profit margin for the quarter was down compared to the prior year at 36.4% compared to 38.7%. However, this is in line with our expectations.

And is actually up from the fourth quarter of 2008, 34.3% sequentially. Continuing the trend we’ve discussed in the last half of 2008. Our silver refined gold continued to add incremental profitability in the gross profit margin lines that blended down the aggregate gross profit margin.

Retail sales and store locations excluding refined gold was up 2% in the quarter, and margins eased down to 39.4% compared to 40.8% last year. As a continued emphasis on inventory management led to greater discounting.

Merchandise turnover increased and reached 3.14 times, compared to 2.97 times in the first quarter of 2008. Likewise, as you can see from the ageing chart attached to our press release aged inventory continues to improve year-over-year and goods over one year old reached an all-time low of 8% as of March 2009.

As I begin my discussion, the cash advance business line, I remind you that the expectations were significantly down year-over-year first quarter through the absence of certain markets as well as the change to a much lower yield product offering in Ohio.

As I talked about in the January call, our expectations for the store front cash advanced business, where that it would be marginally profitable during the first quarter and unprofitable in the second quarter of 2009.

The store front business performed slightly better than we expected as loss rates in the portfolio improved significantly year-over-year leading to a $1 million operating income number from store front activities in Q1 2009. But well off the $6.1 million operating income figure of Q1 2008.

Part of the reason for the improvement in loss rates was likely due to the lower cost of borrowings of the new product in Ohio, but also because of underwriting changes we made during the third and fourth quarters of 2008.

In addition, tax refund activity was stronger than expected helping our collection efforts on all levels. We also generated $585,000 in gross profit from gold buying in 110 of our store front cash advance locations in the first quarter, which added valuable incremental earnings to this segment.

Let me point out for those who look at losses as a percentage of fees, you will see only a marginal increase on the storefront side from 15.2% last year and 13.9% this year. However, the lower yield on this cash advance product year-over-year makes this comparison figure less meaningful and would accurately imply that loss levels as a percentage of volumes were much improved.

Also, the year-over-year decrease under either measure is better than forecast, given the economic environment in the Midwest for many of these storefront locations are concentrated. While the Ohio cash advance volumes levels were better than we expected, our overall storefront business has challenges in front of us.

I want to make sure that I am clear that none of the cash advance markets that we had expected to be absent in the first quarter are included in the storefront operation. So, what you see in storefront is recurring based on the current environment today. Asset volume growth and tight expense control will be the key to producing adequate returns and profitability for the storefront cash advance businesses in future periods.

The Cash America online Payday Advance business performed very well in the quarter, as loss rates moderated due to changes in underwriting put in place late in the third quarter and early fourth quarter of 2008, which I mentioned in our January call.

Our expectations coming into the quarter was about the storefront Payday Advance business and the online Payday Advance business would be down significantly year-over-year, but in fact, operating income from the online business was about the same as the prior year at $11.6 million on a slight increase in revenue.

The online business comprised 92% of the cash advance segment operating income of $12.6 million in the quarter. As we mentioned in our pre-release and again this morning, certain states which had projected to be dark during the first quarter ended up not being completely eliminated from our first quarter results which help the online cash advance business.

Those states, specifically, Pennsylvania and Minnesota, did not phase out in February and did add profitability. We are not aggressively accepting or pursuing new customers in those markets, but are instead enjoying a moderate level of customer activity well below the prior year at above our expectations for Q1.

The impact while not overly significant did help the quarter and those markets contributed about $0.05 more than was included in our regional estimates. Therefore, the residual $0.02 to $0.03 of improved performance over the high end of the original estimate comes from the lower levels of loss rate in both our online business and our storefront business, but in the online business, losses as a percentage of fees decreased to 38.9% in Q1 of 2009 compared to 43.2% last year and decreased substantially from the 50.5% in the fourth quarter of 2008.

[While trades] on the company's consolidated cash advance product were better across the board in Q1 2009, as the provision for loan losses as a percentage of loans written was 5.1% compared to 5.5% last year.

This decrease is even more impressive when you factor in with the online cash advance business, which has historically posted the highest level of loss rates, now comprises 60% of the consolidated cash advance business.

To determine our focus to our expectations for the remainder of the year, let me start by saying the tax refunds came in later in the first quarter of 2009 and traditionally is the case, and that the average tax refund was up 9% year-over-year. As a result, we saw earning asset levels in all of our US businesses, both pawn loans outstanding and cash advances, come down at a higher rate and later in the quarter than in the previous year.

Likewise, we ended the first quarter with pawn loan balances in our US business at 5% year-over-year was showing a sequentially decrease from the Q4 2008 year-end level of 14% which is much greater than the typical 10% to 11% normal seasonal drop we experienced.

The sequential decrease is greater than traditionally observed. Moreover, we are encouraged by the 5% year-over-year increase as of March 31st and expect pawn loans to recover in their normal business cycle in the second quarter, due partially to the absence of tax stimulus check.

And since I'm referring to tax stimulus checks, remember that retail sales in the second quarter of 2009 will likely be lower in the prior year and pawn loan yields will not be as strong because redemption activity will not be as high. Again due to the absence of tax refunds stimulus check.

As a result pawn loan growth in the United States will depend on customer's borrowing appetite. If the U.S. customer continues to trend of high savings, then pawn loans will grow at a lower rate. Moreover, the continued growth and expansion of Prenda Facil and our Mexican pawn operations will add to the pawn segment earnings in the second quarter and offset some of this effect.

The 20% year-over-year decrease in cash advance assets related to our store front cash advance business is particularly challenging given the lower marginal profitability of new products being offered in Ohio. My expectations coming into the year were that this group of stores would not be profitable in the second quarter, and have no reason to change that view today.

Likewise the online cash advance business following the asset levels dropped. But we’ll enjoy the opportunity to provide customer's loans in the states of Pennsylvania and Minnesota during a portion of the second quarter. However, this availability is unpredictable, so we had assumed that the markets are phasing out during the second quarter.

Therefore the combination of no stimulus check during the quarter, absence of profitable markets and lower earnings asset levels lead us to conclude that the second quarter 2009 will be down compared to the prior year since systems are [messaging] January. Our current view is that Q2 2009 will be between $0.50 and $0.53 a share, compared to $0.67 last year.

Keep in mind as you look back at the 2008 second quarter numbers that those earnings were well above the prior year of 2007 due to the benefits of stimulus check during the quarter, and as a result our third quarter 2008 results were only slightly above the prior year of 2007. I would expect this inverted seasonality to reverse itself in 2009 with the second quarter being lower and the third quarter being higher year-over-year.

Given the unusual nature of the second quarter dynamics, we have chosen to maintain our previous full year range of expectations and project 2009 earnings per share between $3.10 and $3.30 a share, this still reflects an increase year-over-year and notwithstanding a year-over-year decrease of 7% in the first quarter, and anticipated decrease of between 20% to 25% in the second quarter.

We are encouraged that the remainder of the year we’ll perform as a normal business cycle assuming if loan balance buildups in the second quarter will lead to stronger comps in Q3 and in Q4.

With that, I’ll turn the call back over to Dan

Dan Feehan

Thanks Tom, and I appreciate it. You may recall in our last conference call when I spoke to you regarding the outlook for our business in 2009. I began my remarks with a discussion of the uncertainties facing our planning cycle for the year. At the top of my list was a factor I labeled as the psychological paralysis of a consumer.

At the time that January call, it was hard to estimate how consumer anxiety might ultimately translate into consumer behavior and how that behavior might affect demand for our loan products and pre-owned merchandise.

Now that we've completed the first quarter I can honestly tell you that I have any better clarity. A multitude of things were in play for us this quarter, which renders any quantitative analysis a difficult to interpret.

We undertook a significant adjustment of our business model in Ohio switching from the payday statute to another consumer loan statute at the same time that we introduced gold buying activities and pawn lending activities in many of our remaining Ohio locations.

We have also recently are applying the underwriting models for our short-term cash advance products both online and in our storefronts, then have intensively contracted loan volume in those states that lack clarity for the continuation of our online offerings. Additionally, as Tom has mentioned, the tax refund dynamics appeared to have cycled a little differently this year which make the anniversary comparisons for both the lending and retail sides of the business open to some speculation.

So, while I am not comfortable using any hard data from the first quarter to predict where demand is heading over the balance of 2009, I am comfortable sharing my intuition found over 25 years of managing through cycles in the specialty financed space. My sense today is that the consumer at every level of the socioeconomic scale continues to act with extreme caution, waiting to see how deep and how painful the economic slow down might become.

They are hopeful that government intervention will help but not confident enough to resume the borrow and spend habits that sustained the hard economy for most of the current decade. The casual observer invariably concludes that specialty finance guys like us who catered the under buying population must certainly prosper when the economy turns out.

I can't tell you how many times I hear this in my travels around the country talking to potential investors, politicians, or a seatmate on a late night flight. As more informed students of our industry, the people on this call should recognize a superficial nature of the thought process leading to such a conclusion.

What the casual observer fails to recognize is that even though consumers with average household incomes in the range of $30,000 to $40,000 are aware of what's happening around them, they are not oblivious to changes in the economy that effect their livelihood and the outlook for better days ahead. In fact, they are often the first ones to know the change in the economy.

As our hours get reduced, their neighbors get laid off, or their access other forms of short-term credit is significantly curtailed. They get frightened and cautious just as you and I have been over the past year with our investment portfolios and 401(k)s.

So, based upon what I'm seeing and hearing from our people in the front lines of serving these customers, my intuition tells me that both loan demand at retail demand will remain at challenge in the near-term. Something has got to change in the economy or in the national rhetoric or both to provide a sense of hope before consumers get aggressive again.

With that intuit as base of the backdrop, let me tell you what I like and I don’t like about our position for meeting our plan in 2009. First, I am really happy with the fundamentals of our US pawn business, we have carefully managed the organic growth of the US pawn shops with the keen focus on balancing earning assets and maximizing cash returns. Our pawn business is the sacred cash cow of the enterprise, and it is well positioned to sustain itself through the balance of this recession.

Loan yields, retail margins, scrap margins, inventory turns, inventory aging, and forfeiture rates, and other key metrics were all in great shape today. I do believe we are well positioned here.

Second, I am thrilled with the early returns from the acquisition of the majority ownership of Prenda Facil in Mexico. Our management teams in the US have developed a great work in relationship with our Mexican partners in a very short period of time, and the company is ahead of plan through the first quarter.

As Tom mentioned, they have opened 15 new locations in the quarter and are on plan to achieving 2009 goal of opening 50 to 60 new locations. Additionally, Prenda Facil is beginning to test some retail initiatives based upon the success Cash America experienced with the introduction of retail in the UK during the days when we owned Harvey & Thompson, and with our help, they will also begin expanding their collateral mix to include some electronics in certain locations. By all measures, our investment in Prenda Facil appears to have been a great partnership with a bright future.

Third, I am proud of the progress we are making in controlling loss rates on the short-term cash advance product. We had been making great progress in reducing loss rates in the first three quarters of 2008, and then experienced a set back in Q4, which I found very disappointing.

We have now regained our footing in the first quarter with lower loss rates over all. And as Tom mention, the improvement in our loss rates when we calculate it as losses to fees, is better than it appeared on a consolidated basis due to the increasing mix of our online offering this quarter.

The loss rate in our online business was down 10% in the first quarter after being up 4% in Q4, and the loss rate of our storefront cash advance business was also down significantly in the first quarter after also being up in the fourth quarter.

I believe these total loss rates reflect the impact of our underwriting revisions and our particularly strong performance of our collection teams of both Cincinnati and Chicago. The loss rate improvement may have also benefited from some tax refunds in the quarter, but as I mentioned earlier, it is hard to isolate that effect.

I will also acknowledge that some of the improvement in loss rates comes at the expense of loan volume, as cash advances written in the quarter were below my expectations. Regardless, we will continue to air on the side of lower loss rates in what we believe is a very uncertain and rocky economic environment.

Finally, I am also pleased with our progress on a number of strategic initiatives that have yet to provide any real earnings but certainly show promise. Our early stage card-based services business processed approximately $20 million of advances in the quarter, and posted a small positive EBITDA.

CashNet will be launching a limited installment loan offering online during the second quarter, and is also on schedule for a soft launch in Australia by Q2, by the end of Q2. By the way, CashNet’s business in the UK is now profitable, and it should reach meaningful scale later this year. CashNet is also beginning developing work for launching in Canada hopefully by early Q4 of this year.

And our retail services group has been testing a new website promoting our gold business and will be running a test TV campaign in the second quarter for purchasing gold through the mail. That none of these initiatives are meaningful to our overall enterprise yet, but I mentioned then the highlights the fact that we are being very active in an extensive R&D effort to expand our offerings and develop alternative products as a backstop to any potential further erosion of our short-term cash advance product as I handed regulatory change.

We are incurring significant cost in the development of these initiatives, and we do not expect that all of the initiatives will ultimately succeed. But all of them do show promise, and we absolutely believe that dilution near-term earnings from this development cost is clearly warranted given our view of the longer term potential to transform our business model with more stable and scalable products.

Now on a not so happy side of the equation, I will tell you that most of my concerns for the year - remaining part of the year set around the demand side of the business, which I discussed in my initial remarks. I do believe we’re referring better than most financial institutions and retail organizations, but I had hope for a low stronger customer demand early in the year. This is something we will obviously keep our eye on as the global economic picture continues to unfold.

I’ve also been disappointed, although not greatly surprised with the short sighted rhetoric coming out of Washington regarding the [perceived deals] of all forms of consumer lending. This popular saying demanding new regulatory restraints on consumer credit has now marked from champing slogans into proposed legislation.

Bills have been filed in both the U.S. house incentive that is enacted would be detrimental to the provision of credit in this country and would negatively impact our business as it now exist. As a result, many analysts have begun attributing no value to the earnings of the short-term cash advance products for anyone in our industry. And interestingly, this comes at a time when most of the state legislative activities have been relatively calm.

Now I can't predict the outcome of all these filed bills, but I can tell you that Cash America and others in the industry are aggressively working of all the congress to influence a positive outcome. There are plenty of people in congress who understand the detrimental consequences of these bills for consumers at a time when the economy desperately needs a resurgence of consumer spending. Let’s hope our good sense ultimately prevails.

And we’re also dealing with proposed legislation in the state of Texas where we have a large presence both with 251 store front locations in our online offering here in Texas, fortunately there are also plenty of people in the Texas legislature who recognize the needs of their constituents and the value of the services we provide. And we are hopeful that we can hold off any adverse activity in the last 40 days of the Texas legislative session.

Now there is nothing really else that I’m particularly concerned about as it affects our plan for the balance of the year and all things considered I’m pretty happy with the position that we have today. We will have a challenging final three quarters of the year, but I do believe we're doing all the right things to sustain our business in these uncertain times.

And with that the operator will turn it over to questions at this point.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of David Burtzlaff with Stephens Inc. Please go ahead, sir.

David Burtzlaff - Stephens, Inc

Good morning, Tom and Dan.

Dan Feehan

Hi.

David Burtzlaff - Stephens, Inc

Great quarter here. Just a couple of quick questions. Tom I noticed in the breakout for Mexico there is not any merchandise sales, did you not scrap anything or was that included in U.S.?

Tom Bessant

Now let me explain how that works in Mexico which is very similar, David to what we -- the laws we operated under in the United Kingdom and in Sweden. In the Mexican operations, the pawn loan is sold on behalf of the customer and so when that collateral is liquidated in essence it just redeems the loan ultimately, and pays the interest and certain additional fees that maybe associated with that loan.

So at this point in time there is no real retail sales activity, and so what you are seeing is higher yields which benefited in the quarter from higher gold prices in U.S. dollars, while the Mexican peso devalued slightly earlier in the quarter.

So they get a little extra benefit there. So it’s reflected in the yield calculation and then I would point out that of course forfeiture levels in that business again much like our European businesses were significantly lower than you’d see in the U.S. business and amount to approximately 10% compared to what's typically about 30%, 35% in the U.S. business.

David Burtzlaff - Stephens, Inc

Okay. Then there is roughly 200,000 in other revenue from CashNet; what is that?

Tom Bessant

CashNet, that is basically the sale of lease that CashNet has purchased that for whatever reason they have concluded to not execute on that loan. They've remarketed those leads in the past typically and it's really not materially even now, but typically we have just netted that against lead costs. We have just broken it out separately.

David Burtzlaff - Stephens, Inc

Okay. So, is that going to be a recurring number then?

Tom Bessant

Yes. It is likely to be, and again, still not big relative to the aggregate revenue figure.

David Burtzlaff - Stephens, Inc

Okay.

Dan Feehan

David, it also impact your comparison of cost in that business as well, because obviously that reclass into revenue is going to cost higher this quarter by that same tune of $200,000.

David Burtzlaff - Stephens, Inc

Okay. The card services business, I mean you said, you indicated they are basically broke even. Is that something that is sustainable, or is that just kind of a seasonal nature? I mean, do you expect that to continue going forward that it is basically breakeven, maybe slightly positive or should that loss widen as we get away from tax refunds?

Dan Feehan

No. I don't think given the early stages of the development of that business, David, that the seasonal aspects are all that significant relative to the trend. I do believe that the business will continue to scale; there are some things, strategic things that have to happen in order for the business to scale.

There are some relationships that have to develop with banks and program managers, processors. We have a free aggressive business development activity underway associated with those strategic objectives, and the good news about that business is that the fundamental economic transactional model is being refined, and we are confident as a sound economic model that can produce significant profitability if we can get scaled in that business.

So, we were continuing the scale and as these other third-party relationships develop, we will be able to scale that business throughout the balance of the year. So, I would expect that business to continue to probably breakeven in the second quarter, slight profitability, and hopefully as these strategic objectives line for us, we will be able to generate some profitability for that in the second half of the year.

I do think it is an outstanding opportunity for us. It addresses our objectives of finding alternative products that are scalable on the national basis that again as I mentioned in my comments provide a backdrop to any further erosion of our short-term cash advance business.

David Burtzlaff - Stephens, Inc

Okay. And one last question; Tom, do you have the scrap revenue in the margin?

Tom Bessant

I do. The revenue number is $49.6 million for the first quarter compared to $38.2 million last year and as well as you had a question on the margin, it is 31…

David Burtzlaff - Stephens, Inc

Yes, what is your scrap margin?

Tom Bessant

Yes, 31.5 compared to 34 last year. You remember, Q1 last year, gold prices really strengthened and they strengthened this year on a relative basis, but they really strengthened last year and I think it was March or so last year when we got back over $1,000 announced, so we had a lot of strong comps for year-over-year.

David Burtzlaff - Stephens, Inc

Okay.

Dan Feehan

I believe that margin is up sequentially from Q4.

Tom Bessant

It is up sequentially from Q4. Q4 margins were…

Dan Feehan

26, I think…

Tom Bessant

Yeah. 24.7%. So, sequentially going from 24.7 up to 31.5.

David Burtzlaff - Stephens, Inc

All right. Okay. Thank you very much.

Tom Bessant

You bet. Thanks, David.

Operator

Our next question comes from the line of Bill Armstrong with CL King & Associates. Please go ahead.

Bill Armstrong - CL King & Associates

Good morning. I was wondering if you could update us on the situation in Ohio. Apparently, enforcement of the new rules has been sort of slow. What was going on there?

Dan Feehan

Yeah, I am not sure what you are referring to in terms of the enforcement of new rules being slow. The law went into effect; the House Bill 545 went into effect in November and all the players in the Ohio market including our sales migrated their business models from the old payday statue to different statues; one being a small owned statue in Ohio and other one that is referred to as mortgage loan act that various companies are operating under those statues providing short-term cash advances to consumers.

So, quite a few locations have been closed in Ohio. We have closed quite a few ourselves, others have closed locations; different people are doing different things in Ohio but the rules that is they exist in Ohio to-date in my knowledge are certainly being enforced.

Bill Armstrong - CL King & Associates

In your press release you said that diverse changes in legislation, regulations in a way of not been implemented thus far and not completely…

Dan Feehan

Yeah. That's really, that's really a reference to what we assume would occur early in the quarter in Pennsylvania and Minnesota that was due to note any legislative changes there, but regulatory rulings that came out of the financial institution who want the sector as a the department of banking in Pennsylvania and the financial institutions in Minnesota.

As the rule changes late in December then we thought would effect -- potentially affect our business in the first quarter. Both of those ruling were challenged in court and were temporarily set aside in Minnesota. We are not aware of any current activity by the regulatory agency there to reintroduce that change in Pennsylvania.

There will be a hearing sometime here, we expect in the second quarter, to deal with the changes in Pennsylvania. We don’t have any idea what the outcome of that hearing will be. But we were able and we expected to make changes in Pennsylvania. Early in the quarter due to the injunctive relief we have received in Pennsylvania we were able to continue to do business there. And we will continue to do business there and until we have a resolution on this hearing, a positive resolution. We can continue -- hopefully continue to operate in Pennsylvania long-term, a negative resolution we could be sure to shutdown our online offerings in Pennsylvania.

Bill Armstrong - CL King & Associates

I see, setting aside the cash advance product for a moment going to the pawn side, are you hearing any rumblings of any kind of legislation or regulatory changes that might be challenging the pawn shop business model.

Dan Feehan

The only thing that is out there today, Senator Durbin has filed a bill in the US Senate to cap interest rates on any short-term credit at 36% APR. At this point that piece of legislation is so poorly written and encompassing that we believe that occasionally as its currently written could include our pawn activity around the country as well.

Not only in pawn and short-term cash advance products but a lot of other consumer credit products, associated with banks and credit unions and other institutions. It is anonymous very encompassing bill that would affect lots of people and as I said in my comments would have an extraordinarily adverse effect on the provision of consumer credit in this country.

Bill Armstrong - CL King & Associates

Okay thank you.

Dan Feehan

Okay.

Operator

Our next question comes from the line of Elizabeth Pierce with Roth Capital Partners. Please go ahead.

Elizabeth Pierce - Roth Capital Partners

Thank you. Good morning you guys, congratulations.

Dan Feehan

Good Morning, Liz.

Tom Bessant

Hi Liz

Elizabeth Pierce

And I was wondering if you [riders luck] cleared up any.

Dan Feehan

Well, I tell you, you are the Fed. It is hard to estimate what the balance of the year is going to look like. It is clear to me as I said intuitively that that may is changed a bit. Even our customers are being a lot more cautious on what they are borrowing and what they are spending, I think the anxiety and the fear factor is still pretty strong out there .

And in so if something changes as I mentioned in the economy or we get a lot more positive rhetoric out of Washington and our national leaders try to make people believe that there is a reason to hope again, I am not sure the consumer is going to return any time soon. So in that, contrary to what a lot of people believe, that affects our customers as well that does everybody else in the economy.

Elizabeth Pierce - Roth Capital Partners

Right. Then the credit card bill that was in yesterday that - that is completely a different bill, right, if I remember correctly?

Dan Feehan

That's correct.

Elizabeth Pierce - Roth Capital Partners

Okay. And I am very curious on your comment about, in terms of state’s right and what you guys are hearing -- you said the states are being relatively quite, are they being quite leading to see obviously what unfolds or are you hearing anything from them saying no way, we are going to let this happen at the federal level? We are not going to let them usurp our right to control our stake.

Dan Feehan

Yes, there is some of that going on. I mean, my comment on the quite, the states being quite was really state legislative activity. We haven't -- this time last year, it seems like three to four calls -- quarterly calls last year, we were sitting three quarters of our time talking about what was going on in Ohio and Pennsylvania and other states around the country and so far here in the early legislative sessions in 2009 at the state level there hasn't been nearly as much noise as we've been experiencing in last few years.

But to your question, we have heard around the states a number of folks -- and talking the people in Congress who totally oppose to having wide-sweeping federal legislation that basically usurps state laws around the country. Now, whether they prevail or not is a question mark, but that is certainly an issue that people are bringing to this debate.

Elizabeth Pierce - Roth Capital Partners

Okay. Regarding Prenda Facil, I realize it is early and you are obviously already making Australia and Canada now on the docket. How far is Latin America offer you guys?

Dan Feehan

Yeah, it is a great question, Liz. I would tell you that we are still early obviously in our investment in Mexico, and while we expand quite a few years examining that market and trying to find the right opportunities and we are very knowledgeable about Mexico. We had not spent a significant amount of time investigating the opportunities in Latin America.

I would tell you that our partners in Mexico have done some of that, and in the private discussions we have had with them, they are very, quite frankly, they are very upbeat about opportunities in Latin America. We have not had the opportunity to travel there with our partnership to try to assist that independently, but it is on the docket for us to examine the opportunities there continue.

We have got incredible opportunity in Mexico itself, in terms of expansion, store expansion, but we also believe based upon things that we have read and we have been in discussion with our partners that there are opportunities in Latin American for us as well. So, I would be surprised if you would see us do anything here in 2009, but I think 2010, 2011 certainly we may have opportunities something in.

Elizabeth Pierce - Roth Capital Partners

From what your partners have told you, are the population, the demographics in terms of level of under bank customers and the banking system and the postal system, are they as is in disarray and inefficient as in Latin America, throughout Latin America, as they are in Mexico?

Dan Feehan

Their belief is and again I haven't done this enough research on this and I give you the representations that they told us and that is that it is probably worse in some degrees than what you found in Mexico.

Elizabeth Pierce - Roth Capital Partners

Are there pawn stores there? I presume there are since it is like one of the oldest profession.

Dan Feehan

Well, there are not. There are not as many. If you look at some of the Latin American countries in terms the stores per capita and certainly far below major states that we operate here in the United States and far below a lot of places in Mexico.

So, I think there is an opportunity, certainly an opportunity there, and again I have talked repeatedly over the last year about the change in world for consumer credit and the contraction of consumer credit going on around the world, and that is true in Mexico and Latin America as well.

So, I think there are opportunities there, and obviously, the pawn business is one that we understand extraordinarily well and understand operating in foreign countries. So, I am pretty upbeat and optimistic that it will in addition to having an extraordinary large presence in Mexico, ultimately that we can move in to Latin America and even potentially I think there may be some opportunities in South America.

Elizabeth Pierce - Roth Capital Partners

Tom, a quick question for you; I haven't had chance to go through all the detail in the financials, but did you guys pay out the last thing to CashNet?

Tom Bessant

Yes. Liz, we paid the $34.7 million on March 31st. There is a final true up payment which will be due here shortly of about $5 million, and that will be probably made in the next week and then that's it.

Elizabeth Pierce - Roth Capital Partners

Okay. All right guys. Good luck and congratulations on a nice quarter. It is a tough environment.

Dan Feehan

Thank you.

Tom Bessant

Thank you, Liz.

Operator

Our next question comes from the line of Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Jordan Hymowitz - Philadelphia Financial

Hey guys.

Dan Feehan

Good morning.

Jordan Hymowitz - Philadelphia Financial

Couple of quick questions. First of all, and more importantly, can you do your next conference call a more normal time; it is not like when the market opens, it is very difficult, but anyway one of the more serious things, how much G&A was spend in your new endeavors?

Dan Feehan

You're talking about all the strategic initiates?

Jordan Hymowitz - Philadelphia Financial

Yes.

Dan Feehan

Well, I'd tell you, Jordan. I don't have that number at hand. I'll tell you, we have a significant amount of overhead in terms of people primarily, both in Chicago and folks here in Fort Worth, who are spending 100% of time working on these initiatives.

Part of that development cost also is taking place in its card-based services program in Irvine. We are spending tremendous amount of business development dollars. We didn't count today with the aggregate figure for that, sorry.

Tom Bessant

The bottom line is, Jordan, when you look at the online portion of the cash advance business, you see a pretty significant increase in our administrative cost, and what you are not seeing right now is, the tradition of leveraging of increased revenue with an online product model because of that investment.

So, I would tell you that a large portion of that increase is related to our long-term perspective on opportunities, whether it is development activities in Australia and Canada, which are more in the near-term, or more of longer term products as Dan mentioned, the installment type products and other products as opposed to just cranking that down and just maximizing short-term earnings at the expense of long-term revenue?

Dan Feehan

Yes, we got a significant amount of legal expense as well. And as you design these products and set up your business models for places like Australia and Canada, we have incurred a significant amount of legal cost that we are rating on a current basis. So there is a lot that goes into it, but it's a big number. Again I can't say that yes…

Jordan Hymowitz - Philadelphia Financial

Can you just estimate a number like a range, you’re talking a $1 million or you talking 10 million, I mean…

Dan Feehan

Certainly not $10 million, but I would say probably in the quarter, we are doing $1.5 to $2 million of that?

Tom Bessant

At least -- I would say a large portion of the relative increase there is associated with it. So I don't have an estimate number..

Jordan Hymowitz - Philadelphia Financial

Yes, that's good enough. $1.5 million to $2 million is fine. Second question is, you said 71% of the operating income is pawn. Would it be a fair guesstimate then to say if the 3 to 3.10 number, if we took that number and use 71%, that would be your guesstimate of about two and quarter from pawn earnings in the year/

Tom Bessant

Well frankly, probably a little higher than that Jordan, because the interest expense associated with the earn-out payments that have CashNet that have been made in the past create a higher interest burden on the CashNet side or around the cash advance side. But I mean…

Jordan Hymowitz - Philadelphia Financial

Oh, it's only….

Tom Bessant

70% is as good as any.

Jordan Hymowitz - Philadelphia Financial

Okay, so if anything, that's a low number.

Tom Bessant

That will work.

Jordan Hymowitz - Philadelphia Financial

Okay. And my last question is -- actually my last question was answered. Thank you very much.

Tom Bessant

Thanks Jordan.

Operator

Our next question comes from the line of John Hecht with JMP Securities. Please go ahead.

John Hecht - JMP Securities

Good morning guys. Thanks for taking my questions.

Dan Feehan

Good morning John.

Tom Bessant

Hi John

John Hecht - JMP Securities

First one, housekeeping is, what’s the tax rate are you guys expecting through the remaining part of the year?

Tom Bessant

I would say that it will come down in Q2 and Q3. If you remember we had non-deductible expenses related to lobbying activities in Ohio in the last three quarters really of 2008. So we feel a little more normalized at its current rate levels of 38% to 39%.

John Hecht - JMP Securities

Okay. And next question is, you had a pretty sizeable reductions in your outstanding debt during the quarter. CashNet payments are pretty much done Dan. At the same time Dan you seem cautious about the overall environment., the uncertainty. Is your priority, given your excess cash flow is going to be to continue to pay down debt, mean notwithstanding any product development or you're going to continue to look for opportunistic acquisitions, how are you guys prioritizing that?

Dan Feehan

I think our view is to remain pretty cautious from the liquidity perspective John for balance of the year. We are supporting the store opening growth of Prenda Facil. As I indicated, we hope to add 50 to 60 of those locations up this year and the balance of our activity is going to be supporting the strategic development of these initiatives. I don’t anticipate unless we have something extraordinarily compelling that is financiable on its own, as an acquisition opportunity, I don’t see us getting real active acquiring anything in 2009. So that could change if something, if the credit markets change from where they appear to be today, that could change again if we had some great opportunity drop in our lap. We would consider but it's not part of our plan today.

John Hecht - JMP Securities

Okay. And the last question as the online division matures it appears you guys are able to better manage your credit results through underwriting refinement. And I guess its sort of two part question is, what you've discovered as you've gone through the different experiments with underwriting and refinement. And the second question would be, what's your kind of balance in new versus recurring customers at this point and is that affecting the credit results as well?

Dan Feehan

Well, I think the, quantitative analysis that is being done on a regular basis with the underwriting models to the online business are constantly refined and we are learning things. Every time we go through a revision and roll that out, there are new earnings relative to risk and reward opportunities on a state-by-state basis.

And we do manage that model not only based upon, what our expectation is relative to customer performance but also our expectation relative to profitability in a given state. Your question, I think the mix of -- obviously as the online business has moved up the S curve growth, the mix of new and existing customers continues to shift towards a higher percentage of existing customers. That in now itself without any significant improvements in the model will, to your point help to lower loss rates.

So, clearly, some of the improvements that we’re experiencing at CashNet is a function of that changing mix where your, obviously, existing customer loss rates are lower than your new customer loss rates. We are still getting a step in number of new customers today in this business, obviously, not relatively at the same levels that we were year ago or two years ago again the business is maturing.

So, our challenges there are to continue to try to find opportunities to migrate people out of bricks and mortars of the online space, containing to find new products to offer in our online space, and to expand into new territories outside the United States. We are in all of the states today in US that we can operate in, but clearly we think there are opportunities else where for us to provide an online offering.

John Hecht - JMP Securities

Great. Thank you guys very much.

Dan Feehan

Thank you.

Operator

Our next question comes from the line of Henry Coffey with Sterne Agee. Please go ahead.

Henry Coffey - Sterne Agee & Leech, Inc

Good morning everyone. When you look at your debt levels, can you give us some sense of how aggressive you are likely to be at paying down existing debt over the next sort of 6 to 12 months?

Obviously, you get a big liquidity boost in March, but what does it look like going forward? Should we expect lower absolute dollars in debt by the end of December or what does your crystal ball tell you?

Tom Bessant

Yeah, Henry, again from a cycle perspective, if you want, I think I mentioned in the January call somebody asked a question about [debt level]. We typically will see between $30 million and $40 million in liquidations or expect to see that in the first quarter which was realized and our debt balances are down significantly.

The enormous cycle in Q2, Q3 as working capital builds, our debt balances tend to rise and then of course fall again in the fourth quarter with heavy retail sales activity by year end. As Dan mentioned, with no major transactions on the horizon, our expectations would be that debt levels would be lower about time when we get to year end.

Henry Coffey - Sterne Agee & Leech, Inc

Then secondly, there are two other bills going through Congress specifically in the House; Gutierrez bill and then a second bill. Can you give us a sense of, I know you talked about the Durban bill which is, I guess I will put in my $0.02; it doesn't have a chance of passing according to everyone we are talking about, but these other two bills do seem to be having some traction.

Can you tell us about how you would organize your business around these bills and what are the prospects of this stuff passing?

Dan Feehan

Sure. There is a bill in the House that's been filed by Representative Luis Gutierrez from Illinois, a Democrat, who chairs the sub-committee. What this bill is, I had a hearing, let's say about two and a half, three weeks ago and one of the things I would encourage everybody on the call if they had opportunity to link into that hearing and watch it and listen to it, there were some encouraging things coming out of that committee, very heavy bipartisan acknowledgement on that sub-committee of the need for these products and the lack of viable alternatives for consumers.

So, that was very encouraging to actually hear fairly liberal democrats as well as conservative republicans on the committee join forces and acknowledging the absolute need for this product. So, that was good news.

The bad news, the Gutierrez bill that is currently grafted is positive from the standpoint that it is not a death penalty and it doesn’t necessarily put people immediately out of business, but it would be a pretty good economic haircut compared to what we are doing the day around the country and everybody in the industry is doing.

So, that bill I think it was passed in its current form would be dilutive to our earnings in the short term in the cash advance business. If passed in its current form, I think, there could be some longer-term benefits to Cash America, because it might weed out some of the smaller and weaker players in the market and it might play to our online offering from the standpoint of being able to manage with a lower cost equation in higher volumes of business, but as it's currently passed, it would have a negative impact on us pretty quickly in all entire industry.

There is another bill that is being filed by Democrat from California, the member of Baca, that bill contains other provisions that we find more favorable than the Gutierrez bill. We are hopeful that with these two bills, that hopefully some of the components of the Baca bill ultimately find its way into a markup of the Gutierrez bill, and there potentially could be a third, we understand there potentially could be a third bill filed at some point. Here although, I don’t believe it's been filed yet.

Changes of passing, Henry, I mean you have got through resources in Washington, I mean, my view is that, something would be likely come out of the committee in the house that Goodyear chairs. Some bill will likely come out of that. What happens to it when it gets to the floor of the house is anybody's guess and if it was actually passed by the house it's really hard to know what might happen to it in the senate.

I do think that we will continue to see this activity, we will continue to talk about it. Something is very likely come out of this committee. If we're able to influence again better provisions in the Goodyear’s bill, ultimately it could be something that we can live with and have a -- although our short-term negative impact maybe on more positive long-term impact for Cash America.

Henry Coffey - Sterne Agee & Leech, Inc

Thank you and everything's moving in the right direction.

Dan Feehan

Thank you.

Tom Bessant

Thanks, Henry.

Operator

Our next question comes from the line of John Rowan with Sidoti & Company. Please go ahead.

John Rowan - Sidoti & Company

Good morning.

Dan Feehan

Good morning.

John Rowan - Sidoti & Company

Tom you said contribution from the existing markets that continue to operate, was that $0.05 including Ohio?

Tom Bessant

It was basically $0.05 of higher than we expected, it was including Ohio and it also included the lower marginal profitability in Florida, which we kind of lump of four the states together we've talked about it; Pennsylvania, Minnesota, Florida and Ohio. So, yes we included the entire group.

John Rowan - Sidoti & Company

Okay and just back to Ohio for a second as far as I understand it the pay day loan with the wage working in Ohio now, is that you basically have just started check cashing fee on a money order to get back up to the yields you are currently than that you were previously offering. Is that -- how does that work with the internet division?

Dan Feehan

Well, we do not operate under that business model. There are other players in the market, other companies that are operating under that business model, we elected, not to do that, which means our yields in Ohio on our products are lower than our competitors. And our view was that, it was not a -- and this is just our opinion, but in our view was not a politically astute model to operate under in Ohio. So we made a conscious decision that we were not going to follow our competitors with that particular model.

And I'm guessing, now I don’t have any access obviously to the financial information, I'm guessing they're probably getting yield consistent with what they were enjoying before. Our yields are significantly less on our Ohio business than we were enjoying prior to the change in our business model.

John Rowan - Sidoti & Company

Okay. And in Ohio, obviously you are under a different statute. And you had talked about, kind of closing the loop holes in those statutes that allow, [plenty of] vendors to continue to operate. Do you think that, that takes a legislative action or can it be a decision from a regulatory authority?

Dan Feehan

Our view is, it takes legislative action, that doesn't mean a regulatory authority wouldn’t try to do it at the same situation we experienced in Pennsylvania, Minnesota, where we were actually the plaintiff had filed suit in Pennsylvania, another association filed in Minnesota to get injunctive relief against the - this regulatory fiats that sometimes come out of these agencies.

But our view as in Ohio in order to be legal and effective that had to have a legislative activity.

John Rowan - Sidoti & Company

Okay. And last question on legislation. The Durbin bill, if it were to get to the Senate and go to the House, would it have to go through the sub-committee that Goodyear chairs to go through the House?

Dan Feehan

Yes, I am not sure about that. I am not sure it will be in his committee or the banking committee.

John Rowan - Sidoti & Company

Okay, Tom, just a couple of questions for you. You are below book for most of the first quarter. Did you have to do an interim test on goodwill?

Tom Bessant

No, we didn't John. We did a test at year end and given the changes in Ohio, we’re also likely to treat in our bank was there, so we tested an impairment, 12/31. Those estimates have obviously were -- we beat those estimates in Q1.

So there is no real need to test. The intriguing component is this perception I guess, by certain accounting professionals that the market value of stock is somehow directly correlated to valuation. Sometimes it's a little challenging, it relates to goodwill, but nevertheless we did not need to do a test in our opinion in the first quarter. We will again, if there is triggering events we will test and then we’ll routinely test in the second quarter.

John Rowan - Sidoti & Company

Okay. Do you have the CapEx figure for the quarter?

Tom Bessant

Yes. I do. It's only about 9.5, about $9.5 million.

John Rowan - Sidoti & Company

Okay. And did you said that you are going to do 50 to 55 new stores down in Mexico this year, or 50 to 60 rather?

Tom Bessant

Yes. 50 to 60, right.

John Rowan - Sidoti & Company

Okay, and just one last question. How much room you have left in the revolver?

Tom Bessant

The revolver is only a $275 million at the, I am sorry, $236 million. It's 275 million within the year, 236 at the end of the quarter, so $74 million, more than adequate availability.

John Rowan - Sidoti & Company

Thank you very much.

Tom Bessant

With very little maturity - scheduled debt that matures on any of our current debt of any magnitude. Some are about $8.5 million in Q3 and we've got a small this UK line of credit that matures in the fourth quarter, which we hope will renew, but it's about $7.5 million. So, there's no real maturities under the senior debt obligations in 2009 fiscal year.

John Rowan - Sidoti & Company

Okay. When you said that your total debt would be low on absolute level, does that mean relative to the first quarter or relative to 2008?

Tom Bessant

Well, remember in 2008, we cleared a $90 million acquisition two weeks before the end of the year. So, our debt levels were inflated if you will. So, we finished the year about $440 million and I would expect our debt levels to be off that $440 million at 12/31/2009.

John Rowan - Sidoti & Company

Okay, but it is not off of the Q1 debt level.

Tom Bessant

We are sitting about $400 million; it could be in that range, it might be a tad higher. This is typically the all-time world. Again, let's see what the retail appetite for mechanize is in the fourth quarter, but obviously, it is a heavy cash flow quarter and as we talked about Q1, it is a heavy flow quarter as well.

I would point out as I mentioned to Liz on her question that we made a $35 million payment on 3/31 that’s included in that $400 million that wouldn't be recurring in either later 2009 or in 2010.

John Rowan - Sidoti & Company

Okay. Thank you.

Tom Bessant

You bet.

Operator

Our next question comes from the line of Rick Shane with Jefferies & Co. Please go ahead.

Rick Shane - Jefferies & Co

Good morning guys. Thanks for taking my questions.

Dan Feehan

Good morning, Rick.

Rick Shane - Jefferies & Co

You had made the comment that tax refunds were delayed somewhat this year. What was the impact in terms of merchandise sales on a month-by-month basis, and do you expect that that could be offset some of the difficult year-over-year comps you face without the stimulus checks in the second quarter?

Tom Bessant

Well, what happens in the tax refund environment, and it is very interesting in the first quarter in any year. What we saw is, January sales of course because of the delay we are weaker and then February sales made up for January sales and were more concentrated in February.

Likewise, loan balances began their annual March lower both on the cash advance and the pawn side beginning in February and continue to drop all through, typically all the way through the end of March and start to recover towards the end of March.

This year, that drop discontinued, and as I said sequentially we were up 14%, I went back about five or six years and I haven't seen 14% down on pawn loans sequentially. That gives us the challenge as we start Q2. We are starting at a lower asset level and the question is how quickly it builds back.

So, at the end of the day, retail sales in Q2 will be impacted by two things. One, stimulus check suspending is likely to be impaired year-over-year and will be in a more traditional cycle, and then secondarily, just basically consumer appetite. As we have seen, as attractive as pretty owned is, consumers in a general retail market have been challenged at the retail counter.

So, we are not expecting retail sales to be up in the second quarter year-over-year and if you are looking at kind of a six-month all roll it all in together, it may be flat but chance is that it could be down, because we had a strong retail period in Q2 last year and that's just going to be hard to duplicate when people aren’t getting disposable income in May and June like they did last year.

I mean if you remember retail sales in the second quarter excluding scrap in the second quarter of 2008, we are up 9% which was tremendously strong performance and our retail margins excluding scrap in Q2 of 2008 were actually higher year-over-year. So, pretty rare to have that occurs, and as I said in our guidance, we are certainly not expecting it to occur in Q2.

Dan Feehan

Rick and I really do believe there was a change of behavior here that that refund in 2008, 2007, 2006, the higher refunds in the quarter would have driven higher sales than they did here in 2009. I think customers got that money, paid down what obligations they could, and they are holding on to fair amount of it.

Rick Shane - Jefferies & Co

Great. So, the observation and I clearly misunderstood the implications of it. Wasn’t that there are sales that could spillover, because checks came in later. It really was the pay down in balance and then Dan, that goes to your comment that you think people really put this check are saving this check this year.

Dan Feehan

Again, I can't give hard and fast spontaneous analysis for that, but pretty good intuition, that's what's going on.

Rick Shane - Jefferies & Co

Yes, we will rely on this 25 years of experience.

Dan Feehan

Thanks

Rick Shane - Jefferies & Co

Thanks guys.

Tom Bessant

Thanks again, Rick.

Operator

Our next question comes from the line of [Gregg Hamilton] with First Wilshire Securities. Please go ahead.

Gregg Hillman - First Wilshire Securities

Hi, good morning. Actually, it is Gregg Hillman.

Dan Feehan

Good morning.

Gregg Hillman - First Wilshire Securities

A couple of things. First of all, cash flow from operations in Q1, could you give me that figure?

Tom Bessant

I am sorry, Gregg. Just some of the traditional write-off, the statement of cash flows operating income or is on the net income, something on cash items?

Gregg Hillman - First Wilshire Securities

The cash flow from operations from the cash flow statement?

Tom Bessant

Bear with me for just a second, I’ll provide a statement of cash flows and get that for you. Is there another question you had?

Gregg Hillman - First Wilshire Securities

Yes. Maybe Dan could talk about the payday loan business in Mexico, whether you think that's going to be viable for you at some point and whether the CashNet could help you?

Dan Feehan

Yeah. I think the -- I hopefully, you know we are not in that business in Mexico, yet we are operating strictly on pawn business with a [friend of the COO]. I am aware that we have competitors who are operating on payday or short-term cash advance business in Mexico and we are anxiously watching their results with that. I think the online business is something that we've thought about. Clearly the Internet penetration in Mexico is quite a bit less than it is here in the United States, Australia and Canada by comparison. So I won’t tell you that trying to get to online business in Mexico is really high on our development list, maybe within the next 3 to 4 years, we’ll have that opportunity. I don’t see it in the near term.

We do not have plans to -- current plans to develop the payday business in Mexico, although as I said we continue to watch that and assist whether that's an opportunity or not. I’m a little nervous about it quite frankly given what I've seen to-date but again there is a huge demand in Mexico for short-term credit and there are not a lot of options and alternatives for people, so again I’m not convinced it is - it is not a viable business but I think our initial approach here is to focus on our pawn business and build that up, continue to assess and watch the result of some of the other competitors.

Gregg Hillman - First Wilshire Securities

Okay. Thank you.

Tom Bessant

And Gregg on that operating cash was $67 million in the quarter.

Gregg Hillman - First Wilshire Securities

Okay. And for the rest in the CapEx per Mexican store is what to open a new one?

Tom Bessant

It runs about US $60,000.

Gregg Hillman - First Wilshire Securities

Okay. And then your total CapEx plans for the remainder of the year?

Tom Bessant

Probably in the neighborhood of $20 million to $30 million.

Gregg Hillman - First Wilshire Securities

For the remaining three quarters.

Tom Bessant

Correct.

Gregg Hillman - First Wilshire Securities

Okay. And then comparing past, I think in the history of Cash America, its never suffered adversely during a recession. In fact in past recession like in, I don’t know 1989 or 1988, 1989 and 91, 92; I think you showed increases in pawn balances during this periods. And I was just wondering -- I guess you've been talking about this but I mean, what’s your take on that? If you could just, what's the difference in putting those recessions and this recession?

Dan Feehan

Yeah. I would be happy to deal with that. Gregg. What I normally tell folks is that the pawn business specifically exclude the cash advance business, but pawn business is going to operate in a much more narrow band of economic volatility that the overall general economy. So when things are doing well we're going to do well, we're not going to get as big an increase as the overall economy.

And when things are doing not doing as well in general economy ultimately we are not going to do as well. But we're not going to get the wide down swings that the general economy may incur. That it depends upon the length of and the depth of the recession. I think what's different today is that when you go back and you reflect over the last 20, 25 years on periods that we have been through, I don’t recall the level of fear and anxiety as widespread as what exists today.

So , my view is that we are in a little bit different period here. While our business continues to be pretty stable and again as I mentioned we are fairly better than most people in general economy. I do believe there is a psychological factor at play here that's affecting our consumer behavior that I didn’t see in the early part of the decade and coming off to the dotcom bust in 2000 or back during the - the late 90 at late 80, early 90s when we have a downturn didn't see the same sort of physiological impact that I think we are witnessing today.

You know the question is how temporary is that? When will they change? How will they change? Again, I think something has to happen to trigger some hope in the general economy at all levels and until we see that I think we are going to continue to rock along okay. We've got our pawn business position extraordinarily well from a asset level and from managing our metrics around that business to make sure that we remain profitable, and continue to try to grow that business, but I do think this one is a little different than things we have experienced in the past.

Gregg Hillman - First Wilshire Securities

Okay. Thank you.

Operator

Our next question comes from the line of [Ted Allen Mayor with Northstock Partners]. Please go ahead.

Ted Allen Mayor - Northstock Partners

Good morning, guys.

Dan Feehan

Good morning.

Ted Allen Mayor - Northstock Partners

Can you just discuss the timeline of the various bills? I did listen to the Gutierrez House Bill, and was encouraged that they kind of took a rational approach as opposed to an emotional approach, but I was unclear of kind of what the next steps are?

Also, whether the Durban Bill and the Baca Bill, do they go through committee as well or what is the process for all of these?

Dan Feehan

I don't believe there's been any hearing scheduled for either, Durban or Baca at this point, and there is not a definitive time frame for any of this activity. It is all a function of where the House and Senate leadership wants to take these issues. Whether they want to move them or they don't want to move them, or how quick they want to move them or don't want to move them, that depends upon what else they're dealing with. They would take president, so there's not a definitive timeline once you file a bill; there is no definitive timeline about how it moves.

So, again, we've had this hearing on the Gutierrez bill. I would expect it to go through a markup process sometime in the next 30 to 60 days where again people have an opportunity to make changes to the bill as it's currently filed and then from there [team bias guess] to what happens to it from the time perspective.

Ted Allen Mayor - Northstock Partners

Would the markup include information from the Baca bill or would the Baca bill have to go through a separate committee?

Dan Feehan

I mean, it certainly could. I mean, it's up to the members what gets marked up. So, with some of the provisions in the Baca bill that are different than the provisions in the Gutierrez bill, in theory, those bills could be balanced against each other and in theory some aspects of Baca could move to Gutierrez, but there is no way to predict that outcome at this point. Obviously, as I said in my prepared comments, we are very aggressively spending time on the hill trying to influence the outcome of that.

Ted Allen Mayor - Northstock Partners

Then, I know you are never out of the words, but is there some kind of drop debt date of it has to get out of the House to be voted on by the House and the Senate?

Dan Feehan

No, not to that more of known.

Ted Allen Mayor - Northstock Partners

Okay. On a separate issue, I heard two different numbers related to; I thought they were both discussing what percentage of your operating income for payday is CashNet? I thought, one mentioned 92%, one mentioned 60%, and I didn't catch what those were for?

Tom Bessant

I am not sure what the 60% you're referring to is the online cash advance channel represented 92% of the cash advance segment operating income. The other number you heard in the call was that the pawn operating income comprised 71% of consolidated operating income.

Ted Allen Mayor - Northstock Partners

So, the storefront is just 8% of cash advance today.

Tom Bessant

Just 8%, yeah, 1 million out of $12.6 million.

Ted Allen Mayor - Northstock Partners

Okay. Then on the 71% being pawn, if for some reason Durban went through, does that include; if payday went away, would there be corporate overhead that would now have to be allocated the pawn side?

Dan Feehan

Yeah. If some of that legislation passed and effected our short-term cash advance business, we would eliminate a significant amount of overhead.

Tom Bessant

Yeah. I would point out that in cash advance segment, particularly the online segment, the administrative cost are, I mean, it's almost a standalone segment. There is some allocated overhead in the online business, but that's a heavy administrative cost directly related to that business.

So, obviously, that would be dealt with and then secondarily, as Dan points out, large part of the core administrative activities would obviously have an opportunity for rationalization.

Ted Allen Mayor - Northstock Partners

Just to clarify; when you report in your Q and K segment information, does that include, is there already a portion of corporate overhead that's allocated to payday?

Tom Bessant

Yes. It includes both the direct administrative cost associated with those business activities, as well as a portion that is allocated between the activities.

Ted Allen Mayor - Northstock Partners

Okay.

Tom Bessant

The vast majority is direct cost.

Ted Allen Mayor - Northstock Partners

Okay. I appreciate it. Good job. Thanks.

Dan Feehan

Thank you.

Operator

We have a follow-up question from the line of Jordan Hymowitz with Philadelphia Financial.

Dan Feehan

Mr. Hymowitz, are you there?

Jordan Hymowitz - Philadelphia Financial

Yes. You mentioned a 61% comp in your comment the last gentlemen mentioned, I have the same question actually. Do you have any idea what you're referring to, because you said that online is now 60% of business that was a quote from you, and I don’t know what that meant?

Tom Bessant

Let me, Jordan bear with me a sec, I look at my comments. I don’t recall it but there may have been something in there, so let me ….

Jordan Hymowitz - Philadelphia Financial

You said consolidated losses have gone from 51, from 55 and online now represent $0.06 of the business.

Tom Bessant

Okay, yeah, that was related to asset levels and let me clarify what I meant by that because this question dealt with operating income and I didn’t -- there was no percentage of operating income. We were talking about loss rates and, Jordan, you are very well aware the loss rates in online business tend to be higher than the store front business although the trend is lower over the last two years.

Today as we look at our loss rates and the fact that they are down year-over-year what I was saying is that that even more valuable or more better, if you are better than it appears on the surface. Because today 60% of the cash advances balance 3/31 is comprised of the online business. So what that means is the store front as a percentage of the total has come down year-over-year and the online business when you first acquired it in late 2006 was fairly insignificant. It now represents the lions share of the cash advance balances outstanding.

So when you look at loss rates, I was trying to give some perspective there, that they are down, 5.1 is a whole lot better than 5.5, but you remember the times when a lot of people felt like online would just dominate losses and the reality is, even I talked about I think many years ago, can the online loss rate get into a relatively common type of a range? And the reality is, as I think we've predicted in those short discussions, they would be coming down overtime as repeat customers have proven records of repayment, tend to be a larger percentage of the pie and new customers tend to be a smaller percentage of the pie.

So that's what I was referring to and I'll go back to my previous statement, when you look at the earnings stream, 71% pawn of the segment, cash advance segment, 92% is online.

Jordan Hymowitz - Philadelphia Financial

Okay. So let me repeat that. The balances are 60% online but the profits are 92% online.

Tom Bessant

There you go.

Jordan Hymowitz - Philadelphia Financial

Okay, perfect. My other question relates…I'm sorry. I just completely slipped. Actually you answered the other question Tom pretty thorough. Thank you very much. Congratulation again on a good quarter.

Dan Feehan

Thanks Jordan.

Tom Bessant

Thanks Jordan.

Operator

We have no further questions at this time. Gentlemen, I'll turn the conference back to you.

Dan Feehan

Thank you. I appreciate your attendance on the call this morning. Look forward to talking to you next quarter. Good bye.

Operator

Ladies and gentlemen, that does conclude today's conference call. We thank you all for your participation and ask that you please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cash America International, Inc. Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts