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DFC Global Corp (NASDAQ:DLLR)

F3Q2013 Earnings Conference Call

May 1, 2013 5:00 pm ET

Executives

Garrett Edson - SVP, ICR LLC

Jeff Weiss - Chairman & CEO

Randy Underwood - EVP & CFO

Analysts

Bob Ramsey - FBR

John Hecht – Stephens

Bill Armstrong - C.L. King & Associates

Daniel Furtado - Jefferies

Brian Hogan - William Blair

Moshe Orenbuch - Credit Suisse

David Scharf - JMP Securities

Operator

Good day and welcome to the DFC Global Corporation Third Quarter 2013 Earnings Conference Call.

Today’s conference is being recorded. At this time, I’d like to turn the conference over to Garrett Edson of ICR. Please go ahead, Mr. Edson.

Garrett Edson

Thank you and good afternoon, everybody. Joining us today from the company are Mr. Jeff Weiss, Chairman and CEO; Mr. Randy Underwood, Executive Vice President and CFO.

Before we begin our conference call, I would like to remind you that the remarks made during this conference call with reference to future expectations, trends, plans, forecasts and the performance of DFC Global Corp., its subsidiaries and its markets are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the company’s current beliefs, estimates and expectations that involve a number of risks and uncertainties. Today, the company will be commenting on expectations of future results.

As a reminder, these statements indicate the expectations of DFC Global Corp’s management team as of this date. These statements supersede any and all previous statements made by the company regarding the matters addressed. These statements are forward-looking statements and cannot be guaranteed and may prove to be wrong.

This outlook is based upon various assumptions, which include, but are not limited to the following: no material change in the products and services offered in all locations as of May 1, 2013; no material change in the company’s current store development and acquisition plans; no material adverse results in litigation or regulatory proceedings involving the company that currently exist or that may arise in the future and, of course, can be affected by changes in currency exchange rates and effective tax rates. Factors that could further affect results are outlined in the company’s Annual Reports on Form 10-Qs and 10-Ks.

Company’s statements will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. The most comparable GAAP financial measure to adjusted EBITDA is income before income taxes. The reconciliation between adjusted EBITDA and income before income taxes is consistent with the company’s reconciliation as presented in the company’s recent press release dated May 1, 2013, which is available on the company’s website at www.dfcglobalcorp.com.

I will now turn the call over to Jeff for an overview of the fiscal quarter.

Jeff Weiss

Thanks, Garrett. Good afternoon, everybody. And thanks for joining today’s call. As you are all aware our financial results for the fiscal third quarter were significantly impacted the transition to the new responsible lending guidelines in the United Kingdom which were developed in consultation with a local regulatory authorities and our industry association members.

As part of these guidelines, our industry association introduced a limit of 3 loan rollovers per customers which our company implemented agreed upon November 26, 2012 deadline. However, as a consequence many of the outstanding long-term, short-term consumer loans in the UK became due in the fiscal third quarter causing a temporary credit crunch for customers who carried multiple loans from multiple lenders. Consequently, we experienced higher loan defaults in our UK business during the fiscal third quarter which effected our bottom-line. And we in response we further tightened our lending underwriting criteria to minimize the risk to our business which naturally reduced our loan growth in the UK during this period.

Furthermore, because of the many – because many of the lenders in the UK are not members of our industry association and have yet to adhere to the stricter guidelines that we and our association colleagues have adopted that remains a competitive dislocation in the marketplace. Our responsible lending standards have not been certified by the Office of Fair Trading and to regulatory requirements thereby enabling lenders outside of our association to continue to provide an unlimited number of loan rollovers to customers, regardless of their circumstance or financial difficulty.

Therefore, these lenders currently have a competitive advantage with respect to procuring and retaining customers. We do not expect this disadvantage will dissipate, we do expect rather that disadvantage will dissipate once the OFT begins to fully enforce our industry standards across all loan providers in the country.

Despite our conservative lending pasture in the UK during this transition and transitory period, our consolidated unsecured loan portfolio still increased by 13.7% during the fiscal third quarter compared to the prior year period reflecting continued strong demand for consumer loans across our global business.

Although we had anticipated the industry shift to three rollover limitation would naturally result in higher consumer loan losses in the UK. It was difficult to predict the exact timeframe within which this would occur. We have began to see moderate sequential quarter growth in our unsecured loan book in the United Kingdom as we begin our fiscal fourth quarter.

As we have previously discussed, the Office of Fair Trading has begun to release letters to the Top 50 UK payday vendors and we understand that they are releasing these letters in staggered progress. We believe it is appropriate to disclose to our shareholders that our three business units in the UK that provide payday or single payment loans at each received letters from the OFT. These letters go specifically and generally advice on required actions in the following categories.

Advertising and marketing pre-contact information and explanations and pre-contact information and explanations affordability assessments rollovers including deferred refinance and extended loans; forbearance and debt collection and regulatory and other compliance issues. These guidelines directly influence how we interact with the customers and require extensive documentation self-monitoring and the retention of an independent auditing process. We are currently in the process of ensuring that all of our business units are confirming to these guidelines and requirements. This method is extensive.

We believe that is a publicly reporting global company, we are well-positioned to comply with any regulatory requirements in any jurisdiction in which we operate. As longtime shareholders know we had been down this road before with regard to regulatory changes throughout my more than 20 years with the company we also have to navigate through regulatory changes in both United States and Canada.

In each case, our multi-product business model has provided us with a necessary flexibility to successfully adapt to the changing operating environments. We believe the regulatory transition we are currently going through in the UK is no different than what we have previously faced in our other markets and we fully expect our UK business but also reemerge from this transition much stronger and even better positioned against our competitors.

In addition to the impact of the UK transition we also streamlined our workforce during the third quarter inline with the reorganization and segmentation of our global business operations between retail and Internet distribution channels. This restructure is expected to reduce our operating cost for the remainder of the fiscal year and enabled board effective decision-making and management of our two primary operating platforms. During the fiscal third quarter, we also continued to invest in the future growth of our global business. In March, we began offering Internet loans in Spain through our Finland-based Risicum Internet lending platform.

Thus far, the demand for short-term consumer loans in Spain has exceeded our expectations, but we are currently moderating the growth of our loan book in that market until we develop a longer history of credit performance. We believe there was a significant opportunity to expand Internet loan product alongside our store-based pawn lending and gold buying business in Spain, a country with a population of approximately 47 million people.

Along those lines, we are about to open our first Suttons and Robertsons high-end pawn lending store outside of the United Kingdom and I would be in Madrid. The ‘Suttons & Robertsons’ branded stores provide larger loans on high-value gold jewelry, diamonds, watches and artwork to higher income customers that generally have irregular cash flows or temporary liquidity issues.

We are also playing to open additional ‘Suttons & Robertsons’ stores in other principal cities around the world including New York City where we expect to open our first store as earlier as this summer. Since pawn loans provide on secured collateral as opposed to employment or future earnings demand for pawn loans tends to be strong guarded of the economic environment which makes this product a nice compliment to an unsecured loan product which a customer needs to employ to receive a loan. This complimentary dynamics so its further insulate or business from the effects of changes in general economic conditions.

In addition, pawn lending is one of the oldest most understood and generally accepted businesses around the world and in many countries, it’s a primary source of credit for variety socio economic groups. Our consolidated pawn loan book grew to $165.3 million as of March 31, 2013 representing an 8% increase over the prior year period.

We believe we are now the largest pawn loan provider in Europe by loan book and the third largest pawn loan provider worldwide. Today, in many parts of the world, pawn lending resides in the form of small and mom and pop type establishments particularly in Europe.

Our European pawn strategies to consolidate the pawn lending industry and targeted countries for the acquisition of this small store chains coupled with the Novo store development thus leveraging our extensive product knowledge, strong management team and backlog efficient for structure close to U.K. and Scandinavia. We have already opened seven additional to de novo pawn lending stores in Spain since our initial acquisition of eight stores in March 2012 and anticipate opening nine more stores in this market as we move through the remainder of this year and into fiscal next year. I’ll remind our listeners that we entered the U.K. by acquiring nine stores as our initial foray.

Our fundamental growth strategy has not changed. We will look to enter new countries with the initial acquisition of small pawn shop chains which we would subsequently complement with the introduction of Internet based unsecured allowance, our bricks and clicks strategy through our Finland based Internet lending platform Risicum. Risicum was originally designed to handle multi-currency, multi-language and multi-regulatory applications and we expect to leverage the platform to its fullest potential.

I would now like to turn the call over to Randy to discuss the company’s consolidated financial results.

Randy Underwood

Thank you, Jeff and good afternoon to everyone.

The company generated revenue of $283.6 million for the quarter representing an increase of $15.7 million or 5.8% on a constant currency basis as compared to the three months ended March 31, 2012.

Total unsecured consumer lending revenue increased by $20.4 million on a constant currency basis or 12.5% over the prior year period. Of this amount, revenue from Internet-based loans grew to $75.5 million for the quarter, representing an increase of $9.5 million, or 14.2% again on a constant currency basis compared to the prior-year period.

Secured pawn lending which was unfavorably impacted by year-over-year decline in the price of gold contributed $21.4 million of total revenue for the quarter and that was an increase of 1.2% compared to the prior-year period, excluding the impact of currency exchange rates.

The consolidated loan loss provision, expressed as a percentage of gross consumer lending revenue, was 27.4% for the quarter ended December 31, 2013 as compared to 20.6% for the prior-year period. The loan loss provision for the quarter was significant impacted by higher loan deposit in the United Kingdom principally resulting from the recently implemented three loan rollover limitation and change in estimate through our loan loss provision for customers placed on payment plans. We anticipate customer loan default rates will improve moderately in the next fiscal quarter ending June 30, 2013 as we continue to work through this transition period. As a percentage of loan originations or principal lend, the consolidated loan loss provision for the quarter ended March 31, 2013 with 6.5%.

For the three months ended March 31, 2013, the company incurred $46.9 million of net one-time charges which included $31.1 million goodwill and intangible asset write down associated with the present diminished value of the dealers financial services business. The recent consumer financial protection bureau CFPB is more service referred to them. And their examination delayed the company’s negotiations with other potential lending partners that the company believes will more competitively underwrite our future MILES program loans, which was the impetus for the goodwill and intangible asset devaluation.

The discussion with these new potential lending partners has recently been restarted again. The company also encouraged $7 million of one-time restructuring and other charges for employee severance another related cost that were related to the organization of the company’s business operations being what is now a global retail and a global Internet platform.

DFS has been informed by the CFPB that it intends to initiate an administrative proceeding against the DFS related to its marketing of certain vehicle service and insurance products and to the requirements that MILES program loans be repaid via military allotment.

DFS is cooperated into CFPB examination and intends to seek to negotiate a consent order without admitting or denying any violations and thereby resolving the matter. It is expected that any consent order would provide the Miles Program disclosures and other changes and would include a restitution fund for certain MILES program customers. There is no assurance that a consent order will be successfully negotiated or as to its terms. And, therefore, there is no assurance that this matter will not materially or adversely affect the MILES program itself.

Collectively including the $46.9 million of net one-time charges for the 3 months ended March 31, 2013 and $9 million of net one-time gains for the quarter ended March 31, 2012, the loss before income tax is on a GAAP basis was $35.7 million for the quarter compared to income before income tax is at $41.2 million for the third quarter of the previous fiscal year. This resulting in a net loss of $36.4 million for the quarter compared to net income of $31.8 million for the prior year period. The diluted loss per share on a GAAP basis was $0.86 for this quarter compared to earnings per share of $0.70 for the prior year period.

With respect to the companies operating earnings excluding the net one-time charges and gains for both periods. Pro forma income before income taxes was $15.2 million for the quarter compared to pro forma income before income taxes of $36.1 million for the three months ended March 31, 2012. Considering a pro forma effective income tax rate from operations of 32%, diluted operating earnings per share was $0.24 for the fiscal 2013 third quarter as compared to $0.54 for the prior year period.

With regard to the company’s liquidity position as of March 31, 2013, the company had drawn $22.6 million of its $235 million global revolving credit facility. Furthermore, the company had additional capacity on its combined operating country facilities in the United Kingdom and Scandinavia and had about $61 million of excess investable cash on it’s balance sheet as of March 31, 2013.

The company also repurchased 230,000 share of its common stock at an average share price is $17.26 during the three months ended March 31, 2013. And under its current stock repurchase plan as of April 1, 2013, the company remains authorized to purchase an additional 2.2 million shares of its common stock.

With respect to our anticipated earnings for the fiscal year ended June 30, 2013, we are reaffirming the guidance range that was recently provided on April 1, 2013 for diluted operating earnings per share which excludes any one-time charges or gains that may occur, the non-cash impact of ASC-470-20 and the non-cash amortization associated with the legacy cross currency interest rates swap agreements between $1.70 and $1.80 per share.

Now, I would like to turn the call back over to Jeff for his closing remarks and as always we will open the call up for questions.

Jeff Weiss

Thank you, Randy.

While we were naturally disappointed with our financial results for the third quarter, our long-term initiatives unchanged. Our goal continues to be the leading global provider of diversified financial service to the ALICE, Asset Limited Income Constrained Employed demographic and the ARTL demographic, Asset Rich Temporarily Liquid. And we intend to continue investing in new markets and expanding our product portfolio, while bolstering the breadth and capabilities of our management team and information systems to support this long-term strategy.

We believe our recent business disruption in the UK is a bump in the road and we remain convinced that we will emerge from these issues and even stronger and more profitable company. As always, I would like to thank our many dedicated employees around the world who diligently serviced the needs of our customers’ everyday and our shareholders for their continued support. Operator we are ready for questions from our listeners.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will take our first question from Bob Ramsey with FBR.

Bob Ramsey - FBR

Hey, good evening guys. I was hoping for a little more color around the CFPB and MILES investigation. Can you tell me, I know you said the issue pertains to marketing of products as well as our acquired payments in military allotments? With the marketing of products, is this done by MILES employees or do you always use outside third-party service providers and can you be any more specific and sort of what are the areas of focus.

Jeff Weiss

I think that given the fact that we are still in conversation with the CFPB, it would not be prudent to make any further comments at this time, sorry.

Bob Ramsey - FBR

Okay. And then, I guess, I mean can you tell me with MILES excluding the CFPB issues, I mean does, how much is MILES contribute to your income statement today?

Randy Underwood

They contribute very little because we base people in all activities and more or less on hold. As we said in the news release we had expected to move to additional lending partners. But that continues to be delayed during the year until we resolve things satisfactorily with CFPB.

Bob Ramsey - FBR

Okay. And then, if I sort of shift to I guess profitability overall in the built in earnings as we head into the fourth fiscal quarter, tell me how much of the ramp in profitability comes from improved credit costs versus operational costs versus revenues. And I guess, I am curious, the operating expenses, do they come down at all or do you just get more leverage on the revenue side of off the current expense base and how shall we think about the provision to revenues in the fourth fiscal quarter?

Randy Underwood

First of, I would like to just re-mention as I said in the script. That, we had a substantial reorganization on a global basis and therefore we incurred a lot of severance and other cost but on a go forward basis including this fourth quarter, we will have savings in more or less our administrative structures that we wouldn’t have had earlier in the year. So part of the bounce back comes from that.

Secondarily, we would expect that the revenue will start growing back again in the UK in both our store based business, the Money Shop as well as in our Internet platforms. And we likewise think the loss provisions will moderate from where they are right now. And, of course, there are other businesses that are unaffected by regulatory issues right now, we’ll continue their normal growth patterns.

Bob Ramsey - FBR

And is the severance expense part of the loss on store closings in other line or some of that in the salary and benefit line, I’m just sort of wondering where the pieces are?

Randy Underwood

It would all be one-off in our disclosures. So, it’s probably reconciliation in there. Bob, I don’t have that right in front of me right now.

Bob Ramsey - FBR

Okay.

Randy Underwood

Talk after the call, but if we tried to one-off everything on the reconciliation that would have been in the news release.

Bob Ramsey - FBR

Okay. No, that’s fine, I will figure it out. And then I get circling back to the loans to the fees, do you have the provision to fees in the UK or online UK, I mean can you break it out sort of by geography or by product segment this quarter?

Randy Underwood

Yes. We averaged around 11% to 13% in North America which would be the U.S. platform and Canadian store platform. We are about 37% in the UK and we were about 13% in Risicum and that kind of averages out to be the 27.4% in total as the percentage of revenues for the company.

Jeff Weiss

But you must bear in mind that in the UK, unlike Canada and certainly without any Internet lending in the U.S. a significant portion of oil-lending in the UK is on the Internet and as we have said before since many of those customers are new to us that the full rate on new customers in general but particularly our new Internet customers is about twice the default rate on a season store customer.

Bob Ramsey - FBR

And as you think about sort of losses in that business has it normalizes is not I guess wanted to fully mature but a year from now, what sort of losses in the UK as a percent of revenues be running once you get over the regulatory hub?

Jeff Weiss

We think that they will be moderately higher than the current store losses, but not significantly higher as they are now, partly that’s a combination we think that, that they are not and although we seem to be having an inexhaustible supply of new customers now both in-store and on the Internet in the UK and I will reminder our listeners that we still have virtually no – I shouldn’t say virtually, we have very little overlap between our store borrower and our Internet borrower but assuming there was a maturity in the market, we would expect to see the loan losses decline quite substantially.

Bob Ramsey - FBR

Okay. And you all, I guess historically I have talked about a range of 20% to 25% and moving up in that range as you do more Internet business, with the expectation be as it is you get in the 2014, you are within that range?

Jeff Weiss

It depends on; again, remember we are entering new geographies as well, so it depends on the mix of the book between seasoned and new, and between the Internet and store, so hard to predict at this point.

Bob Ramsey - FBR

Okay. I will hop back in the queue. Thank.

Randy Underwood

I think that’s still a reasonable range, as we move to the future, so…

Bob Ramsey - FBR

Okay. Thank you guys. I hop back into the queue.

Operator

We’ll take our next question from John Hecht with Stephens.

John Hecht – Stephens

Afternoon guys. Thanks for taking my questions. So, Randy just a couple of follow-up questions on the guidance, it sounds like we expect quarter-to-quarter revenues to increase, what do you expect with a gold margins and then the second is what, can you give us a range of kind of G&A cost that you’ll save because of restructuring and the final question is, what do you think would happen to ads spend in the quarter?

Randy Underwood

In terms of gold, it’s and I think probably everybody or most people in the call know, we’re just not impacted much by the cost of gold like maybe some of the other fund providers into big, actually don’t a lot of inventory in our stores and basically smelt you know what is fortified fairly quickly. So, I wouldn’t say material part of our earnings plus or minus would be attributable to gold in this quarter.

John Hecht – Stephens

Because you are shifting your LTDs fairly rapidly with the price of gold fluctuations then?

Randy Underwood

Correct.

John Hecht – Stephens

Okay.

Randy Underwood

And we don't, again, we don't carry a lot of inventory in our stores. We are not trying to be jewelry merchants.

John Hecht – Stephens

Yes.

Randy Underwood

Like employed in the stores what we said. In terms of cost reductions, I would guess probably $3 million to $4 million, would probably be a good benchmark in terms of…

John Hecht – Stephens

Quarterly or annually?

Randy Underwood

Quarterly.

John Hecht – Stephens

Okay.

Operator

And we’ll take our next question from Bill Armstrong with C.L. King & Associates.

Bill Armstrong - C.L. King & Associates

Good afternoon, Jeff and Randy. I was just – ask about gold margins up but in Spain it looks like you’re getting out of the box pretty quickly. And now you are slowing it down, are seeing higher defaults or is just that the demand is so great that, that you want to slow down until you get a little more seasoning and see where these default rates start to play out?

Jeff Weiss

I think it’s a later Bill. Again, I say it every time we have a core and it’s a stupid, it’s feeble but it’s the truth. There is no trick in giving the money out, what we see in the Spain is significant demand, it’s very early days thus far we are pleasantly surprised by the entirety of the program but before we kind of ramp it up, we want to make sure we have an (inaudible) that we have credit analytics and default expectations that would be borne out.

Bill Armstrong - C.L. King & Associates

Okay. And any issues with the regulatory authorities in Spain at this point or down the road?

Jeff Weiss

Not at this point and I, we hope not down the road.

Bill Armstrong - C.L. King & Associates

All right. Okay.

Jeff Weiss

I should say although it sounds contrary regulation is our friend because in all financial markets if there isn’t rigorous regulation then it is very difficult to have a level playing field for competition; these are the people who are responsible and thoughtful in their activities and people who are not. So, we welcome regulation.

Bill Armstrong - C.L. King & Associates

Understood. Okay. That was all I had. Thanks.

Operator

We will take our next question from Daniel Furtado from Jefferies.

Daniel Furtado – Jefferies

Thanks guys for the opportunity. I just had two relatively very important questions, one was any update on the side traffic that was diverted in the UK business that you’d mentioned about a month ago. And then secondarily, and I’m sorry I think you may have stated in the press releases, just having gone through closely that is, what did you see in terms of origination volumes in the UK for the last couple months? Those are my two questions. Thank you.

Jeff Weiss

Well, let me jump in on the first. You know every business, every government, everybody is susceptible to malicious interaction with hackers of one form or another. And it was our turn on our website in the UK and for some period of time, we think our traffic and was diverted to a third party and that affected our paid rankings we have since we quote it and we rectified it but there was some period of time in which our traffic was impacted. Obviously introduced additional safeguards but what we have all learned is there is no safe, there is no 100% secure way to deal with people on the Internet.

Fortunately, none of the things that have afflicted us impact customer data privacy security, it was kind of manipulation of paid rankings. We believe we have put in strong protection. So, at least back form of attack wouldn’t happen to us again. In terms of volume, we don't see any, we, we don't see any (domination) in the very vigorous demand in the U.K.

Daniel Furtado - Jefferies

Excellent. Thank you for the clarity for the answers.

Jeff Weiss

Thank you.

Operator

And we’ll go next to Brian Hogan with William Blair.

Brian Hogan - William Blair

Thanks. Question on the pawn loan book demand has been strong as you said, pawn book is up 8% but I’m trying to rectify with the revenue growth up 1.2% year-over-year and you put note in the press release has gold price unfairly impacted pawn lending, is that just from a demand perspective, I just trying to understand those two factors?

Randy Underwood

Well, again, this wasn’t a big variation from quarter-to-quarter in our pawn lending, pawn lending balances grew or revenue grew that was some decline from gold pricing but not material in relationship to the portfolio. And that kind helped meet out.

Brian Hogan - William Blair

All right.

Randy Underwood

I think I did not catch on all of your questions?

Brian Hogan - William Blair

Well, I mean its just the book is up 8% from revenue, just up 1.2% others figured and if your plans and the strength of the demand on the pawn would be strong.

Randy Underwood

Okay, well. That’s really continuation of what we talked about in the last couple of quarters and not supposed this probably happen to the other pawn providers as well. When we meet along six months ago or nine months to go and price of gold was higher and now in fact it comes back and it’s not redeemed by the customer and when you do send it to markets, know let you realize less than you would have realized (inaudible), when you originally made the loan. So, that’s part of the decline even though the balances are up.

Brian Hogan - William Blair

Sure. The installment loan maybe you talked about in UK, you are testing it, can you provide an update on that please?

Randy Underwood

We’re continuing the test and we like what we see and we probably would have in the future several flavors of multi payment loans from shorter duration to longer duration. So, I think, we probably referring to them as multi payment loan but I think installment loans kind of the accepted vernacular but I think you can make loans from short time lengths in multi-payments to long term-lengths and many more payments I guess you would say.

Brian Hogan - William Blair

You like areas of strong regulatory California, Florida, Canada, are all examples but California just recently, U.S. maybe in (inaudible) that in the state legislature but put in limits on rollovers, Florida you are there, their limits flow rollover is very profitable there. What’s your thoughts on California.

Jeff Weiss

At this juncture, we don't know what’s going to happen in legislature. We don't anticipate significant change and we don't think those changes would impact whatever changes are being booted about. We don't think we have a material impact on our business.

Brian Hogan - William Blair

All right. And one last one for me, 4Q guidance and I think that kind of employs roughly $0.50 in EPS, you got in 2014, you have the opportunity to refinance some debt and you are moderating credit losses, would you consider 4Q as a solid based for a run rate, you are looking at 2014?

Randy Underwood

You cut out. Would you restate the question, I didn’t hear it. I heard it all until the very end.

Brian Hogan - William Blair

Sure. Would you consider the 4Q $0.50 with all that going on right now? And then for 2014, what are you going to consider 4Q as a run rate for …?

Randy Underwood

I think $0.50 roughly is a good run rate as we enter into fiscal 2014. I would expect that our profits would grow quarter-by-quarter as they always have. And of course the opportunity to refinance that debt would provide a significant enhancement to our EPS from anticipated reduction in interest rate on the refinancing.

Jeff Weiss

But we are not giving fiscal guidance for next year yet.

Brian Hogan - William Blair

Understood.

Randy Underwood

That’s exactly right.

Brian Hogan - William Blair

Thank you.

Jeff Weiss

Okay.

Operator

Thank you. And we will go next to Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch - Credit Suisse

Okay. Thanks. Most of my questions actually been asked and answered. Not asking about the CFPB on your military auto business but CFPB has taken some steps on the bank side of payday lending and you can kind of derive some thoughts without where there head might be on the payday lending kind of more broadly. Just wondering if you have as you look at that does that make you more or less interested kind of in the U.S. over the next couple of years?

Jeff Weiss

Well, as you know, the U.S. has become a – continues to be, while revenue doesn’t diminish there. It is a shrinking piece of a larger pie and it is really a, we make nice money in the U.S. We certainly wouldn’t throw it away. But it is, its increasingly less significant to the company’s overall prospects. That said what the – as I read the CFPB statement it was really directed at the banks and they specifically excluded store front lenders and I think the implication there is that that the states are effective in regulating store front leading.

Moshe Orenbuch - Credit Suisse

Got it. Thanks.

Randy Underwood

Thanks Moshe.

Operator

And we will go next to David Scharf with JMP Securities.

David Scharf - JMP Securities

Hi, thanks for taking the question. Most have been answered but I wanted a follow-up juts a little in the UK first with respect to the build out an installment, I know you were asked a little bit of progress there. I’m just curious, have all the administrative burdens and efforts in internal auditing that has been thrust upon you recently with the new OFT mandates. Is it caused you to maybe slowdown or not focuses much on new product introduction in marketing and testing or is the installment efforts still is --

Jeff Weiss

Installment, its been as many of you recall, we had an extremely successful installment product in the States some years ago. So we do have experience with that product. Obviously, in a new geography there were different issues and complexities but we are fairly confident that that will those products was multi-taming products will be a strong, part of our overall customer strategy going forward. And we are quite focused on them.

David Scharf - JMP Securities

Okay. This is, yeah, what I was really trying to get at is, whether just some of the administrative burdens near-term of implementing the new OFT regs, on how but the--

Jeff Weiss

They are extremely complex administrative requirements as outlined in the OFT guidance to us. And obviously that is taking some formidable effort and complexity but I think we are capable of handling that because we are used to a regulatory environment in Canada and the U.S. and we are – as we have said in previous calls, we believe that we have built a very in-depth management to oversee our global business.

David Scharf - JMP Securities

Got it. And just the last question. I’m wondering maybe help kind of further quantify for us the near-term headwinds in the UK. Are you able to give us a sense for perhaps the rejection rates, the percentage of loan apps that are turned down in the past month or so versus earlier in the year and last fall, they give us a sense of order of magnitude, how the new regs kind of impact the business particularly in the area of income qualification?

Jeff Weiss

You will recall that those regulations have just been articulated by the OFT. So those changes have yet to be established across the industry in terms of action. I think in terms of the other portion of that information I think we regard that as proprietary and we would – not wish to release that information.

David Scharf - JMP Securities

Fair enough. Thanks very much.

Operator

Thank you. And we will take a follow-up question from John Hecht with Stephens.

John Hecht - Stephens

Thanks very much. Two quick questions, number one is, Randy you may not have this information available but can you tell us or either details or thoughts on kind of the delinquency trends in the UK as you work through the rollover book?

Randy Underwood

Well, delinquency trends peaked up obviously earlier in the quarter as we started addressing dislocation in the new regulatory fall out. And I would say they are fairly consistent right now as we end the quarter and enter the next one here so.

John Hecht - Stephens

You are seeing a stabilization of the inflows and outflows into the DQ category?

Randy Underwood

More or less but again remember that we continually adjust our processes and our qualification based upon how each customer scored. So as we said earlier we certainly tightened up on some of our credit analytics in terms of originations that we were processing and approving. So, again, we are driven largely by credit analytics and our scoring processes and qualifying processes and those get tweaked continually based upon how the originations are scoring from period to period.

John Hecht - Stephens

Okay. Second question, I did see last week the OFT shutdown couple of rogue vendors in the UK. I mean what’s your sense and where they are in terms of the trend to level the playing field and enforce against market participants who are complying with the best practices.

Jeff Weiss

Well, again, I mean, the actions that they have taken in the past six months and most recently is significant because they haven’t taken any action as far as we know previously. So it is clear that they are bringing a seriousness to the process which we applaud.

John Hecht - Stephens

Okay. Thanks very much.

Operator

At this time we have one question remaining in the queue. (Operator Instructions). We will take our next question from Paul (inaudible).

Unidentified Analyst

All right. Good afternoon, gentlemen. How are you tonight?

Jeff Weiss

Hi, Paul.

Randy Underwood

Hi, Paul.

Unidentified Analyst

I just wanted to get any color on how active you were on your repurchase in May and also what should shareholders expectations be on how aggressive you are all going to be especially given that you did tone the water some 20%, 25% higher than where the stock currently trades?

Randy Underwood

I think, we, obviously as required under regulation put in there, how much we purchased in the first quarter when the stock price is a lot higher than it was in the month of April. And I would suggest that we found the stock at even bigger bargain in April than we found in the March quarter. And we were active in the market.

Unidentified Analyst

Okay. I think, it would be hard for us to find any other assets in the world that traded attractively as your own equity right now on that patient shareholders deserve an aggressive repurchase at this point in time.

Unidentified Company Speaker

I have heard that before Paul. Thanks again for reconfirming that.

Jeff Weiss

And we certainly agree with you about the attractive evaluations.

Unidentified Analyst

Wonderful. Very good, gentlemen. Look forward to seeing you soon.

Jeff Weiss

Thank you.

Randy Underwood

Thank you.

Operator

That concludes today’s question-and-answer session. At this time, I would turn the conference back to our speakers for any additional or closing remarks.

Jeff Weiss

Thank you, all. We look forward to conferring with you again next quarter. And as always we wish to thank our many colleagues in our retail and Internet businesses and our geographies for their dedication and royalty to serving our customers needs. Thank you, operator.

Operator

Thank you. That does conclude today’s conference. We appreciate your participation.

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