Cash America International Inc. Q4 2009 Earnings Call Transcript

Jan.28.10 | About: Cash America (CSH)

Cash America International Inc. (NYSE:CSH)

Q4 2009 Earnings Call

January 28, 2010


Daniel Feehan – President, Chief Executive Officer

Thomas Bessant – Chief Financial Officer


David Burtzlaff – Stephens Inc.

William Armstrong – C.L. King & Associates

Joshua Elving – Feltl & Company

Richard Shane – Jefferies & Co.

Elizabeth Pierce – Roth Capital Partners

[William Kakish – Macquarie Research]

John Hecht – JMP Securities

Henry Coffey – Stern Agee

Isabel Sterk – C.K. Cooper


Welcome to the Cash America International Inc. quarterly 2010 earnings release conference call. (Operator Instructions) I now have the pleasure of turning the conference over to Dan Feehan, President and Chief Executive Officer at Cash American International Incorporated.

Daniel Feehan

Good morning ladies and gentlemen and welcome to our call for the fourth quarter and year end 2009. Joining me this morning is Thom Bessant our Chief Financial Officer who will lead off with a review of our financial performance. I will then rejoin the call to provide me perspective on the quarter and full year of 2009 and an updated outlook for 2010. I 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 filing 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 believe, estimates, plans, expects, anticipates and similar expressions or variations as they relate to the company and its management are intended to identity forward-looking statements. The company disclaims any intention or obligation to update or revise these forward-looking statements.

I also want to mention before we proceed that a reconciliation of any non-GAAP information provided on this call to the most directly comparable GAAP information is included in the financial statements issued with the earnings release today is available on the investor relations section of our website at

Non-GAAP financial information is not meant as a substitute for GAAP results but it is included solely for informational and comparative purposes.

Now I’ll turn the call over to Tom for his update.

Tomas Bessant

Thank Dan. Good morning ladies and gentlemen. Welcome to our fourth quarter earnings release conference call.

We entered the final quarter of 2009 with concerns about potential for rising loss rates on our unsecured loan product and uncertainty about the retail selling environment given the economic characteristics confronting our customers.

We’re pleased to report to you today that loss rates on our unsecured product continue to be lower year over year as they have been throughout 2009 and that our pawn loan balances continue to perform well during the quarter.

These dynamics allowed us to leverage strong Q4 demand for both products into earnings increases in the quarter. In addition we were able to emphasize our retail sales value proposition with lower cost merchandise in our storefront locations while being assisted by stronger prices for gold during the quarter, both of which contributed to a higher level of sales and gross profit generation year over year.

As a result, you’ll see in the press release provided to you earlier this morning, that earnings per share exceeded our top end guidance range of $1.02 and reach $1.09 per share for the fourth quarter of 2009. These results of $1.09 per share are over 100% higher than the $0.54 per share reported in the final quarter of 2008.

As we mentioned in our earnings release details, the final quarter of 2008 was burdened by one time costs associated with the closure of Payday Advance locations as well as management realignment expenses and referendum expenses associated with the election in Ohio during the final quarter of 2008.

Excluding these one time costs which totaled approximately $6 million after taxes, were $0.20 per share, Cash America would post a 51% increase in year over year earnings per share in the fourth quarter of 2009.

As many of you know this 51% increase is a significant accomplishment given the headwinds that the company faced entering 2009. It’s been an outstanding year for the financial fundamentals of the company and for achievements on a variety of operational goals, and it’s very satisfying to conclude 2009 on such a strong quarter.

As I recap the results of the quarter, I would like to start with the components contributing to the fundamentally strong 24% increase in the metric of net revenue reduced by loan loss provision. Lending fees and service charges on pawn loans and cash advance products were the dominant contributor in year over year revenue levels.

Pawn service charges on pawn loans were up 25% with the benefit of higher levels at both our U.S. and Mexico based pawn operations. Cash advance fees net of losses rose 34% year over year as loss rates fell in both our store front and online business.

Our storefront cash advance business continued its 2009 march toward recovery and posted a financially successful quarter compared to its prior year disappointing result. Cash advance loss provision as a percentage of total advance fees fell 14% declining from 42.1% in the fourth quarter of 2008 to 36% in the fourth quarter of 2009.

Gross profit dollars rose 15% during the quarter as the company benefited from both positive retail sales at storefront locations as well as higher year over year gold prices.

Consolidated gross profit margin was 36.02%, up 177 basis points from 34.25% in the prior year. Consolidated inventory turnover was flat at 3.2 times in both periods.

These components led to a 24% increase in net revenue net of loan losses, driving an 82% increase in income from operations in year over year in fourth quarter of 2009. Excluding the unusual expense items during the fourth quarter of 2008, operating income was up 44% on a 24% increase in net revenue net of loan losses.

As demonstrated by the above metrics, the overall business was hitting on all cylinders during the final quarter of 2009 leading to the $1.09 per share in earnings on income attributable to the company of $33.7 million which was up 107% from Q4 2008.

Moving on to the individual segments of the business, Loan Lending segment continued its run of strong quarters during 2009 posting a 41% increase in operating income contribution or $41.3 million compared to $29.3 million last year.

Pawn segment continues to be the dominant component of consolidated operating income at 71% of the total. This increase in contribution comes on a 10% increase in total revenue from pawn lending segment which included our Mexico based pawn lending operations which was acquired late in the fourth quarter of 2008.

Both of these pawn lending businesses were bolstered by higher prices of gold that’s been trending up since mid 2009. As most of you know, the higher gold prices provide our customers with greater collateral value which allows us to meet their needs for capital through pawn loans and that demand remains strong as same store U.S. balances and our pawn locations were up 6.4% year over year.

The U.S. pawn lending business same store net revenue increased 8.6% year over year primarily on the strength of higher pawn service charges which were up 9% year over year, but also due to an 11% increase in gross profit dollars on the disposition of merchandise. We have provided a breakdown of the specifics of liquidation of merchandise as an attachment to the earnings release for you reference.

These results are dominated by the U.S. pawn lending activities, but I’d like to remind the readers they do include a small amount from our storefront Cash Advance businesses which have been buying gold for liquidation since early in 2009.

As you look at these results you’ll see that retail sales excluding for fine gold, was up only slightly year over year but the gross profit margins were down which led to an increase in gross profit dollars in our retail stores.

This continued trend and philosophy at competitive pricing to drive sales, maintain well balanced inventory aging and provide stronger foot traffic during fourth quarter of 2009. Offsetting the decrease in gross profit from in store sales was a substantial increase in the profitability on sales of fine gold during the fourth quarter of 2009.

During the 2009 fourth quarter the higher market price of gold allowed Cash America to post a 33.3% gross profit margin on flat refined gold volumes sold during the quarter and allowed our consolidated gross profit dollars on retail and refined gold to rise 15% or almost $7 million year over year and boosted our consolidate gross profit margin to 36% compared to 34% as I said earlier.

U.S. pawn business contributed $38.9 million operating income, up 35% from prior year. Total U.S. pawn loan balances finished the quarter up 7% overall while merchandise sales for disposition finished the quarter up only 3% demonstrating the success of efficiently liquidating merchandise during the fourth quarter. This is a positive indicator for future profitability of the pawn business as we move into 2010.

Our Mexico based pawn operations completed a successful full year adding 67 total units and concluding the year at 176 total locations. In addition pawn loan balanced denominated in Mexican Pesos increased 36% year over year and reached $314 million Mexican Pesos which converts to about $24 million U.S. dollar, up 44% in U.S. dollar equivalent terms based on current exchange rates.

As indicated in our attachments to the earnings release, Prenda Facil contributed $2.4 million U.S. dollars out of the total pawn lending segment in the $41.3 million and we continue to be optimistic about this growth component with our pawn operations as we move into 2010.

Now moving into the Cash Advance segment, the headline item continues to lower year over year loss rates associated with the unsecured product due primarily to effective underwriting practices as evidenced by higher revenue levels and lower loan losses.

In addition, the fourth quarter results officially mark the re-emergence of our storefront Cash Advance business following its long recovery from the regulatory setbacks cast upon it in 2008. You will also see that the current based serviced business which is part of the Cash Advance segment contributed incrementally to the results of the overall Cash Advance segment in the quarter.

Looking at the total segment results, you’ll see that total revenue increased 28.6% in the quarter compared with prior year and operating income excluding one time items was up 57% to $17.2 million while the reported results in the attachments of the press release show much more significant increase due to the one time expenses in Q4 of 2008 that I previously mentioned.

Top line Cash Advance performance is driven by higher volume of loans written in both storefront and online businesses. Overall cash advances written in the fourth quarter of 2009 were up 36% year over year. Leveraging this increase in volume at the lower level of loan loss provision expense which on a consolidated basis fell to 5.5% of total volume written in the fourth quarter compared to 7.3% in prior year.

The consolidated Cash Advance loss provision as a percentage of Cash Advance fees decreased to 36% in Q4 2009 compared to 42% in Q4 2008.

Also of note is that for the full year of 2009 the 12 month loan loss provision expense as a percentage of volume was 5.6% down 120 basis points from 6.8% in 2008.

On a closer look at the Cash Advance segment, you’ll see that storefront cash advance business contributed $5.8 million in operating income on $1.78 million in net revenue. This improvement is, as we discussed at the end of the third quarter due to the resurgence of the cash advance balances in those locations.

We finished the fourth quarter of 2009 with active balances in stores at 20% on a same store basis which should continue to give us momentum entering the first quarter of 2010. As you’ll see, the storefront business lost money on a reported basis last year during the fourth quarter but was basically breakeven after adding back the one time items previously mentioned.

The lower active balances in those stores entering 2009 led to difficult challenges in the first half of 2009 so as we push off from 2009 with same store balances up 20% we expect to see strong contributions from the storefront business this year from its core cash advance product, but also as a result of the introduction of pawn lending and gold buying introduced to most of those locations which is now producing a meaningful contribution to storefront cash advance earnings.

Online activity showed a small increase in operating income turning around three straight quarters of decreases as contributions from the businesses international expansion during 2009 yielded positive results.

The absence of profitable markets which were present in the prior year in the United States, specifically Pennsylvania, Michigan and Florida have now been completely offset by the growth in our U.S. market and the success of the operations in the United Kingdom. This is evidenced by the 26% increase in online cash advance loans written in Q4 2009 compared to the prior year.

As a final component to the Cash Advance segment you’ll see card based services contributed $2.6 million in operating income compared to a loss in the prior year, so overall the Cash Advance segment contributed nicely and complemented a very successful quarter for our pawn lending activities. However the pawn segment continues to be the dominant contributor at 71% consolidated operating income of the company.

Now before I get into the expectations of 2010, let me reiterate full year. Cash America concluded 2009 posting a record of total revenue which reached $1.12 billion up 9% year over year and produced net income of $96.7 million, 19% higher than the prior year leading to $3.70 per share and earnings that you see in our press release this morning.

Overall, a 19% increase, not bad for something that was down about 16% in the first half of 2009 due to challenges and the absence of certain Cash Advance markets.

As we look out into 2010 we expect to start the year with a strong increase in year over year quarterly performance underpinned by our core pawn business and complimented by the restored profitability of our storefront Cash Advance business and our online cash advance business which is enjoying the benefits of the international expansion.

In addition, U.S. pawn loans balances finished the quarter in good shape and our Mexico based pawn operations having added a significant number of new locations in 2009 will begin slowly ramping up producing year over year gains more heavily weighted in the second half of 2010.

These factors led us to establish our initial guidance for the first quarter of 2010 of between $0.89 and $0.94 per share compared to $0.79 in the same quarter of 2008. We have made an upward adjustment to our full year 2010 expectations, establishing a new range of between $3.50 and $3.65 per share.

We’ve also factored into our revised 2010 guidance the elimination of one of our Cash Advance markets in the second half of 2010. As many of you know, the statute providing for cash advances in the State of Arizona is scheduled to sunset in June of 2010.

While our efforts to educate legislators and convince regulators that the Cash Advance product is valuable to their constituents as evidenced by the financial difficulties encounter by customers in states where the Cash Advance product has been eliminated, we are uncertain at this point whether we’ll be successful.

As a result, we’ve eliminated the expected Arizona market Cash Advance revenues which are primarily related to our online distribution channel for the second half of the year.

Now I’ll turn the call back over to Dan.

Daniel Feehan

I’m going to begin with a few brief comment on the quarter and then I’ll sort of review 2009 and talk a little bit again about 2010.

As Tom indicated, we’ve obviously enjoyed a very successful quarter, exceeding our guidance and consensus estimates by several cents. The most encouraging thing for me this quarter is the fact that all of our businesses units performed at or above the top end of our expectations.

Pawn business performed better than expected both in the U.S. and Mexico as did our Cash Advance business both online and in our storefronts and also with our new card services business.

For me, the moons don’t often align for all business units on a diversified portfolio like ours, but everything did come together in the fourth quarter. Probably the two most pleasant surprises for me were the success of our retail efforts in the quarter and the higher year over year demand for short term Cash Advance products.

As you know the over the counter retail sales activity had trended down about 4% to 5% in the second and third quarters of this year and we were not overly optimistic about our fourth quarter retail prospects as we entered the quarter.

However, we did finish the fourth quarter as Tom indicated slightly ahead of the fourth quarter of last year which obviously reflects an improving trend line over the second and third quarters. In fairness, the fourth quarter of last year was not a particularly strong quarter so slightly improved year over year comps is not exactly a call for great celebration but simply showing a positive trend and a more positive trend than we experienced throughout most of 2009 is definitely encouraging.

Also, the elevated price of gold provided a significant amount of additional revenue and boosted marginal profitability for the quarter as it has done for all of our pawn competitors.

Perhaps even more surprising for me was the year over year growth in loan demand for our Cash Advance business. All of our segment components making cash advances, that would include Pawn, storefront cash advances, our online cash advances, all experienced stronger volume this quarter.

Fortunately we were able to meet the demand without sacrificing any of the momentum we have enjoyed all year with improving loss rate. I believe our proprietary credit models that we employ throughout our organization are performing well and continue to be predictive and very effective in managing our exposure to losses.

Also I think one factor that may have contributed to the improved relative performance of our Cash Advance business was the year over year chance in average price of gasoline this year. In the fourth quarter of 2009 the average cost of a gallon of gas was about $2.56 a gallon throughout the U.S., up about 16% from the fourth quarter of 2008.

You may recall that gasoline prices dropped precipitously in the fourth quarter of 2008 which may have served to decrease loan demand in that quarter. So while this specific argument may help explain increased demand for short term cash advances on a year over year basis, it does not align well with the more positive trend in retail sales we experienced in the quarter.

However, I should point out that gasoline prices have historically had a more acute impact on our Cash Advance business than our Pawn business.

So the question becomes what are the trend implications of the positive developments in the fourth quarter. I’ve shared with you repeatedly throughout the year my belief that we have seen a behavioral change consumers at every rung of the socioeconomic ladder with consumers borrowing less, spending less and saving more.

I believe this behavioral change together with high unemployment rates have combined to constrain our U.S. revenue growth for most of the year. Our fourth quarter experience is definitely encouraging but I think it’s way too early to declare a return to the more robust consumption behavior of the lengthy expansion period ending in 2007.

I believe consumers will remain cautious in the near term and our outlook for 2010 reflects our conservative views for both loan and retail demand.

Other significant factors contributing to our upside surprise in the quarter were our U.K. business with and the performance of our card services business. The volume of our card services business more than doubled on a sequential basis from $30 million of cash advances written in Q3 to $64 million in the fourth quarter and sequential operating income increasing from well over $600,000 in the third quarter to almost $2.6 million in the fourth quarter.

All in all the quarter was extremely successful and provides a great momentum entering the new year.

Before commenting once again on the new year 2010 I’d like to quickly summarize my views of 2009. By any measure I believe 2009 was a great year for us following a tough year in 2008. You may recall that I mentioned in our January call last year that we were entering ’09 with the overhand of digging out of a large hole created by the loss of significant amounts of revenue in Pennsylvania, Minnesota, Ohio and Florida due to regulatory changes in those states.

I also discussed the cloud of uncertainty hovering around our planning process at the beginning of the year. We began the year with an unpredictable economic environment and with a new administration in Washington riding a populous wave of anti-corporate sentiment with a clear focus on among other things, rewriting all the rules for financial institutions.

Committing to a business plan and earnings guidance at that point last year seemed like a shot in the dark and now, as a testament to the irony of the annual planning process, our final earnings in 2009 landed about as close to our original plan as any year in recent memory so it wound up being a pretty fortunate shot in the dark.

That’s not to suggest that we did not execute well. We did a lot of things well this past year and we had a few variables go our way. Allow me to take a minute to tick off what I believe were the key highlights of the year because I do think most of these have positive implications for 2010.

First there was a very steady growth of our mature U.S. based pawn business with consistent loan growth in the mid to high single digits and successful management of all our key operating metrics. This unit produced a 12% operating income growth for the year even during a weak retail cycle.

Second was a big lift from gold prices. Our average settlement price on scrap gold sales in 2009 was up about 12.5%. The higher price of gold also aided our pawn growth in the U.S. as well as Mexico.

Third was the impressive rebound in Ohio. Coming off the defeat in November last year, we converted to a different short term cash advance product and successfully introduced pawn related activities.

Fourth was aggressive new store development program in Mexico. We began the year with a plan to add 50 to 60 new units in Mexico and we actually opened 67 units. This is the most units that we have ever added in a given year.

Fifth was the general success of Prenda Facil in our first year of operating in Mexico even thought the company fell short of our original financial plan. I believe the swine flu epidemic in April and the severe downturn in the Mexico economy presented challenges in the first half of 2009 as we were finding our stride in a new country and with new partners.

However, I am very encouraged about the progress we made in the second half of the year and I am particularly pleased with Prenda Facil fourth quarter performance.

Sixth was the expansion of our international presence on line with the growing profitability in the U.K. and successful launches of our short term cash advance products in both Australia and Canada.

Seventh was the success of our proprietary credit models in 2009 which served to lower both default rates and loss rates.

Next was the growth of our new card services business. As I mentioned earlier, in the fourth quarter we had pretty substantial growth even on a sequential basis and I believe we are just beginning to scratch the surface of this opportunity.

The ninth item on my list was the completion of our $115 million convertible note debt offering which will remove any near term liquidity concerns for the company.

And the last point that I’ll highlight is that our online cash advance business in the U.S. posted a small gain in revenue for the year even after losing a substantial amount of business due to regulatory changes identified and discussed in 2008.

Now these are obviously not all the highlights for the year that I could mention but they do include the ones I find most meaningful.

I spent a fair amount of time during our last quarter call in October discussing our outlook for 2010 when we first introduced earnings guidance for the year. As Tom indicated in his comments, we have modestly raised that guidance to $3.50 to $3.65 per share in today’s press release.

My perspective on the new year has not changed since October even with our better than expected performance in the fourth quarter. I mentioned then that we are not expecting any significant growth in the economy or any change in the behavior of our consumers. We expect our U.S. pawn business to continue the trends of recent quarters and our Mexico pawn business to post a substantial improvement in earnings even as we open 50 to 60 new units in 2010 in Mexico.

Our store front cash advance business should continue to gain ground with its loan business and the new pawn related activities we introduced in ’09 and we are expecting to see progress in all of our online markets in the U.S., U.K., Australia and Canada.

We have good momentum in all of our business units during 2010 and I’m pretty upbeat about our prospects for the year. With steady ongoing growth in our U.S. pawn business, accelerated unit growth in Mexico, resurging demand for our short term cash advance products, ongoing control of loss rates, growth in international markets and stable gold values, we should have a great shot at making our plan for the year.

Of course all of this assumes that we have no further disruption on the regulatory and legislative fronts.

Our most significant concern over the past few quarters has been the proposed Federal bill to establish a consumer financial protection agency and there have been no significant developments on this bill since our last call which quite frankly is one of the benefits of an extended holiday season in Washington.

But the bill remains alive in the House and I’m sure you have read that it appears to be losing steam in the Senate. I think it’s also important to note that this initiative was conspicuously absent from the President’s State of the Union address last night. We obviously cannot predict that this legislation ultimately passes into law nor can we accurately speculate on how it might impact our business if it does pass.

I’ve mentioned before we and other industry participants have been very active on Capital Hill this year educating members about the service we provide and the lack of real alternatives for our customers. Our business plan for 2010 does not include any positive or negative impacts from potential Federal legislation.

We’ve also not factored in any new changes in state laws or regulation. As Tom mentioned, we do know that the enabling Arizona Payday Law will expire at the end of June this year based upon existing sunset provision. A bill has been filed in Arizona to extend that sunset but our plan calls for us to wind down Arizona at the end of the sunset date in June.

Additionally, we are closely monitoring a bill that has been filed in a number of other states that could potentially impact our short term cash advance businesses in those states. Our 2010 plan assumes no legislative changes in any of these states.

We’ll now open the call up for questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from David Burtzlaff – Stephens Inc.

David Burtzlaff – Stephens Inc.

Do you have the average selling price for gold during the quarter and how does that compare with last year?

Thomas Bessant

On a per ounce basis we sold about $1,015 an ounce compared to about $850 last year so picked up some nice increase in the selling price and offset slightly by a little bit higher cost per ounce. We averaged about $700 an ounce compared to about $650 last year.

Daniel Feehan

I think it’s also important to note that the number of ounces we moved through the fourth quarter were the same as we moved through the fourth quarter of last year so the improvement you’re seeing on the scrap side of our business wasn’t related to shoving a bunch more gold through the system, really the difference in the margin profitability as Tom has indicated.

David Burtzlaff – Stephens Inc.

In the card services business, that seems to be, it appears that you may have hit a home run with that business or has the potential to be a home run. How far do you think that can go?

Daniel Feehan

We’re still in the early stages of the business. The business, there are a lot of variables that will determine how far that business can go. Part of it is a function of our relationships with the bank that we operate with. Part of if is a function of the relationships with that bank and we have with program managers and processors around the country.

We’re dealing with and assisting the bank in dealing with only about four or five card programs today. There are hundreds of card programs in the country if not thousands that we believe are potential candidates to pull into this activity at some point.

So it’s hard for me to give you the full scale of that business opportunity. There are a lot of things that are out of our control quite frankly that will impact how quickly and how high it can scale, but I am pretty optimistic that we would at least hit a good double if not a home run.

David Burtzlaff – Stephens Inc.

You can’t tell if you’re cannibalizing any of your existing payday business with this card product?

Daniel Feehan

I don’t think so at this point. The card product is basically associated with store value or pre paid cards, people that are on direct deposit. I think some of those folks may have been payday customers in the past. I think a number of these folks are new to the short term cash advance borrowing arena so in terms of following data bases, specific data base information, trying to overlay specific customers with our existing bases; we’re not able to do that so the bank involved here is actually making the loan and it’s their customer data.

So it’s not something that we can do directly, but my belief is there is very, very little of that going on today. Long term if we cannibalize our own business and other people with short term cash advance business with that product, I’ll be thrilled. Quite frankly the marginal profitability associated with that is pretty attractive.

David Burtzlaff – Stephens Inc.

The loss rate was very good this quarter. Is there anything, obviously you mentioned the proprietary credit models that you have. Is that all that you would attribute that to or is there something else in the industry dynamics that contribute to that lower loss rate?

Daniel Feehan

I’ll give you my speculation. Clearly our belief is that our credit models have worked extraordinarily well and when you look at default rates on a weekly and monthly basis as I do, default rates in 2009 were substantially below our default rates over the previous few years.

I also think, and I’ve talked extensively about my belief in this behavioral aspect in the consumer, I do think consumers, even our and those that need to borrow on a short term basis are more conservative. My belief is that they’ve been a little more active in repaying their short term cash advances perhaps than they have historically.

I do believe they’re spending less money and managing their activity differently perhaps differently than they did in 2008 when we look at the comps. So I think that is a factor. I can’t quantify that for you. I can’t tell you what percentage of the improvement relates to our models and what percentage I believe relates to behavior but I do think both have been important factors.


Your next question comes from William Armstrong – C.L. King & Associates.

William Armstrong – C.L. King & Associates

The last couple of quarters you’ve had on the cash advance side big increases in loans funded by third parties. I was wondering if you could remind us what’s driving that and what is the difference in profitability in a cash advance that’s funded by you versus a cash advance funded by a third party?

Thomas Bessant

I think a couple of things you see there. I want to be cautious. When you view third parties it could be any third party. We just got through talking about our card based services. Obviously that’s a third party based product so we start seeing marginal profitability, there’s a lot of things in play there.

The other portion of that would be our CSO related products and our online business as well as the number of our storefront locations operate with that model. The economics at the store front level tend to be comparable between the state models and the storefront. They’re operating under CSO.

On the online business there’s a little bit higher marginal profitability and the yields are a little bit richer and then of course on the card based products, actually the yields are lower overall but the marginal profitability is higher, so it’s a fairly complicated response there but obviously it’s just part of the details of our loans written and I think the biggest issue to focus on would be magnitude of loan written changes year over year.

And then just look at the fees associated with those loans and look at an aggregate yield. I think you’ll see improvements in all of those metrics.

William Armstrong – C.L. King & Associates

And when you said on the internet lending side, the aggregate profitability on a per loan basis was a little higher. Was that on the for the third party was higher or the other way around?

Thomas Bessant

It’s a little bit higher on the third party side.

William Armstrong – C.L. King & Associates

As far as your foreign involvement in cash advance, I don’t see that broken out. Is that still too small to break out?

Thomas Bessant

At this point it is. It certainly was incrementally profitable in the fourth quarter. As you may remember we have been in the United Kingdom now for a little more than two years and that business is really starting to gain some positive traction and creating incremental earnings.

During 2009 we stepped into both Australia and Canada. Those obviously are much smaller and would be negative contributors, but the aggregate international profitability as I said in my comments is up and was additive to the quarter.

As we look in 2010 and start to evaluate the magnitude of contribution from those markets, we’ll consider breaking them out separately much like we do our pawn which is broken out between foreign and U.S.


Your next question comes from Joshua Elving – Feltl & Company.

Joshua Elving – Feltl & Company

I’m trying to get a little better sense on the trends in the internet cash advance product versus what’s driven through the storefront locations and I can see the kind of volume or at least the revenue associated with either. Is the volume that goes through the internet platform essentially all initiated by a consumer from their own PC or is there any of that volume that is actually done at a storefront that end up going through the internet platform?

Daniel Feehan

The direct answer to your question is it’s initiated by consumers sitting at their PC’s and we do have marketing activities, cross marketing activities where we will in our bricks and mortar locations alert our customers that they have the option, an alternative of either getting a loan physically at the store or if its more convenient for them they can go online.

And if that’s the case, they’ll go home and get online and log into our website to deal with Cashnet. But it’s all going to come from someone sitting down at their computer and getting on a website and filling out an application.

Joshua Elving – Feltl & Company

So that’s a real clean number, the amount that’s going through the internet channel then.

Thomas Bessant

Yes, it really is.

Joshua Elving – Feltl & Company

As it pertains to Canada, I know you mentioned that briefly, you entered that here in the December quarter in the Toronto market, is that correct, or in the Ontario market? Is that the only province you’re in today?

Daniel Feehan

We actually started online in Canada in the fourth quarter in both Ontario and British Columbia. We are working on other provinces. I’d expect hopefully sometime in the first half of ’10 to get fired up in Alberta and Nova Scotia and perhaps Manitoba.

So it’s way too early for us to provide you a whole lot of visibility or clarity about what’s going on in Canada. Obviously a smaller country than the U.K. From a positive perspective, Payday lending from a product is available in Canada today so we don’t have a huge challenge of educating the public there about what it is we do and what the product is intended for.

We do have that challenge by the way in Australia where the business was nearly as robust. So we’ll continue to try to update as we go through 2010 on our progress in the international markets.

Joshua Elving – Feltl & Company

With regards to the store locations in Ohio, I know you made some comments about introducing pawn into some of those locations. If I remember correctly, following the change in the regulatory environment there, I believe you had closed a few locations or were working on a couple of different products or a different type of loan product as well as introducing pawn. I believe it’s a jewelry only model. Could you give an update what’s happening and what you’re doing with the Ohio stores, if you’re planning on maintaining, keeping the remainder of them open or if you have any thoughts about further shifting the model there.

Daniel Feehan

We are at this point specifically the stores in Ohio; we do not have any plans to close any additional units there. I wouldn’t say if you look at our entire storefront model we’re always evaluating stores that we think we should close or combine with other stores, so you may see us close some stores here in 2010 in our Storefront Cash Advance business, but probably not likely to be in Ohio.

In Ohio we are operating with what I refer to as pawn related activities so our stores there in addition to making short term cash advances under the Ohio Mortgage Loan Act today. They are also buying gold and at quite a few of our locations, just towards the latter half of 2009 introduced pawn lending where they’re actually making loans on gold jewelry.

So at this point we’ve limited to jewelry lending. We do intend here in early 2010 to begin beta testing some retail activity in those locations as well. We’ll actually begin trying to sell a little jewelry out of those locations.

So for all intents and purposes, they have evolved into what we refer to as a pawn light unit that is making cash advances and these related pawn activities as well as the activities that our stores in Ohio have historically done with check cashing and other ancillary services.

Joshua Elving – Feltl & Company

It seems like you’ve alluded to a little bit of a growing trend of what I would call direct buy or directly buying merchandise from some of your consumers. Can you talk a little bit about if you have a mix of your merchandise sales that are driven by direct purchases versus forfeited pawn loans and how does that compare to earlier in the year?

Thomas Bessant

In the pawn business we always qualify a customer whether they want to get a loan or if they’re just interested in selling their merchandise. In some cases customers elect to just sell their merchandise.

So that’s a fundamental business that we’ve been in for as long as we’ve been in the pawn business, so 25 plus year. With gold prices rising, and the media attention around it, we’ve seen an influx of customers who have elected to come into our stores for the first time and sell us gold jewelry, but it’s really not enough to move the needle.

The purchased per se are up but the vast majority is the goods available for disposition come out of forfeited merchandise. So we do track it but it’s actually not material enough to mention and break out specifically.

Now in Ohio because of the referendum change in the fourth quarter and the need for a rapid evolution and enhancement of profitability, the store’s licensing process to be a pawn lender is a little more extensive than acquiring the appropriate licensing to purchase gold.

It also is a lot easier from an execution perspective and so we introduced gold buying and maybe where you’re picking that up, gold buying in those PDA stores quite quickly after the referendum defeat and so I mentioned that in my comments and if you looked at the sub segment breakdown in the storefront Cash Advance business, you see about $2.2 million in gross profit dollars.

Obviously as Dan mentioned, they don’t have a substantive retail distribution there so most of that is from gold buying and quick liquidation of gold. We are at about $2 million in pawn loan balances in those stores and the loan products have only been in place for the last half of 2009, so we’re picking up some pawn service charges there.

Joshua Elving – Feltl & Company

My whole point was not necessarily with regards to the Ohio stores per se but it just seems like there’s a growing trend and probably like you mentioned, driven by the price of gold and more volume is coming into the stores via direct buy versus the traditional pawn loan.

Thomas Bessant

Higher but not material.

Daniel Feehan

Our mix is up a little bit but it’s not material.


Your next question comes from Richard Shane – Jefferies & Co.

Richard Shane – Jefferies & Co.

When we look at the internet business one of the things that was and is really compelling about it is that there’s tremendous operating leverage in that business and you basically saw that through the first half of 2008 where you were getting double digit growth and huge top line growth and huge bottom line growth. You got a set of regulatory changes, the paradigm shift temporarily quarter digesting that. The last several quarters it appears that the lack of that operating leverage in the model, the function of the investment in Canada, U.K., Australia, are we approaching the point now where that operating leverage starts to really come back in the model? We saw in the fourth quarter big surge in revenues. We saw improvement on the bottom line, but are we reaching the inflection point where that top line growth is going to drive even more substantial bottom line growth?

Daniel Feehan

I think that some of the dynamics you’re seeing there is a function of two things. One is a pretty heavy investment spend and as you mentioned in these international markets as well as other activities that we continue to promote on an R&D basis in our internet platform; installment lending which again we’re trying to get developed and rolled out and trying to reach some scale with is still a very nascent business but we’ve got a big development spend associate with that.

We have a couple of other projects that we’ve got a pretty heavy overhead component with to try to find long term alternatives to our current Payday products. That platform is also managing our card services business so there’s a little overhead there. So we’ve got a pretty good investment spend and I intend to continue that in 2010 to some degree.

The other factor that plays into the dynamics and the economics you’re looking at is higher marketing cost associated with our U.S. business. Lead costs in our space have risen higher than we had expected in 2009 and its had a negative impact on the marginal profitability equation. I would expect 2010 for our lead cost, overall marketing cost to not move any higher but I’m not expecting a substantial improvement in that in 2010.

We lost a substantial amount of revenue related to Pennsylvania, Minnesota, Ohio and Florida in our online platform and the beauty of that online platform is when you run up revenue you can get the increasing marginal profitability. When it comes down you’re going to lose it.

To your point, we saw higher increases in revenue in the fourth quarter and you didn’t see the corresponding marginal profitability. Part of that again is lead cost. Part of it is development spend.

But I am convinced that when we get through 2010 if we don’t have a lot of serious late regulatory disruption there we’ll begin to enjoy that leverage again. So I do think you’re not going to see a tremendous amount of that in ’10 but you should following that I think in out years you’ll start to see a much higher leverage from that platform particularly as some of these things we’re working on begin to drive revenue.


Your next question comes from Elizabeth Pierce – Roth Capital Partners.

Elizabeth Pierce – Roth Capital Partners

I was curious on Rick’s questions what’s causing the pressure on lead cost.

Daniel Feehan

That’s a great question. I think you’ve got a number of factors in play here. One is that we’ve got competitive forces that again on a supply and demand basis, have served to drive up lead costs. The lead universe is a small universe. There are not a large number of players in that and as more people have gotten online platforms launched, whether they’re successful or not is hard to determine.

But as they have them launched, people have from a competitive standpoint driven lead prices up. One of the things that is critical to our success in our online platform is the business in advanced analytics that we do to tier our pricing with our lead providers so that we’re paying different rates for risk and different quality of customer. And I think that’s very important from a profitability model perspective and I think we do that pretty well.

But I think competitive forces have driven that up a bit. Beyond that I can speculate on a handful of other things I think have impacted lead costs, but it would just pure speculation. I couldn’t give any data to support it.

Thomas Bessant

I know you’re familiar with the business. One of the things you might want to look at, if you aggregate operating expenses and loss provision, while from a formula perspective, if you pay out for lead costs, you want to drive lower losses.

I think Cashnet has done a brilliant job of that. Those aggregate percentages of revenue are only up slightly when you put loss provision and total operating expenses together, so total operating expenses doesn’t give you a lead cost per se but they’re a big part of that number.

So where Cashnet executes very well is again back to the analytics of the model, the ability to evaluate and potentially pay a little bit more per lead. Now we don’t get that leverage coming back on the offsite. It can be kind of problematic, but again this is going to take a little time to sort out, but obviously it’s something that’s a key on our focus because the value of that platform long term is not only with enhancing the margin profitability of its current product, but also driving additional products into the future.

So it’s a complicated issue, but I’m glad you raised it.

Elizabeth Pierce – Roth Capital Partners

To follow up on that, why would you expect in fiscal 10, once you get through fiscal 10 if you don’t see lead costs going up a lot, are there any other players that you think are going to fall out?

Daniel Feehan

I think potentially some other players will fall out and also I think that additional growth in demand and additional revenue will drive the marginal profitability. Again I’m not expecting lead costs to continue to escalate and if lead costs stabilize at the levels they’re at today and we add revenue, that’s going to increase marginal profitability.

Again, it’s a very scalable platform with the right amount of revenue. You would see different numbers today if we were operating at the same cost lead cost that we were operating two years ago, but that escalated and I can’t see how it can go much higher quite frankly.

Elizabeth Pierce – Roth Capital Partners

I get that on the scaling I was just curious on the lead cost so it’s most likely you expect some buyers have entered the market over the past couple of years may find that they don’t have the creditability to keep the business selling.

Daniel Feehan

That’s my guess, yet.

Elizabeth Pierce – Roth Capital Partners

Throughout 2009 how often did you have to raise your loan values?

Thomas Bessant

On the Pawn loan lending side?

Elizabeth Pierce – Roth Capital Partners

Yes, on the Pawn loan lending side.

Thomas Bessant

We really didn’t raise them at all until very late in the year, and then only a small percentage.

Elizabeth Pierce – Roth Capital Partners

I presume you’re continuing with your strategy in terms of forwarding for six months out?

Thomas Bessant

Yes we do and obviously we were active when gold ticked about $1,200 an ounce. I guess in was in November and we were able to put some forwards in place. But we continue to sell out as far as 12 months but most of the concentration in the three to six month range.

Elizabeth Pierce – Roth Capital Partners

Are you pretty bullish on gold that it’s going to continue to stay?

Thomas Bessant

It’s hard not to be and there’s so many factors that continue to provide support. The list is long but it’s hard to bet against that metal at this point and that’s really value for our customers. As I said, it drives collateral values which allows people in this time of need to get more loans. So it’s an important dynamic and allows us obviously to liquidate more profitably as you saw here in the fourth quarter.

And we did see an unusual event last year. Gold prices sagged from Q3 to Q4 so I think hurt everybody in the industry a little bit. It had the opposite effect this year. So you get the double benefit of weak marginal profitability in 2008, strong marginal profitability in 2009.

Daniel Feehan

I totally agree with Tom’s perspective on it. I think we’re all somewhat bullish about the gold prices. However I need to point out that when you evaluate our 2010 plan, our assumption in that plan is that our average sellable price in 2010 our sales would not be up significantly from where it is in 2009. It’s up very, very modestly.

Elizabeth Pierce – Roth Capital Partners

If you could talk about what you’re doing, the marketing strategy in Las Vegas. This is the first full Christmas, so any kind of take aways in what you might do, take from that and apply it to the rest of the chain?

Daniel Feehan

I’m pretty happy with the results of our retail marketing test in our Las Vegas market. When you look at that market against control groups that we measured against during the fourth quarter, particularly in a Thanksgiving through Christmas period, there are clear indications that there’s a direct impact on the profitability of our business in Vegas retail realized from running those ad campaigns.

So we will in 2010 extend that. Currently our plan is five other large markets in 2010 and run the campaigns throughout the course of the year so I’m cautiously optimistic about the impact of what that can do on the retail side of the equation as well as introduce new customers not only to the merchandise that we have for sale but also our other activities as they come in in response to those TV and billboard ads.

So again, I’m pretty hopeful that we can duplicate the result we had in Vegas in several other markets in 2010. We are a little bit cautious about how aggressively to do that because there is a fair amount of marketing spend when you get on TV and running extensive campaigns, so we’re going to march a little cautiously but we will be extending the program.


Your next question comes from [William Kakish – Macquarie Research]

[William Kakish – Macquarie Research]

I wanted to get a little bit better understanding of the decrease in domestic pawn loans written and renewed in the fourth quarter. Can you help me understand what’s behind that? I would think that because of the holiday season you’d normally see an increase there but it looks like the fourth quarter pawn loan balances written and renewed are down a little bit relative to the third quarter. Can you comment on that?

Thomas Bessant

They’re up year over year in the quarter which was really positive and I think demand continues both for the Cash Advance and the Pawn side, continues to be strong with the limitations on traditional credit sources.

It’s typical to see a little bit of softness in the fourth quarter relative to the third quarter but there’s a couple of things that impact that. One is that when a customer comes in to extend a loan, it doesn’t count as a loans written item. It’s only if a customer pays off a loan completely and we write a new loan that it would show up as a loans written.

So what tends to happen throughout the second and third quarter is our volumes rise. Many customers choose to extend those loans into the future maybe a week, two weeks, a month. That doesn’t count as a loans written and we get revenue from it, but it doesn’t enhance loans written.

So what you typically see is a little bit of a decline sequentially from Q3 to Q4.

[William Kakish – Macquarie Research]

If we take a look at the cash advance fees for 100, just basically taking the cash advance fees and divide those by cash advances written divided by 100 it looks like you ended the quarter around $15.32 kind of around that range and that number has been coming down a little bit. Can you give a little perspective on whether you expect that number to stay above $15.00 or just some thoughts on where you expect the big picture perspective that number to directionally go in the coming quarters.

Thomas Bessant

I’d stick to that 15% to 15.5% range. That gets impacted by a lot of things. Mix is one of them. One thing that was pretty important in the fourth quarter and really a little bit in the third quarter was while that business in Ohio in our storefront location, year over year is much lower on a yield basis.

You may have heard us talk about that, two-thirds of what it was. That was a true cash advance law there. So that’s impacting that. So the mix of the overall portfolio is going to impact that yield number that you’re looking at.

I would expect just for modeling purposes to stay in that range that you’re at now, 15% to 15.5%. If it moves materially higher, and/or lower it’s because of mix issues but depending on what happens in our storefront business, and how much that grows, that could have a little bit of effect there again because of the change of the product there in Ohio.

Daniel Feehan

The other thing to watch as we go forward is it’s not large enough at this point in the loans written number to move the needle much but our card based business is also a lower rate product. It’s more at the 12.50% level per 100 and quite frankly over time, I’d like to bring that down.

Again, there’s a great scalability and marginal profitability associated with that business and I’d like to be even more competitive in the market by bringing the yield on that product down a bit and make it more attractive to consumers. That’s one thing as you continue to watch that number to keep in mind.


Your next question comes from John Hecht – JMP Securities.

John Hecht – JMP Securities

You talked about your positive retail trends. If I recall back to the analysts day you talked about an E-bay online strategy. I’m wondering can you give us an update on that and did that help at all or contribute at all to the solid performance in Q4?

Daniel Feehan

We continue to work on that and are pretty happy with our early results from the work we’re doing with E-bay activity and Craig’s List. It’s not significant enough in the fourth quarter to really have an impact on the trends that we talked about.

I think the build from those programs are going to be slow and steady so it’s a great strategy and a great incremental strategy for us. Again in Q4 we didn’t move enough in those channels to really move the needle on our over the counter retail numbers and really with or without that, didn’t really affect the trend line.

John Hecht – JMP Securities

Moving on to the gold sale activity out the Payday stores, there was obviously a very large marginal contribution this quarter. I’m wondering if you could tell us what portion of the storefront Payday store base is engaged in this activity and given its success do you intend to roll it out to the predominant network?

Thomas Bessant

There’s 150 stores writing pawn loans. Gold buying of that 248 stores that are in the cash advance business, there are 150 right now at the end of the quarter writing pawn loans. We’ll try to license a few more between licensing and other restrictions. We’re not going to get to all of them.

Gold buying occurs in most of them though. There are some licensing restrictions here and there where we can’t compete there. I actually don’t have a hard number on how many are buying gold but I’d say that easily the majority of the 246 locations in the Cash Advance segment are buying gold.

John Hecht – JMP Securities

Can you give us a sense of those that might be more ramped up in the volumes versus those that are newer doing it? Is there a large difference there, variation where we might see, expect to see some solid advancement in that product line?

Thomas Bessant

I think there’s opportunities not just on the gold buying side to enhance gross profit but also on the retail side. As we put pawn loans in those stores and we drive traffic to those stores, it creates a lot of awareness and the Midwest, particularly Ohio is not a heavy concentration of pawn locations, and there’s great opportunities there.

It’s going to be a slow build for us over time, but as you point out, it’s roughly 40% to 45% of operating income in the fourth quarter in that pawn related activities storefront side. It was over 100% in Q2 so the core business of cash advance is going to be the predominant driver. All that pawn stuff is incremental which is great and will help marginal profitability. Certainly upside and we’re excited about it. We’ll see how it ramps in 2010.

John Hecht – JMP Securities

Moving on to Mexico, if I remember right you had about a third of last year’s, just to make sure I’m comparing accurately, you had about a third of a quarter, maybe even less than a third of the quarter in Mexico contribution last year?

Thomas Bessant

Yes, really just really a few weeks so less than a third of a quarter.

John Hecht – JMP Securities

At this point are you able to assess different seasonal trends down there that might balance out some of the seasonal trends in the U.S.?

Daniel Feehan

There are a couple of things that happen in Mexico. One is just about everybody in Mexico gets Christmas bonuses and that ranges anywhere from half a month to a full month of pay for people, so what happens in December and it continues into January is that people are redeeming pawn loans and asset levels come down during that period.

You don’t have a corresponding tax refund season of any consequence in Mexico so in the first quarter where our loan balances are coming down in our pawn business as a result of tax refunds and our retail activity is accelerating, not a comparable comp in Mexico.

John Hecht – JMP Securities

There was a reasonably large increase in the average loan size at the store level in Mexico. Is this a secular trend that people are just understanding the product more, using it more with a lot more confidence or is that related to just the maturation of the store base when your stores get a little older, the customers come back and you give them a larger loan.

Daniel Feehan

I think it’s more two things; more the latter. Maturation certainly enhances that number. And then the gold prices, since this is a predominantly jewelry business we are moving into some full format locations. We added one in 2009. We’ll probably add 10 to 15 more in 2010.

But the core base of the business and Prenda Facil is gold related and clearly the price of gold, you’ve got to be competitive on a pesos per gram when you’re making loans and that’s had a positive impact.

I think you also need to work through the exchange rate differentials and understand when you look at it when we convert it to U.S. dollars you’re going to get some lift from exchange rates in our exchange rate differentials.

John Hecht – JMP Securities

I know you were testing going to a more broad retail footprint in some of the stores down there. Any color on that?

Daniel Feehan

It is building. Still small activity. We intentionally went at it cautiously to introduce a new activity and the training etc. But again we’re got retail factored into our 2010 plan that is up quite a bit from anything we did in 2009, although we’re not factoring in at this point numbers that would move the profitability substantially in that business.

I think the opportunity is there but I’m not going to allow our team to model any of that until we actually see it happening. So I’m pretty optimistic about the activity there.


Your next question comes from Henry Coffey – Stern Agee.

Henry Coffey – Stern Agee

I know you made a comment about retail sales being positive in this quarter. Can you give us a specific number in terms of what those sales were or what the increase was?

Thomas Bessant

It was up half a percent. If you extract out the refined gold activity, there’s that break out there. We typically don’t put that breakout in the press release attachment. It comes out in the Q but since we were on a 10-K schedule this quarter we decided to put it in the press release. But if you strip out the refined gold, it’s a little less than 1%.

Daniel Feehan

As I said in my comments I don’t consider that a cause for celebration quite frankly. But again, versus the trend line that we’ve been on, particularly in the second and third quarters where we were trending down 4% to 5%, it’s at least encouraging.

I don’t think the customer behavior and the consumer confidence factors that change dramatically so if you look at our 2010 plan, we’re still pretty cautious about over the counter retail activity.

Henry Coffey – Stern Agee

Your view hasn’t changed. You’re still under the fences thee.

Daniel Feehan

Yes I am.

Henry Coffey – Stern Agee

And the way you let inventories go?

Daniel Feehan

If you look at our relative mix of pawn loans to inventory in our U.S. business, particularly inventory levels and pawn levels at the end of the period, I’m very, very pleased with where our inventory has ended up. So I think in terms of managing that balance of the mix which is something I talk about a lot, I don’t think we can really be in any better shape today.

I think we’re free to meet loan demand at this point and I’m not at all concerned about inventory levels. Our forfeiture rates have remained consistent. So again, I’m just cautious about the retail appetite of our customer.

Henry Coffey – Stern Agee

Looking at your other two business units in Mexico, are there full service stores in the plan and if so can you give us a sense of how many of those you’re going to try to open?

Daniel Feehan

We opened one in 2009 to get our feet on the ground. Our plan is to open 10 to 15 of those formats in 2010.

Henry Coffey – Stern Agee

Do you think the ramp will be that much different than a gold store or based on your one store so far, what’s the ramp to profitability?

Daniel Feehan

The ramp for this particular store was very strong. I’ve learned enough over the years to not draw any hard fast conclusions from a one store test. So I believe the ramp in the full format stores will be slower. When you look at 10 to 15 units in 2010 and a jewelry only location, but that’s offset by the ultimate long term volume of those units will exceed the average jewelry only store.

Henry Coffey – Stern Agee

New product with the internet, you talked a lot about what could you do for that 600 to 700 FICO that’s out there that’s probably being pushed out of the bank. What’s going on in the new product front?

Daniel Feehan

I think one of the things that I would love to strategically extend to a wider customer base is our card services product. That’s one thing that we’re continuing to work on; strategies on how to achieve that.

In addition we’re currently writing longer term installment loans in three states under state laws. I think for us to be successful with that business we have to find a way to scale it nationally with an online offering which will require an association marketing and servicing arrangement probably with a national bank.

So that’s a strategy that we’re currently working on and trying to develop those relationships in such a way that we can facilitate national banks providing installment loans, lower rated, longer term loans, unsecured loans to their customers through the use of our online platform.

Henry Coffey – Stern Agee

Would that be with the card product combined or a direct deposit or you haven’t thought about it that far?

Daniel Feehan

Both. I think we can do it individually or combined. With the product I think the strategy and our goal is to have a broad set of products and give our customers opportunities to move in and out of products that best fit their needs and through channels that best fit their needs. I think the challenge for our marketing team is to find out and develop marketing strategies that clearly communicate that to people.

I don’t think we’re even close to that today, but I think we need to get to that point over the next year or two.


Your next question comes from Isabel Sterk – C.K. Cooper.

Isabel Sterk – C.K. Cooper

I wanted to make sure I understood what you said earlier. You said it was the same volume of refined gold as last year?

Daniel Feehan

Yes. When you look at the metric on refined gold you’ve got basically three components; the number of ounces you extract, and the cost per ounce and the settlement price per ounce to understand total profitability.

So my point in response to the question was that obviously our settlement price was higher as Tom indicated. Our cost was higher but volume was slower ramp, a slower slope to that ramp. But the number of ounces were about the same year over year so the point I was trying to make is that when you look at those numbers it wasn’t an activity of us trying to jam a bunch of additional volume of ounces in the fourth quarter to try to drive additional profitability.

That’s not how we manage our business and I came to our natural cycles that we manage on a store by store basis. So that’s the point I was trying to make. Same number of ounces.

Isabel Sterk – C.K. Cooper

When do you expect the profitability in the Australian and Canadian markets? Do you have an update on that?

Daniel Feehan

At this point our expectation is that the volume of advances written in revenue in both Australia and Canada will ramp slower than it did in the U.K. That was our expectation when we went in to those countries, and as a result I think it will take longer to reach profitability.

At this point we expect, and I think I mentioned this in my comments, perhaps in October. Australia and Canada to probably both continue for the full year in 2010 contribute losses and move into profitability in 2011.

I’m hopeful Australia will begin to show some profits perhaps towards the end of 2010. It really depends on how fast our new customer growth ramps there, but at this point we’ve got it modeled pretty conservatively.


There are no further questions. I’ll now turn the floor back to Mr. Feehan for any concluding remarks.

Daniel Feehan

Thanks everyone for attending the call today and we’ll look forward to visiting with you at the end of our first quarter.

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