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DFC Global Corp. (NASDAQ:DLLR)

F2Q 2014 (Qtr End 12/31/2013) Earnings Call

January 30, 2014, 5:00 PM ET

Executives

Garrett Edson - ICR

Jeffrey Weiss - Chairman of the Board and Chief Executive Officer

Randall Underwood - Executive Vice President and Chief Financial Officer

Analysts

Bill Carcache - Nomura

John Hecht - Stephens

Bob Ramsey - FBR

Daniel Furtado - Jefferies

Moshe Orenbuch - Credit Suisse

Brian Hogan - William Blair

Jeremy Taylor - JMP Securities

Bill Armstrong - CL King & Associates

Richard Lee - Post Advisory

Operator

Good day and welcome to the DFC Global Corporation second quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Garrett Edson of ICR. Please go ahead, sir.

Garrett Edson

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

Before we begin our conference call, I would like to remind you that 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 January 30, 2014; 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, gold prices and effective tax rates. Factors that could further affect results are outlined in the company's Annual Reports in Form 10-Qs and 10-Ks.

The company statements will include a discussion of adjusted EBITDA and diluted pro forma operating earnings per share, which are non-GAAP financial measures. A table reconciling adjusted EBITDA, pro forma income before income taxes and diluted pro forma operating earnings per share to GAAP basis income before income is included in the company's recent press release dated January 30, 2014, 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 business.

Jeffrey Weiss

Thank you, Garrett. Good afternoon, everybody, and thank you for joining today's call. During the fiscal second quarter, our global business generated $262.3 million of total revenue and $39.6 million of adjusted EBITDA. Both numbers below our expectations due to the ongoing regulatory transition in United Kingdom as well as the continued decline in the commodity price of gold and increasing weakness in the value of the Canadian dollar. I'll keep my remarks brief, so that we can be able to get to the Q&A portion of the call more quickly.

While the U.K. continues to affect our overall results, we remain optimistic about the potential for this market in the long-term. To that end, we acquired 15 stores in the U.K. during the quarter, predominantly in the greater London area, which mostly transact business in the form of foreign broking, foreign exchange, check cashing, money transfer and gold buying. Many of these stores are well-established in prime locations and providing excellent opportunity for us to bolt-on our unsecured short-term loan products as well as a number of other products and services.

Further, during the fiscal second quarter, we implemented a new mass media advertising campaigns for our Money Shop business in United Kingdom in order to further enhance brand recognition and reignite loan origination growth. With respect to this campaign, new unsecured loan customers in our U.K. store based business during the quarter increased approximately 20% as compared to the three months ended September 30, 2013.

Outside of the U.K. regulatory transition, our other geographies continue to perform well during the quarter. In Canada, total store and internet-based consumer lending, revenue increased by CAD1.7 million or 3.3% from the prior year period.

Total revenue for our Polish business, which encompasses our in-home lending business, multi-product stores and internet lending platforms increased by 28% or $1.5 million on a constant currency basis compared to the prior year period. Total revenue for our combined Spanish businesses was €2.1 million for the quarter, representing an increase of 37.7% from the prior year period, reflecting strong performance from both our store based and internet lending platforms.

We also announced that the December acquisition of Monte Caja Oro, a chain of 27 pawn lending and gold buying stores in the Andalusian and Catalonian regions of Spain, bringing our store counts in Spain to 58 and putting us well on the way to building a national multi-product, multi-channel brand.

With our current expansionary efforts in Spain, Poland, the Czech Republic and Romania, countries with a combined population of 117 million, nearly double that of the U.K., we believe continental Europe represents significant potential to drive top and bottomline growth for the company, while helping us to further diversify our geographic concentration and product portfolio.

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

Randall Underwood

Thank you, Jeff. For the fiscal 2014 second quarter, total consolidated revenue was $262.3 million, a decrease of 9.4% on a constant currency basis compared to the prior year period. Total unsecured consumer lending revenue, which was unfavorably impacted by the continuing regulatory transition in the United Kingdom, was $169.4 million, representing a decrease of 9.6% on a constant currency basis as compared to the prior year period.

On a sequential quarter basis compared to the fiscal 2014 first quarter, total revenue and total unsecured consumer lending revenue were down 1.6% and 2.5% on a constant currency basis, respectively.

Total revenue from pawn lending for the quarter was $24.9 million, an increase of 12% on a constant currency basis compared to the prior year period, due mainly to de novo store builds and acquisitions and partially offset by the unfavorable impact of a year-over-year decline in gold prices, in addition to very aggressive loan discounting practices by some of our competitors in the United Kingdom, in an apparent effort to increase their loan volumes in the phase of lower gold commodity prices, which we do not believe is a sustainable business model over the long-term.

The consolidated loan loss provision for unsecured loans, expressed as a percentage of gross consumer lending revenue, was 27% for the fiscal 2014 second quarter as compared to 27.8% for the three months ended September 30, 2013. The company's consolidated loan loss provision benefited in the fiscal second quarter from the application of CAD6.4 million dollars of unused customer credits from the Ontario class action settlement, applied against fully reserved consumer loan defaults. Excluding this settlement, the consolidated loan loss provision would have been 30.6%.

The loan loss provision for the quarter was unfavorably impacted by higher loan defaults in the United Kingdom, principally resulting from the continuing implementation of a three interest-only loan rollover limitation, in addition to voluntary modifications of the company's collection practices, which place additional limitations on the number and duration of electronic debit collection attempts to a customer's account. As a percentage of total unsecured loan originations or principal lent, the consolidated loan loss provision for the company for this quarter was 6.4%.

With respect to the company's operating earnings, excluding net non-operating and unusual charges for both periods, pro forma income before income taxes was $2.8 million for the fiscal 2014 second quarter. Considering a pro forma effective income tax rate from operations of 38%, diluted pro forma operating earnings per share was $0.04 for the fiscal 2014 second quarter.

With regard to the company's liquidity position, as of December 31, 2013, the company had drawn $30.7 million against its $180 million global revolving credit facility. Furthermore, the company had additional capacity on its combined operating country facilities in United Kingdom and in Scandinavia, and had about $54 million of investable cash on its balance sheet at December 31, 2013.

The company also repurchased approximately 728,000 shares of its common stock at an average share price of $11.77 during the three months ended December 31, 2013.

Last month the company terminated the cross-currency swap with its Canadian subsidiary, National Money Mart Company, had entered into in order to hedge the U.S. dollar exposure associated with its $600 million senior unsecured note. Based on the value of the Canadian dollar in relation to the U.S. dollar at the time of the termination, the company received net cash proceeds from the transaction of approximately $38.8 million.

The company used the proceeds to pay down outstanding balances under its global revolving credit facility. Following this transaction, the company will be required to mark-to-market the notional value of the note until it refinances them. The company had historically made similar mark-to-market translation adjustments on its financial statement for non-hedged portion of its long-term debt instrument. The termination of the swap agreement will also reduce the company's cash interest expense in current and in future periods that was associated with payments pertaining to the now unwound swap agreement.

With respect to our guidance for the current fiscal year ending June 30, 2014, given the slower than anticipated transition in the United Kingdom to specific regulatory requirements, which should establish an equal playing field amongst all competitors in the market in addition to leading out lenders that we believe currently operate well outside boundaries of what we believe is the appropriate treatment of consumers.

We are therefore reducing our guidance range for fiscal 2014 to adjusted EBITDA of between $170 million and $200 million as compared to our previous range of between $200 million and $240 million. This new range also considers recent unfavorable trends and the value of the Canadian dollar with respect to the U.S. currency.

In addition to the current decrease in gold commodity prices, which combined are having a significant effect on the company's reported earnings. Considering a pro forma effective income tax rate from operations of 38%, the company is now projecting diluted pro forma operating earnings per share, which excludes any non-operating and unusual charges, of between $0.35 and $0.80 for the 2014 fiscal year as compared to the company's previous guidance range of between $0.65 and $1.27 per share.

Now, I'd like to turn the call back over to Jeff for a few closing remarks, and then we will open up the call for questions.

Jeffrey Weiss

Thank you, Randy. While we are certainly not satisfied with our second quarter results, we still believe our company to setup to well succeed in the long-term. Our legacy businesses in the U.S. and Canada continue to generate solid profits, while we have just scratched the surface of potential opportunities in our new markets of Spain, Poland and Romania.

And while we will reserve comment on the regulatory environment in the U.K., until final regulations are promulgated, we would note that our company has been operating on the similar lending and collections restrictions for many years in both Canada and the U.S., which from our experience forces lenders to be a lot smarter about to whom the lend money. Business that states very good credit scoring and analytic capabilities and strong collection processes, which are areas we have been developing and refining for a number of years.

We fully expect our U.K business will reemerge at the end of this transition period, a much stronger business, operating in a clarified marketplace, that is even better positioned for success and meeting the needs of our customers. As always, I would like to thank our many dedicated employees around the world, who diligently service the needs of our customers everyday and our shareholders for their continuing support.

Operator, we are ready for questions from our listeners.

Question-and-Answer Session

Operator

(Operator Instructions) And we'll take our first question from Bill Carcache with Nomura.

Bill Carcache - Nomura

So you guys are pointing out the slower transition in the U.K. as a key driver behind the lowering of expectations, and then you don't really expect anything to happen until the FCA takes over. How confident are you in the speed at which the FCA is going to move? And I guess I'm just wondering, what's the risk that they could take a couple of years to act? Can you just give some perspective on that?

Jeffrey Weiss

I think, Bill, what we have said is that our loan experience and interacting with regulators both in the U.S. and Canada has I think given us the view that it's simply not prudent for us to comment anymore than we have when the regulatory process is being gone through. We know that the FCA takes responsibility April 1. We know that the U.K. has a national regime of enforcement unlike the province-by-province or state-by-state regime in the U.S. So we anticipate, when action is taken, it will be concerted and across the entire geography. Beyond that, I don't think it is prudent for us to comment.

Bill Carcache - Nomura

But I guess, I'm getting a lot of questions from investors, who are asking things like, how many quarters like this can they sustain before they go in violation of debt covenants. And so it kind of requires having a view on how fast or how quickly the FCA would act. I guess, so if you can't comment on that, could you perhaps give some perspective on where you stand with debt covenants and the risk of being in violation of covenants aside to the extent that the conditions that you're currently facing persist?

Randall Underwood

Well, first I'd remind everybody that we put in place the $180 million revolver this past summer, and adjusted all of our covenants and requirements, in fact and even reduced by our global banks in terms of magnitude to that point in time. And we're just not very concerned about revolving under our debt agreement out in the future, a year from now we would probably be taking a closer look. And I'll remind everybody we only have two covenants, one is the fixed charge ratio and one is the secured debt ratio. And we don't have that much secured debt. [multiple speakers] there's a lot of sleepover.

Bill Carcache - Nomura

That's something that you guys have been able to answer in the past. But one big question that is looming out there is, do you have any sense for what the industry revenue pool looks like after the FCA takes out the wrong players. And you guys keep referring to the market share gain opportunity, but I think the big question that people just keep asking is if the industries' revenue is cut by 70% by regulations, than perhaps having a larger share and then indeed gaining share of that much smaller pie, is that really that attractive? So perhaps can you just put some dimensions around that for us?

Jeffrey Weiss

We have seen no decline in consumer demand. In every geography in which we operate, the consumer demand exceeds the appetite of almost all providers to meet it. So the reduction of the revenue pool is simply not something that we are concerned about at the present time. We think that they will remain under any circumstances that we think are likely more than enough customers and probably significantly more, who than we wish to service, who will be available.

Bill Carcache - Nomura

Jeff, I don't think anyone would disagree that the demand is there, but I think what were the key focuses more or so with the supply side and regulators regulating that to the point where the profitability gets cut out, not because the demand goes away, but because it gets regulated to the point where it's less profitable.

And I guess I'll stop with maybe my last question being on, I was a bit surprised by the magnitude of the decrease in internet year-over-year, constant currency loan growth in continental Europe was actually worse than the U.K., and you attribute some of that to Finland. Can you comment on that to what degree that's going be something that is permanent? It sounds like there is a shift to longer-term lending products, but is that going to be enough to offset headwind from the change that's happening there and that's it? Thank you.

Randall Underwood

Let me take Finland, if we miss that multi-state question, I apologize. But on Finland our product as we developed and introduced over there, which is a longer-term product tied to a card is growing very, very nicely. And yes, we transitioned out of the traditional product that we had a year ago, but we're very pleased with the new product. In fact that product has a lot of capabilities in online, in terms of its design and in structure, if you take it into other markets in the future as well. So we consider it being tested at this point in Finland for likely rollout in terms of market.

One of the other questions was again about demand, and there is plenty of demand. We certainly well understand everybody's questions of when is the regulators going to establish whatever is a go-forward market, and we all look forward to the same conclusion. But we're not in charge of this process, obviously.

So various competitors have taken different approaches and we are all approaching it with apparently what we think is the proper approach, and some of this will probably be more right than others. And time will tell what the go-forward platform is. But I'll remind everybody that in market such as California and Florida, where we have low rollovers and we have lower rate structures, we have very high market share. That is not the way they used to be in those states until regulation came in place.

And once it came in place, and it was defined, then many competitors left the market seeking better and more profitable and more program. And our market share grew appreciably, and it has remained that way to to-date. And we'll see a change in those two space anytime soon. So we just got to weather the storm. Unfortunately, it's not pleasant weathering the storm, we all understand.

Operator

And we'll take our next question from John Hecht with Stephens.

John Hecht - Stephens

First question is it's still on the topic of credit. You've taken a hardened underwriting approach in U.K. for I think about nine months or maybe longer at this point, underwriting for the ability to repay and so forth, but the losses are still higher. And I'm wondering if you can dive into that a little bit? Is it on the collection side? Are the frequency rates still similar or growing? Why are losses higher if you've hardened underwriting standards? And what can you do on the various aspects of your business to start to control them?

Randall Underwood

Again, there is several points that I think are probably relevant there. One is, the proportion of the competitive marketplace that is working to further install their version of whether did they believe to be the proper product set in activities, in collections on a go-forward basis. I think collectively all of that is certainly putting more stress on a number of customers, who have overextended themselves with multiple loans. And from our standpoint with our voluntary restrictions and the use of continuous payment authority, which we believe many competitors have not done that, it's something not to the degree that we have, at places that's a competitive disadvantage. And that's a simple math thing.

Suppose that X amount in the bank account and somebody goes and dials 25 times a day for repayment, and some other competitor dials 10 times, and some other competitor dials five, those who are dialing into that account 25 times a day have a better likelihood of collecting or requesting some amount. So I will keep saying, we look forward to having definitive guidelines that will all be measured and help to operate our businesses by. Right now, that's still in a great deal of flux and dislocation.

John Hecht - Stephens

So based on our understanding, there should be some formulization in the next month of the rules and then I guess in the spring time some formulization of enforcement plans with some small great area where operators are able to kind of get up the curve. Is that within the absence of any other information? Is that the timeframe or do you think logically speaking we should be able to think that you're infrastructure progression starts to yield its benefits?

Jeffrey Weiss

Many have conjecture along the lines of what you have spoken, and it doesn't sound unreasonable to us.

John Hecht - Stephens

And then, it sounds like you're engaged in a greater marketing efforts, yield some of the benefits to the store last quarter, but not online. I wonder if you can talk about what's going on at the stores versus what's going on in the internet? And what that means kind of in intermediate future?

Randall Underwood

One, I think as we probably spoke to you I think on the last call, if my memory serves me correct. We implemented kind of our annual marketing program featuring our brand, The Money Shop, on television and other mediums in this quarter. And we remind everybody, The Money Shop is the brand we operate under for our 600-plus stores in the U.K.

The good news is, the marketing worked. Since we were marketing The Money Shop and we operate under other brands on the internet, there was not the same sort of lift in the market. But I think we were certainly pleased with seeing that once again the marketing process have bear fruit for us in our stores.

John Hecht - Stephens

Do you think or is it possible ever that some customers coming back to the physical store fronts as overall market disruption occurs or is it really just you're picking up on new customers?

Jeffrey Weiss

I think what we have seen is still extremely low overlap between the in-store customer and the internet customers. So in our marketing, I think it's fair to say that we're not seeing one of our internet customers, but we maybe seeing internet customers from some of our competitors who are for whatever reason, leaving that competitor.

I also pointed out that we have nearly 600 locations in the U.K. and we can give our borrower cash when they get their loan, which is something that an internet lender cannot do. And we can collect payment in-cash in the store, which is something an internet lender cannot do, so there is some advantage at this point in the cycle to having our physical presence.

John Hecht - Stephens

And then the last question, I wonder is, can you give us an update on the plans to reissue the high yield, better refinanced the debt, or is that just on hold until things stabilize in the market?

Randall Underwood

I think probably the prudent answer today is to remind everybody that we would drew our plans opportunistic, refinancing of our 2016 notes in November. And we expect to continue to be opportunistic on this matter in the future, but today we have no specific plans to enact.

Operator

We'll take our next question from Bob Ramsey with FBR.

Bob Ramsey - FBR

First question, I've got for you guys, you have talked about marketing success on the retail side and the 20% bump in new customers. When I look at the U.K. unsecured retail revenues, which you guys kind of break out, it looks like revenues actually were down on the store business modestly, but they were down slightly this quarter and you have been growing in the double-digits for a long time. I am just curiously is that a timing issue with the timing of the campaign or are there other factors or customers up and revenue per customers down?

Randall Underwood

Well, remember it's hard to get a match in this area, if I understand the question you're asking I believe. Remember that for those customers that we have put into the fall and therefore into a forbearance plans, the way we interpret the regulations is we are not allowed to charge them or strongly suggest that we should not charge them additional interest and other fees. Now we were doing that in the prior year's period. So in this year even though we're gaining new customers and adding quite a few that are paying us interest fees on a monthly basis for comparing against a non-comparable quarter, if you will last year.

Bob Ramsey - FBR

I am curious to I think previously your guidance had incorporated the provision, particularly in the U.K. beginning to normalize in the back half of this fiscal year. With your updated guidance, given that it had seen some of the problem that the FCA is not fully enforcing, continuous payment authority rules and so forth. And I guess it's not like to until they take over, and then you give them some time. Does that suggest that the provision, that what revenues remains elevated through this fiscal year?

Jeffrey Weiss

I think, yes, it's going continue to be elevated until they're all in an equal plain field and we or else everybody I guess more appropriately said is on the same patterns for collections. And I'll remind everybody we have our store-based collections to augment our online based activity as a continuous payment authority, which we think and continue to think will be a real benefit in the future as these online payment processes are likely restricted. But today we're still in the process, and as we said dollar competitive knowledge, some people still use that process much more so than we do, particularly those who do not have any traditional collection practices on soil in the U.K.

Bob Ramsey - FBR

So until everyone is collecting under the same rules, provision to fees is likely to stay in the high-20s, maybe even 30% where you were this quarter?

Jeffrey Weiss

Yes, I think we're probably in that range for the foreseeable future, probably the next quarter anyway, since the regulations are not going to go reportedly into effect that I prefer, so then it becomes a degree of enforcement thereafter.

Bob Ramsey - FBR

And then longer term, I am curious you have also mentioned in release that some of the issue relates to implementation of the free rollover loan limit. How much of that impact do you think is sort of shorter-term disruption in the market or maybe medium-term disruption in the market here? And how much do you think is that losses structurally will be higher because there was some pool of borrowers that could service their debt and so it didn't default. But when you put sort of a final deadline on that loan, but they can't, and so losses will structurally be higher with a rollover limit than they were previously.

Jeffrey Weiss

I think the best way to answer that is to point to our experience in North America, where there are no rollovers and our losses are significantly less than in the U.K., because the customer understood that they had to service their debt at the end of the debt period. In the U.K., there were literally several hundred providers, all of whom had widely varying practices. I think the customer was trained to believe that extension was a normal course of action.

And I think that making a claim to the customer that repayment in a specified term is a normal course of action is a process. It is a process that only works if it is generally hear to by all of the suppliers in the space. And right now, we don't believe many of the suppliers have that as a business principle. So our expectation is that losses were normalized as the customer understands that this is their obligation.

Now remember, when customers roll their loans over, they had to pay their fees, so they were not dishonoring their obligation. The change in circumstance that we have articulated and I am not sure how many others have is that that you are not permitted to do that beyond three times now.

And I think, as I mentioned, many, many others have variations that don't confirm to our so composed standard, among other things that places us with a disadvantage. But I think our customers are learning that this is the new, new and they are accommodating themselves to it. And I don't think there's a necessary correlation once the cycle has worked its way through to higher losses.

Operator

Our next question is from Daniel Furtado with Jefferies.

Daniel Furtado - Jefferies

Just a couple of questions. The first is, are there any additional operating changes that you have to implement from this point for the total cost of credit cap because it will affect next year?

Jeffrey Weiss

I think probably, what we were stressing to every call is, once more, there are no specific promulgated rules. There are only guidance principles, which are not specifically prescriptive. So thus far in the U.K. market, we are following a set of wholly self-imposed behaviors, which we believe have a value in many different ways, but they are self-imposed behaviors.

The presumption is, on April 1, when the FCA assumes it's regulatory charter they will then be engaged in specific rule making activities, which have taken into account comments from industry and others and continue to take into account comments from industry and others. And when a total course of credit cap is established, approximately 14 months ends, it will be as a consequence of a consultative interaction with interested parities, of course, including the industry. But that has not yet reached its conclusion. So as we sit here today, there are still no specific rules of the road that are guidelines, no more.

Daniel Furtado - Jefferies

I guess at the end of this year, I mean I understand the banking act of last year to indicate that there will be specific rules at the end of neat year, that's true, but just that we don't know what those specific rules are at this point in time, is what you're saying?

Jeffrey Weiss

That is correct.

Daniel Furtado - Jefferies

And then the other question. And I guess, the disconnect I have is this is, I get it that you guys have imposed these operating guidelines on yourself. And I think, one of the main things that you alluded in the press releases, the remover of the continuous payment authority, they're less aggressive used compared to others in the industry. And the way I look at it is, in essence removal of the continuous payment authority, it takes a lender from a senior position in the borrower's cash flow waterfall to a subordinated position in the cash flow waterfall.

And in that scenario, credit risk goes up. And so the response to that would be targeting an intrinsically higher credit quality consumer. If that's correct, maybe my presumption isn't incorrect, but if it is correct, I guess what the disconnect is, it feels like you guys would be targeting in essence that intrinsically higher credit quality borrower that would find your rates and your product more attractive than those players in the industry who are targeting the riskier, further deep in the credit spectrum borrowers, is there a dislocation in my thinking there.

Randall Underwood

No. But I think probably most lenders are doing there best to target that higher credit quality borrower to your point, to our scoring models, certainly that's the way ours work. So there is a lot of competition as you would expect for those better quality borrowers, which is probably true of all consumer lending of any sort, anywhere.

Jeffrey Weiss

And I think that also assumes that some suppliers in the marketplace have risen commissions that are as transparent as ours. And we are not sure that all do.

Operator

We'll take our next question from Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch - Credit Suisse

Maybe approaching, some of the questions have been asked before from a slowly different angle, could you talk about your adjusted EBITDA guidance and what's encompassed in that kind of over the next couple of quarters, and kind of where it leaves you at a run rate at the end of the fiscal year?

Jeffrey Weiss

Maybe this is a good time to point out a couple of things, I am sure it would be helpful to people and what that operates with a range, of course. As everybody is aware our very largest and best performing business in Canada is quoted in Canadian dollars, and for some reason I certainly can't understand the loonie is at about 1.12 to the dollar, as I stand here today. And that translation causes the big variants in terms of our reported earnings both for this quarter and past quarters and is a major component of how we reassess what our guidance should be for the balance of the year, assuming that we may not recover much off of that.

And that's in order of magnitude probably about a $6 million component over the decrease in the guidance in EBITDA that we've published today. And the other thing that's not working particularly well, as I'm sure everybody knows that follows the industry is the price of gold. Certainly, as we started the year we didn't think that we were going to be all the way down in the $1,200 category and remain basically in that level as we had over the last couple of quarters.

And so a major part of the decrease in our EBITDA guidance, in order of magnitude is probably about $10 million as the impact on gold that we buy and anticipate in our forecast we're going to continue to buy in future quarters, if the gold prices stays basically where it is. And certainly, the sales volume, as I know has hit all the pawn lenders has declined as well, good for consumer, they'll say, gosh, I can't get near as much for this loan and/or this ring, if I want to sell it as I could six months ago or 12 months ago, so what's wrong here.

So that certainly is the lender adjustment in our mind along with the -- remember the unrealized losses that were required under U.S. GAAP to book on our pawn portfolios that we hold at end of each quarter, that gets continued evaluate at low level compared to historical standards. And that order of magnitude, probably another $10 million decline in our guidance.

And balance I guess you could net together is the U.K. continuing to factor some of the things we've already talked about and some offsets and what we're doing with cutting some of our expenditures in light of this. So just now lot of not working in the right direction versus how we perceived in the start of the year, it's kind of dimension.

Moshe Orenbuch - Credit Suisse

And in terms of the impact of let's say the Canadian dollar or the price of gold, assuming it doesn't change, what will the impact be kind of post into fiscal 2015?

Randall Underwood

Let me first do it, I probably should have, but I think everybody probably does under that, but most of the things I just mentioned are non-cash and they are translation effects only. So it's not real often so to speak, but it's certainly reduced earnings on a translational basis. And how long it continues and to what magnitude, that was a great question, but we haven't begun to address fiscal '15 yet in terms of how we think the world will be.

Moshe Orenbuch - Credit Suisse

Just on another question, maybe you gave the answer to this, and I missed it, I apologize, but the other income line have been particularly weak or is there something going on in there?

Jeffrey Weiss

Other income line, I'll tell you what, why don't we look into that and after the call I'll give you an answer. But I think it's probably seasonal. It's usually what happens in the other revenue line. We've got a 10 or 12 categories in there. With those 10 or 12 products, I'm just not remembering what might have caused that.

Operator

Our next question is from Brian Hogan with William Blair.

Brian Hogan - William Blair

Actually a follow-up to this last question. As Merchant Cash Express that you sold during the quarter for a modest gain, were those revenues in the other line?

Randall Underwood

Historically, they were, so that could be part of it. I think you may have just hit the answer to Moshe's question, we appreciate. I know you're really close to our business and you just put it.

Bryan Hogan - William Blair

Why did you sell Merchant Cash Express, just curious?

Jeffrey Weiss

Even though we think that's a real business opportunity, it's a business that required a very significant outlay of cash over an extended period of time, and we just did not think that was the best use of capital for us at this point. Loans were additionally much, much larger than the loans we make in general and the term is much longer.

Randall Underwood

We were not dissatisfied with the product or the performance, so we have not ruled it out for the future.

Jeffrey Weiss

And someone came along and made an attractive offer.

Bryan Hogan - William Blair

I guess about that putting the capital to work, talking about your acquisition pipeline. I mean you have made an acquisition in Spain, which could have been nice if you made an acquisition around the London area, some pawn stores?

Jeffrey Weiss

We have a robust acquisition pipeline. But generally speaking, given the market uncertainties that we're preceding in the U.K. and in the price of gold, we are preceding probably more cautiously and deliberatively than we have in the past.

Randall Underwood

But we do have a pretty robust pipeline that we choose to action against that throughout several other countries in Europe that we already do business in and several other countries as well.

Jeffrey Weiss

In different channels, but I think we're being more deliberative and taking a longer time than is customers for us at this point.

Bryan Hogan - William Blair

Advertising, obviously you said you had a nice advertising campaign in the quarter. Do you expect advertising spend to continue at elevated levels or is it just a one-time campaign?

Jeffrey Weiss

I think we have seen the effectiveness of the campaign, and we think it is an intelligent application of capital. So I think you can expect to see us engaging more in advertising. We've always found advertising efficacious. But I think as we've mentioned on prior calls, the climate in the U.K. even for advertising is quite complex now, and trying to figure out what we deemed appropriate and inappropriate advertising has become extremely complicated and politicized. So we are treading cautiously there as well.

Bryan Hogan - William Blair

Other expenses, they were up sequentially and year-over-year have flared up, definitely more than we expected. Is there anything to call out there? Is it one-time or is it kind of a run rate basis?

Randall Underwood

There was $7.8 million unrealized loss on our gold pawn portfolio, what we refer to as a pawn provision that occurred in that quarter. And that was about, my math here, that was about $5.5 million more than in the first quarter. So that would be your principal increase, would be that pawn provision, again unrealized loss based on gold pricing. And we also had some attorney's fees and other cost related to our debt financing that we did not go forward with that occurred in that quarter and we expense those as well. It was about $2 million for that.

Bryan Hogan - William Blair

A question on Canada, it's a very profitable business for you. I'm just kind of curious why is I mean it only kind of grew 3.3% on a constant currency basis? Why you didn't grow stronger in Canada? Is it population?

Jeffrey Weiss

There were only 32 million Canadian. So I guess is the long and short answer.

Randall Underwood

If it were the only business we had, we'd probably have a lot more focus on it. But we've got a lot of focus in the U.K. right now and it probably gets a little bit of short stressed. So some of that maybe self-imposed, I would suggest versus opportunity.

Jeffrey Weiss

We think there is more organic growth there. But as Randy said, we are preoccupied with other matters at the present time.

Bryan Hogan - William Blair

And then from what I understand there is a review of rates in Ontario. Can you speak to what's going on in Ontario on the rate side?

Jeffrey Weiss

Well, really, in all the provinces there are many of them, let's say, over the next year or so and actually over the last year, province-by-province they've been going through review, which they all indicated when they put in place regulation. They would do that after three or four years, just to see how things were working. And if they were working successfully, couple of the provinces have already gone through that and not made any changes upon their review. And Ontario was one of the latter provinces or kind of in the middle of the group to come in with regulation. So it's time for them to go through their review.

It seems like most of their activity thus far and they've already promulgated, part of this is new interpretation or clarification I should say as opposed to interpretation, of what is appropriate for what [indiscernible] referred to as line of credit products that one or more of our competitors using Ontario. We do not have that product. So that's changes in that particular clarification that we introduced about 30 days ago, as I remember, maybe 45. It doesn't have any applicability to DFC Global.

Bryan Hogan - William Blair

And then one last question on continuous regulatory changes, there is some action, there is some talk in Poland, can you comment on any regulatory changes there?

Randall Underwood

Little bit the same like Canada. Poland went through the regulatory process several years ago. And they are going back through kind of an update on the review based on different products that have come into that marketplace beyond what originally was primarily the doorstep lending model, which you remember was primarily and still is our lending model and we entered their several years ago through an acquisition, but they're going through an update. And they are reviewing now the additional products that have come into that marketplace.

Operator

Our next question is from David Scharf with JMP Securities.

Jeremy Taylor - JMP Securities

This is Jeremy actually in for David. Most of my questions have been kind of asked and answered, but we hear a lot on the kind of regulatory-front, I'm talking about affordability for customers, but we're hoping maybe you could just give us a few specifics on that, what you currently do or what maybe some of the expectations are going forward for that?

Randall Underwood

Like all lenders, it's proven to do an affordability assessment to the best that you can with the materials and information available to you. And we do that in all the markets that we business in and always have. And honestly the excess to information varies country-by-country and market-to-market and customer-by-customer. So I am not sure I understand your question.

Jeremy Taylor - JMP Securities

I mean I know there are some states in the U.S. that can have databases and things like that and share information, do you feel there is a push towards that in other markets?

Randall Underwood

You know as we said, we don't think its prudent to comment on or the deliberations of regulators or regulatory bodies at this point.

Operator

We'll take our next question from Bill Armstrong with CL King & Associates.

Bill Armstrong - CL King & Associates

Our understanding of the U.K. Banking Reform Act was that they are promulgating a limit of two rollovers and also two chances at electronic debiting under continuous payment authority, and then how to impose a cost of credit cap at some point between now and next January. So are you saying that that's not necessarily the case and that these rules maybe different or they're completely different rules that we don't even have had a signal about yet?

Randall Underwood

Let me say it again. What you're referring to my knowledge is that there was put out for commentary, kind of in the late November and month of December for all interested parties to add commentary and their thoughts and opinions on a potential limitation of two rollovers and a potential limitation of continues payment authority use for two.

Government has indicated that they will take all of the commentary responses that they have received. They will deliberate and at some point here in the future, they will give us a clarified view point, considering the input they've received from all interested parties. And we await that additional information just like everybody else at this point in time.

Bill Armstrong - CL King & Associates

Is there a deadline for that for them to make that determination?

Randall Underwood

Not that I am aware of. I guess when they believe that they've synthesized in part through all the input and done their own analysis on it, they will give us an update. And they usually probably shows updates on their website, some times on a daily basis things get added and our government relations people follow that judiciously, and I haven't heard a man that there is any update at this point in time. If there was, I think I would have heard.

Bill Armstrong - CL King & Associates

And then on the U.K. markets, your ad campaigns, in light of continued uncertainties with what regulations are going to be and what you mentioned as more complex advertising environment. I just want to clarify sir, are you going to scale back on that advertising campaign in the U.K. then. Is that what I understood you said before?

Jeffrey Weiss

Now, I think what we've said it's just become a significantly more complex environment in which we advertise. And we are alert to that and that apart from being advertising as results driven generally, but contending with this complex climate as another level of complexity to your analysis of the efficacy of the advertising, so we continue to look at that very closely.

Operator

We'll take our last question from Richard Lee with Post Advisory.

Richard Lee - Post Advisory

Someone just sort of reconciled, you said the demand in the U.K. is still there and fairly strong and yet U.K.'s revenues were down 25% online. Is it fair to say that you guy are sort of self-imposing your underwriting in originations for the people you feel best are going to be able to pay you back. And stuff telling under questions like what basically are you guys waiting for in terms of where you feel comfortable pushing up more origination?

Jeffrey Weiss

Certainly, what we are waiting anxiously for is as we've said several times on this call, definitive regulations from the government and definitive guidelines on disclosures on such things as advertising, that we can then to the extent we may need to make adjustments to both our advertising as well as our credit rating, as well as our collection practices, as well as affordability assessments, and all the things that we've talked about on this call.

But again, we'll say one more time, the problem that we all are confronted with and as many competitors are handling this differently than us is there are no, there are zero definitive guidelines on what is reasonable in most of the areas concerning lending, affordability assessment, collection activities, collection veracity, et cetera, in the U.K.

So every company is making its own decisions, and I will suggest to you in environment like that customers are very confused, because they hear different definitions and promulgations from various lenders in terms of what is within the boundaries of the law and is not within the boundaries of the law. And it's just a very confused market.

Randall Underwood

And many different products are called by the same name and many collection activities are very different and called by the same name. And it's a very, very fluid complex environment.

Jeffrey Weiss

And they majorly look forward to as soon as possible to have clarification that we not only can visit with all of our shareholders, all of our debtholders and our analyst with, and know that effective enforcement will put us all in the level plain field and then clear up the confusion in our customers and the competitive marketplace that's existed now for some time and system it.

Richard Lee - Post Advisory

And so does that also effect when you maybe also settling out longer-dated installment loans?

Jeffrey Weiss

Yes, it does, because there are many flavors of installment loans in the marketplace based upon our competitive shops. And what we do know is the government came out and made a publication a while back that suggested that a payday loan with any loan that was generally less than one year in duration and generally less than a £1,000 in principal irrespective of what it was called, if it carried a high rate of interest. So once again, we don't know what an appropriate installment loan is in the government's mind.

Richard Lee - Post Advisory

And then, I apologize, can you walk us through the bridge again from the lower guidance, if it's the midpoint of the previous $220 million, now $185 million, a $35 million difference there. I know you walked through the different buckets. It was $6 million from the loan, $10 million from gold. I think I lost track of the other buckets?

Randall Underwood

Then basically about another $9 million to $10 million on reduced gold loan volume, which is largely attributable to the lower pricing and customer thinking it's just not an attractive product to loan on as it was say a year ago. That's a little more or maybe a less in terms how you determine that. That first two are just pure translational amounts.

Richard Lee - Post Advisory

And then another $10 million from just lower lending revenues?

Jeffrey Weiss

It's kind of a puts and takes in there. I said lower lending revenue offset by some cost reductions in the U.K., would may have given lesser loan volumes.

Richard Lee - Post Advisory

And then just my final question is you said the midpoint of your guidance, leverage is going to creep up almost to 6x. You've got a new authorization stock buyback. Can you just give some thoughts on your capital allocation, your $54 million investable cash? What your thoughts on that cash? Would you possibly consider de-levering and buying back some of your debt?

Randall Underwood

Well, we really are examining how much cash we want to retain just kind for a rainy day, given the uncertain environment. And we've always, as you know, Richard, been bondholder for a long time and judiciously kept $50 million to $75 million of cash around for a rainy day or an opportunity, such as an acquisition that needs to be closed quickly.

We're trying to balance the purchase of shares, which is certainly what our shareholders would like. I like that too, because that's what made me shareholder, as is Jeff. And executing on that remaining share authorization along with the balance sheet against opportunities for other uses of cash as you mentioned, including acquisitions and investments in our global regulatory compliance program.

So as just we have said on prior calls, is it's been an incremental investment for us and quite a magnitude. While continuing to view that the healthy liquidity position that we think we have has given the leverage that you articulate, as a significant asset of the company given our revolving marketplace, so trying to do a little bit of everything.

As I said earlier, we still view that refinancing of the higher rate debt, is an opportunity for us. But again, we have no plans to announce at this point in time. The balance of our debt carries pretty low coupons as 2.78% to 3%. And just on an economic basis for the company paying down 5% revolver makes more sense then buying 2.78% and 3% coupon convertible securities.

Operator

And at this time there are no further questions.

Jeffrey Weiss

Thank you, operator.

Operator

Thank you for your participation. This does conclude today's call.

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