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Cash America International (NYSE:CSH)

Q2 2014 Earnings Call

July 24, 2014 8:00 am ET

Executives

Daniel R. Feehan - Chief Executive Officer, President and Director

Thomas A. Bessant - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

David A. Fisher - Chief Executive Officer of The E-Commerce Division and Chief Executive Officer of Enova Financial

Analysts

John J. Rowan - Sidoti & Company, LLC

Bob Ramsey - FBR Capital Markets & Co., Research Division

William R. Armstrong - CL King & Associates, Inc., Research Division

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

David M. Scharf - JMP Securities LLC, Research Division

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, July 24, 2014.

I would now like to turn the conference over to Dan Feehan, President and Chief Executive Officer. Please go ahead, sir.

Daniel R. Feehan

Thank you. Good morning, ladies and gentlemen, and welcome to our earnings call for the second quarter of 2014.

We've decided to establish a new protocol for our quarterly earnings call by expanding our traditional presenters beyond the pair of myself and our Chief Financial Officer, Tom Bessant, to now include David Fisher, the CEO of our wholly owned subsidiary Enova International, Inc. Our plan for the call this morning is to begin with Tom's standard financial report on Q2 results. I will then provide a brief commentary on the performance of Cash America's retail services segment; followed by David, who will share his thoughts on Enova, which as you know comprises our e-commerce segment. I will then close the presentation portion of this call with an update on our evaluation of strategic alternatives for the potential separation of Enova, which we first discussed in our Q1 Earnings Call in late April of this year. All three of us will remain on the call to field questions following the presentations.

Before we begin with our comments, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on current expectation. Actual results and events could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties, which are discussed in our SEC filings and in the cautionary statement on our website, under Investor Relations. We assume no obligation to update our 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 available on the Investor Relations section of our website at www.cashamerica.com. Non-GAAP financial information is not meant as a substitute for GAAP results but is included solely for informational and comparative purposes.

Now with that out of the way, I'd like to turn the call over to Tom for our Q2 financial review.

Thomas A. Bessant

Thanks, Dan.

As our press release from this morning indicates, Cash America's second quarter financial results exceeded our initial expectations for the quarter based on continued strong momentum from our unsecured products in the United States and United Kingdom, including the lower loss rates in those markets. In addition, the company's secured lending activities conducted through our bricks-and-mortar locations continued to make strides to overcome the obstacles we've discussed in prior quarters and posted results which were better than expectations, contributing to the quarterly results.

For the second quarter ended June 30, 2014, Cash America posted an 11% increase in total revenue, a 13% increase in net revenue and a 25% increase in consolidated operating income compared to the prior year second quarter. Earnings per share were negatively impacted by $15 million of unusual expense items related to the early extinguishment of debt, which caused reported earnings per share to be down 12% to $0.72 per share. However, the $15 million in debt extinguishment cost equals $0.32 per share after taxes, and adding that amount back to the reported $0.72 per share provides an adjusted earnings per share for the second quarter of 2014 of $1.04 per share, which is up 28% from $0.81 per share for the second quarter of 2013. In addition, the $1.04 per share is well above management's expectations for the second quarter, which were between $0.85 and $0.95 per share.

The extinguishment-of-debt costs are associated with the early repayment of long-term notes following receipt of proceeds from a $500 million bond offering completed by the company's e-commerce business which closed on May 30, 2014. The $500 million bond was issued as a coupon rate which is in excess of the company's average borrowing rate, which was used in our previously published second quarter guidance. We estimate this additional 1 month of interest cost was approximately $0.04 per share, but it is not included in the $0.32 per share of early extinguishment-of-debt costs previously mentioned.

As expected, a large part of the performance in the second quarter was driven by the continued success of the company's e-commerce segment, which provides single pay multi-period installment loans and lines of credit on an unsecured basis to its customers. The e-commerce segment continued to post improving year-over-year loss rates, which declined to 33% of fees compared to 39.9% in the prior year, allowing the business to take a 14% increase in total revenue and turn it into a 27% increase in net revenue, which reached $134.6 million compared to $106 million in the prior year.

Further efficiencies in operations led to a 60% increase in operating income, which reached $58.1 million for the second quarter ended June 2014, as marginal profitability continues to improve nicely.

Of particular note in the second quarter is the continued strong performance of the company's domestic online business, which posted a 24% year-over-year increase in total revenue in the second quarter, following on a 20% sequential increase from the first quarter total revenue. The domestic business continues to see healthy growth in lending assets, particularly the installment loan business which finished the quarter with gross loan balances of $100 million, up 125% from $44 million in the second quarter of 2013. The domestic line of credit business also continues to grow, finishing the quarter up 36% in lending assets to $64.5 million. And the single pay product continues to moderate and was down 2% in the U.S. business.

In addition to the top line revenue growth from the increase in the installment loan and line of credit asset balances, the overall domestic losses as a percentage of fees dropped to 35.6% compared to 38.1% in the prior year, converting a 24% increase in total domestic e-commerce revenue into a 29% increase in net revenue and driving a 40% increase in domestic e-commerce operating income, which reached $42.2 million compared to $30.2 million in the second quarter of 2013.

The performance in the second quarter of 2014 complements an operating income increase of 47% posted in the first quarter for domestic e-commerce business, pushing the first half of the year operating income up 44%, underscoring the strength of the U.S. online business largely due to success with the installment loan and line of credit products, which David will describe in more detail a bit later.

The overseas component of the e-commerce business reported total revenue increase of 5% due primarily to changes in our products and underwriting practices. Offsetting the more subdued growth in total revenue is a significant strengthening in the performance of the portfolio, as losses as a percentage of fees were 30.3% in the second quarter of 2014 compared to 41.7% in the second quarter of 2013, which turned the 5% increase in total revenue into a 25% increase in net revenue which reached $64.6 million for the second quarter of 2014. Lower operating costs, particularly on the marketing side, of the foreign business generated a 64% increase in income from operations from foreign unsecured lending activities, which reached $40 million compared to $24.4 million in the prior year.

So in summary, a very solid first half of 2014 for the overall e-commerce business, producing higher marginal profitability due to lower loan loss rates on increased overall asset levels based on diversification of products, including the installment loan and line of credit business, to complement the existing single pay product.

Now moving over to the secured lending business of Cash America, which is operated in our 869 lending locations throughout the United States and 47 locations in Mexico. We were particularly pleased with the improvement in business metrics during the second quarter, which was our primary focus as we had forecasted that operating income in the first half of the year will be much lower due to the absence of higher gold prices, which existed throughout the first half of 2013 and provided incremental gross profit in the prior year.

One of the most valuable metrics to emerge out of the second quarter secured lending business is that U.S. pawn loans, which finished the quarter up 4.5% on a same-store basis, in addition to being up 15% for all stores, finishing the quarter at $263.7 million. Achieving same-store year-over-year growth in the U.S. pawn loan balance has been an important goal for the company. However, our expectation was to reach this level in the third quarter of 2014, so we're pleased to have posted a meaningful increase in same-store pawn loan balances as of June 2014. And Dan will provide his insights and thoughts on this shortly.

On the strength of the higher pawn loan balances, the retail lending services segment posted a 3% increase in net revenue, reflecting the first increase in net revenue for this segment since the second quarter of 2012. As you know, year-over-year higher service charges on pawn loans alone has not been adequate to offset the year-over-year decrease in aggregate gross profit due to materially lower liquidation of proceeds from gold. However, as previously discussed, the company has emphasized retail disposition activities in stores to overcome this shortfall. During the second quarter of 2014, the retail lending services business posted a 31% increase in retail sales within its store locations, which generated a 16% increase in gross profit from retail sales, excluding scrap gold. This increase in retail gross profit within the store locations is made possible by the higher levels of inventory balances we're carrying in stores and aggressive discounting in retail merchandise, which led to a gross profit margin on retail sales of 32.8% in the second quarter of 2014, down from 37.2% in the second quarter of 2013, but it's only slightly lower sequentially than the 34% retail gross profit margin posted in the first quarter of 2014.

However, the important component is the total gross profit, which includes both commercial sales activities of gold. And gross profit from retail disposition in storefronts was down only $300,000 in the second quarter as the in-store activities virtually eliminated a 61% decrease in gross profit from commercial sales due to higher gold prices, which benefited the prior year results. Furthermore, commercial sales of gold and diamonds amounted only 8.5% of total gross profit dollars in Q2 of 2014 compared to almost 22% in Q2 2013, illustrating both the transitional way from the reliance on this form of disposition and its much less significance and role going forward.

Notwithstanding the strong performance of retail sales and service charges, same-store net revenue for the domestic retail business was down 3.5%, although this is significantly better than the down 10% sequentially experienced in the first quarter of 2014. Excluding the impact of commercial sales of gold, same-store net revenue in the company's U.S. business would have been up 1.1% during the second quarter of 2014 compared to the prior year. I would also point out this includes a negative year-over-year comparison in net consumer loan fees in the retail services business due primarily to the closing of 46 locations in 2013 and less emphasis on this business activity in our storefronts as we focused our efforts on our secured loan customers.

Operating income for the retail services business was $26.9 million in the second quarter of 2014, down 23% compared to the prior year. However, the better-than-expected performance in net revenue reduced the anticipated year-over-year decrease in retail services operating income which existed in our expectations for the quarter. Of course, the $8.3 million decrease in retail lending services operating income was easily offset by the $21.7 million increase in operating income from the e-commerce segment, allowing the company to post a consolidated 25% increase in income from operations in the second quarter of 2014 compared to prior year.

So in summary, the second quarter results highlights include material expansion of marginal profitability of the e-commerce segment and a return to positive year-over-year metrics for the retail lending services segment.

Now as we look at the back half of 2014, it's important to understand that the $500 million bond offering completed by our e-commerce business Enova in May of 2014 will contribute to a negative interest arbitrage of $0.13 per quarter or $0.26 for the 6 months remaining in 2014. We believe the retail lending services business is on track to have a good second half of the year as the comparisons to high gold prices have now anniversary-ed and pawn loan balances have rebounded. Unfortunately, we anticipate lower levels of revenue coming from our foreign e-commerce business due to a variety of changes in products, which will taper the growth of the consolidated business in the back half of 2014. Some of these changes can be seen in the decrease in aggregate unsecured foreign consumer loan balances as of the end of the second quarter, which are now 12.6% lower than the prior year finishing Q2 of 2014 at $165 million after being up 10.6% at the end of Q1 of 2014 compared to the prior year.

As a result, we have not increased our full year guidance to accommodate the higher level of performance in the first half of 2014 due to the incremental interest expense and uncertainty in the foreign e-commerce business in the second half of 2014. Likewise, for the third quarter of 2014, including the $0.13 per share of negative interest variance related to the Enova bond, we expect the third quarter to be between $0.70 and $0.80 per share compared to $1.52 per share in the third quarter of 2013. You may remember that the third quarter of 2013 included 2 unusual items: a tax credit of $1.09 per share related to the close-down of majority of our Mexico-based pawnshops in late 2012, which was completed in the first quarter of 2013; and a charge of $0.37 per share related to settlement of litigation, creating a net credit of $0.72 per share, which means that the adjusted earnings per share in the 2013 third quarter was $0.80, which compares to the expected range for Q3 of 2014 of between $0.70 and $0.80 per share. In addition, I'd remind you that fourth quarter of 2013 included a charge of $0.06 related to regulatory fines during that period.

Management expects its fiscal year 2014 earnings per share to be in a range of between $4.20 and $4.40 per share. This guidance range compares to actual full year 2013 earnings per share of $4.66, which includes a tax benefit related to the Mexico pawn business of $1.09 per share which was offset by unusual items of $0.47 per share related to the litigation settlement during the third quarter of 2013, the closure of consumer lending locations, a regulatory penalty and an adjustment to remaining expected liability for the voluntary refunding to customers in Ohio and expenses for the early extinguishment of debt. Combining these amounts generates a net benefit of unusual items in 2013 of $18.8 million or $0.62 per share.

So adjusting for the full year effects of the net benefit in 2013 would result in an adjusted net income attributable to the company, which is of course a non-GAAP measure, of $123.7 million or $4.04 per share.

And now with that, I'll turn it back over to Dan.

Daniel R. Feehan

Thanks, Tom.

Again, as I indicated at the outset of the call, I'll provide some commentary on our retail services segment this quarter. And I'm going to limit my comments on this segment to our U.S.-based business, which account for almost 98% of the revenues in that segment and all of the operating income here in the quarter.

Clearly, I continue to be encouraged by the operating results of our U.S. storefront business here in Q2. Those results really expand the positive momentum I first referenced in the fourth quarter of last year, which carried over into what I'd viewed as a successful first quarter and now again here in Q2. And I believe the positive momentum that we've got underway now in our retail business here in the U.S. stems from 2 items. First and probably most importantly is the strengthening of consumer confidence of the demographic segment of the population we serve in our shops. Again, I think our customers are feeling better about the economic world they live in and seem to be more active in our shops both at the loan counter and at the retail counter. And then the second item is the impact of operational changes that we began implementing in our U.S. business here in the fourth quarter of last year.

I've got 5 key takeaways when I look at the performance of our domestic locations in the second quarter. First is really good, strong pawn loan growth, which we haven't seen in a while. Second is the continued transition of our collateral and inventory mix from jewelry to general merchandise. Third would be strong over-the-counter retail sales that we experienced, albeit at lower margins. Fourth item would be our good discipline on control of store operating expenses. And finally, I'll note that this second quarter of 2014 should be the final quarter of very difficult year-over-year comps on profits from the sale of scrap gold.

As Tom mentioned in his financial report, same-store domestic pawn loan balances at the end of the quarter were up 4.5%, which is the first positive year-over-year quarterly comp that we've posted since the second quarter of 2012. This has been quite a long time. And I think you all recognize that this is a very powerful metric, as it forms the foundation for all future organic growth in our pawnshop business.

The entire industry, the entire pawnshop industry, in the U.S. has been in transition for the past 2.5 years. The jewelry and scrap gold components of our business peaked in the fourth quarter of 2011 following an unprecedented multiyear run-up in the spot price of gold. Since then, Cash America, along with others in the industry, have been transitioning our business models back to the traditional mix of jewelry and general merchandise-based assets. In the fourth quarter of 2011, the jewelry component of our collateral base peaked at almost 73%. At the end of this second quarter of 2014, jewelry accounts for approximately 60% of our asset base, which is closer to the traditional mix we experienced prior to 2009.

This quarter performance also yielded the largest same-store year-over-year retail sales growth in over 2 years. This has pressed that the same-store sales increase of 17% did not come without the expense of growth profit margin, which fell about 350 basis points on a year-over-year basis, but I'm quite okay with the -- that exchange since we've been pushing hard to sell as much jewelry as possible over the counter and resist the temptation of managing our inventories through the commercial scrap gold market. Aggressive promotion of retail sales over the counter is a key operational muscle we allowed to atrophy during the gold rush years. This discipline is a reeducation for me, of our tenured managers and a new education for most of those managers who have joined us in the last 5 years. And we're getting better at this scale each month, and our goal is to maintain aggressive sales goals for our team while strengthening retail margins at every opportunity.

As I mentioned, the second quarter of 2014 marks the -- hopefully marks the last quarter of difficult year-over-year commercial growth profit comparisons that have really hamstrung our opportunities to post same-store year-over-year operating income growth in our U.S. pawnshop for the past 9 quarters. That year-over-year shortfall in profit from commercial sales in the second quarter was approximately $5.7 million, following a shortfall in the first quarter of this year of approximately $13 million.

In the second half of last year, second half of 2013, we earned approximately $8.5 million on the profit from the sale of commercial merchandise. We should come very close to that figure in the second half of 2014, absent any unforeseen large drop in the spot price of gold.

I'd also like to congratulate our field team members on their tight control of field operating expenses in 2014. We've implemented a number of operational initiatives, and our transaction counts are up nicely year-over-year. We have managed this increased activity so far without significant additions to our field headcount. Anticipated additional transaction growth in future periods, however, will likely require a little extra manpower in the back half of this year. Finally, I should note that we have been reluctant to add many new units to our domestic base as we continue to refine our operating initiatives and complete the integration of the large acquisitions made in the latter half of 2013. On a year-to-date basis through June 30, we've added 5 new units. We've closed 5 to end the quarter and the 6-month period at the same domestic store count of 869 shops that we started the year with.

Now I'll have a few other comments on our retail services segment, so my closing comments, but now I'd like to turn it over to David Fisher, who will comment on the e-commerce segment.

David A. Fisher

Thanks, Dan. And good morning, everyone. I'm happy to be able to participate in my first earnings conference call for Cash America. It's been about 2 years since I led my last earnings calls for optionsXpress, right before we completed the sale of that business to Schwab. For the last 18 months, I've been in the enviable position of being able to lead Enova, the e-commerce segment of Cash America, which has a long history of successful growth and profitability. That certainly continued in the second quarter of this year.

Q2 wraps up a strong first half of the year for Enova. As Tom mentioned, for the quarter, Enova's operating income was $58.1 million, 60% above last year. This strong earnings growth was driven by a combination of top line revenue growth, better loan performance and modest expense growth. The increase in revenue year-over-year was driven primarily by increased draw activity in our U.S. line of credit products as well as nice growth in NetCredit, our U.S. near-prime product which we launched in late 2012. We've also seen strong conversion to Flex Credit, our line of credit product in the U.K. which we launched about a year ago.

The line of credit products are now the largest revenue driver for us in both the U.S. and the U.K. as we continue our efforts to diversify our revenue base and shift away from the short-term single pay products where we are able. In fact, during the quarter, short-term single pay products represented less than 35% of revenue and less than 25% of our combined consumer loan balance.

Net revenue for the quarter increased by $28.6 million. And we saw a 660 basis point decrease in consumer loan loss provision as a percent of revenue from stronger performance in all our material loan products. This led to lower delinquencies and reserve rates for the quarter. We believe a number of factors were behind the stronger performance, including a higher percentage of the better-performing returning customers, continued improvements in our underwriting models, the natural improvement from the seasoning of our installment loan and line of credit portfolios and possibly strengthening consumer sentiments leading to higher propensity to repay.

In addition, we have made a number of changes to our products in the U.K. as we have conformed these products to the new regulatory rulebook. The effect of many of these changes results in more loans we make to borrowers who have a higher likelihood of being able to repay their loans. I will go into this in more detail in a minute.

Finally, expenses grew just 11% in the quarter, evidencing the operating leverage inherent in our online model.

As I mentioned a moment ago, short-term single pay products are now a minority of both our revenue and consumer loan balance portfolio. This has been a concerted effort and part of our long-term strategy of diversification, which we defined shortly after I joined Enova. Our objective is to expand our product offerings and geographic reach with the goal of generating additional growth as well as reducing regulatory risk by limiting exposure to any one product and any one regulator. And in addition to diversifying our offering away from the focus on short-term single pay products in favor of line of credit and installment loans, over the last year, we have built an attractive pipeline of new product initiatives, and 2 of these launched during the quarter. In the U.K., we launched a new brand called On Stride, and their first product offering is an installment loan focused on near-prime customers. On Stride loans are between GBP 1,000 and GBP 5,000 with an average APR of around 50% and a term of 3 to 5 years.

Our second new initiative to launch during the quarter was Brazil. In June, we began a pilot of a fully online short-term loan there. The product is a 75- to 105-day installment loan with an average APR of around 200%. Loan amounts are between BRL 300 and BRL 500 for new customers, which is about $150 to $250.

In the third quarter this year, we intend to launch 2 additional products. The first is an online lending product in China, and the second is a small business line of credit in the U.S.

We're able to roll out these initiatives at such a rapid pace by leveraging our existing scalable online platforms. Importantly, we take a very measured approach when launching these new initiatives. In each case, we start with a defined limited-scope pilot with a manageable investment. The purpose of the pilot is to capture data, which we then analyze at the end of the pilot to determine if we think there's an opportunity to move forward. If so, we launch the second phase of the pilot with revised analytics and product offering based on the data collected during the first phase. Only after we see positive results do we ramp up our lending in a material way.

I would now like to spend a minute talking about the recent regulatory developments. In the U.S., while much has been written about potential CFPB rulemaking later this year, we have no real clarity on when rules might be issued and exactly what they might contain. By law, the CFPB is not able to impose pricing restrictions or rate caps, so we don't have much additional visibility as to the substance or timing of the rules.

Turning to the U.K. As many of you are aware, our regulator there, the Financial Conduct Authority or FCA, published a rulebook this past winter. As Dan discussed in the call last quarter, many of those rules became effective April 1. One of the main rules that became effective July 1 is a limit on our use of continuous payment authority to debit customers' accounts. Under the new rule, we are only allowed 2 attempts when a debit fails due to lack of funds. We've been testing this change for the last several months and fully implemented it prior to the July 1 deadline. This change will likely result in slightly higher default rates in the U.K., but we believe we can offset much of that impact through additional collection efforts.

The other significant rules become effective July 1 was a limit on the number of times we can expand a loan to 2. We made this change over a year ago and found very little impact due to a combination of effective underwriting and not being as aggressive with the number of extensions we made prior to the change.

Since the new rulebook in the U.K. became effective April 1, we've had frequent communication with the FCA and made additional changes to our U.K. products to ensure that they're complying with the FCA's interpretation of the new rules. In particular, we have made numerous changes to our affordability assessment and forbearance policies. As a result of all these changes, we will likely see lower volumes and asset levels in our U.K. business in the back half of 2014.

We've also been working with the FCA regarding the regulatory requirement around effective supervision. Based on our conversations with the FCA, we now intend to establish a branch office in the U.K. to help manage and oversee our U.K. business. Initially, we expect to have between 6 and 10 people located in that branch office in the U.K.

The last item I will touch on this morning is proposed rules recently announced by the FCA to protect borrowers against excessive charges on high-cost short-term consumer loans, which have generally been interpreted as the rate cap. These proposed rules, which were published on July 15, will become effective on January 2, 2015. While there is still an opportunity to comment on the rules and the FCA could make changes to the rules as a result of those comments, based on the FCA's past actions, we believe that the final rules will not vary significantly from the proposal. The rates of the proposed rules are somewhat lower than we currently charge, but we think that they are manageable and all 3 of our U.K. products should survive intact, with some minor modifications.

While there's a lot of detail for the proposed rate rules, in summary, the highest rate allowed to be charged is 0.8% per day or GBP 24 per GBP 100 for a 30-day loan. This is only slightly below our average rates in the U.K. today. Lenders are also allowed to charge a GBP 15 late fee and charge post default interest. In addition, there is a total cost of credit cap of 100% of the funded principal.

Interestingly, in the report accompanying the proposed rules, the FCA predicted that most firms will exit the market, with only the 3 largest online lenders, of which we are 1, and potentially 1 brick-and-mortar lender surviving. While our belief is that additional lenders will survive, we do expect the rate cap, in combination with the other new rules in the U.K., have a significant effect on competition going forward. We believe our 3 successful products, more conservative approach and proven ability to be nimble and adaptable make these new rules less impactful to our model and our profitability and makes us well positioned to potentially gain market share in the U.K.

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

Daniel R. Feehan

Thanks, Dave.

I'd like to take a moment, before moving to our Q&A session, to update you on the progress we have made in the evaluation of a potential separation of our online lending business that comprises the e-commerce segment, as you know of as Enova.

You should recall, we announced in April that our Board of Directors have authorized management to review strategic alternatives for the separation of Enova. And management has recently determined that the most attractive separation option is currently a tax-free distribution of the shares of Enova to our shareholders, a technique commonly referred to as a spinoff. As part of this process, in May, we were able to obtain independent financing that Tom referenced earlier for Enova in the form of a $500 million bond offering and a $75 million line of credit for Enova. We've also filed a request for a private letter ruling with the Internal Revenue Service dealing with certain discrete aspects of our spinoff plan that may be relevant to the tax-free nature of the proposed distribution. Additionally, we expect to file the first draft of a Form 10 information statement with the Securities and Exchange Commission very soon. We are hopeful that these 2 steps with the IRS and the SEC will be completed before the end of the year. If so and absent any unforeseen variables that might disrupt our plan before then, we would expect our board to vote in favor of a tax-free distribution of 80% of the shares of Enova to Cash American shareholders by year end. If that happens, Enova would become -- begin trading as an independent public company and Cash America share would continue to trade on the NYSE as they do today.

Enova is in the final stages of its internal preparation to become an independent public company. All of the operating and financial disciplines required for Enova's independence are already in place or will be shortly. Additionally, Enova is in the latter stages of recruiting independent members of -- for its Board of Directors. I currently expect to personally serve on that board since Cash America intends to retain up to a 20% interest in Enova.

Following the potential spinoff, Enova intends to continue pursuit of its current strategy centered on the 3 principles of execution, innovation and diversification. David referenced a few tangible examples of this strategy in his comments earlier. We believe Enova's new consumer loan products, further international expansion and potential expansion into other lines of business all form the foundation for ongoing success.

Likewise, following the potential spinoff, the profile of Cash America will return to its historical roots, centered in the secured lending pawnshop business. Once we get through this current year of transition in our domestic pawnshop business, I would expect that Cash America will slowly resume unit expansion through new unit openings and acquisitions predominantly in the U.S. The remaining Cash American entity will likely retain a component of unsecured lending, mostly in our Ohio shops, but I would expect unsecured lending to be a dwindling component of our assets and earnings in future years.

We also recognize that we must rationalize Cash America's ongoing corporate overhead structure to aligning properly with the revenues of the remaining storefront business. Our leadership team has done a lot of work on this analysis over the past few months, and we expect to begin making the appropriate adjustments as soon as the business needs allow. The remaining Cash America storefront business may not enjoy the same rate of revenue growth that Enova expects to experience in the next few years, but it is a business of stable cash flow and relatively limited regulatory risk. We expect Cash America will use its cash flow for unit expansion, debt reduction and share repurchase as authorized by the board. And the priorities for the use of that available cash, among those options, will undoubtedly ebb and flow with changing market conditions and opportunities.

Finally, I'd like to comment on the press release issued last night announcing my planned retirement as CEO when my current contract expires at the end of April next year. I've served as the President and/or CEO of Cash America for the last 24 years, and it's been a great experience. However, given our expectation that the significant strategic changes I have discussed with the company should be completed by the end of this year, both the board and I believe April of next year is an ideal time to introduce a new leader for Cash America. I'm sure I'll have more to say at that time, but in the meantime, I want to assure you that I will remain 110% focused on fulfilling my duties as Chief Executive Officer, and I plan to leave this company with a solid foundation for the future.

That's the end of our prepared comments. And operator, we'll now turn this over for Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of John Rowan with Sidoti & Company.

John J. Rowan - Sidoti & Company, LLC

Dan, first off, congratulations on your retirement.

Daniel R. Feehan

Thanks, John.

John J. Rowan - Sidoti & Company, LLC

And then just 2 questions. So as far as the FCA rules go, is there any clarity on whether the limit on interest relative to principal applies to installment loans as well as payday loans?

David A. Fisher

It applies to installment loans and lines of credit as well as payday.

John J. Rowan - Sidoti & Company, LLC

It -- okay. So aren't your installment products over 100% APR, meaning that there would be some fee reduction on the installment product as well?

David A. Fisher

What we do is effective term. It's not over 100% APR. It's that the interest charges can't be more than 100% of the principal.

John J. Rowan - Sidoti & Company, LLC

Correct. And so since they are shorter than a year, the APR is over 100%, and therefore, so you would have to reduce fees on the installment products.

David A. Fisher

No, no. It's that the fees can't be more than 100% of the principal, not that the APR can't be over 100%. So you could charge 100% of the principal on a 6-month period, which would obviously lead to more than 100% APR but would be fine under the rule.

Daniel R. Feehan

Yes, John, I think what ultimately you're likely to see with that product is a shorter term.

John J. Rowan - Sidoti & Company, LLC

Okay, okay, that's fine. And then just the last question is on the provision expense. It looks like you guys charged off $79.5 million, but the provision was actually $74.7 million. It looks like there was about an almost $5 million release of reserves out of the line of credit allowance ratio. Can you speak to that and as what we should expect from the allowance ratio going forward?

Thomas A. Bessant

Yes, John, I mean, as you and I have talked about in the past, I think what you're just seeing is a seasoning of that portfolio and historical loss rates coming down. So you go back a year ago, and we were on an aggregate basis probably about 20% of balances. That number's decreased about 17%. Each of the portfolios is reserved on individually. Line of credit is a portfolio that's seen improved performance, and that's why you're seeing that release.

Operator

Our next question comes from the line of Bob Ramsey with FBR Capital Markets.

Bob Ramsey - FBR Capital Markets & Co., Research Division

To follow up on John's question, maybe this is a question for you, David, I'm just curious, what percent of the loans in the U.K. today do have lifetime fees and charges that exceed 100% of the principal?

David A. Fisher

I don't have that exact number in front of me, but -- and this can be some portion of -- primarily on installment loan portfolio. It won't be any of our short-term product or our line of credit product. But through a combination of shortening the term of those installment loans as well as transitioning somewhat many of those customers to our line of credit products, we think we can mitigate much of the impact there.

Thomas A. Bessant

So let me just add real quick. I mean, roughly, the gross annualized yield the installment product in the U.K. for the second quarter was about 139%, as it's currently operating. So it's not as quite as big a move down as probably you would typically expect for the single pay products.

Bob Ramsey - FBR Capital Markets & Co., Research Division

And by shortening the term of the installment loans, do you run into affordability issues in that the payments would have to be -- the monthly payments would be have to be larger for the borrower?

David A. Fisher

In some cases, you could, but again, the installment loan portfolio is not a big portion of our portfolio there anymore, as the line of credit product is really growing and it's been the favorite choice among consumers. So again, shifting those customers to a line of credit product is probably the answer in many of those cases.

Bob Ramsey - FBR Capital Markets & Co., Research Division

And then in terms of the line of credit product, could you tell me what is the monthly rate charge on that product? Or what is the range of monthly rates charge? And what is the typical term on the payments of that product?

David A. Fisher

So the monthly charges vary. We do some risk-based pricing on that product. In terms of the term, it's a 10-month amortizing product, which we may look to alter a little bit given the new rules. But each draw under the line of credit product is really treated, under the proposed rules, as a separate loan for purposes of the rate cap, and that provides us a great deal of flexibility with that product going forward.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. With the range of charges on that product, what is -- I guess, what is above the 80 basis point daily interest? How much of that product is above that level?

David A. Fisher

None of it -- almost none of it.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Almost none of it is.

David A. Fisher

Yes.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, great. And then I'm curious. Obviously, I know you all talked about the impacts of some of the affordability assessments and the regulatory changes in the U.K. already. And I think we did see Enova's foreign loans decline year-over-year for the first time probably ever. I'm just curious, as you guys look to 2015 with these rate changes as proposed, what sort of loan growth should we be thinking about for Enova's foreign business? Is it going to be a slower pace of positive growth from sort of where we are at year end? Or will we continue to see contraction?

David A. Fisher

So we think we have 2 offsetting factors that it's still a little too early to figure out exactly how they play out. The first is the changes to the affordability assessment in some of the additional FCA rules that have resulted in lower loans volumes in the U.K. The rate cap actually, we don't think, will reduce loan volume in the U.K. And the reduced competition as a result of the rate cap plus the new FCA rules, we think, can actually help our volumes in 2015 and beyond. How that exactly plays out, it's too early to still tell. The rate cap just got announced about 2 weeks ago, and that won't go in effect till the end of the year. And while we've seen some initial reactions from our customers to the new rules, it's still too early to see how that all plays out.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, great. Last question, and I'll back out: I know you said almost none of the line of credit is over GBP 24 per GBP 100 per month. What is it on the single pay product amount? I understand that book is shrinking pretty rapidly, but today, how much of that portfolio is over GBP 24 per GBP 100 per month?

David A. Fisher

Yes, I don't have the exact percentage, but the highest rate is we charge about GBP 29 per GBP 100, but the average is in -- is about GBP 23 per GBP 100, so it's not a big change to move to the GBP 24 as a cap.

Operator

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

William R. Armstrong - CL King & Associates, Inc., Research Division

Another question for David on the rate cap. So on the short-term payday product, I know that's that the shrinking piece of the business, but you have a 24% charge that you've got now. It doesn't matter if it's 8 days or 30 days. It's still the customer is still going to have to pay GBP 24 on a GBP 100 loan. Now with the new daily rate cap, if he pays it back in 8 days or -- he's only going to have to pay a fraction of that GBP 24. So the question is, what's the actual average loan term that you see on that single pay product?

David A. Fisher

I don't have that in front of me. It's well above 30 days...

Daniel R. Feehan

Yes. And it's -- I mean it's probably the appropriate or the most prevailing answer there is. We've got very few customers that are paying off early, though. [indiscernible] -- yes, so your question is, if you've got somebody paying off early on their terms, what's the impact? And we don't have a substantial number of customers that are prepaying loans.

William R. Armstrong - CL King & Associates, Inc., Research Division

So even though it's a payday loan that's due on the next payday, they're not paying it back on their next payday?

David A. Fisher

Well, paydays in the U.K. are generally monthly. And many of our payday loans are "more than 1 period" payday loans from the outset, and many are 2- or 3-period payday loans.

William R. Armstrong - CL King & Associates, Inc., Research Division

I see. Okay, okay, and -- all right. And then on the domestic pawn business, your -- now it looks like you've turned the corner on pawn balances, and First Cash last week reported similar trends. What are you seeing in the markets with your customers that you think are driving that? I mean, after we've had a couple of years of very soft demand, what do you think is underlying that improvement that we're now seeing?

Daniel R. Feehan

Well, we're seeing the improvement. Again, this is one of the, I think, common misconceptions about the pawn business, that the overall business activity that we're seeing is positive both on the loan counter and at the retail counter. So your -- our customer, if you just take our financial data and analyze it today, and this is -- we have pockets around the country that show up differently, but by and large, our entire base of business in the U.S. is being impacted by similar trends. And we had to conclude, Bill simply that consumers are feeling better about the economic environment that they're in with respect to a similar employment situation and the overall economic prospects for them. We're seeing them back borrowing money at a higher rate than we've experienced for the last couple of years. And they're also spending with us at higher rates than we've seen for the last couple of years. So you really can't conclude much other than the fact that people are feeling better about their economic situation. We look at all the macroeconomic issues with respect to wage rates, with respect to gasoline prices, with respect to employment levels et cetera. And I will tell you that I can't point to any specific macroeconomic trend that I could tell you changed over the last 6 months as we've seen sort of the strengthening confidence among this consumer. Some of it may also be, quite frankly, a reflection of other forms of credit perhaps that are not being as available as they had been available. Quite frankly, as you know, while our U.S. online business hasn't been impacted, there have been a number of online lenders making small dollar loans across the country that have been impacted by recent activity coming out of the Department of Justice and the FDIC and the OCC putting pressure on banks. You also have the impact of -- recently, you had large banks, Wells Fargo, Fifth Third, U.S. Bank, who quit offering their direct deposit advance on their checking accounts. We think that's had the probably bigger impact on our online U.S. business than as in our storefront, but clearly, anytime that there's disruption in the availability of other forms of credit that people can't get to, falling back on secured lending is always something that they have an option to do. So we are perhaps seeing a little bit of that activity as well.

William R. Armstrong - CL King & Associates, Inc., Research Division

Understood. That's very -- that's enlightening. And just one other question on the U.K. online business, and that's in just operations expense. So it's actually down a little bit year-over-year. And I think, previously, you've indicated that you may be incurring additional operation and compliance costs going forward. Should we expect that -- it was about 28 million -- sorry, $24 million in this quarter. Should we expect that to be ramping up as we move through the back half of the year?

David A. Fisher

Well, I think it'll move modestly higher, but many of the people we're hiring in the U.K. are replacements for people in the U.S, so it's not a lot of additional headcount expense. So really we're just talking kind of, in office over there, there are actually like to be some less travel expense. So some additional expense but nothing too significant.

Operator

Our next question comes from the line of Tulu Yunus with Nomura Securities.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

I just wanted to ask about, with regards to same-store sales and the actual pawn service charge growth, the delta there. At what point will that gap narrow? Could you remind us when you made the acquisitions? I think you had some store acquisitions in the South some point last year.

Thomas A. Bessant

Yes, so the -- obviously, the same-store -- our net revenue and loan balance calculation exclude the acquisitions. We completed our acquisitions last year, one in the third quarter, one in the fourth quarter. But overall, pawn loan balances are up 15% in aggregate, so -- and that's on domestic basis. So the 4.5% excludes the acquisitions.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Got it, okay. And then just a question on the CPA in the U.K. and the 2 times, the 2 CPA limit that's now been fully implemented. Is that mainly -- you alluded to the fact that some -- the loss rates in the U.K. will somewhat trend higher, although it sounds like there may be some upsets, but is that mainly going to affect the short-term single pay products? Or is it going to affect all 3 lines of products? And sort of if you could give us a sense of order of magnitude where we should see the biggest impact.

David A. Fisher

It'll be all 3. In terms of order of magnitude, it's still too early to tell. Like I said, we're doing a lot of optimizing with our analytics around how to use those data's under the new rules. We've learned a lot during the last several months that we've been testing, and we will continue to learn going forward. I mean, again through improved collection efforts, we've been able to mitigate large amounts of the increased loan losses in the chain.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Okay, got it. And then last question, on just the guidance. Seeing that you guys left it unchanged, if I look at the outperformance in the first half of the year of about $0.53 relative to sort of the midpoint of each of your quarterly guides, less the additional $0.26 of interest expense from the Enova debt, still get to $0.27 or so of sort of change in your pocket that you can work with in the back half. Clearly, there's going to be slower originations in Enova. Is that really the only -- I guess, the most significant drag to think about in the back half as it relates to the guidance -- yes?

Thomas A. Bessant

Yes, I think [indiscernible]. Yes, you've got that pretty well pegged. There's just a lot of uncertainty at this point. As David mentioned, a lot of these changes have really just begun rolling through our foreign e-commerce business. So with the uncertainty, we've based our projections where we release them.

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Okay, could you tell us what the same-store sales growth in the pawn business, what you were assuming in the original guide? I know you said you're looking for that to turn positive in 3Q, but just for the full year, were you looking for like 1% or 2% or something higher?

Thomas A. Bessant

Yes, so what I've said was and I've said publicly in the past, as we were coming off of same-store pawn loan balances that were negative, if you remember, they were down 3% in Q4, down 2% in Q1, I was hoping to be flat in Q2 and then maybe up 1% or 2% in Q3. Obviously, the growth in the pawn loan counter allowed us to exceed that number at 4.5%. That's a very healthy number for us, and it obviously is an indicator of a lot of potential momentum in the back half of the year and particularly 2015 for the pawn business.

Operator

Our next question comes from the line of David Scharf with JMP Securities.

David M. Scharf - JMP Securities LLC, Research Division

Trying here not to beat a dead horse, maybe I just want to get a little better sense in the U.K. I recognize we're in the early stages of implementation. There's still uncertainty. I guess, at the end of the day, as we think about how things may play out next year, Dave, can you rank ultimately what's going to have the biggest impact on both gross and net revenue; when we think about affordability checks, the total cost cap and CPA limits, how we ought to think about those in terms of ranking the order of magnitude of how impactful they'll be?

David A. Fisher

Sure. I mean, based on what we know today and subject to any material changes in the competitive environment, let me start off with the least impactful, which will be the rate cap. Just based on how we are pricing our loans historically, being less aggressive than some of our competitors, some of the additional -- the weight with our 3 products that we have in the U.K. and the flexibility that affords us and some of the additional provisions in the rate cap rules like a higher default fee than we charge today and the ability to charge post default features, which we don't do today, we don't think will have significant impact. This rate cap will have significant impact going forward. On the CPA limitations, while it will increase loss rates somewhat, we also don't think it will have a large impact, as we're -- we'll mitigate most of that through improved analytics and improve collection efforts. And so clearly, the largest impact will be the changes to the affordability assessment. Now that is also a change that directly affects all of our competitors as well. And as they're complying with the same rules, we think we'll be able to adapt to them better using better analytics and, again, see an opportunity to gain market share. But that clearly is the one that we think will have the most significant impact going forward.

David M. Scharf - JMP Securities LLC, Research Division

Okay, that's helpful. Drilling on the 2 of those: On the CPA side, how should we think about that on the expense front in terms of whether you needed additional call center staffing, more variable costs in terms of bodies?

David A. Fisher

Yes. Yes, we will and we have and we'll add more collection folks, but it's in the range of 10 or 20 or maybe 30 on the upper end. And given our call center size of 700 or so call center folks and the amount of variability just in that number from quarter-to-quarter, it's barely a rounding error. It's not a number that I think will stand out in a significant way.

David M. Scharf - JMP Securities LLC, Research Division

Okay. So it doesn't sound like collection costs are going to -- should increase meaningfully. And then -- okay. And then just shifting to affordability, can you give us a little better sense for ultimately how this is going to be supervised by the FCA? I mean what -- are people still flying blind a little bit in terms of what they actually have to check? I mean is it more sort of an honor system and you hope you just don't get audited once a year? How exactly does the affordability check play out?

David A. Fisher

We've had numerous detailed conversations with the FCA about exactly what we're doing around affordability, what data we're asking from the customers, how we're utilizing that data, kind of how our analytics models are approving or not approving loans, what kind of default rates the FCA thinks are acceptable. And while we don't have 100% clarity still at this point, we're only a few months into the rules, we have much, much greater clarity than we did several months ago. And the FCA knows exactly what we're doing and we have much more clearer sense of their expectations. So no, this isn't at all a shot in the dark at this point and wait and see for an audit. But really, at this time, when the FCA would come in and do an audit, it would be more verifying that we're doing what we told them we're going to be doing.

David M. Scharf - JMP Securities LLC, Research Division

Okay, but it sounds like it's still something that entails an ongoing dialogue. I mean the FCA doesn't plan on ultimately publishing strict affordability assessment requirements and checkmarks and tickler list, do they?

David A. Fisher

Yes, at this point, we don't think they do, but we've spent enough time with them with our detailed procedures and policies around affordability. And we think we have pretty good clarity about their views regarding our specific affordability assessment.

David M. Scharf - JMP Securities LLC, Research Division

Okay, got it. That's all very helpful. And one final question, for Tom. This is actually kind of maybe repeating a prior question about second half guidance, but instead of kind of dialing back to the beginning of the year, just thinking about 3 months ago, it sounds like the implied reduction in the second half outlook is fully captured by the negative interest arbitrage of $0.26 for the second half. Am I reading that correctly? Just versus not thinking about the annual guidance as it was unveiled at the beginning of the year but rather just 3 months ago, I'm wondering if, by implication, you already factored in 3 months ago the potential headwinds in the U.K. as it relates to the second half and if we should think about the implied reduction in guidance today in the second half to be almost entirely related to the Enova high-yield deal.

Thomas A. Bessant

Well, as perceptive comment, David, the -- we did say in April that the reason we weren't modifying our full year guidance is because we had the rulebook out and we had begun making modifications to our product sets on the e-commerce side. So nothing has changed really along those lines. There's certainly a lot of uncertainty, as David pointed out. The -- and a lot of moving parts as it relates to market share and the loss rates and obviously yield. So -- and I think you're right on-target overall. And we'll have to see how the third quarter shapes up, and we'll have a much better picture of the last quarter of the year and 2015 after that.

Daniel R. Feehan

David, before you get off, I'd like to just give you my -- the way I think about the U.K. situation today, back to your questions on affordability, rate cap, the CPA et cetera. Fundamentally, as David said, I mean the big issue that they're dealing with is affordability. And we're adjusting our -- have been adjusting our activities very significantly with respect to the process around affordability. That will -- you've already obviously picked up the fact in his comment that, that activity will reduce the number of loans that -- absent any offsetting competitive gains. But in a vacuum on our existing business, that will reduce -- significantly reduce the volume of business and new loans that we're writing in the U.K., which means we're going to be writing fewer loans of higher-credit-quality customers, which then means the impacts of CPA and rate change are going to be less impactful because we're starting with a lower base of business and a higher-quality customer, which is what the FCA is trying to drive the industry towards. So fundamentally, the affordability assessment is the driving -- in our view, the driving force in this activity. And the only reason that we can comment that the other activities are not going to have a dramatic impact on us is our expectation is that we'll be doing a lower volume of business and we'll have more core customer profitability because we're going to be making loans, in theory, to people that are more creditworthy, if that makes any sense.

David M. Scharf - JMP Securities LLC, Research Division

Yes, no, that's very helpful. And I'm wondering. I realize we're just less than 1 month into the implementation of the affordability checks on July 1, but given that you commented you have much greater clarity based on your discussions with the FCA on how ultimately you should be evaluating the consumer's ability to pay, is there anything from just these first 3, 3.5 weeks experience you can provide in terms of perhaps maybe how rejection rates of loan applications have trended on these few weeks versus the last year or 2?

David A. Fisher

Sure. Sure. I think, just to clarify one thing: The affordability assessment requirements actually went to effect April 1. And we've made a number of changes prior to April 1 and have made additional changes since April 1 as part of our ongoing dialogue with the FCA. As a result of those changes, particularly the changes post April 1, we have definitely seen a significant increase in rejection rates. I don't think we're ready to publish those exact percentages yet, but we have seen them increase substantially from where they were prior to April 1.

Operator

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

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

Dan, I will miss you, but I have a few more quarters to torture you with questions, so congratulations.

Daniel R. Feehan

I'm not going anywhere, but when you get another shot or 2, I'd be ready, Henry.

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

I know. Plus, I expect you'll still be in that office whenever I come by. The answer [ph] -- yes, I like beating this dead horse in the U.K. When we look at the affordability issue, which obviously it seems from -- I took a recent visit to your website, and it seems that most of your products are sort of at or already close to conformity, at least they are -- were as of 3 days ago. When you look at the affordability issue -- the FCA talked about an 11% shrink in the market. If you were looking forward to 2015, is that the kind of shrink in volumes you're expecting? Or do you think there'll be market share gains that will mitigate some of that and that your own volumes will shrink 2% or 3% or some number?

David A. Fisher

So I think those market shrink are primarily focused on the rate cap and less on the affordability assessment. I think the affordability assessment could potentially have, absent any changes in competition, a more significant impact, but there will be changes in competition. We know that both from the affordability assessment, which has already put some competitors out of business, we think it will push additional competitors out of the business. And more importantly, the rate cap for lenders who had less-compliant models historically will not be able to operate under the new rate cap. The FCA made that clear on their rate cap, in the presentation that went along with the rate cap proposal. And it's highly likely, we think, we'll get rate -- we'll get market share gains from that. So overall, it's difficult to say how the waiting wound up, but we will be lending to higher-quality borrowers, with few -- with less competition in the overall market. And it's going to take us a quarter or 2 to see how it all shakes out.

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

And then on the pawnshop business, the one thing I did notice is operating overhead is still growing at a much faster rate than revenue. Is that an addressable item, Dan? Or what should we expect?

Daniel R. Feehan

Yes, I think what you're seeing there, Henry, currently is addressing the higher transaction volumes and higher revenue base and really trying to push additional transactional activity through each shop through our initiatives. So I think that we're out. Sometimes, you got to spend a little to gain. The gain is long term, and I think we're a little bit out in front of it. I think those ratios will come into line as we get into the latter half of this year and into 2015, assuming that we can maintain the revenue growth momentum that we've got today continue to create year-over-year gaps in our net revenue numbers. So part of that, if you're looking at those costs against net revenue, obviously, lower gross profit margins are going to impact that ratio to some degree as well. But again, I think that, where we are today, I don't see a tremendous opportunity in our field operation, our field operating expenses to gain a significant economies. However, as I've said in my prepared comments, given the potential spinoff that we have talked about, we'll be taking a hard look at all the overhead, corporate overhead, costs associated with the pawnshop business going forward.

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

And then finally, in terms of looking at the balance sheet, obviously, you paid down a lot of debt this quarter. I was just trying to figure out what exactly went away.

Thomas A. Bessant

Yes, Henry, we paid off all of our long-term notes, with the exception of a $300 million bond that Cash America did a little more than a year ago. So we're pretty much debt free, with the exception of the Enova $500 million bond and the Cash America $300 million bond.

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

And you have a lot of cash on balance sheet. At least in our opinion, your stock is still undervalued. What is the likelihood that you'd take that cash and, instead of ultimately paying off the $300 million note, just buy back stock...

Daniel R. Feehan

So we're looking at all our -- yes, Henry, we're looking at all of our options today. We currently have authorization for additional share repurchase. And I can't commit to you today exactly what we're going to do with that additional cash at this point. Now that we've got all of our earnings after this quarter and information out with respect to discussion today with respect to the FCA activity in the U.K. and rate making et cetera, that we're -- we'll evaluate a combination. I mean are 2 big alternatives, obviously: if we look at the near term, our share repurchase; or additional debt reduction. So I'm not prepared to commit to one or the other or some combination today, but we're certainly have an active evaluation on the -- underway to determine what to do with that additional cash. We're not going to leave it sitting on the balance sheet: That's the only thing I will commit to you.

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

And is $75 million to $85 million a good number in terms of what the 2 combined businesses need in terms of cash on hand? Or is that number different than that?

Thomas A. Bessant

That's a good number, Henry. And then I'll just add, from Dan's comment, to just carry through, we're about -- we've got about 1.5 million shares available under our current open-market authorization right now.

Operator

And our last question comes from the line of Liz Pierce with Ascendiant Capital.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Dan, congratulations. Just a couple of follow-up to some of the other questions just for clarification purposes. David, on the -- when you said the additional staff that you are adding, is that going to be over in the U.K. for the affordability et cetera -- or I mean not affordability, collections?

David A. Fisher

No, that's the collections staff will be in the U.S. as part of our existing call center. And as I mentioned before, kind of 10, 20, 30 people, kind of in that range, and relative to the total size of the call center of around 700 folks and the variability just in that number from month-to-month, quarter-to-quarter will be a number that I don't think you'll really see kind of flow through the financial statements in a material way.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Okay. And then, I think, following up, I think it was David that asked the question about on the FCA in terms of -- is audit going to be the way that they supervise in terms of whether or not you're following the affordability, forbearance et cetera? Or is there other practices? I wasn't sure about that.

David A. Fisher

Yes, they have a number of ways of doing it. Obviously, they have audit powers. They can also require firms to have what they call the 166 review, which is have the -- which is they call the skilled person. It's basically an audit. An outside consulting or accounting firm, an audit firm come in and basically outsource those audit powers. So they have a number of ways of doing that, and we do expect that they will use their powers to audit us like we're familiar with, with retail -- with regulators in the U.S.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Okay. And then in terms of -- I was curious about -- so you talk about you're going to be lending to higher-creditworthy customer et cetera. Are you guys thinking about any other options to service this customer who's going to be left out in the cold? If the competition continue to shrink and everybody moves upmarket, so to speak, there's still this customer out there that need funds, and I don't know if you guys are thinking of creative ways you could perhaps still service that customer.

David A. Fisher

Yes, we will obviously continue to try to find ways of new innovative products to serve those customers, but the FCA has made it clear that -- with our existing products and the existing structure today and the rates they know we'll charge today, that they would prefer that those customers not be served by these existing products. And so clearly, for the near to medium term, we will not be serving those products. And they will go unserved and they will have to look elsewhere for their credit needs. Maybe as analytics capabilities improve going forward, we can lend at lower rates, find ways to serve those people, those customers. It's certainly something that could be in the future but not today.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Not today. Does the FCA have any answers for those people, out of curiosity?

Daniel R. Feehan

None that we're aware of.

David A. Fisher

Right.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

And then my final question is I was -- I'm intrigued about the fact that when you were launching in Brazil as well as China. So just given what we've seen, I mean I don't know much about their regulatory frameworks over there but was surprised that you launched with a short-term product. Or is that the best way to gain entree into a market and then you introduce the line of credit or installment type of products?

David A. Fisher

Yes, so in Brazil, we want to start with something simple that would be understandable to the consumer base over there who doesn't have as much experience with line of credit products or even online lending generally. So it's basically a 1- to 3-period installment loan. It's very kind of very short-term installment loan which is very understandable to the consumer base over there. In China, it will be a longer-term product, kind of up to a year. That will be an amortizing installment loan.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

So your thought is -- as you look at other geographic territories is to go in with the simplest product to get the customer used to it and then explore additional products.

David A. Fisher

Yes, the product that's understandable to that consumer base.

Operator

Mr. Feehan, there are no further questions at this time. I will now turn the call back to you.

Daniel R. Feehan

Okay. Appreciate everyone's attendance on the call this morning. Thanks for dialing in.

Operator

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

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Source: Cash America International's (CSH) CEO David Fisher on Q2 2014 Results - Earnings Call Transcript
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