EZCORP's (EZPW) CEO Mark Kuchenrither on F3Q 2014 Results - Earnings Call Transcript

| About: EZCORP, Inc. (EZPW)

EZCORP, Inc. (NASDAQ:EZPW)

F3Q 2014 Earnings Conference Call

July 29, 2014 17:00 ET

Executives

Mark Trinske - Vice President, Investor Relations and Communications

Mark Kuchenrither - Interim President and Chief Executive Officer

Tom Welch - Senior Vice President, Secretary and General Counsel

Analysts

Bob Ramsey - FBR Capital Markets

John Rowan - Sidoti & Company

Henry Coffey - Sterne Agee

David Scharf - JMP Securities

Bill Armstrong - CL King & Associates

John Hecht - Jefferies

Operator

Good afternoon, ladies and gentlemen and welcome to the EZCORP Third Quarter of Fiscal Year 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Mark Trinske, EZCORP’s Vice President of Investor Relations and Communications.

Mark Trinske

Thank you, operator, and good afternoon, everyone. On the call with me today is Mark Kuchenrither, our Interim President and Chief Executive Officer. Also with us today is Tom Welch, our Senior Vice President, Secretary and General Counsel.

Today’s conference call contains certain forward-looking statements regarding the company’s expected operating and financial performance for future periods. These statements are based on the company’s current expectations. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors, including fluctuations in gold prices for the desire of our customers to pawn or sell their gold items, changes in the regulatory environment, changes in market conditions in the overall economy, and in the industry and consumer demand for the company’s services and merchandize.

For a discussion of these and other factors affecting the company’s business and prospects, please see our annual, quarterly and other reports filed with the SEC. Also we have provided supplemental information on our website. This information gives more information on a breakdown of our net earnings asset by segment. This material can be found at ezcorp.com in the Investor Relations section of our website.

On today’s call Mr. Kuchenrither will present his opening comments, talk about a few items on our financial statements and then we will open the call to your questions.

Now, I would like to turn the call over to Mark Kuchenrither. Mark?

Mark Kuchenrither

Thank you, Mark and good afternoon everyone. During my remarks today, I will start with an update on the recent board and management changes at EZCORP and then continue with the review of the quarter.

Let me start by saying that the leadership changes to both the Chief Executive Officer and Board of Directors were done to significantly improve the operating and financial performance of EZCORP and to realign corporate strategies to create long-term value. We are focusing our strategy to return to a sustainable growth model creating consistent financial returns. There are two primary factors involved in the strategy changes we are embarking on today. Number one, enhance operational execution and number two, employ a capital allocation strategy focused on achieving a return on invested capital of at least 15%.

Today is the new day for EZCORP as we continue to focus on providing customers with the cash they need. We are also making strategic changes to our business to deliver a superior return on invested capital. We will now focus on delivering consistent financial results and increasing value. The leadership changes at the Board and management levels in the past two weeks are an example of the deep commitment we all have to improving our performance.

I have initiated a 90-day plan for our team to closely evaluate all aspects of our business and ensure that we have specific strategic plans and personnel to achieve this new standard of at least 15% return on invested capital. As you saw in our press release, we achieved our outlook in the third quarter. And that’s a good first step, but we are not satisfied with this performance. We have operational opportunities across all of our businesses and we know there are areas we can improve.

Hopefully, you saw our announcement yesterday that we added three extremely qualified Board of Directors, Joe Rotunda, Tom Roberts, and Peter Cumins. As many long-time EZCORP shareholders know, Joe was President and Chief Executive Officer of our company and a member of the Board of Directors from the year 2000 until his retirement in 2010. Under Joe’s leadership, EZCORP grew from a few 100 storefronts operating in 11 states to over 1,000 owned and operated locations in the U.S., Mexico and Canada. And the company’s market capitalization grew from approximately $17 million to over $1 billion at the time of his retirement. As many years of experience with our company and our industry will be invaluable to me and the rest of the board. We welcome him back.

Tom Roberts served on our Board of Directors for nine years from 2005 to January of 2014 and one of our lead Independent Director much of that time. He is currently the Chairman of the Board of Directors of Pensco, a financial services company. Previously he spent 15 years with Schlumberger and various executive positions including Chief Financial Officer. He spent four years as President and Chief Executive Officer of the Computer Systems and Services operations of Control Data Corporation. Tom brings a wealth of experience in managing and growing large international businesses as well as a highly sophisticated financial acumen. Tom will serve on the audit committee and he will chair that committee on interim basis.

Peter Cumins is the Managing Director of Cash Converters International Limited. Cash Converters owns and franchises retail and financial service stores in 21 countries. EZCORP owns approximately 33% of the outstanding capital stock of Cash Converters. Peter’s Cash Converters stores offer pawn loans, buy/sell and in-store and online payday and installment loans as the primary products. Peter has more than 24 years experience in our industry. He is an excellent source of knowledge and experience that will be extremely valuable to us.

These Board members are going to be true resources for me. And I am going to involve them in a meaningful way. I am personally very excited about working with these new Board members as well as Lachlan Given, our new Chairman and our existing Board members Pablo Lagos and Santiago Creel. I want to be clear. I am smart enough to realize what a valuable asset this Board and their experience represents and I am going to use it.

From a trending perspective, the growth in our pawn business is encouraging, but when we look at our year-over-year pawn loan growth and compare ourselves to our peers we see additional opportunities to growth loan balances and pawn service charges. We are pleased with the growth of Grupo Finmart a business that just a few years ago was a fraction of what it is today. In addition, we are generally pleased with the hybrid approach of using a distributor model and a traditional loan origination and servicing model. We also continued to work on strengthening Grupo Finmart’s balance sheet by restructuring and paying off its debt.

Our U.S. financial service business has been hampered by changes in the regulatory environment most recently in Houston. While the regulatory environment is challenging, we still have opportunities to improve our operational performance. Our pawn business in Mexico and our online lending businesses have struggled all this year. Over the next 90 days we will be evaluating each of these businesses to develop a comprehensive action plan through the wins of our return on invested capital model. We have a lot of work to do.

In the last few days you may have read about Cash Genie and the Financial Conduct Authority or FCA. In the course of evaluating and preparing the Cash Genie business for complaint with new FCA guidelines and rules, we noted three issues primarily related to the legacy business and self reported these to the FCA in June. We are fully cooperating with the FCA and look forward to resolving these issues. In the U.S. as we have reported in our last 10-Q in February, we received a civil investigative demand from the Consumer Financial Protection Bureau requesting us to produce certain documents and other information. We have submitted all information requested and the CFPB is in the process of reviewing it.

Now I would like to point out a few items from our income statement on Page 6 of the press release. If you look at the consumer loan sales and other revenue line, we reported $10.9 million in the third quarter representing approximately 300% growth when compared to the third quarter last year. This growth primarily reflects a gain of $10 million from structured financing transactions at Grupo Finmart. These transactions also resulted in $38 million in accelerated cash flow.

Again I want to be clear that through these structured financing transactions, we are acting as the distributor which accelerates cash flow and improves our ability to fund new loans. We will continue with both the traditional loan origination and servicing model and the new distributor model. This quarter’s structured financing transactions represented less than 25% of the company’s current loan portfolio.

To move down the income statement and you look at the operating and expense lines, I want you to know that I am not satisfied with our current expense structure. We went too far, too fast in decentralization and we will analyze these areas closely over the next 90 days as part of our planning process. Interest expense in the third quarter was up 70% year-over-year to approximately $6 million. At Grupo Finmart, interest expense increased $1.4 million compared to the same quarter last year and this was due to growth. The corporate expense was $1.8 million in the third quarter compared to $900,000 in the same quarter last year and that was due to larger debt balance. Equity and net income from unconsolidated affiliates was $2.1 million representing fully the contribution from cash converters.

If you turn to the balance sheet on Page 7 of our press release, I just want to point out one item. Restricted cash on the current and non-current lines totaled approximately $35 million. Grupo Finmart has collateral obligations with respect to some of the debt agreements they have outstanding. The collateral can be either in the form of loans or cash. Due to the success of the second securitization, we have temporarily used cash as collateral in some cases and expect to replace the cash with loans over the next couple of quarters. Lastly in the quarter, we strengthened our financial flexibility by raising $230 million through a private convertible debt offering, which enabled us to payoff and close our senior secured credit agreement that lowered our interest rate. We were able to create a call spread to protect shareholders from dilution and we bought back 1 million shares of stock to further protect shareholders from dilution.

Now, I would like to provide our outlook for Q4. We are confirming our guidance and expect our Q4 earnings per share from continuing operations to be in the range of $0.37 to $0.39. This outlook takes into account the impact of our recent completed financing, but does not include any potential expenses related to the recent management and board changes at the company. In closing, I’d like to say that I am pleased with the changes we made to the Board of Directors. And I believe our board members are a tremendous resource for me and the company going forward. We will develop a plan within 90 days that will deliver long-term sustainable value. I am confident and I am ready to lead this organization. There is a lot of work to do.

Karen, we will now open the call for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Kuchenrither. (Operator Instructions) Our first question comes from the line of Bob Ramsey from FBR Capital Markets.

Bob Ramsey - FBR Capital Markets

Hey, good afternoon, Mark.

Mark Kuchenrither

Hi, Bob.

Bob Ramsey - FBR Capital Markets

I wanted to talk a little bit more about the Board and senior management changes I think they came as a big surprise to a lot of people. Were these changes related to the formal Board’s decision to terminate the Madison Park agreement or to setup the corporate governance committee or buyback stock or some of the other changes that the board had been making I guess the name of Chairman that was not affiliated with Phillip Cohen?

Mark Kuchenrither

No, the changes were made because of the – to address the operating and financial performance issues at EZCORP. If you look at our performance since mid 2012, clearly we have not been performing. And that’s I think that’s pretty straight quarter for everyone to see and so that’s why the changes were made.

Bob Ramsey - FBR Capital Markets

Okay. And what can you tell me about Given and his relationship with Philip Cohen?

Mark Kuchenrither

Well, Lachy has worked for Phil for many years, I don’t quite know how many years, as part of as a consultant. And I think that relationship, I think was spelled out in the previous press release. And that’s all I know.

Bob Ramsey - FBR Capital Markets

Okay. Alright, fair enough. With the Board having members in several different countries now when the Board does meet do those meetings take place in person and does that in anyway sort of make it tougher for everyone to get their heads together when they are in very different locations?

Mark Kuchenrither

Well, I would tell you this. I mean this will be the first time we have had Peter Cumins on our Board from Australia, but I have known Peter for five years and he is not adverse to travelling. And as far as Santiago and Pablo they have always made our Board meetings in person and are active. And so I don’t foresee any challenges with that. These Board members are committed and know how important it is to be active and participate. And I have personally spoken with all of them in the past week. And I am confident that they are ready to go and willing to commit their time as necessary.

Bob Ramsey - FBR Capital Markets

Okay. And are the Board members that are still here they were on the former Board, are they all committed to stay on the Board at this point, is that safe to assume?

Mark Kuchenrither

Yes.

Bob Ramsey - FBR Capital Markets

Great. And then tell me a little bit about the planned CEO search, I guess first question is, are you sort of in the running for the permanent role as well. And then is the Board hiring I guess an outside executive search firm and how is that process taking place?

Mark Kuchenrither

Well, it’s the Board’s call ultimately. But I will tell you that I am working everyday very hard to remove the interim in front of my title. I am confident that I can do the job. I am ready to do the job. I think I know what needs to happen. I have expressed my strong desire to fulfill that role. I think the – my election to the Board of Directors and the fact that we started CFO search is encouraging.

Bob Ramsey - FBR Capital Markets

Okay. Do you – does the Board have an estimated timeline for when they will make a decision?

Mark Kuchenrither

No.

Bob Ramsey - FBR Capital Markets

Okay. I guess you on – with the Board when Love was the Chairman or had been named Chairman, the Board said that they were going to make a permanent corporate governance committee on the Board of Directors consisting of Independent Directors, is that still a desire of the new Board of Directors?

Mark Kuchenrither

Yes, absolutely.

Operator

Thank you. And our next question comes from the line of John Rowan from Sidoti & Company.

John Rowan - Sidoti & Company

Good afternoon Mark and Mark.

Mark Kuchenrither

Hi John.

John Rowan - Sidoti & Company

Was there some type of reorganization of the pawn and retail business in the U.S. and Canada I just noticed a different labeling in your press release versus last year?

Mark Kuchenrither

Hi John, it’s a great question. I am glad you asked that. I made that change with a purpose this week. We removed the retail as part of the title because I think quite frankly the last couple of years we have over emphasized the retail aspect of our business and I think it’s very important that I sent an internal message and an external message that we are going to take and pay attention to the entire collateral life cycle within our business. We are a lender and we are responsible for providing customers with the cash that they need. Retail is a pawn aspect of our business, but not – I want to reduce the emphasis that’s been placed on it previously.

John Rowan - Sidoti & Company

Okay. As far as the – your ROIC goal of 15% it’s just thought that we haven’t heard in quite some time it was back in the days (indiscernible) for a lot of goals about targeted ROICs for capital allocation, if I am not mistaken they were used to be higher than that, maybe just refresh my memory and if there has been any change in the targeted return maybe give me an idea to why that’s taken place?

Mark Kuchenrither

Another great question John, our costs, our weighted average cost of capital is 10%. And in order to create value, we have to generate a return greater than 10%. Back several years ago we had a higher goal, but I wanted to start with something that is achievable, something I could commit to and something that would create value. And again it’s a minimum. And so we are going to use that as not only a measurement for investment in growth, but also a measurement in how we review and annualize our current business units and operating segments.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Henry Coffey from Sterne Agee.

Henry Coffey - Sterne Agee

Yes. I am trying to understand the structured financing transaction, was that a cash gain that you got from selling those loans into a facility or is that the sort of a gain on sale having to do with the present value of residuals or what was the nature of the gain?

Mark Kuchenrither

Hi, Henry. First, it’s good to hear you. So, just want to say, hello and it’s a good question. The structured financing transaction at Grupo Finmart are true loan sales, so they are actually true sales of part of the loan portfolio and so the risk associated with the loans passed to the buyer of the loans. Grupo Finmart acts as the servicer. It actually goes into a trust, in a Mexican trust and the Grupo Finmart acts a servicer of that trust and serves the customer and also does the collections and so on. So, it’s a true profit. It’s – the transaction in effect convinces a 3-year revenue and cash flow cycle down to 90 days in this case. So, we accelerate both revenue and expense, associated expense such as commissions, but we also accelerate the cash flow from it. It is costing the company about a 3% premium over their cost of financing, but that’s a great trade-off moving from three years to 90 days.

Henry Coffey - Sterne Agee

So, it’s a cash gain from selling the assets?

Mark Kuchenrither

Yes, yes.

Henry Coffey - Sterne Agee

So, they were sold at the par – they were sold at a gain over the par value of the loan, because of the higher rate and the lower rate required by securitization party?

Mark Kuchenrither

That’s exactly right. So, it is a cash gain.

Henry Coffey - Sterne Agee

And to kind of revisit the whole Board situation, maybe you could sort of narrate this for us, I have a friend of mine used to always say something must happen, but there must have been a cross point, I mean, you did a convertible note and the next news item was the big shake up in management. What was the decision process? What the cross point? And how many of the board members are left voluntarily? And how many of the board members left, because they were asked to leave by Cohen?

Mark Kuchenrither

I can’t explain the decision, because I wasn’t part of that decision. So, I can’t answer the first part of your question. We had two board members that were asked to leave and we had one board member that left on his own.

Operator

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

David Scharf - JMP Securities

Hi, good afternoon, Mark.

Mark Kuchenrither

Hi, David.

David Scharf - JMP Securities

I wanted to follow up on a couple of questions that were posed already, John kind of beat me to the punch there that 15% ROIC, I was curious about it as well. It’s clearly lower than you guys had articulated in years past, but I am just curious I mean, should we think about that as a kind of baseline very achievable figure in your mind or as you look at just the structural landscape of the regulatory environment here in the UK versus several years ago? To you in your mind as you mentioned it as being potentially a minimum, I mean do you see yourself getting back to a 20% plus level at any point in time or is the business just changed too much structurally?

Mark Kuchenrither

I think that’s a great question. What I would tell you is I have to start somewhere. And I want to start with something that I feel like the team and I can deliver. And again, I know for sure that my weighted average cost of capital is 10% and I know that I have to deliver an ROIC above that 10% to create value. And I felt like 15% is a minimum, is a good starting point, because as you know, as you model and forecast nothing is ever perfect and there is going to be some variation and I wanted to give myself in the company enough cushion that we wouldn’t fall below the 10% cost of capital. At the same time, we are going to prioritize. And so there is – we have a limited amount of capital to allocate and we are going to be very rigorous in our analysis and the opportunities that deliver the highest return are going to be the ones that we are going to determine that we want to fund. I don’t know if 20% is achievable at this time. And so I didn’t want to push something out there arbitrarily that I – until we do the work.

David Scharf - JMP Securities

Got it. Fair enough. And should we think about that 15% as a consolidated figure or something that you are going to look at business by business. I think you had mentioned several businesses such as online in Mexican pawn that obviously are struggling a bit right now. And as you undertake this 90-day review, is that 15% of benchmark that you could apply to every standalone business entity or is it a corporate goal?

Mark Kuchenrither

We are going to imply it to every standalone business entity and every investment other than an investment made for state fee or government compliance reasons or maintenance and investment that we make for growth or in our business units, including the investments just in working capital of our existing business units, we are going to take a look at their ability to provide a return on invested capital of at least 15%. And that’s going to force us to make some decisions. And there are several paths that we could go down based on those results. And I want to take the next 90 days with the team to evaluate those and present those findings to our Board of Directors in September – at the end of September and then ultimately report back to you what our strategy is.

David Scharf - JMP Securities

Got it. And one last question, I know we typically wouldn’t expect you to comment on competitors in a call such as this, but in reference to kind of U.S. pawn balances, I think you specifically called out some observations that you might have as to why perhaps you had been growing or rebounding as quickly as some other competitors. Is there anything specifically you can highlight?

Mark Kuchenrither

Well, I think – again I am – I want to do the work, I want our team to do the work to look at our collateral – through the collaterals entire lifecycle through from loan origination to disposition. And why I am making the comments I am making is that when I look at our redemption rates, I think we have opportunity to loan more and refine our analysis internally on how we think about loan to value and increase our velocity inside that business. But again, we need to do the work and I need to see it and our team needs to evaluate it, but I believe that there is opportunities there.

Operator

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

Bill Armstrong - CL King & Associates

Good afternoon, Mark.

Mark Kuchenrither

Hi, Bill.

Bill Armstrong - CL King & Associates

Could you discuss the – in the UK with the new FCA rate caps that we saw higher losses at cash G&A, could you kind of talk about the outlook there and not only in terms of loan loss as well as in terms of originations and what – how that might impact the business model and in fact is the business model viable going forward under the new regulation?

Mark Kuchenrither

Well, you are going to have to forgive me I have been a week into this job. And so I don’t – and I haven’t been focusing on that business too much, because it represents a very, very small part of our business, but what I will tell you is that we have a very – why I believe is a very capable team looking at the changes being imposed by the FCA and are adapting the business model to accommodate those changes. And over the next 90 days, we will be working through our planning process and we will see what that tells us with regards to the business. What I will tell you is that the UK market is just a – it represents a tremendous opportunity, because the consumer demand is there. And if we can figure out a way to provide the customer with the cash they need and deliver an ROIC that we want which I have described and we believe we can get there in a reasonable amount of time and we are going to go for it.

Bill Armstrong - CL King & Associates

Okay. Fair enough. And on the structured asset sale what was the net income or earnings per share impact of that sales for the quarter, $10 million?

Mark Kuchenrither

I would have to do the math because it’s complicated too, because we have a Panamanian structure that we have in place there too that gives us lower tax rate. I would tell you what let me take that down and we will come back to you with that answer, because I don’t want to give you (indiscernible) answer and be wrong.

Bill Armstrong - CL King & Associates

Okay. And then just one final quick one, your guidance for the fourth quarter looks like it includes $0.03 of transaction cost for the converts does that my math correct?

Mark Kuchenrither

Yes, your math is correct, but it’s not transaction costs, it’s actually the interest expense. If we call we borrow $230 million and so now we have to service $230 million of debt and the way the convertible bond works there is a cash interest at 2.8% and that’s the cash interest that we pay. And so that rate is cheaper than what we were paying with our bank facility which was around 3%. But there is also a non-cash interest component that’s imputed on the income statement that basically marks the market what we would pay in interest if we went out with a true debt vehicle. And so there are two components on the income statement and that results in a $0.03 impact approximately in fourth quarter.

Bill Armstrong - CL King & Associates

Great. There is a wonderful accounting of convertible note, so I guess maybe just for modeling purposes going forward what would the GAAP interest cost on those notes be sort of on a quarterly or annual basis both the contractual cash interest plus the additional interest that GAAP requires?

Mark Kuchenrither

I understand I believe it’s approximately 3.3% – I am sorry $3.3 million – I am sorry $3.4 million a quarter.

Bill Armstrong - CL King & Associates

Okay.

Mark Kuchenrither

And again that’s based on the full $230 million.

Bill Armstrong - CL King & Associates

Got it. Okay. Thanks very much.

Mark Kuchenrither

Sure.

Operator

Thank you. Our next question comes from the line of John Hecht from Jefferies.

John Hecht - Jefferies

Good afternoon guys. Thanks for taking my questions.

Mark Kuchenrither

Hey John from Jefferies. It’s good to hear you.

John Hecht - Jefferies

Thanks very much. A quick question is that just looking at where you finished up this quarter and the guidance for the next quarter, you talked about a number of things you are considering in terms of expense management and I am just trying to wonder if you can kind of give us a sense for bridging how you get from this quarter to next quarter? Would you – do you think given the volumes out of Finmart you can engage in a similar amount of loan sales, number one? Number two what kind of expense savings can you achieve in the near-term? And then number three, we have obviously seen a stabilization in the pawn segment, is that where you see most of it kind of benefit from here to there?

Mark Kuchenrither

That’s a great question John. So first I am going to take it one at a time. So the Grupo Finmart transactions, if you recall we did our first transaction in first quarter. We followed with another transaction in second quarter. And then we actually did two transactions at the end of this quarter and we are moving to starting in the month of August, we are moving to monthly transactions. But we are going to – we took it from 36 months down to 90 days. And now at the end of August we are going to take it down to 30 days cycle to further improve cash flow and velocity of those type of transactions. So I am anticipating two transactions this quarter one in August and one in September. The monthly transactions will be smaller in size than the – on individual basis what you are seeing in the quarter. But what they will do is we will start to have a predictable balanced approach between the distributor model and the traditional model and that’s what we are looking for. We want predictable earnings, predictable cash flow, so we can manage the business. So, you can anticipate two of those in fourth quarter. And then you are absolutely right, the pawn business, we have now anniversaried over the changing gold price in volume that we – that impacted us last year mid-June. And so fourth quarter comparables start to become much more favorable to us and so we expect to benefit from that in the fourth quarter. In terms of the expense analysis that I talked about earlier, the forecast was determined prior to any of this analysis that I talked about. So, any expense savings that we determined as we go through our 90-day plan is not currently contemplated in the forecast.

John Hecht - Jefferies

Thanks very much. I appreciate the color.

Mark Kuchenrither

No problem.

Operator

Thank you. Our next question is a follow-up from the line of Bob Ramsey from FBR Capital Markets.

Bob Ramsey - FBR Capital Markets

Thanks for taking the follow-up. Just a follow-up on John’s question there about the securitizations, I know you said it will make earnings a little more predictable. With the two transactions, what is the sort of expected size or the range of size? And then is that kind of a good quarterly run-rate or is there a good annual rate way to think about that business on a go forward basis?

Mark Kuchenrither

Yes, great question. First, I would tell you these are not securitizations, these are – Groupo Finmart has a securitization, a public securitization and that’s true financing, but this is truly an asset sale. I just want to make that distinction, because very important. And the size that Grupo Finmart is working with their partners that buy the loans to determine the size, but I am going to give you a wide range right now. It’s probably somewhere between $5 million and $10 million a month depending on seasonality and growth – the growth projections of the business. And I think that, that will be – that’s why we are not starting till August, because the team is actively working on refining what that’s going to look like for the next 12 months going forward. And I would expect a controlled step function growth in size over time as the Grupo Finmart grows its business organically.

Bob Ramsey - FBR Capital Markets

Okay. And then the – is it right or fair to think about gain on sale in future period as being the same ballpark as this quarter and last?

Mark Kuchenrither

Well, again, I don’t want to – I think it’s probably in the range, but I don’t want to commit to that, because again, the team is doing the work. And so I don’t want to mislead you with giving you a bad number.

Bob Ramsey - FBR Capital Markets

Okay. And then I guess two as I think about the sales, it’s a trade-off of fee income from interest income obviously there is a pretty big transaction this quarter. Just curious if it was early in the quarter or late in the quarter or if it will have any impact on consumer loan fees in the future periods?

Mark Kuchenrither

Well, it does have an impact on consumer loan fees, because remember you are accelerating the fees that would have been collected over a three-year period by getting the sale you are in essence by limiting those loan fees going forward and you are taking the gain on the sale of the transaction all at once. So, you are also eliminating the commission expenses that would rollout for 36 months as well. Now, those are all rolled forward as well. And so the way to think about this is almost like inventory turns. I can turn one time every three years or over the course of three years I am turning this loan, I am collecting revenue and I am recognizing expenses over a three-year period or for a 3% premium, I can accelerate that now down to 30 days. And for us, we look at the analysis and say you know what paying a 3% is worth it to us, because we can use the cash that we gained to reinvest in a higher return.

Bob Ramsey - FBR Capital Markets

Okay, that will make perfect sense to me. I guess I was just trying to get out whether in the third quarter, you will have the benefit of those balances for much of the quarter or not, if this is sort of a good starting point as we go forward?

Mark Kuchenrither

You know what, Bob, you asked that. I didn’t answer that part of the question. Yes, these transactions actually happen June 30.

Bob Ramsey - FBR Capital Markets

Okay, okay. So, yes, so okay very end of the quarter. Perfect. And then could you I know you said the guidance doesn’t include severance payments, could you tell me how much you expect that to be?

Mark Kuchenrither

I have no idea at this time.

Bob Ramsey - FBR Capital Markets

Okay. Alright, that’s good. Thank you.

Mark Kuchenrither

Thank you.

Operator

Thank you. And our next question is a follow-up from the line of John Rowan from Sidoti.

John Rowan - Sidoti & Company

Good afternoon guys.

Mark Kuchenrither

Hey, John.

John Rowan - Sidoti & Company

The tax rate for the fourth quarter and ongoing, is that going to be it around 31% or are we – or is it going to be affected by the continued sales of the loans that of (indiscernible) which seemed to be at a lower tax rate?

Mark Kuchenrither

Yes, we have got – it’s a good question. I think our tax rate will be about 30% going forward. We will have some fluctuations depending on where the profit, the mix of the profit across the businesses, but we have created a very favorable structure to us with Grupo Finmart, first Mexico’s tax rate is effectively 30% versus the U.S. Then also we have a Panamanian structure that lowers that even further. And so as the Mexican business grows, then our overall tax rate will benefit accordingly.

John Rowan - Sidoti & Company

Okay. And then just last question, when was the last time you had a positive same-store loan balance in U.S. similar to what you had this quarter?

Mark Kuchenrither

I don’t know that. I’d have to look that up and get back to you, John. That’s a good question, but I don’t know that off top of my head.

John Rowan - Sidoti & Company

Okay, thank you very much.

Operator

Thank you. And our next question comes from the line of David Scharf from JMP. And he has left the queue. I am showing no further questions at this time. I would like to turn the conference back to Mr. Kuchenrither for his closing comments.

Mark Kuchenrither

Thank you, Karen. First, I want to thank everyone for participating in the call. It’s a pleasure to get an opportunity to speak with you and I look forward to speaking with you again. You can rest assure that we have our head down and we will be working hard and I am really looking forward to talking to you in 90 days.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.

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