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Advance America, Cash Advance Centers, Inc (AEA)

Q1 2011 Earnings Call Transcript

April 28, 2011, 8:00 am ET

Executives

Jamie Fulmer - IR

Patrick O'Shaughnessy - CEO

Analysts

David Burtzlaff - Stephens

John Hecht - JMP Securities

Ed Antoian - Chartwell

[Paul Profil - Continental]

Operator

Good day, everyone, and welcome to the Advance America, Cash Advance Centers first quarter earnings results conference call. As a reminder, this call is being recorder. At this time for opening remarks and introductions, I'd like to turn the call over to Jamie Fulmer. Please go ahead, sir.

Jamie Fulmer

Good morning, everyone. Before we begin, let me remind you that during this call, other than those relating to our historical information or our current conditions, will be forward-looking statements.

For example, any statements regarding our future expenditures and financial performance, our plans for product expansion, our business strategy, perspective demand for our products or expected legislative or regulatory developments that may affect the cash advance services industry are forward-looking statements.

Please note that these forward-looking statements reflect our opinion only as of this day of this presentation and we undertake no obligation to revise or publicly release the obligations of any revision to these forward-looking statements in light of new information or future events.

In this regard, please keep in mind that our actual future results could differ materially from our expectations and are subject to risks, uncertainties and other factors many of which may not be within our control or may not be predicted.

For a more detailed discussion of some of these factors, please refer to the risk factors section of our annual report on Form 10-K for the year ended December 31, 2010, a copy of which is available from the SEC, upon request from us or by going to our website atwww.advanceamerica.net.

Now, I'd like to turn the call over to our Chief Executive Officer, Patrick O'Shaughnessy.

Patrick O'Shaughnessy

Good morning and welcome to our first quarter 2011 earnings call. Yesterday we were pleased to report the results of the quarter ended March 31, 2011. I would like to begin our discussion by briefly updating you on a few developments since our last call before I discuss the financial results in detail.

Yesterday, our Board of Directors approved Advance America's 26th consecutive dividend since becoming a public company. This dividend of six and a quarter cents per share is payable on June 3, 2011 to stockholders of record as of May 24, 2011.

Since our December 2004 initial public offering, we have paid out approximately 50% of our net income in a form of regular quarterly dividends and together with the repurchase of shares we have returned approximately $392.4 million in cash to our stockholders.

Now I would like to take a few minutes to discuss activity in the legislative and regulatory arena. At the federal level, work to form at a new consumer protection bureau continues. It is clear that the bureau is making a sincere effort to be transparent in its actions and is seeking constructive input and suggestions consumer groups, state regulators, congress, industry leaders and other interested parties.

We believe that the bureau will seek to act in a balanced manner to ensure that our financial markets continue to facilitate reliable access to credit while also further defining appropriate lending practices and ensuring the products are regulated in a like manner.

The Dodd Frank Act, which created the bureau, requires its regulated bank and non-bank products equally and to carefully waive actions in terms of the potential cost and benefits to consumers and lenders including any potential for reducing consumers' access to credit.

It remains our intention to work with the new bureau to help shape this new regulatory structure as it relates particularly to short-term credit products. Specifically, we believe it is essential that consumers continue to have access to competitive and transparent credit services that provide a full measure of clarity when making the choices that best suite their needs.

We will also continue our efforts to educate legislators, regulators and public officials so that they have a clear understanding of our service and the very needs of middle income consumers who have choices when facing short-term borrowing decisions and generally make their choices carefully.

It is important to remember that our customers have a clear rationale for selecting the cash advance option. They do so because it makes personal and economic sense for them. The demand for short-term credit options is undeniable.

According to a 2009 FDIC survey of unbanked and under-banked households, 43 million US adults live in households that, although they have bank accounts, occasionally choose to use alternative financial services.

A number of banks and credit unions offer credit options to meet their customers' short-term needs including credit card late payments and over limit fees, as well as overdraft credit. In addition, many provide cash advance services very similar to our own.

Many of these services are offered at comparable cost to ours though rarely do they include the same level of transparency and disclosure, including implied APR calculations. We believe that a well regulated financial marketplace that promotes fair competition remains in the best interest of consumers who often look to short-term credit to meet their budgeting needs.

It remains our firmly held position that all the financial products that consumers choose from, whether offered by bank, credit union or non-bank lenders, such as Advance America, should be regulated in the same manner.

Turning to activity at the state level, legislators remain in session in most states across the country. Many should be winding down in the next several weeks. We are closely monitoring a number of states where active bills could have an impact on our business. Specifically Colorado, Missouri, Rhode Island, Texas and New Hampshire all have bills being considered.

These bills are in various stages in the process and it remains too early to predict a final outcome for any of them, so I will refrain from commenting at this point.

As always, we are working with state legislators to ensure that they consider reasonable regulations on short-term credit, the balance of access to credit with meaningful consumer safeguards.

Most states have chosen to adopt laws that find this balance and allow for reliable access to the financial services that best suite the needs of consumers, including cash advance services. Still, as many of you are aware, there have been some instances where the states have limited access to credit.

This often forces consumers to choose less regulated services, such as offshore internet loans and potentially higher-cost forms of credit, such as overdraft protection, NSF fees or late fees to vendors.

One of the most recent examples of this scenario is the state of Washington where last year the legislature decided to ration credit by enacting an arbitrary loan limit. Despite numerous compelling arguments related to the detrimental impact to the Washington law on the lending market and consumers, efforts to create a more workable regulatory framework were unsuccessful in the legislative session that just completed.

As a result, we are concerned that this prohibitive environment will preclude our ability to sustain a profitable business in Washington State. Since this law went into affect, we have closed 45 centers in Washington and will likely close many of our remaining 46 centers there this year.

For the three months ended March 31, 2011, the center gross loss in Washington was approximately $322,000. Washington State took this unique action even though annual loan limits have often been considered, debated and rejected at the federal level and in many other states across the country.

Unfortunately, the consequences of these regulations have been dire for many consumers. In October, the Washington Department of Financial Institutions issued a press release stating that among other things, consumers were increasingly turning to unlicensed internet lenders as a result of the new law.

In the same release, the DFI noted that it has received complaints against numerous lenders not licensed to do business in Washington State. The negative impact of overly restrictive regulations on consumer lending is well documented.

Professor Todd Zywicki of George Mason University points out in his study titled The Case Against New Regulations on Payday Lending, that economic theory and empirical evidence strongly suggests the paternalistic regulations would make consumers worse off, stifle competition and do little to protect consumers from concerns over indebtedness and high-cost lending.

Furthermore, late last year, the US Department of the Treasury released several reports investigating small dollar loan usage, availability, policies and research. One study found its stringent regulations result in fewer options and push consumers to unregulated credit.

Specifically, the study found that completely prohibiting cash advance services in a state resulted in only a 35% decline in their use with the majority of state residents turning to regulated or out-of-state lenders for short-term credit.

This data and the experience of our customers in a state like Washington clearly demonstrate the price caps and prohibitions that can worsen consumer well being. As I said before, the demand for short-term credit is undeniable.

Poorly thought out regulations do not address the demand but often result in fewer short-term credit options for the consumer and force them to turn to potentially inferior alternatives.

I would now like to provide you with an overview of our financial results for the quarter and year-ended March 31, 2011. For the quarter ended March 31, 2011, our total revenues were essentially flat despite fewer centers decreasing slightly to $144.1 million compared to $144.4 million for the same period in 2010.

We believe that the revenues in the first quarter were positively affected by this year's delay in the start to tax refund season. Also, please keep in mind that these comparisons include the results of operations in Arizona where we ceased operations in July of 2010 as well as Colorado, Kentucky, South Carolina and Virginia where changes to state law and the regulation of our industry have negatively impacted our revenue and profitability.

Revenues in these five states were $13.3 million for the quarter ended March 31, 2011 compared to $21.8 million for the same period in 2010. Excluding the results of these five states in both years, revenues increased by 6.7% for the quarter ended March 31, 2011 compared to the same period in 2010.

For the fourth quarter, total revenues for centers open prior to January 1, 2010 and still open as of March 31, 2011, increased by 5.9% compared to the same period in 2010. If you exclude revenues from the four states that I mentioned, other than Arizona, for the quarter ended March 31, 2011, total revenues for our centers opened prior to January 1, 2010 and still open as of March 31, 2011 increased 13.9% compared to the same period in 2010.

The provision for doubtful accounts as a percent of total revenues for the quarter ended March 31, 2011 increased to 9.6% compared to 8.8% for the same period in 2010. We received proceeds of the sale of previously written off receivables during the first quarter of 2011 of approximately $7000 compared with $0.5 million during the same period in 2010.

Charge-offs net of recoveries for the quarter ended March 31, 2011 were $25.7 million compared with $26.4 million during the first quarter of 2010. We closed or consolidated 10 centers in four states during the first quarter and we opened a total of five centers in two states and the United Kingdom.

As of December 31, 2010, we had an operating network of 2347 centers and 56 limited licensees in 30 states, the United Kingdom and Canada. We had approximately $200,000 of consolidation and center closing costs during the quarter compared to $1.8 million during the same period in 2010, excluding any increases to provision for doubtful accounts. Closing costs include severance, center tear down costs, lease termination costs and the write down of fixed assets.

For the first quarter of 2011 our total advertising expense was $3.2 million or 2.2% of revenue compared to $3.6 million or 2.5% of revenue in the first quarter of last year. Center expenses for the quarter ended March 31, 2011 were $95.7 million compared to $101.6 million for the same period in 2010. Reduction in center expenses is primarily due to our consolidation of certain centers during 2010.

Center gross profit increased 13.1% to $48.4 million for the quarter ended March 31, 2011 compared to $42.8 million for the first quarter of 2010. General and administration expenses for the first quarter of 2011 were $15.1 million compared to $16.6 million for the same period in 2010. This reduction was primarily due to lower legal expenses incurred during the first quarter of 2011.

Income before income taxes for the first quarter 2011 increased to $31.6 million compared to $24.1 million for the same period in 2010. The effective income tax rate as a percentage of income before income taxes was 43.2% and 44.0% for the three months ended March 31, 2011 and 2010 respectively.

Net income for the first quarter of 2011 increased to $18.0 million compared to $13.5 million for the same period in 2010. Diluted earnings per share were $0.29 for the quarter ended March 31, 2011 compared to $0.22 for the same period in 2010.

During the quarter ended March 31, 2011, we generated cash flow from operations after funding of advances receivable of $35 million. As of March 31, 2011, we had $65.3 million borrowed under our revolving credit facility.

With regard to some of the key operating metrics for the first quarter, the average amount of a cash advance made, excluding installment loans in Illinois and lines of credit in Virginia, during the first quarter of 2011 increased to $373 compared to $367 for 2010.

The average fee on all cash advances made was approximately $55 during both the first quarter of 2011 and 2010. The total principle amount of cash advances made during the first quarter was approximately $853 million compared to $839 million during the first quarter of 2010, again, excluding installment loans and lines of credit.

The average duration of all cash advances, excluding those in extended payment plans, was approximately 18.2 days in the first quarter compared to 18 days for the first quarter of 2010.

Before I turn the call over to the operator for your questions, let me conclude by sharing your enthusiasm for the future of Advance America. In my relatively new capacity as CEO, I'm looking forward to working with our management and dedicated employees to continue operating our business efficiently and delivering value to our customer and our stakeholders.

I assure you we will remain committed to our core service providing simple, reliable and transparent financial services for working consumers and their families. That concludes my presentation. I will now turn it back over to the operator for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Burtzlaff - Stephens.

David Burtzlaff - Stephens

You mentioned how the strength or the delay in tax refunds helped during the quarter. Can you give a little more detail on what do you think? Is that more volume early in the quarter when loan balances are higher or how did that really help?

Patrick O'Shaughnessy

As you know, our balances come down pretty dramatically during the first quarter. I think if you look at the March 31 balance sheet their loan balances will be pretty much the same year-over-year.

The difference is really we typically bottom out, so to speak, in the last week of February when most of the returns, early returns, are done. This year we saw that delay a bit, so loan balances stayed higher through March, which obviously helps revenue in the first quarter.

David Burtzlaff - Stephens

How has -- the business was obviously strong through the quarter. How has that continued into April?

Patrick O'Shaughnessy

I would say it's a little bit difficult to tell. The bottom -- I'm not trying to avoid the question but, as I said, the bottom is usually into February and then the big V recovery in March and April and the bottom was later this year and it's not been as big of a quick recovery. So business is going fine but we're not seeing the typical seasonal bounce back. I think we probably have to wait until we're into May to know how the late tax refunds would affect the second quarter.

David Burtzlaff - Stephens

The salaries line seemed to be higher. Is that incentive comp?

Patrick O'Shaughnessy

The salaries at the center level?

David Burtzlaff - Stephens

Yes.

Patrick O'Shaughnessy

It's partly that but we also -- we have - because we are [help] [inaudible] [or hire] we actually have more employees per center and higher salaries per center this quarter than we had in the same quarter last year. It's about the same but because of the lower store base it's higher on a per-store basis.

David Burtzlaff - Stephens

Because you merged those stores you added employees for the additional checks.

Patrick O'Shaughnessy

That's correct.

David Burtzlaff - Stephens

You opened some stores in the UK this quarter. Is that going to be a focus for you this year?

Patrick O'Shaughnessy

Yes, I think we'll continue to try and grow over there and improve profitability. I don't know how many stores will open at this time but I think we're working to clearly improve operations over there.

David Burtzlaff - Stephens

Then finally, I was looking at the affected states. Are any of those starting to comp hire because going back and looking at the Q from last year, it looks like revenues in just Kentucky, South Carolina and Virginia would have been down this year. Is that right?

Patrick O'Shaughnessy

I'm not sure I understand the question.

David Burtzlaff - Stephens

Well, I went back into the Q and looked at the revenues last year from Virginia, South Carolina and Kentucky and it was about $15 million where you've only did $13.3 million in the first quarter out of five states.

Patrick O'Shaughnessy

Right. Yes, are you asking will all three of those states comp down this quarter?

David Burtzlaff - Stephens

Yes, are they still comping down here?

Patrick O'Shaughnessy

They are still comping down. We haven't quite anniversaried South Carolina or Kentucky. As you know, Virginia, the rules keep changing all the time.

Operator

Your next question comes from the line of John Hecht - JMP Securities.

John Hecht - JMP Securities

First question is when you exclude the regulatory changes or impacts, same store sales have been accelerating for a few quarters. Obviously some of that could be attributed to general recovery and economic activity. But at the store level how are you seeing that form? Are you seeing that in larger average loan balances? Are you seeing that in increasing new customer activity? I wonder if you can disseminate that for us.

Patrick O'Shaughnessy

Most of it is really a result of our center consolidation program that we've been working on for a couple of years now. You're seeing -- if you look at loan balances, loan fees quarter-over-quarter, they're basically flat. It really is just trying to get more customers per center and that's come through both internal consolidation as well as acquiring accounts from other companies.

John Hecht - JMP Securities

On that note, I know you did have the big [Slug] acquisitions in the latter part of last year but have you -- on the program there have you identified other stores where you can continue to consolidate, to extract efficiencies and to drive same store sales growth? If so, what kind of quantity stores would that account for?

Patrick O'Shaughnessy

Yes, as you saw, I think we only closed 10 in the first quarter of this year. Most of that activity, what I would call the low hanging fruit for consolidation, has really occurred over the past two years. We'll continue to evaluate it every quarter and see where we can combine stores to get efficiencies. But what you're really seeing is the results of closing and consolidations we did last year.

John Hecht - JMP Securities

On a credit perspective just wondering your opinion; largely speaking, when you normalize for the sale of charge-off receivables, credit was relatively flat and you're still running relatively low credit costs. The economy is improving. How do you see your credit costs moving forward? Is it reasonable just to see a flat year-over-year result or do you think they'll improve as unemployment improves?

Patrick O'Shaughnessy

I think actually it could be the opposite, John. It's hard to predict. We don't lend to people without jobs, so that's really not an issue in the credit quality of our customers. We've definitely I think over the past years seen an improvement in credit quality in general but that's been associated with lower revenue growth.

So I think that an improving economy less unemployment will definitely improve revenue growth. I'm not sure it would come with an ancillary credit improvement as well.

John Hecht - JMP Securities

So do you think you might - you've been conservative? You can tell because you've had pretty strong credit results. Do you think you might change underwriting or increase loan balances or something to drive revenue growth and that might also impact credit? Is that what I'm hearing from you?

Patrick O'Shaughnessy

We're doing two things right now. We're rolling out a different scoring model literally starting next month that we have been working on for quite some time and have tested recently. We don't think it will -- in the current environment we won't be rejecting many customers but do think that we've got some ability to improve credit quality through the second half of this year, improve charge-offs through the second half of this year.

It's really more to be in place as for an economic recovery. We hope to see more customers, more people we don't know and that's really where all of your risk is, is when you -- is in the new customer. So we do have a new scoring model. It will be rolling out in the second half of this year and, again, it just scores new customers.

John Hecht - JMP Securities

My last question, you may or may not have the information handy, but if I recall I think you're going to anniversary the changes in Kentucky and Arizona in the near term here. Do you remember what those revenues -- the writing contribution of those would have been a year ago versus now so we can get a sense for -- I guess the headwinds that you're going to lose as you anniversary those changes?

Patrick O'Shaughnessy

I don't have Arizona in front of me but it's obviously zero this year. I'm not sure what it was last year. Kentucky this quarter was about -- in revenue -- about $1.4 million versus $2 million last year. South Carolina I think was about $5.3 million verus $6 million last year. Those are in all total -- and obviously they'll be in the Q [inaudible].

Operator

Your next question comes from the line of Ed Antoian - Chartwell.

Ed Antoian - Chartwell

Can you give us just a little more color on the handful of states that have legislation floating around? Do you want to talk about some of the issues specifically that are being batted around in their legislature if you don't mind?

Patrick O'Shaughnessy

Colorado, a bill was passed there last year and there was a change by the regulator in the interpretation of whether the application was refundable or not and we're currently not refunding -- I mean, currently are refunding application fees if someone pays off before maturity in that state.

The bill that's being discussed is basically whether the intention of the legislature was to make that non refundable or refundable application fee and that's being discussed.

In Missouri there is a bill that would be -- that has a lot of protections. It would definitely be harmful to our economic results there, including putting in fee caps and limitations on numbers of refinances, among other things.

It's not -- as I said, it would be detrimental to our business there but it's been portrayed in the media there as the industry-sponsored bill, the pro-industry bill, so it may not pass for that very reason but, again, most of these places are in session the next two weeks, so we'll know.

There's several bills proposed in Rhode Island and including a fee increase, a fee decrease and basically what would be an elimination bill there. I don't know, again, where those might go. In Texas, there is two bills, one in the house there, one in the senate, both of which, again, would restrict our business there.

Both of those would be detrimental to overall results. Neither of them would be -- at least as written -- would be prohibitive or I think cause us to exit that state but both would restrict us somewhat and I don't think either of those have been voted for either on the house floor or the senate floor. Again, they're in session for about the next two weeks, so we'll know more soon.

Ed Antoian - Chartwell

Could you update us on your philosophy on internet activity? I know you have an arrangement now with a third party but what do you think about that business and how do you think you'd like to pursue it going forward?

Patrick O'Shaughnessy

We like it very much. I think that it certainly attracts a different demographic customer than we see in our stores. We think it's still a growing market. As you know, most of that -- the internet business is really conducted today either on a choice of law basis or an offshore basis. Very little of it is following state laws and we feel that however we do it with our partner or ourselves it needs to be following the existing state regulations and that's how we continue to approach it.

Ed Antoian - Chartwell

It's been a while now -- a year or so ago, maybe a little longer, Patrick -- you guys not only paid dividend but you also had a stock buyback activity. What's your thinking about how to return all the cash you generate to shareholders?

Patrick O'Shaughnessy

I think that clearly this company has a history and the board has a bias towards returning capital to shareholders. It's something we talk about often and we'll definitely continue to consider in the future.

Ed Antoian - Chartwell

So it's not stock buybacks off the table?

Patrick O'Shaughnessy

No, it's not.

Operator

Your next question comes from the line of [Paul Profil - Continental].

[Paul Profil - Continental]

One state you left out, New Hampshire, as you gave the run down; what's going on there?

Patrick O'Shaughnessy

New Hampshire, there is a bill proposed there that is not -- it's not a short-term advance bill but it is a credit option very similar to the recent bill that was put in place in Illinois and we're following it closely.

Depending on how that goes and what the final bill looks like, we may reopen some stores in that state. But I'd say it's too early to tell.

[Paul Profil - Continental]

Then just on the other states, it sounded more from your tone that you're taking more of a posture - and maybe this is just me reading appropriately how you're presenting it -- but of no regulation is your point of view. Are there reform bills that you support?

For instance, are you supporting anything that's going on in the states? Clearly you're probably supporting what's going on in Colorado but in the Missouri, Texas scenario, in those reform situations, are those situations that you are supporting or not?

Last year when you talked about Wisconsin that, again, was a restrictive bill and we can get to that later but it was a bill that you supported because you thought it was stabilizing the industry.

Patrick O'Shaughnessy

We're clearly supporting Chicago -- I mean, excuse me -- clearly supporting the Colorado law because we think it's just a clarification of the law that was written. In Missouri, we haven't really come out in support of it and part of the reason is that [inaudible] keeps changing and really need to know what you have before you can be supportive or not.

It doesn't really matter in a sense because I think the media in Missouri has portrayed it as an industry-sponsored bill even though it is -- I would consider it reform and restrictive. Texas, it's a little bit fluid as well. We haven't seen final drafts of any of those bills.

I think we would support -- generally we always support balanced consumer regulation and I think we would support something in Texas that we thought was fair and balanced and created a workable regulatory environment. But, again, we haven't really seen a final bill from either the house committees or the senate committee.

[Paul Profil - Continental]

Then Washington, you referenced the October statements from the Commissioner there. Recently they've made some more statements around it. Why in that situation, in your opinion or the industry's opinion, have the legislators of that state been reluctant to follow statements like that in terms of the harm that is being done to consumers based on what they've enacted?

Patrick O'Shaughnessy

Yes, I have the same questions you do because it seems to me it's logical to do so. I think the answer is that it must not have been politically astute for some -- to do it. We had -- the regulator there I think stood up and said we need to fix a few things in this bill and no one decided to pick it up.

[Paul Profil - Continental]

In Wisconsin, some of your competitors have recently reflected on their conference calls that they are operating under the Installment Loan Act there. Where are you guys in terms of your operations in Wisconsin?

Patrick O'Shaughnessy

We are continuing to operate under the -- I think it's the Payday Loan Act; I'm not sure what they call it -- and do know that a lot of our competitors have moved away from that. We haven't made any changes or currently don't have any plans to change. But generally speaking we will watch the market and see what the consumers prefer.

[Paul Profil - Continental]

Just moving over to operations; what do you think the acquisition that you made last year, did that have any affect on the first quarter metrics that you just gave us on the store operating, same store sales?

Patrick O'Shaughnessy

Yes, it did. I think we -- the end of last year I think we reported that we acquired about 14,000 new customers in that transaction. I think at March 31 we still had about 9000 of those customers had continued to use our services, so it's definitely a contributor to same store sales and overall performance.

[Paul Profil - Continental]

In terms of the performance of that acquisition, how does - because I don’t think we -- at least [if someone saw] this situation for a while -- I don't think we've seen one of those. How does 9000 versus 14,000 gain a year in terms of what you guys were trying to hit on a performance basis, how does that measure?

Patrick O'Shaughnessy

I would say that's held up better than -- we've kept customers better than we have on prior smaller acquisitions there. I guess having 9000 customers after tax season is -- it's been -- I don't know how to describe it.

But we've had higher customer loyalty out of that group than we have out of previous acquisitions because we don't -- when it's a customer that we didn't originate, we expect that more of them will not continue to use us. They're going to go somewhere else that's closer to their home or closer to their office next time. But in this -- this group has performed better than we have expected.

[Paul Profil - Continental]

Then just walk us through what you're doing internationally and, if you can, tell us if it's possible relative size and its profitability I guess UK and Canada.

Patrick O'Shaughnessy

We don't disclose the size and profitability though neither of them are currently meaningful or profitable to this company.

[Paul Profil - Continental]

So I guess what would trigger you to shut down a jurisdiction such as Washington where you've done a good job getting it -- I won't say close to break even -- but break even? Why would you stop operating in a place like that where you might be able to get some sort of legislative change and keep operating in places like the UK and Canada? I would think that you would shut down those international jurisdictions before you would shut down something like Washington.

Patrick O'Shaughnessy

Those are -- I will talk to Washington first. I think we lost about $7 million in Washington last year waiting, hoping that we would get the law fixed this year. That's really expensive, obviously, for a company like this.

The question is not can -- as I look at it today and I don’t know what -- we don't have a final plan for Washington but is given the current law, can it ever become profitable? Not really sure should we take -- how long should we continue to lose money and then what the timing and likelihood of trying to fix the law again might be because I think that as I look at it it may be -- in [some things] it's less expensive to actually go and reestablish yourself in a state if a good legal environment were to occur than it is to stay and lose money waiting for that.

[Paul Profil - Continental]

Yes, but most of the money has already been lost, I guess, if I heard you correctly, $330,000 in the first quarter.

Patrick O'Shaughnessy

That's true but that's probably a very low loss quarter because we had very low balances.

[Paul Profil - Continental]

I just had one question on the anniversaries. Washington was January 1 but that's probably going to be an odd kind of way that that customer base anniversaries because of the [loan in that] and when that started falling through last year. That law went into effect January 1 last year, correct?

Patrick O'Shaughnessy

I think that's right.

[Paul Profil - Continental]

South Carolina was February 1 last year?

Patrick O'Shaughnessy

Yes.

[Paul Profil - Continental]

Kentucky was May 1?

Patrick O'Shaughnessy

That's correct.

[Paul Profil - Continental]

Arizona you exited basically on July 1. So as we look at the back half of the year, almost all of your problem children will be anniversaried.

Patrick O'Shaughnessy

Yes, except I would think that Virginia and Washington will continue to decline for the reasons you said. It's a systemic problem, not a -- in a lot of those states it went through a database or something. It's really a one-time, primarily a one-time adjustment that you crawl your way back from. In the places where there's just a systemically [continuing] or convoluted law it may not work like that.

[Paul Profil - Continental]

Did you pay out any more of the legal settlement this quarter?

Patrick O'Shaughnessy

We did. We paid out the bulk of it I think, about $8 million this quarter. I think we have about $3.3 million left accrued on our balance sheet.

[Paul Profil - Continental]

So that leads me into just a discussion about return on capital. I know the previous questioner asked that but what are the thoughts around it? You've got unbelievable amounts of cash flow that can be redeployed. I’m not arguing with the historical bias of the board in this situation. I'm just curious why we're not seeing more of it right now.

Patrick O'Shaughnessy

I don't have a -- I guess are you thinking we should be buying stock or paying higher dividends?

[Paul Profil - Continental]

Personally the -- a long-time shareholder I think you should be doing both. I think you should boost the dividend and buy a lot of stock.

Patrick O'Shaughnessy

I would say they're definitely both under consideration and something that we always look at.

[Paul Profil - Continental]

It's not hard to -- you're talking about your consolidation efforts and we're seeing a real acceleration of non-affected states and anniversary of the states. I think it's not rocket science to look at the performance of the business and look at a business that's going to do well in excess of $100 million of EBITDA this year and probably over $1 of GAAP earnings, looking at a dividend of $0.25 given that you don't have a lot of growth opportunities. You're not going to open other stores and that the marketplace really doesn't seem interested in putting a multiple on you or an absolute or even on a comparative basis.

Presumably I guess around bureau risk but there are lots of your competitors that have bureau risk too that trade at much higher multiples than you. I just don't know why the board wouldn't look at that. Again, this is not a new position for us. [You heard it] on the last earnings call. I don’t know why the board wouldn't take that opportunity given that there's a lot of capacity to start buying stock.

Patrick O'Shaughnessy

I'll get an update. I think we take it under consideration. I don't think we've convinced ourselves that there aren't any other growth opportunities. So we look at buying stock and paying dividends against other opportunities.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back over to Patrick O'Shaughnessy.

Patrick O'Shaughnessy

Thank you very much for your participation in today's call and we look forward to speaking with you when we announce results for the second quarter of 2011. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect and have a wonderful day.

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Source: Advance America, Cash Advance Centers' CEO Discusses Q1 2011 Results - Earnings Conference Call
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