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Cash America International (NYSE:CSH)

Q2 2012 Earnings Call

July 26, 2012 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

Analysts

John Hecht - Stephens Inc., Research Division

Bill Carcache - Nomura Securities Co. Ltd., Research Division

John J. Rowan - Sidoti & Company, LLC

Daniel Furtado - Jefferies & Company, Inc., Research Division

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

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

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

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

R. Gregg Hillman

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, July 26, 2012.

I would now like to turn the conference over to Mr. Dan Feehan, President and CEO. Please go ahead.

Daniel R. Feehan

Thank you. Good morning, ladies and gentlemen, and welcome to our earnings call for the second quarter of 2012. Our Chief Financial Officer, Tom Bessant, is joining me this morning, and we will be discussing our second quarter results and a few other topics with you.

I will provide some very brief overview remarks to begin the call and then Tom will provide, as usual, comprehensive financial report. And we will then open the line for questions.

Before proceeding with our prepared remarks, I'd like to remind you that all the statements made during this call that relate to future results and events are forward-looking statements and are based on current expectations. 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 annual and quarterly 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, we can proceed with our prepared remarks.

We issued 2 press releases earlier this morning: the first reporting our board's decision, which was made yesterday, to withdraw the registration statement on Form S-1 for the proposed initial public offering of our wholly owned subsidiary Enova International, Inc.; and the second release reporting our financial results for the quarter and year-to-date period ended June 30. I will provide my thoughts on both.

Regarding the withdrawal of Enova's registration statement, I'll remind you that we first filed the registration statement with the SEC in September of last year for the proposed initial public offering of common stock of Enova, which is the subsidiary comprising our e-commerce segment. The registration statement has been amended several times since the initial filing in order to update the financial information and to revise other disclosures, including updating the offering size. Throughout this process and with the help of our investment bankers, our board has been constantly assessing the IPO market condition to find a window of opportunity to launch the IPO of Enova at an attractive valuation. Since the initial filing, the IPO market has proven to be extraordinarily volatile by historical standards, which in turn has provided investors with significant leverage over issuers, and that leverage imbalance has driven IPO discounts to unacceptably high levels, in our opinion.

Additionally, during this lengthy period since September of last year, we've been unable to speak openly about the business prospects of our e-commerce segment due to the SEC regulations that prohibit such discussions during the registration process. The same regulations have also restricted our ability to provide earnings guidance for the full Cash America enterprise.

Now, obviously no one's got a crystal ball, but it is our board's current judgment that the volatility in the IPO market is not likely to abate anytime soon, particularly given the ongoing turmoil in the European Union and the uncertainties about U.S. fiscal and tax policy following the elections in November. Now, as clearly, the board has concluded that we should withdraw the registration statement at this time, which will allow management the freedom to openly and transparently communicate about our entire business. We will also be resuming our practice of providing earnings guidance, which Tom will discuss in his remarks.

The registration statement was not yet to be declared effective by the SEC and no securities were sold, pursuant to the registration statement. Not -- Enova filed this application for withdrawal of the registration statement with the SEC after the market closed yesterday afternoon.

At this point, I can tell you that our board is very happy continuing to operate Enova as a wholly owned sub of Cash America International. This e-commerce segment of our business continues to grow at very impressive rates as it expands internationally and deploys innovative new consumer credit products in the U.S., and we all continue to believe the business has an exciting future.

Now we did acknowledge in the original registration statement that we wanted to establish a market value of Enova that was independent from the market value of Cash America's common stock and provide Enova the opportunity to focus singularly on its business strategies while the balance of the Cash America organization focused on its strategy of expanding the storefront business of our retail services segment. And while this objective may still remain valid, I can confirm you -- confirm for you that we have never been irrevocably committed to the carve-out of Enova. However, we are committed to doing what is in the best interest of our shareholders. And we will continue to assess the viability of a potential carve-out in the future as part of the capital planning and market assessment reviews that we do on a routine basis.

Now moving onto the second press release regarding our financial results for the quarter, you have seen that we reported consolidated revenue growth of 19% and EPS growth of 12% for the quarter. Consolidated earnings per share for the quarter were $0.94 versus $0.84 last year and a consensus analyst estimate of $0.96.

Since we had no earnings guidance out for the quarter, you may be wondering how the $0.94 result for EPS might compare to our internal expectations. I can tell you that our internal expectations were actually a bit higher than the consensus estimate, so it's safe for you to conclude that we had expected EPS growth to exceed the reported amount of 12%. Tom will get into the details of the quarter's results here in a minute and you will quickly see a rather stark contrast in the results of our 2 reporting segments.

The e-commerce segment performed very well this quarter with revenue and operating income gains that more than met our expectations. We continue to see good growth in the foreign markets of e-commerce, particularly in the U.K. and Australia. We also saw a nice year-over-year surge of short-term consumer loans written in the U.S. this quarter, which drove revenues up at the domestic component of our e-commerce segment at a rate exceeding anything that we've experienced in recent quarters.

As you might expect, the surge in new customer loans drove both our marketing cost and loss rates higher, which always penalizes near-term earnings growth. We would expect the earnings benefits of this fresh growth to materialize in Q4 this year and in 2013. With this new growth, loss rates increased year-over-year and sequentially in the second quarter for domestic e-commerce, but loss rates declined year-over-year and sequentially in the foreign operation of the e-commerce segment. The improving foreign loss rates primarily reflects the seasoning of our short-term loan portfolio in the U.K. and improved customer performance in the U.K. installment portfolio.

Overall, operating income gains were significant again this quarter for the e-commerce segment. Now that's the good news. The more difficult news to report to you today is the results associated with a rather abrupt slowdown of our storefront business in the U.S, which represents 95% of our retail services segment. The performance of this segment came in well below our expectations for the quarter, and well below the trends we had been experiencing throughout 2011 and the first quarter of this year.

Every component of our domestic storefront business slowed in the second quarter. You may remember that on our most recent earnings call in April, we shared with you some concern about the impact of a late tax return season on asset levels at the end of Q1. We ended the first quarter with pawn loan balances a bit below internally targeted amounts, but we had fully expected loan demand to accelerate in Q2. That acceleration never really developed for either our pawn portfolio or our storefront consumer loan portfolio.

Loans written in the second quarter were well below our forecast in both these portfolios. And I've got to admit that analyzing the Q2 trends has been a bit baffling, particularly in light of the pickup of U.S. loan volume during this quarter in our online business that I discussed a moment ago.

The slowdown in our bricks-and-mortar business was not just isolated to the lending side as we also struggled to meet our forecast for disposition activity, both at the retail counter and with the commercial sale of scrap gold and diamonds.

Having spent 25 years in this business, I've typically been able to gain and then share with you some reasonable insights for any particular trends we've experienced in our business, and I've got to admit that this particular quarter has me a little bit stumped. Some of you might rush to the conclusion that the drop in spot gold prices during the second quarter is the main culprit, but I don't really see that being a dominant factor. Spot prices have on average come down in the second quarter, and that does have an impact on how much our managers are willing to loan per gram on jewelry And dropping spot value will typically compress near-term commercial profit margins, which is evident in our second quarter results.

However, the slowdown of loan growth this quarter is equally as evident in our general merchandise categories as it is in our jewelry categories. In fact, the growth of our jewelry loan very slightly outpaced the growth of our general merchandise loan this quarter. And as I've already mentioned, we've also seen a slowdown at the retail counter this quarter following multiple quarters of double-digit growth. Also, I think it's important to note that these trends are not isolated to any particular market or -- but are evident in all of our operating regions. So after some evidence of us abruptly shooting ourselves in the foot this quarter, which I've looked forward and not been able to find, I must conclude that some combination of macroeconomic and consumer sentiment factors must be impacting our customer's appetite for borrowing and spending.

Lower gasoline prices in Q2 have certainly had some impact on loan demand. And average gas prices were up on a year-over-year basis for each quarter of last year, anywhere from 17% to 35% and up about 10% in the first quarter of this year. The average price of gasoline has been down in Q2, about 2% or 3%, but I've got a hard time accepting that statistic as the dominant factor in the Q2 trends.

Likewise, it seems consumer confidence has been schizophrenic at best, but that dynamic has been ongoing for some time so it's hard to interpret the effects of consumer psyche right now. We do know that the lack of broad consumer confidence has been mentioned frequently in the press as the culprit for widespread retail weakness here in Q2.

Perhaps what we've experienced is the accumulation of a variety of incremental factors that have worked to create a perfect storm this quarter. It will be interesting to see how these trends unfold for the balance of the year. And I can tell you that, since we don't have a great line of sight right now on how storefront loan growth may trend in the second half of the year, we have been prudently cautious with the earnings guidance that has been initiated today.

Finally, before turning the call over to Tom, I'll let you know that I don't have anything enlightening to report on the regulatory front, although I will be happy to field your questions on regulatory matters now that we're no longer in registration. Things have been reasonably quiet at the state level and I can confirm, before someone asks, that we have not yet been examined by the CFPB. But they do plan to visit us this fall as part of their routine examination process.

And with that, I'd like to turn it over to Tom for his financial report.

Thomas A. Bessant

Thanks, Dan. And good morning to our listeners. Thank you for joining us this morning.

As you noticed in our press release this morning, Cash America reported second quarter 2012 results highlighted by a 19% increase in total revenue, which reached $411.6 million, and posted a 12% increase in earnings per share of $0.94 compared to $0.84 in the prior year second quarter. As Dan mentioned, these levels are slightly below the consensus analyst estimates, although the company did not have published guidance for the second quarter of 2012.

Also noted in our press release this morning is that the company incurred expenses related to special items during the quarter, which totaled approximately $1.1 million, related to due diligence fees associated with a significant acquisition in a foreign market which did not result in a transaction and items tied directly to the Enova registration activities. All these amounts were incurred in the second quarter. Any costs incurred in prior quarters were expensed during the period incurred. These costs amounted to approximately $0.02 per share after taxes during Q2 of 2012, so excluding these items, the Q2 2012 results would have been $0.96, basically in line with consensus figures.

Highlighting the quarter was strong growth in our e-commerce segment as Enova continued to see significant growth in its short-term unsecured lending business offering products throughout the United Kingdom, Australia and Canada. International revenue continued its recent trend of amounting to greater than 50% of total revenue of our e-commerce segment.

E-commerce segment produced a 33% growth in income from operations, which reached $62.4 million in Q2 of 2012 compared to $47 million in the prior year on a 46% increase in total revenue, which reached $296.1 million for the second quarter ended 2012.

Cash America's retail lending services segment, which is comprised of the company's U.S.- and Mexico-based storefront lending activities primarily on the pawn business, posted an 8% increase in total revenue, which reached $259 million for Q2 2012, but absorbed an 11% decrease in income from operations, which was $42.1 million compared to $47.2 million in the prior year. While approximately 1/3 of the year-over-year decrease in operating income is attributable to the company's Mexico-based pawn business, the remainder is associated with the U.S. pawn lending activities due to lower-than-expected net revenue growth in the second quarter, driven by lower gross profit dollars and less growth in pawn service charge fees.

As Dan mentioned in his comments, pawn loan balances during Q2 of 2012 did not snap back as rapidly as we had hoped during the quarter. If you remember, we ended the first quarter of 2012 with aggregate U.S. pawn loan balances up 14% and same-store U.S. pawn loan balances up 9%. However, while pawn loan volumes grew significantly in the second quarter, it did not keep up this impressive pace and finished Q2 2012 up 7% overall and up 2.4% on a same-store basis. Part of the differential, in my opinion, is related to the very significant growth we saw in 2011 as pawn loan balances surged higher during the second quarter, making Q2 2012 a difficult comparison. Also, as you heard in Dan's comments, it seems apparent that demand for pawn loans has been softer than expected, and the results reflect that trend in customer behavior.

However, the dynamics within the specific elements of the pawn loan portfolio remains consistent, comparing the 2 periods. Loans secured by jewelry remain at comparable levels, even slightly elevated levels as the prior year on a continuing basis represents 69% of loans outstanding at the end of the quarter compared to 68% last year. And on a same-store basis in Q2 of this year, jewelry loans represented 68.6% of loans outstanding compared to 67.7% last year.

This consistency is similar to my comments on the April call and will lead me to conclude that jewelry availability is not negatively influencing loan balances in the U.S. this time. Based on our business, it also does not appear that loan balance dynamics are being affected by a change in purchased goods as jewelry purchases in Q2 of 2012 were up 6% year-over-year, although the aggregate amount of purchases from customers is flat year-over-year in Q2.

As Dan mentioned in his comments and as these statistics confirm, loan balances continue to be heavily weighted towards jewelry, and overall volume of loans written comprised of both jewelry and other merchandise is the reason for softer-than-expected increase in loan balances during the second quarter. However, not -- let's not overlook that U.S. pawn loan balances did increase sequentially 17% off the March 2012 lows, which is more in line with historical trends, compared to the unusually high 25% sequential increase in 2011 from Q1 to Q2.

Now, gross profit on the disposition of merchandise also had an impact on the quarter for retail lending services as the domestic gross profit margin dropped to 34% compared to 39.2% last year. Inventory turnover increased to 2.9x compared to 2.7x as the company continued to aggressively liquidate merchandise and low -- and the lower prevailing gold prices brought scrap profit margins down, which weighted the overall gross profit margin down and led to a $1.9 million decrease in total domestic gross profit dollars on the disposition merchandise.

U.S. retail gross profit margin was down year-over-year in Q2 of 2012 to 38.9%. However, this retail margin, which includes scrap gold, has increased sequentially from Q4 of 2011's 36.4% and Q1 2012's 37.9%.

The headwinds to the store pawn loan growth and lower gross profit contribution on the disposition of merchandise caused the U.S. pawn business to be down approximately $3.5 million in operating income for the second quarter, even though same-store U.S. net revenue was up 2% in Q2 of 2012.

The results of the Mexico pawn business remained disappointing but are not unexpected for Q2. As I mentioned in April, in late 2011, we were required to adjust the terms of our home loan contract, which diluted loan yield, due to a regulatory requirement. During Q2 of 2012, we successfully appealed this treatment and revised our contract, which should allow yields to recover in the second half of 2012. In addition, we reduced the loan period from 8 weeks to 6 weeks, which should further improve portfolio performance in yield over the long term. However, in the short term, it lowers loan balances by as much as 25%, which is reflected in the Q2 loan balances in Mexico. While there are few financial positives to point out about Mexico at this time, I can point to the 11% sequential increase in revenue from Q1 to Q2 and report that the loss from operations decreased 20% sequentially from Q1 to Q2 of 2012. However, sustained pawn loan growth remains elusive as jewelry loans declined and the increase in general merchandise has been unable to grow fast enough to offset the loss in jewelry loans.

Now moving over to the e-commerce segment of operations. The results were much brighter and are much more exciting. As mentioned at the outset, total revenue rose an impressive 46% during Q2 of 2012, largely due to the continued success of international lending activity.

Revenue from the e-commerce segment rose 72%, $152 million, and comprised 51% of total revenue of the e-commerce segment. Operating income from the foreign e-commerce segment rose 162% to $26.5 million and losses as a percentage of revenue fell for the first time in recent quarters to 44.9% compared to 47.9% in the prior year, and it's down sequentially from Q1's 48.4%.

While revenue has been increasing significantly in our foreign e-commerce business, this moderation of consumer loan losses as a percentage of fees demonstrates that this portfolio is beginning to gradually expand its marginal profitability while absorbing growth in its assets through success with both its short-term unsecured product and its longer-term installment product. Consumer loan balances in our foreign e-commerce business continue to grow, reaching $152.6 million, up 66% from Q2 2011, and now represents 54% of total of e-commerce consumer loans.

Completing the growth in the short-term -- I'm sorry, complementing the growth in the short-term unsecured foreign product is the success we had in our installment product, which reached $54.6 million in receivables compared to only $16 million in the prior year Q2. The successes of the foreign installment loan product has inspired our e-commerce segment to continue to expand this offering in the United States markets. So let's shift our attention to the U.S. e-commerce business.

As you may remember that last year the U.S. e-commerce business saw a slowdown in revenue but posted expanded operating margins as loss rates on loans declined, leading to a growth in earnings. I mentioned in the first quarter results, the U.S. e-commerce business had invested heavily to expand revenue and loan levels in the U.S. market, which increased expense levels in Q1. During the second quarter, those results were realized, although investment activities in U.S. markets continues to be heavy.

Last year in 2011, second quarter U.S. e-commerce revenue decreased from Q1 to Q2 sequentially, however, in the second order of 2012, total revenue in the U.S. e-commerce segment increased to $74.1 million compared to $69.3 million in Q1, representing a sequential increase of 7%. And the $74.1 million of Q2 2012 revenue for U.S. e-commerce is a 34% increase year-over-year. However, as many of you know, as revenue and loan balances increase, loan loss reserves are required, which offsets the initial increase in revenue. This occurred during the second quarter of 2012, which mitigated the opportunity for an operating income increase in the U.S. business as losses as a percentage of fees increased 41.5% compared to the near-all-time low of 29.9% in Q2 of 2011. As a result, operating income in the U.S. e-commerce business was $1.8 million lower than the prior year, down 11%. However, the 34% increase in total revenue and the increase in assets related to this business holds a lot of promise for later in 2012 and leaves an exciting opportunity for renewed growth in 2013 out of our U.S. e-commerce business.

As I mentioned at the outset, the $9.3 million growth in foreign e-commerce operating income easily made up for the slightly lower results in the domestic e-commerce business and led to a total operating income increase of 33% for our e-commerce segment on a consolidated basis for Q2 2012 compared to Q2 of 2011.

I'll conclude my discussion of the e-commerce segment with the observation that the continued growth in the aggregate installment loan business within the e-commerce segment is promising as total assets for e-commerce and installment loans increased $81 million compared to only $26 million in the prior year second quarter, representing more than a triple in balances of the installment loan portfolio related to the e-commerce business. As we mentioned in the past, this aggressive growth requires heavy loan provisioning while revenue opportunities are being established for future periods.

That concludes my comments for the financial review of the second quarter results of the company, and now I'll provide an outlook for the remainder of 2012.

As discussed, the moderate growth in the U.S. home loan balances during the second quarter caused us to provide a cautious outlook for the expectations for the third quarter of 2012 because pawn loan balance growth is an important driver for the pawn loan business. As Dan mentioned, it's difficult to identify a single macroeconomic factor which could be causing the slowdown in pawn loan growth or which might reignite growth in Q3. It's possible that the delay in tax refunds in Q1 has caused a shift in the seasonal increase in demand for pawn loans, but we were unable to draw any firm conclusion this early in the quarter so we'll wait and see if the third quarter pawn loan growth levels return to historical levels.

We continue to be optimistic about the expansion of consumer loans in the e-commerce business as growth of the international portfolio has been robust. And we see a resurgence in U.S. demand for short-term unsecured products offered through our e-commerce platform. However, as I mentioned, the increase in installment loans in the U.S. and overseas, as well as the increase in customer traffic in the U.S. short-term product, will cause the losses as a percentage of fees to continue to take a bite out of the revenue growth in the third quarter.

Notwithstanding, we expect our e-commerce business to post growth year-over-year. However, storefront activities will likely mitigate all the increase, which leads us to establish our third quarter estimated range of earnings per share of between $0.95 and $1.05 per share compared to $1.08 per share in Q3 of 2011. Based on our year-to-date results of $2.24 on a consolidated basis, we are projecting our 2012 full year range of EPS to be between $4.35 and $4.60 per share compared to $4.25 per share for fiscal 2011. The third quarter and full year 2012 guidance does not include the expense related to write-offs of deferred costs related to the withdrawal of the Enova offering which is expected to be $3 million or about $0.06 per share.

And with that, I'll turn the call over for questions.

Daniel R. Feehan

Operator, let's take questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Hecht with Stephens, Inc.

John Hecht - Stephens Inc., Research Division

If gold prices stabilized at these levels, where do you think scrap margins would kind of level out at?

Thomas A. Bessant

John, it'd probably stay in that 20% to 25% range, based on current levels.

John Hecht - Stephens Inc., Research Division

Okay. And you had big growth and successful growth in the installment loan portfolio again. And you've had -- you've seen that for about, I guess, the last 3 quarters now. Do you guys have thoughts on loss content in that portfolio versus the payday portfolio? Do you think it's going to differ materially, or is it going to have a similar trajectory?

Daniel R. Feehan

I'll take that, John. I think the -- loss -- our view is that the loss rates over time will -- should be better in our installment portfolio than the payday portfolio. Part of our strategy in developing these products and trying to grow that portion of the business is already in or around attracting a different customer, and it's also oriented around providing products long term that are lower rate longer-term -- that I think are more sustainable long term. And with a lower-rated product, we'll underwrite those, quite frankly, to have lower loss rates. So over time, as this portfolio builds and we get greater history with these customers, I would expect it to be better than our short-term consumer loan portfolios.

John Hecht - Stephens Inc., Research Division

And the last question is, the domestic surge in the e-commerce platform of new customers and loan volumes, what channels are you sourcing those through? And is there a difference between that customer that's noticeable versus the retail customer? I'm just trying to get a sense for how that business is growing nicely when the retail -- the storefront is slowing.

Daniel R. Feehan

Yes. So it -- the customer, we've always argued that customer is a little bit different, a little higher income level, household income level, with that customer. Again, I think we're -- we have historically and continued to get customers who have fallen out of the other traditional lending environment into that space. So the sourcing channels for that haven't really changed. We continue to source customers through the lead-generation network through our own SEO and PPC activities. And we have done a little bit of traditional TV advertising in this last 6 months here in the U.S., which is looking promising but doesn't account for the pickup, I think, in volume this quarter. I think the other thing that I will point out at this point too, there are some operational things that our team in Chicago have done, I think, that did enhance conversion and issue rates in that business as well. So that accounts for some portion of this pickup, some operational improvements. But clearly, I think it's hard not to argue that, from a demand perspective, what we've seen online is a little bit different than what we've been seeing in our storefronts.

Operator

Our next question comes from the line of Bill Carcache with Nomura Securities.

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Guys, first one is, can you talk a little bit about what happened with redemption rates this quarter and put that in perspective of kind of what you've been seeing for the last several quarters?

Daniel R. Feehan

Yes. Our -- we actually -- internally, we always talk about forfeiture rates, which is the inverse obviously of redemption rates. And either when our forfeiture rates have been stable, they're actually marginally lower year-over-year but not by a significant degree at all, pretty consistent. They've been pretty consistent over the last year so we're not really seeing -- we're not really seeing significant differences in our redemption or forfeiture rates in our pawn business. Redemption rates have been, again, marginally higher for some period of time but nothing in this quarter that's out of the ordinary, what we've been seeing for the last 4 or 5 quarters...

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Okay. And is there some active management behind achieving that kind of -- those kinds of results? Or is that just kind of just how it falls out, that consistency is -- has been there?

Daniel R. Feehan

It's a -- yes, there is active management. Obviously, our store managers are trained to manage the earning assets of their business, for the loans in their inventory to yield the optimum amounts of profit. We provide guidance on what the loan on items both on the jewelry and the general merchandise side. We haven't made any adjustments in any of that guidance in our point-of-sale system, we'll provide that guidance to both. We haven't made any adjustments on that. In recent memory, quite frankly, I can't remember the last time when we moved. We moved gold advance rates up early in 2011 but haven't made any significant adjustments since then. So again, there's nothing going on. As I said in my prepared comments, Bill, when you look at sort of what's happened here in the second quarter with loan-driven numbers and in the purchase side of our business, which affect -- reflects consumer demand, the first thing you look, have we done something, have we changed something, have we sent out messages to probably get our folks to get more conservative, and that's just not the case. Something going on in the macroeconomic environment with consumers that they've decided that, for the time being anyway, they're going to be a bit more conservative. I don't really have any other conclusion.

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Okay. And I -- can you talk a little bit about scrap volumes? I might have missed that, but are scrap volumes coming down?

Daniel R. Feehan

Well, we've had -- our scrap volumes -- when obviously when our loan's written or -- are down from our expectations and our purchases are down from our expectation, the amount of scrap volume will be down from our expectations. The actual volume of gold scrap this quarter was up year-over-year, I think, as my recollection, about 2%. That's a lower number that it's been up -- been trending up for the last 3 or 4 quarters. We've been up in Q4 and Q1, those numbers were up in the mid-to-high single digits. So the rate of growth obviously slowed, which is a reflection of slowing loans written and slowing purchases. But the volume was up marginally in the quarter.

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Okay. And then finally, just can you help square for us why retail margins are kind of holding up relatively better versus scrap margins? I mean that it seems they're both to be down, but retail seems to hold up a little better. Any color on that?

Daniel R. Feehan

Well, you don't have the -- I mean, if you look at the spot value of gold in Q2, it dropped sequentially from Q1, and that's a pretty immediate impact. So I mean, we're selling gold on a regular basis. And our settlement prices in Q2 were down from Q1. We settled most of the stuff we sold in Q1 around $16.50, equivalent to 16 -- I mean, I'm sorry, Q2, the equivalent is $16.50 an ounce. It was down from Q1. And so we get -- you get a rather immediate impact from that on the scrap margins, whereas the retail margins really reflect more of jewelry that obviously people are purchasing. When they come in to purchase a ring or a bracelet, they're not coming in and quoting spot values per gram. And our loan values associated with things we retail and our loan values associated with general merchandise categories that are managed by our store managers yield the kind of margins that we've been consistently yielding. All the margins and -- are a bit down this quarter, even on our general merchandise, which is really reflected in the electronic area primarily. So the gold stuff obviously happens when prices drop. They were scrapping at sequentially. We're going to catch the compression of that, and likewise we've gotten some benefit on the other side of the equation when they've moved up sharply.

Bill Carcache - Nomura Securities Co. Ltd., Research Division

Okay. So -- and just putting the pieces together to the margin -- that contribute to the margin, so it's the decrease in gold prices that have contributed to the decline in scrap margins. But then would you say on the cost base front that there hasn't been a change in your LTVs or that have maybe also contributed to that margin pressure? Or is that not -- there's been no change? I guess some of your comments earlier suggest there haven't, but I just want to make sure I'm clear on that point.

Daniel R. Feehan

No. There has been some cost increases. I mean, obviously, that -- when the gold prices -- gold prices were up very substantially in the last half of 2011 and they were up again sequentially in the first quarter of this year. And so our lending practices are going to reflect what's going on in the spot value that store managers are going to make decisions on a daily basis with respect to that aspect of their business. So yes, the cost basis has increased, but if spot for us -- spot prices move around, our cost basis will be adjusted. It just takes time to work that way through the loan portfolio.

Thomas A. Bessant

And Bill, so we're [indiscernible]. So I'll just add to that real quick before -- that increase in rates is rolling forward, is Dan's point. So when gold prices elevate significantly in 2011, that's when you make your gold advance rate adjustments. And it takes a while for that to roll through. So year-over-year, your cost basis is higher. But in recent periods, we haven't made any adjustments to our portfolio, advance rates.

Operator

Our next question comes from the line of John Rowan with Sidoti & Company.

John J. Rowan - Sidoti & Company, LLC

I think you went through it in your prepared comments, but can you just go over again why the provision expense was so high in your domestic e-commerce segment? Is it just the installment loans?

Thomas A. Bessant

No. I mean, it's really a resurgence in new customers on the core product and the short-term products. There -- as you can see in the information, there is an increase in the installment loan products. But you're talking about the U.S. business primarily and that's just really driven by new customer volume. We've seen over the last couple of years moderation in the U.S. business, and again that was offset by lower loss rates and so you had -- still had nice growth in earnings. But we've seen a resurgence in the U.S. business. I think all of that's due to product opportunities and continued good work by the e-commerce segment guys. But that's -- it's just a classic case of a higher mix and new customer volume driving loss rates up in the e-commerce U.S. business.

John J. Rowan - Sidoti & Company, LLC

Okay, fair enough. I was going to ask you guys about loans values and redemption rates, but obviously, that was covered already. Last question, I guess, Mexico obviously continues to lose money. When do you cut and run?

Daniel R. Feehan

So I think, John, I'll respond to that. As I said in the past, we've made a lot of organizational and HR changes in Mexico over the last year. So that clearly -- it hadn't been converted to a financial success. And so I think it's clearly time for us to step back and reevaluate our strategy there. We can't continue to do what we're doing right now. I'm -- it's not acceptable for me to continue to -- even though it's a small part of our overall enterprise, it's just not acceptable performance at this point. So I think we got to step back and look at what we're doing there, reevaluate our strategy, try to justify the -- not only the overhead structure we have there but just about the store base. I mean, there are a lot of these gold-only stores that are on a steady decline. They're small footprints that -- they'll lend themselves to conversion or relocation into a full format strategy. I continue to believe there's a real opportunity in Mexico in the full format business. But transitioning the store base that we have there effectively into that business has proven to be more difficult than we had expected. So I don't think cut-and-run is necessarily the right answer, but I do think we have to look dramatically at what we need to do to change this paradigm. I'm not willing to continue to do this.

Operator

Our next question comes from the line of Daniel Furtado with Jefferies.

Daniel Furtado - Jefferies & Company, Inc., Research Division

Following up on the Mexico question, how do we think about the impact of goodwill there with the way the business has been going? Is this -- that's an annual test, I assume, at the end of every fiscal year?

Thomas A. Bessant

Danny, the way the goodwill test works, and we actually just completed that in Q2, it's an annual test unless there's something that triggers an event for a test in an interim period. However, our goodwill is bundled under the retail lending services group because the reporting responsibilities flow into that group. So it's actually not in subgroups.

Daniel Furtado - Jefferies & Company, Inc., Research Division

And then -- and my next question is just generally speaking in -- on the competitive environment. Would you mind just kind of touching on that? Are you seeing anything different, or is that kind of steady as she goes?

Daniel R. Feehan

You're talking about here in the U.S., Danny, or...

Daniel Furtado - Jefferies & Company, Inc., Research Division

Yes. I'm sorry. Yes. Sorry, Dan. Yes, exactly.

Daniel R. Feehan

Okay, yes. No. I mean, not -- I think it's steady as it goes. I'm not really seeing anything from a competitive perspective in our storefront business that is different from what we've seen for quite some time. So I don't see anything there in the market from a competitive perspective that's impacting our results today. On the e-commerce side, it's hard to target track all of the competitive aspects of that here in the U.S. Clearly, we've -- as we've already indicated, our loan demand domestically was pretty good this quarter and our loans written and new customer growth is pretty good this quarter. So I'm not seeing anything from an immediate competitor perspective online, either, that causes me concern.

Daniel Furtado - Jefferies & Company, Inc., Research Division

And now when we think about the dichotomy between the pawn demand, which was down, and short-term lending, which was up and -- for the U.S. business, is there a potential that the growth of the online industry is beginning to cannibalize the pawn business? Are these borrowers just too different to really see material cannibalization there?

Daniel R. Feehan

I don't really think that's the case, Daniel. I think the customer is different. I think clearly there's some cannibalization online of the -- in my opinion, the consumer loan business in the bricks-and-mortar space. I mean, our loans written down in our bricks-and-mortar business and our retail services segment of our short-term consumer loans was actually down this quarter about 3%, and our same-store numbers are down about 2% this quarter, while the online business is growing. So I do think there's cannibalization that exists there, but I don't think it -- I don't believe it's impacting our pawn business. I think there's -- that's a different dynamic. And again, as I said in my prepared comments, it's a little baffling right now. I don't know exactly -- in 25 years -- when you kind of look at the trends over the last 3 or 4 quarters, the kind of loan demand we've had in our pawn business for loans written and the purchases that we've -- the demand we've had buying jewelry, and general merchandise across the counter as well, just slowed very abruptly in Q2. So again, I think we'll continue to see how this unfolds. And hopefully customers get more confident in what's going on in their lives and less concerned about employment and back in a more robust environment.

Operator

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

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

A few details first, I'm just looking at the loan volume numbers. The Guaranteed by the Company column, that's mainly U.S., Texas, correct? Or is that other states as well? The CSO model.

Daniel R. Feehan

Yes, yes, yes. We're operating the CSO and other places as well, but Texas is certainly a large component of that.

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

When we look at -- obviously, when you have a lot of growth in a product area, your new customers are your biggest losses, and then you also have provision needs. Now when you dissect the business, can you give us a sense of what underlying trends in credit look like in that product right now, sort of new versus old customers or some sort of benchmark in terms of how it's actually performing?

Thomas A. Bessant

The way loss provision works is we track historical collection activities for the same period in the prior year and we adjust it for near-term trends in default rates. And so when you bring in more new customers, your default rates year-over-year are going to increase. As a result -- and because likely those new customers don't perform as well as your historical portfolio will. So when new customer mix increases, you're going to bring loss rates up even though inherently in the portfolio they may not be any worse. But statistically speaking, with a higher mix of new customers, you expect them to perform at a lower level. Not seeing any big changes overall year-over-year, but it's more of a mix issue. The installment product being a larger loan size brings a bigger reserve with it. That revenue gets pushed down in the future periods. So it's more of a characteristics issue than it is a performance issue.

Daniel R. Feehan

Yes. Probably, Henry -- and I'd also add that if you're looking for a systemic sort of a metric on credit quality and what's happening in this particular space, I look at -- predominantly again, Tom talked about the mix between new and existing customers. And our default rates and performance of our existing customer component of our short-term portfolio hasn't really changed. So I'm not seeing deterioration in that aspect of our business, which to me -- people are really, really struggling out there to keep up, we'd see it in that portfolio.

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

Obviously, a lot of challenges in the quarter and probably in the second half of this year but focusing on some of the positives. With Enova gone, there's obviously some signaling there when -- now that you're not doing the spinout of some very, very positive regulatory trends in the U.K. and Australia and that new installment loan bill that's sort of wandering around, at least, the House, plus the opportunity to buy back stock now in a way that you couldn't before. Maybe you could comment on both those topics.

Thomas A. Bessant

Well, I think -- I'll start with that one. You are right about one key assumption there. With the registration statement, we've been very constrained in our ability to repurchase shares. So now we have the opportunity to assess that. As you know, we routinely buy back shares because of the strong cash flow nature of the business. I'll pass it on to Dan to talk about the Enova, but I think it's clear that, with the performance there, the board's decision is to retain that business.

Daniel R. Feehan

Yes, I mean I think the -- I wasn't trying to said -- send any hidden messages with this, Henry. What I said in my prepared remarks is actually the deliberation process we went through. And quite frankly, and again the IPO market is not very attractive, had not been very attractive for the last 6 to 9 months. It was unfortunate timing when we filed that because when we filed last September, our major decision during the summer got filed. It was off of a pretty hot IPO market in the first half of 2011, which then collapsed, so our timing was a bit unfortunate there. But clearly, as I said in my prepared comments as well, it's a great business and it's doing well and growing well. And I think there are a lot of innovative things on the incubator that we don't talk about because they're not to the point of scale where we want to talk about them yet. But there are a lot of interesting things going on there that, if we were going to own a business forever, I think we'd be happy with that. But we'll continue to assess what our capital market opportunities are. And again, we're not -- as I said, not committed to doing it but we're certainly going to continue to evaluate if it's the right thing for our shareholders. Right now, the right thing we concluded for our shareholders was to withdraw.

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

Well, what about some of the regulatory developments, especially in the U.K., which seem to be moving in a very, very positive trend?

Daniel R. Feehan

Well, I think, again, the U.K. environment, I would share your opinion, seems to be positive. We have -- we participate in the association there. We're active participants in the association in the U.K., and I think you're probably aware that we're in the associations in constant contact with the regulatory authorities. The OFT and -- just -- has just announced a new code of conduct, that we refer to it internally as a code of conduct, best practices routine in the U.K. that I think has been received well by the government authorities, so the regulatory environment there. There's always risk, obviously, on how to regulate a business that we're in. You've got risks at all points of time. But I agree with your assessment: It looks more positive there. And again, I -- we're well into the CFPB examination process. I mean, I don't know who they've examined but I do know they've been out examining different non-bank financial institutions in our space. And yet to -- seeing anything come out of that organization doesn't mean something won't at some point. But again, I think we're feeling relatively good about it.

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

And Tom, could you give us some sense of you -- how much real buyback capacity do you think you have embedded in your balance sheet and your cash flows?

Thomas A. Bessant

Well, we can't comment on the specifics. We have a very significant repurchase authorization which has been granted by the Board of Directors. I can tell you that those dollars were budgeted in the current year. We've spent about $1.7 million so far this year, so very, very low level. But we have a lot of capacity.

Operator

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

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

Dan, Tom, so if we're looking at the U.S. pawn storefront, is the slowdown in traffic, in other words, the number of transactions? Or are we seeing smaller transactions, or might it be some combination?

Daniel R. Feehan

It's more on the transaction count, quite frankly. So it's footsteps in the door. It's traffic. It's not really a per-dollar loan amount that is slowing down or purchase amount that's slowing down. It's foot traffic in the stores.

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

Okay. Are you seeing any change in the mix of collateral between general merchandise and jewelry that's backing the loans?

Daniel R. Feehan

No. I think, as Tom mentioned in his comments, that ratio has remained pretty stable for us. And in fact, this quarter, jewelry -- compared to this quarter last year, jewelry is actually a little slightly larger percentage of the overall portfolio. So I mean, we've seen the -- when we look at -- we'd obviously look at loans written and purchases that we do by category, by extensive listing of categories. But in the summary of jewelry and general merchandise, they have both slowed in loans written and purchases. In fact, the general merchandise side of the business is slowed a little bit more than the jewelry side of the business here in Q2.

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

And finally, it sounds like you guys have kept your loan-to-value ratios pretty steady. Are you seeing any changes in any of your competitors and what they're offering? Or is that something you're able to attract?

Daniel R. Feehan

We do. Our folks in the field have always done competitive shops as part of our normal activities. So we're constantly in the market shopping our competitors, placing loans with our competitors. And there've been -- it seems like a few of the competitors here in the U.S. have lowered some of their jewelry loan rates over the last 6 months. But again, I'd be reluctant to identify anybody in particular because I just don't think it's appropriate for me to talk about what competitors are doing on that scale when we're doing that research. But we've seen some of that. I think we're very comfortable right now with where we are. Our store managers are trained to manage their businesses and adjust on a daily basis based on what they're seeing in the markets, what they're hearing from customers, what customers want. So that's how we run our business. We don't -- we provide guidance and tools for our store managers, but they've got the latitude and the freedom to make those decisions on a daily basis, and we're not seeing people being nervous about lowering their loan-to-value ratios, quite frankly. And again, it's a matter of traffic, people coming in the stores.

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

Yes. And I would think that, if you're seeing some competitors lowering their loan-to-value, that might actually drive, at least on the margins, some traffic into your stores for people seeking a higher LTV.

Daniel R. Feehan

We would hope so.

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

Okay. And then, well, just one housekeeping question. You have the $1.1 million of nonrecurring expenses in the quarter. What line item would that have been in?

Thomas A. Bessant

Bill, it's going to be split, it's almost 1/2 and 1/2. Part of that's in corporate and the rest of it's in e-commerce.

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

And that would be on the operating expense line?

Thomas A. Bessant

On -- it'd probably be the administrative expense line in both categories, corporate administrative expenses, and corporate's a separate segment; and then in the administrative costs directly related to e-commerce.

Operator

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

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

Guys, just along that same line, the expenses looks a little better than I was expecting this quarter. Is part of that related to maybe variable comps that would've been lower this quarter in the pawn business? Or could you just talk a little bit about sort of the expense drivers this quarter?

Daniel R. Feehan

Yes. I mean, that's -- you got it. It's the biggest component of the expense -- being below your expectations and below my expectations is the variable comp component on our short-term and long-term incentives. Clearly, there -- those programs are designed to reflect performance-driven compensation, and our compensation programs are driven around budget and plan. And as I said, we were planning for a better quarter from an earnings perspective, and when that didn't happened, then we pulled down our accruals with respect to incentives because we haven't earned them. So that's the major component.

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

Okay, that's helpful. I know you also mentioned the new good practice customer charter coming out of the U.K. this week. I was just wondering if you could comment on whether there would be any changes related to that in your business in the U.K. or whether you guys are basically already largely compliant with the sort of guidelines of that lines?

Thomas A. Bessant

Yes, we are largely compliant with that. I think that -- I think getting this codified and put it into place and communicated and having a good practice customer charter that the association supports and that our members will follow is an important step in the U.K. But for Enova in the U.K., the things that are included in this charter are things that we already do.

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

Okay, that's great. And then I guess last question, along the lines of Enova. I know you highlighted the difficult IPO market. Did you ever consider doing a spinout in the distribution of -- part of Enova to Cash America shareholders instead of an IPO?

Daniel R. Feehan

We did consider that. I mean, that was one of the options that our board discussed back a year ago when we were first discussing whether this made sense for our organization to even consider, whether it was in an IPO or a spinout or whatever else. So it's something that we did consider talking to investment bankers about. Our board concluded, they thought it was a better strategy to do an IPO. But again, I think you could certainly -- there was pretty healthy debate about that option and alternatives. And again, we'll continue to assess, as I've said, what the market conditions are and what we think is in our best interest to our shareholders. And we don't rule that out as an option in the future.

Operator

[Operator Instructions] Our next question comes from the line of Sameer Gokhale with Janney Capital.

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

I think most of my questions have been answered. A couple of them, though: In terms of the charge you took for an abandoned acquisition opportunity, I was just curious if you were able to tell us which that was. And was it Mister Money, by any chance?

Daniel R. Feehan

No, no, we're -- we would not identify that candidate. As Tom said in his comments, it was a foreign deal that we were looking at. I would tell you it was in Latin America, but it's not something that we're willing to identify.

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

Okay. No, I'm sorry, I must have missed that. So in terms of your uses of capital going forward. I mean, obviously, buyback authorizations, you have the ability to do that, but are you seeing opportunities in the U.S. within your retail business where you think you could deploy capital? Are they meeting your return thresholds at this point? I mean, how are you thinking about that? Because obviously you could do buybacks, that seems liked a no-brainer. But how are you thinking about acquisition opportunities domestically?

Thomas A. Bessant

Well, Sameer, the -- as you point out, I mean, from a capital availability perspective, I think we're well positioned to evaluate and take advantages of opportunities. I can tell you we're a very disciplined price buyer. And while there may be opportunities here, I think we're going to be very selective about potential transactions. We've talked about in the past: We continue to believe the U.S. has opportunities, we'll continue to turn over stones here, and we'll continue to evaluate opportunities in other markets.

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

Okay. And then I was just curious, within your retail stores, I mean, over the last couple of quarters, are there -- like, what kind of new portfolios of products have you introduced that you think show promise? And are there any significant ones that you've introduced there that you can talk about?

Daniel R. Feehan

In our retail business, is that the question?

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

That's right.

Daniel R. Feehan

Yes. Probably, the only thing of significance there is an auto equity product that we've introduced and have deployed in Texas, and we're looking for an opportunity to deploy that in other states. We have an unlimited fashion in a couple of other states today but looking for opportunities for a more substantial scaling of that particular product. It's a longer -- it's not a title loan that a lot of our competitors are using here in Texas and in other places. It's a longer-term, lower-rate product where a customer can use the equity and their car is collateral to get a longer -- larger and longer-term loan from us. So we've had good adoption of that here in the state of Texas. We think there are other states that we can deploy that to. And so that's the most significant, from a scale perspective, new credit-oriented product that we've put out in our retail locations. We're doing some other non-credit things with craigslist and eBay and our stores in terms of selling merchandise, which continues to scale nicely for us on the disposition side. But the only credit-oriented product is the auto equity.

Sameer Gokhale - Janney Montgomery Scott LLC, Research Division

Okay, that's helpful. And just my last question was in your retail stores in Mexico. I think you had mentioned that you expect that the yields should recover over the balance of this year. Can you give us a sense of the magnitude of that increase? And on the overall scheme of things, has there been that much of an impact? But I'm just curious as to what you see as the increase in the yields there.

Thomas A. Bessant

Yes, Sameer, there's 2 things that'll impact that. One is the growth in the general merchandise portfolio there. General merchandise comes at a higher lending rate. It -- we finished the year with about -- only about 20% of our loan portfolio in general merchandise. At the end of second quarter, we were just a little over 40%. That's going to help yield. The comments I made during the prepared remarks were related to proration of interest and the way that had to be changed late in 2011. So we're allowed to charge incrementally higher fee measured on periods of time in weeks, as opposed to a daily proration of interest. So I would expect yields to come back up to 125% to 160% range late in the year and then beginning -- more visibly in 2013.

Operator

Our next question comes from the line of Gregg Hillman with First Wilshire Securities Management.

R. Gregg Hillman

Dan, can you talk about the installment loan business? I was wondering how many states you're -- how many additional states that you'll kind of be in over the next 12 months and whether any states, as their current law is, would prohibit your expansion into those states.

Daniel R. Feehan

Yes. Well, they're not -- I -- we're operating our installment loan business under state statutes, obviously. There's not really a national statute or law that allows you to operate across the U.S., unlike the U.K., obviously, where we have an installment loan product -- an online installment loan product that we provide throughout the United Kingdom. But here in the U.S., we currently have online installment lending in 7 states, under 7 state statutes, yes. Those products are similar but they have differences in terms of their loan terms and their interest rates, et cetera, today. We have been working hard on other states. I would expect to -- us to get in -- before the end of the year to get into an additional 4 or 5 states here in the U.S. online. We're also doing some installment lending in California and in Texas in our bricks-and-mortar business. So the big growth in that product is going to be online in the e-commerce segment. And again, I would expect us to continue to add states as we manage our way through the statutory framework that it takes to get something established and then create our systems -- put our systems in place to get those launched.

R. Gregg Hillman

And as your product is currently -- would any states prohibit you from going into those states for your installment product?

Thomas A. Bessant

You know, I don't know that there's an absolute prohibition. I would tell you that's -- and there are some states that -- based on our analysis today, that the economic limitations in some of those states would not be attractive for us to enter. So -- but again, one of the things that we're doing is constantly trying to push the envelope with our analytics team and our underwriting group to provide an opportunities for us to lower rates and to get into states that I think have huge-population opportunities for us. There's really not a lot of products between -- in the U.S. today between an average $500 or $600 short-term 2-week loan and a $5,000 longer-term loan. So there's a lot of demand in that $1,000, $2,000, $3000 range that people would like to have. And they like to have it -- to be able to pay it off over a 6- to 12-month period. There's a lot of demand out there and I think that our challenge is to continue to find those opportunities and design our products under the existing statutes that exist in the country, which quite frankly, on a state-by-state basis, is going to force us to do it at lower rates. And I think it's a competitive advantage that we can have online.

Operator

Thank you. And Mr. Feehan, there appears to be no further questions at this time. I will now turn the call back over to you. Please continue with your presentation or closing remarks.

Daniel R. Feehan

Thank you. Again, we appreciate everyone's attendance on the call today and look forward to talking to you at the end of Q3. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day, everyone.

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