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Executives

Julie Prozeller - Investor Relations and Media of Financial Dynamics

Jeffrey Weiss - Chairman of the Board

Donald Gayhardt - President

Randy Underwood - Executive Vice President and Chief Financial Officer

Analysts

Dennis Telzrow - Stephens Inc.

Robert Napoli - Piper Jaffray

Henry Coffey - Ferris, Baker Watts, Inc.

Richard Shane - Jefferies & Co.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

John Hecht - JMP Securities

John Rowen from Sedody & Company

Elizabeth Pierce - Roth Capital Partners LLC

Michelle Dragonetti -Apatos

Dollar Financial Corp (DLLR) F3Q08 Earnings Call May 5, 2008 5:00 PM ET

Operator

Good afternoon, my name is Rose and I will be your conference operator today. At this time I would like to welcome everyone to the Dollar Financial Corp Fiscal Third Quarter 2008 Earning Conference Call (Operator Instructions). It is now my pleasure to turn the floor over to your host Miss Julie Prozeller of Financial Dynamics.

Julie Prozeller

Good afternoon, everyone. Joining us today from Dollar Financial Corp are Mr. Jeffrey Weiss, Chairman and CEO, Mr. Don Gayhardt, President, and Mr. Randy Underwood, Executive Vice President and CFO.

Before we begin our conference call I would like to remind you that the remarks made during this conference call with reference to future expectations, trends, plans, forecasts, and the performance of Dollar Financial Corp and its subsidiaries and its markets are forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect the company’s current beliefs, estimates, and expectations that involve a number of risks and uncertainties. Today a company will provide guidance on expectations of future results.

As a reminder, these statements indicate the expectations of the Dollar Financial Management team as of this date. These statements supersede any and all previous statements made by the company regarding the matters addressed. These statements are forward-looking statements and cannot be guaranteed and may prove to be wrong.

This outlook is based upon various assumptions which include, but are not limited to the following: no material change in the products and services offered in all locations as of May 5, 2008; no material change in the company’s current store development and acquisition plan and no material adverse results in litigation or regulatory proceedings against the company that currently exist or that may arise in the future.

Factors that could further affect results are outlined in Form S-3 or the company’s Senior Convertible Note offering filed with the SEC on September 20, 2007 and its fiscal 2007 annual report on Form 10-K.

The company’s statements will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. The most comparable GAAP financial measure to adjusted EBITDA is income before income taxes. The reconciliations between adjusted EBITDA and income before income taxes is consistent with the company’s reconciliation as presented in the company’s recent press release dated May 5, 2008, which is available on the web site at www.dfg.com

I will now turn the call over to Jeff for an over view of the recent quarter’s activities.

Jeffrey Weiss

Good afternoon, everyone. Once again I am pleased to announce another strong quarter of operating results for the company.

Revenue grew by 26.4% to $135.3 million while net income increased by 18.3% over the previous year’s quarter.

We continue to execute on our multi-country, multi-product and multi-channel growth strategy by increasing our global store footprint by 29s stores in the quarter, consisting of 14 de novo stores, along with the acquisition of 15 additional stores through out the US, Canadian and UK markets.

Additionally, I would like to announce that on April 3, 2008, we opened first store in the Euro zone in the Republic of Ireland. We are excited about the growth potential of this new market which has both excellent customer demographics and no significant competition. We expect to expand further into the Irish market, which is why we are considered to be the strongest economy in the Euro zone, through both additional and Nova store openings and opportunistic acquisitions of smaller mom and pop store chains in the coming months.

The past few months have been very volatile with regard to the financial markets and as many commentators have noted, the effect of this turbulence is now being felt in the economy. While we do not expect to be completely immune from the economic turbulence, our customers primarily work service at their jobs which, according to recent employment data, have fared better than other areas of the economy.

Internationally the Canadian and UK economies, while still growing, seem to be slowing down somewhat. In the US, based principally on what we read and hear, a recession has either started or is unavoidable.

Much of the financial difficulty in the US appears to revolve around the housing market. While we would expect the effect of the decline in the housing market to ripple through the overall economy at varying degrees, fewer than 25% of our customers own their own homes, and as such you would expect our customer base to be impacted to a lesser degree.

We continue to remind our investors that our customers and our consumer owned products are very short term in nature and if we see evidence of economic weakness in any of our markets, we can quickly curtail our lending practices and reduce our overall risk exposure.

During this quarter we did just that and as a result our consolidated loan loss division, as a percentage of gross consumer lending revenues for the quarter, was 19.1%, which declined sequentially from 21.8% in the second quarter of fiscal 2008 and year-over-year from 220.8% from the fiscal 2007 third quarter.

We believe we are in a period of reduced visibility both from the broader economy and the markets we serve. As a result, for the foreseeable future we will maintain a conservative stand in both terms of credit list and cost management; however, I believe we are doing this from a position of relative strength.

Our core businesses are strong, fundamental demand trends are strong, and our financial position is strong. We have ample liquidity with no near term debt repayment obligation, which should allow us to continue to invest in the future growth of our company through the development of new products, additional de novo store openings, and the continued acquisition of well-managed store chains.

Now I’d like to mention a few highlights of our record third quarter.

Consolidated revenue was $135.3 million, up $28.2 million or 26.4% over the prior year’s quarter. Total international revenue from our Canadian and UK markets increased by a combined $19.2 million for the quarter, representing an increase of 25.3% year-over-year; revenue from our US business increased by 29% or $9 million, primarily as a result of recent acquisitions in that market. Consolidated comparable store sales increased by 7.7% for the quarter and were essentially flat on a local currency basis primarily as a result of the negative comparables in our US store base.

Internationally comparable store sales grew by 5% or $4.1 million on a local currency basis.

Adjusted EBITDA increased by 23.2 % to $38.3 million versus the prior year’s period of $31.1 million.

Net income was $13.8 million for the quarter, compared to $11.7 million for the previous year and fully diluted earnings per share was $0.56, compared to $0.48 per share the prior year’s quarter.

I now would like to highlight some key achievements and developments for our Canadian business for the quarter.

Our Canadian business unit generated $62.5 million in total revenue, which represents an increase of 19.7% over the prior year’s quarter. Check cashing revenue in Canada increased by 18.1%, while consumer lending revenue increased by 16.8% for the quarter. Our easy tax prior from Canada generated $3.6 million for the quarter, as compared to $2.2 million for the prior year, while the debit card business grew by approximately $600,000, or 39.5% for the quarter.

We now have approximately 200,000 active quotas of our money market titanium MasterCard. Additionally, we opened eight de novo stores in Canada in the third quarter while acquiring 13 additional store locations.

With nearly all of the Canadian provinces engaged in either drafting respected payday loan legislation, or formulating product regulation and rate structure, as we discussed on our last call, we found it prudent to diminish the magnitude and tone of our marketing and advertising campaign. This naturally resulted in a moderate softening of new customer growth in Canada.

Additionally, over the past four quarters, we have accelerated our de novo store development program to better position the company to capture the market growth that will come with regulatory clarity. At this point we feel that our new store development program is probably running ahead of the pace of regulatory change, and as a result we will slow our new growth in the June quarter.

Stores in the ad group are performing well, but we have seen a little more cannibalization of our established pace than we had anticipated. Never the less, we believe that our decisions to build these stores and grow our Canadian management team will enable us to take full advantage of the ongoing development opportunities in the Canadian market.

We will continue to pursue acquisitions in Canada and we will look to build more new stores in fiscal 2009.

I’ll down turn the call over to Don.

Donald Gayhardt

Before I begin, I’ll make a few comments on our UK business, which is generating very strong growth for the company.

Until this third quarter, our UK business contributed revenue of $32.6 million, growing by 37.4% over the previous year. Consumer lending revenue decreased by 40.5% and check cashing fees grew by 9.9%. We also continued our store development program in the third quarter by opening six de novo stores in the United Kingdom.

Our UK pawn business, for which we primarily make loans on gold jewelry continued to experience strong growth driven by an increasing market price of gold. Higher gold prices allow us to increase the amount loaned on pawned stock while it also increases the retail and smoking value of the unclaimed pawn jewelry. We see this as an ongoing growth area for the UK business and we believe we are now the third largest pawn lender in the United Kingdom.

For the quarter, the value of pawns pledged in our UK stores increased by 49.4%; while revenue from pawn loans increased by 37.1% as compared to the prior year.

Turning to our domestic business for the quarter: our US operations generated $40.1 million in total revenue, representing growth of $9 million or 29.0%.

On a year-over-year basis, check-cashing fees in the US increased by 33.1%, while consumer-rating revenue increased by 18.1% or $13.4 million.

US operations accrue the results with the recent acquisition of 45 financial services stores, principally located in the Midwest and Hawaii, as well as the acquisition of 82 stores in southeast Florida in December 2007. Both of these acquisitions are performing well and are exceeding our expectations.

As we discussed before, year-over-year comparison with consumer lending in the US were negatively impacted by the previously announced transition, which began in the fourth quarter of fiscal 2007. A portion of the US loans portfolio is from a bank funded installment program to accompany funded loans.

Finally, as a result of the recent acquisitions and our refinancing efforts in spite of a portion are funded indebtedness, our year’s operations achieved positive pre-tax income for the quarter ended March 31, 2008.

With respect to regulatory activity in the US, a couple things to mention: Virginia passed a reform bill that moderately reduces the maximum fees paid by consumers into a usage cap of $10 mill per year and also faces a currency wide limit of one loan at any time to a customer. The new law is scheduled to go into affect on January 1, 2009.

We don’t expect any significant impact on our financials, as we operate 16 multi product stores in Virginia, which accounted for approximately $400,000 of net consumer lending revenue for the quarter ending March 31. 2008.

In Colorado, proposed legislation that would have essentially prohibited payday lending in the state, has been pulled from consideration.

Finally, in Ohio several competing bills in front of regulators, payday lending have been introduced and one of those bills has passed through the House of Representatives. The situation’s quite fluid and we’re monitoring it closely with our trade association and we will keep you apprised of any significant changes.

Total consumer-lending revenue for our 21 multi-product stores in Ohio, was approximately $600,000 for the quarter ended March 31, 2008.

I’ll now ask Randy to provide an update on Canadian regulation and to comment in more detail on our third quarter financial results.

Randy Underwood

As a segue into the discussion of the regulatory environment in Canada, I would first like to remind everyone of the overall contribution each province provides to our Canadian consumer lending revenue strength.

For the quarter ended March 31, 2008, approximately 52% of our Canadian consumer lending revenue was generated in the province of Ontario, with 21% in British Columbia, 18% in Alberta and 5% in Manitoba. The remaining provinces on a combined basis accounted for 4% of our total Canadian consumer lending revenue.

With respect to regulation in Canada, on April 4, 2008, the Manito Republic facilities board provided a new rate and fee structure for issuing payday loans in the province.

As the lowest cost and most efficient payday loan provider in Manitoba and in Canada, we believe the newly proposed legislation will provide new growth opportunities for Money Mart in Canada. We believe that Money Mart will continue to operate efficiently under the new Manitoba model, while continuing to provide superior customer service.

Turning to Alberta, the province believes its existing legislation already complies with the requirements of the federal law, while British Columbia passed its legislation in October of 2007.

In Ontario the government introduced legislation in April, this past month, which needs to be approved prior to moving on to the rate and regulations phase of the process.

The province of New Brunswick just passed its payday loan legislation last week, and the provinces of Nova Scotia and Saskatchewan have previously passed their respective legislations and are currently engaged in their rate setting processes.

In general, we are pleased that the process of establishing provincial regulation continues. We believe that it will bring clarity to the marketplace and that it will present a longer-term growth opportunity for us.

We are extremely supportive and involved in every rate setting and legislative action, as we believe that any approved regulation must ultimately balance consumer protection while enabling a viable and competitive industry. Such a solution would ensure that our industries products will continue to be available to the many consumers that use these products to better manage and balance their day-to-day finances.

Now with regards to the consolidated financial results: We achieved record revenue of $135.3 million this quarter, with total global revenue growing by 26.4% over the prior year’s quarter.

Our consolidated check cashing business grew by a solid 20.7%, while net consumer lending revenues grew by 24.4%.

Demand for our consumer lending products in Canada has moderated somewhat from the very high historical levels. As Jeff mentioned earlier, we believe this is largely attributable to continuing confusion in the marketplace brought about by the pending regulatory changes and, to be fair, somewhat exacerbated by our decision to significantly reduce the magnitude and tone of our Canadian advertising and marketing programs as the regulatory processes ensued.

We believe these trends will improve with the advent of regulatory change and the ensuing liquidity in the marketplace.

Given the widely reported economic slow down in the US and Canada, the company believed it prudent to moderately tighten certain elements of its lending criteria, and is pleased with the consolidated loan loss provision for the third quarter, expressed as a percentage of gross consumer lending revenue, decreased from 19.1% compared to 21.8% for the second quarter of fiscal 2008.

Additionally, in light of the weakening economy, we have stepped up our collection activities by placing additional emphasis on pre-calling customers prior to the due date of their loan, in order to establish a convenient time for them to come into our stores and repay their loan.

Store and regional margins for the quarter increased by 22.1% to $51.2 million: on a percentage of revenue basis, our corporate costs increased to the previous years quarter of 12.9%; this reflects the previously announced increased investment in management and infrastructure to support our enhanced store expansion plans as well as the acquisitions that we have completed thus far this year.

Additional costs were also incurred related to our continuing investment in facility and lobbying costs related to the evolving regulatory environment previously alluded to in the US and Canada.

Net income for the quarter was $13.8 million, compared to $11.7 million for the previous year, and our fully diluted earnings per share were $0.56 compared to $0.48 per share in the prior year’s quarter. Furthermore, pro forma fully diluted earnings per share were $0.57 for the March 31 quarter.

With regards to the company’s financial position: The company ended the quarter with cash available for investments and future acquisitions of approximately $50 million. Additionally, we had $105 million in revolving credit lines that were undrawn. We believe this affords the company ample liquidity to fund its present and anticipated future operations, as well as support the expected growth and future expansion of its multi-product, multi-national business platform.

We are reaffirming today our previously issued guidance for fiscal year 2008 of revenue between $510 million and $530 million; adjusted EBITDA between $145 and $152 million; income before income taxes of between $91 million and $96 million and earnings per share between $2.15 and $2.30; however, given the widely reported developing macro economic weakness and the unavoidable short-term effects of the transition process to provincial regulation in Canada, we currently expect that our results for fiscal 2008 will be in the lower end of the guidance ranges.

Finally, additional information on the operating results for the fiscal third quarter can be found in the news release issued by the company earlier today, which can be found on the company’s website at www.dfg.com.

Now operator, we would like to invite our listeners to ask any questions they may have.

………..

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Dennis Telzrow of Stephens Inc.

Dennis Telzrow - Stephens Inc.

I assume, given your comments on the Canadian regulation, you’ll remain sort of quiet on advertising until the providences go through, or would you adjust advertising by on a province by province basis?

Jeffrey Weiss

I think Dennis, that’s a call we’ll make as we see what happens in the provinces. Right now we said we’d kind of liken it to a quieter period and we think it’s prudent and respectful to hold back at this point.

Dennis Telzrow - Stephens Inc.

It looked like tax-rate was a little lower. Is that a number we should expect for the fourth quarter?

Randy Underwood

No, I think we’re going to be around 40.5% or so for the year. The third quarter was a little bit of a balancing as the US business turned profitable in the third quarter and therefore we got a benefit and a little bit of a catch up for the nine months for the way the tax provisioning works. So, I think we’re a little better here in the third quarter then we’d expect for the year.

Dennis Telzrow - Stephens Inc.

And interest cost? Maybe I didn’t do my math right, but it looked like the interest cost was a little bit higher sequentially, but the total debt didn’t change. Am I missing something here?

Randy Underwood

You’ll recall that earlier in the year we had a lot of cash available for investment from the $200 million of convertible securities offering that we had and we placed those proceeds in T-bills and gained some interest income earlier in the year from that investment as we worked that down by putting it to work in the Midwest and the southeast Florida acquisitions, we have less interest income to net against our interest expense.

Operator

Your next question comes from Robert Napoli - Piper Jaffray

Robert Napoli - Piper Jaffray

The US business and the profitable are two words I have not heard in the same sentence.

Jeffrey Weiss

We painfully know that Bob.

Robert Napoli - Piper Jaffray

My question on that is it sustainably profitable and if so, what does that mean for NOLs and tax rate as we get into fiscal ’09 or in the future?

Randy Underwood

Well Bob, we do believe it is sustainable and what that means is not only have we already started to utilize the US NOL here in the third quarter and would expect to use a little more here in the fourth quarter, we would expect that we would continue to utilize it in future years as well and some significant change in the business environment that we can’t predict as we sit here today. Obviously it’s a standard disclaimer related to everything in performance.

Robert Napoli - Piper Jaffray

The tax rate, would you expect then Randy, the tax rate for next year to be more towards the 38% range or with the US profitable for a full year on a mix of earnings or?

Randy Underwood

Yes, I would expect it to be probably in 30% on the low, maybe 39% on the high, just depending on the mix of how the economy’s ultimately earned and various countries that we do business in and related to state taxing jurisdictions as well.

Robert Napoli - Piper Jaffray

That’s a pretty wide range, you said 30 to 39?

Jeffrey Weiss

No, 38, 39.

Robert Napoli - Piper Jaffray

On the expense side, given you had pulled back marketing somewhat in Canada. The expense is still higher than what we had modeled and I just wondered if that’s tied to, you mentioned pre-calling on the collections side. Are you spending more on the collection side? Is that why the operating expenses might have been a little bit higher than what we were looking for despite the pull back in marketing?

Jeffrey Weiss

I think we had quite a little bit of new store development expenses from the first, second and the third quarter. We had the integration of the acquisitions that we did, particularly the one in Florida, so we had some incremental training costs and transition cost in it and we also had a number of smaller acquisitions around the globe that we integrated into the business in Canada and the UK that likewise had incremental training costs and new systems put in, those types of things. So all in all, I think we were fairly, on a parity basis, we backed out on all those development kind of activities.

Randy Underwood

[inaudible] margin on the store level, the performances we’ve got, while their performing well, because of the lower payday loan rate in Florida, those stores run in a slightly lower margin than the average stores we had before. So, that brings the consolidated store operating margin down a little bit. We would expect those stores to continue to be better and the operating leverage there to bring our consolidated store margin number back up over where it was before we both those stores, sometime in the next couple quarters.

Robert Napoli - Piper Jaffray

Jeff, you had mentioned being more conservative because of the concerns about the economy on the underwriting side and would you expect, and you have the revenue growth rate in fiscal ’09 as you start to get some easier comps in the US, but overall are you still expecting solid double-digit revenue growth and when would you expect to continue to give guidance on a go forward basis and when would you give fiscal ’09 guidance?

Jeffrey Weiss

We’re not prepared at this point to give that guidance Rob, It think that’s a little bit too forward looking for us and I think given the volatility in all marketplaces, it’s very difficult at this point to have visibility going forward.

I think our stance as a company is not to chase top line at the expense of proven credit metrics and I think, depending on what we see in the economy’s, that will guide us in how aggressively we seek to grow revenue.

Randy Underwood

And Bob, we are in an accelerated quarter this year-end and therefore we have to file our K and give our earnings call at the end of August. Traditionally we give guidance on that call for the fiscal year of ’09.

Robert Napoli - Piper Jaffray

Last question on the Canadian legislation: given that 52% of your revenue was out of Ontario, can you give an update on that province in particular?

Donald Gayhardt

It’s a poll interest system, so the same government there, which is the liberal party government, they, I guess it’s actually probably, I think we should introduce it, but we sort of unveiled it, I guess, about four or five weeks ago. There’s some amount of the talent, does not have rates in it, but that’s those sort of loan structures etc…so it’s the kind of stuff we’re seeing out of most of the provinces and we’re pleased with the way that the process is going, I think that comment extends to Ontario as well.

We’ve got a trade association there and the member company’s in the association. I think we’re an active participant in making our views about legislation, regulation heard in the appropriate places and the way the processes have been run up there it’s been very sort of open and inviting of comment and we would expect to see the same kind of thing unfold in Ontario.

Randy Underwood

But, I think the one thing we have learned that we can say with a fair degree of confidence is that we simply have no way of knowing how long the process will take.

Robert Napoli - Piper Jaffray

So Don, is this your last dollar call or?

Donald Gayhardt

This is my last dollar call and with no champagne corks to be heard on this one, but thank you for noting it and I’ve had a number of people say to me this past couple weeks “well I guess you won’t miss having to prepare for earnings calls”, but maybe I’ll say something about, maybe I have a strange personality or something, but I’ve enjoyed the process and I’ve learned a lot from doing it so.

Robert Napoli - Piper Jaffray

We’ll miss you in the analyst community and wish you the best of luck and look forward to keeping in touch in the future.

Operator

Your next question comes from Henry Coffey from Ferris, Baker Watts, Inc.

Henry Coffey - Ferris, Baker Watts, Inc.

Good afternoon everyone and don’t worry Don I’ve got a friend of mine who will keep me informed on your cell phone, so we’ll call you at like 3:00 in the morning and scream at you and all kinds of fun stuff. We don’t want you to miss any of this.

Donald Gayhardt

I’m changing that number; that’s my first order of business.

Henry Coffey - Ferris, Baker Watts, Inc.

Congratulations, I’m sure you won’t miss any of this for a minute. I just didn’t pick up all this exactly. Ontario introduced legislation that would allow them to set rates in April?

Donald Gayhardt

Yes, they unveiled it; the city government unveiled their legislation, which is kind of the starting point of it.

Jeffrey Weiss

It’s not legislation that has passed it’s …

Henry Coffey - Ferris, Baker Watts, Inc.

Right, exactly it’s introduces.

Donald Gayhardt

The process is going to be, they’re not going to run a formal sort of public utilities board process, as it’s envisioned now, as they did in Ontario, it will be more sort of an internal, I guess I’d call it working group is the way it’s set up right now.

Henry Coffey - Ferris, Baker Watts, Inc.

But, that still is a lengthy.

Donald Gayhardt

Yes, just commenting that this is probably the most dangerous occupation going, is the predictor of how long legislation in anything will take and obviously we’ve been pleased overall with the process. From our standpoint they could have gone a little more quickly, but having said all that, I think Ontario is, there seems to be a fair degree of regular activity around the legislation and I think we’re pleased that it is moving along.

Henry Coffey - Ferris, Baker Watts, Inc.

Has the suicide rate of the competitors increased yet? It seems that 99% of the providers in the marketplace are charging fees that are above the Manitoba ceiling. Maybe I’m wrong on that statistic, but it’s a damn impressive number.

Donald Gayhardt

It’s clearly going to change the environment. We look at a place like Manitoba where like you said a lot of the company’s are charging above the rate. We think of multiple products, multiple services and a brand name and a store in every town with more than 50,000 people in Canada. We like our position in the market over the long term. I think the regulation provides for, as we said in our release, for company’s in Manitoba over the long term to make decent returns.

Henry Coffey - Ferris, Baker Watts, Inc.

I’m sorry for belaboring this, but I want to make sure I’m interpreting the regulations correctly. It will in essence eliminate a lot of side fees, correct? You know the registration fees, account maintenance fees, or check cashing fees?

Jeffrey Weiss

Exactly, on those who charge them. We do not.

Donald Gayhardt

You have to bundle everything into one calculation, or whatever you want, but it all gets kind of thrown in the same…

Henry Coffey - Ferris, Baker Watts, Inc.

Can you give us same store sales data on your three countries in the constant currency, or local currency?

Jeffrey Weiss

We’ll have to look for that Henry, can we get back to you?

Henry Coffey - Ferris, Baker Watts, Inc.

Yes, just give me a call over here and then finally, your pawn operation in the UK, how substantial is that relative to your overall UK operation?

Jeffrey Weiss

It’s a pretty good piece of business. We had about 4 million pounds of revenue, so it’s a pretty good-sized piece of business for that particular business unit.

Henry Coffey - Ferris, Baker Watts, Inc.

It’s a sort of jewelry only, liquidate everything at wholesale business?

Donald Gayhardt

It’s jewelry only and the jewelry is gold, silver, diamond. Our redemption rates are very, very strong; it’s consistent with the industry average. We only retail currently in about a half a dozen locations. That’s essentially marketing as opposed to a profit and it’s to alert folks that we are in business. We have become, we believe, the third largest pawn operator in the UK with our very narrow focus.

Henry Coffey - Ferris, Baker Watts, Inc.

And then selling most of the stuff at wholesale is what you’re telling me?

Donald Gayhardt

Whatever, I would say virtually with very few exceptions, what isn’t would is sold at wholesale.

Henry Coffey - Ferris, Baker Watts, Inc.

My last unfair question, you said lower end of guidance. Can you narrow that for us or?

Jeffrey Weiss

If you can tell us what the economy will do over the next three months, maybe we can give an answer.

Operator

Your next question comes from Richard Shane of Jefferies.

Richard Shane - Jefferies & Co.

In context to Manitoba, one of the interesting inclusions in the rate structure is effectively a limit on ticket size and I understand that your fees are below the rate limits that are established currently, but where does your average ticket size compared to what you think your borrowers will be allowed to take given the income test?

Randy Underwood

I think our average loan in Canada is about $500 Canadian dollars, Rick, it’s Randy. I don’t think Manitoba varies a great deal from that, but I don’t have that statistic right in front of me.

Richard Shane - Jefferies & Co.

Based upon the income levels that you, it seems like you do some data monitoring, where do you think the average ticket size can be in Manitoba, given the 30% take home pay limit?

Randy Underwood

I think if you’ll allow us this, we really prefer to kind of be quiet about things when regulation is in process as opposed to when it’s already affirmed and we can speak with a little more clarity to it. So, I think if you’ll allow us to, we’d like to pass on that question today here.

One other thing is that, the P&V you said that there’s a regulatory worldwide in process that is in process now. Our association gone back, other competitors have gone back and asked questions and made sort of resubmissions to the P&V here, so we’re trying to get some sense, there is not 100% clarity perspective in some of the provisions including that one.

So, we’d like to get a little better sense of the intent and the specifics of some of the language in there, so we have great clarity as to what the near term impact is going to be.

Richard Shane - Jefferies & Co.

The next question is this and this may in some ways relate to Randy’s answer, but for the last couple quarters you talked about pulling back the marketing strategy in Canada and there are obviously costs and benefits to that. Given that so far it seems like you are well within the guidelines that are being established, why do that?

Again, I understand that you don’t really want to run amok up there, but isn’t there an economic cost, you’re already there and isn’t there an economic cost to not having your foot down on the gas and in Taiwan maybe you should be.

Randy Underwood

Well again, I think what we said is we wish to be mindful and respectful province by province of the regulatory process. We think that we have a terrific brand in Canada and we are a stand in the marketplace and we think we have an excellent relationship with regulators and legislators and we think at this point while they are in the middle of their deliberations, taking a less aggressive stance is appropriate.

Donald Gayhardt

We have asked ourselves that same question, Rick.

Randy Underwood

Question right and decided that it’s prudent to dictate profit.

Richard Shane - Jefferies & Co.

I guess fair to assume that they are very aware of that and you feel like you’re seeing the intangible benefits that, or will see the intangible benefits of that in the long run?

Randy Underwood

I think if we do feel that we’ll see the, there are very significant long-term benefits for our position.

Operator

Your next question comes from Daniel O'Sullivan of Utendahl Capital Partners.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

You guys had mentioned Ohio and I think the net revenue number was $600,000. Can you tell us is that just net of the provision for loan losses or what’s in that number?

Randy Underwood

That’s net of provision for loan losses. That’s net consumer lending revenue.

Donald Gayhardt

For the third quarter.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

I know it’s a little bit early, but can you give us a bit of a sense on your outlook for store growth in ’09?

Jeffrey Weiss

We haven’t really formulate that, but I would think it would be somewhat comparable to what we kind of averaged over the last couple years, but again that’s kind of premature, but obviously we’re going to build stores. We’re going to build them in all three countries I would assume.

Donald Gayhardt

That could be tied to where, in the pace of the regulatory change in Canada. We’d love to think we could get through, you know the way it’s going now, perhaps we can get through everything by the end of the calendar year and if that’s the case, I think the number’s Randy’s kind of talking about are pretty achievable.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

I assume you guys are still actively looking at acquisitions in the US, or have you thought all back on that?

Donald Gayhardt

We have a full pipeline in the US, but again I think that it’s prudent for all business people to be prudent in this environment.

Jeffrey Weiss

But we have a full pipeline.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

Can you kind of break out what you guys are seeing over the last couple quarters as far as the collections environment in the three countries? A number of your competitors on the earnings call this quarter mentioned increasing difficulty in collecting in the US. I’m just wondering if you could comment on that and what you’re seeing in the UK and Canada as well.

Randy Underwood

I think in the UK, we continue to see a little better collection kind of quarter by quarter here over the last year, as we focused a great deal on some softness we had there last year; I think we mentioned that on last quarters earnings call. In the Canadian business it has continued to go up a little bit.

Again, we’ve commented on a number of earnings call here in the last year, that we thought a couple years ago we just weren’t making as large a loans or as many loans as we should to customers, so we adjusted our credit statistics and metrics to allow that loss rate to go up to the publish in the margin dollars gain from the additional revenue that’s represented in our historical earnings here for the last couple years.

In returns in the US we see that kind of creeping down modestly here over the last couple quarters. I think again, as Jeff mentioned, because we have adjusted some of our credit metrics and terms of the loans that we are putting up to prospective customers.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

Are you saying adjust your underwriting, is that to newer customers or existing. Which side of the equation have you adjusted more?

Randy Underwood

I’m sorry, I didn’t hear.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

When you’re saying adjust your underwriting in the US are you adjusting more on the side of new customers or existing customers?

Randy Underwood

I think it probably would shift to new customers. It’s people that we don’t have a real history with, therefore, we don’t have as many metrics to make a determination and it probably results in us making a smaller dollar loan than we might make if we didn’t have the economy some what stressed as it is today.

I think that shows up in if you look at our gross charge offs are down and recoveries are down as well, but I think we’ve been saying this for a while sort of domestically; it has been getting harder to collect. But, I think we’re fairly well adjusted to the environment now where collections are harder.

Operator

Your next question comes from John Hecht of JMP Securities.

John Hecht - JMP Securities

Your net charge offs were down year over year and sequentially and your provisions as a percentage of revenues in the payday lending arena were down as well. Yet you guys are pulling back and tightening underwriting. What are you seeing specifically or in what geographies and you had mentioned collections are getting harder? What are you specifically seeing given that success from a credit perspective that’s causing you to pull back?

Randy Underwood

I think first John, we’re seeing television and newspapers, and I think it was just be irresponsible for us to ignore the evidence being presented to all business people and consumers in all three countries in which we operate, that there is turmoil and volatility in the marketplace.

While we have not seen any kind of dramatic change in the complexion of our customer base, or even in their earnings, our customers do exist in the real economy and although the overall majority aren’t homeowners, for example, some of them may derive their income from home building activities, some customers may lose overtime, they lose their weekend job and while we can adjust our lending criteria kind of at the drop of a hat, we just think it’s prudent both for ourselves and for our customers to be more mindful of the economic situation.

I don’t think we’ve seen anything dramatic in terms of our customer behavior except a modest softening quarter-by-quarter, certainly in the US as accorded by all of our peers in the industry and you know more effort on the part of our collectors to get retainment and retainment plans.

Donald Gayhardt

John, if you looked, if you go back four, five, six quarters and we’re talking about the gains and you can see real softness in the mortgage and we’ve actually got the question, how does that kind of link in? I think we said at the time, hey you know it’s sort of we draw a straight line from mortgage issues to our consumer, given just the follow on cross over there. We always watch our auto loans and credit cards and we watch them country by country.

We certainly started seeing some increase in the local fees and charge offs and prime, sub-prime credit cards and it’s everywhere, but if you look at the sub-prime and you can isolate the sub-prime numbers there, that’s really over the last couple quarters when it’s gotten our attention and made us be a little more conservative.

But we’re saying we have these two week loans, so one I think it’s, the cross over data in very kind of tiny buckets by geography, by in home, by a whole lot of stability factors like time at job, time at residence and where we see isolated pockets of weakness, we can make changes pretty quickly, so it’s probably we see in on a day to day business is more sort of a, you kind of look at it in a much more granular level, as Jeff point, at the macro level you’re seeing just a whole lot of weakness and weakness in the news.

John Hecht - JMP Securities

Okay and just a little bit of homework. You guys had mentioned your UK revenues and growth. I didn’t get that, can you give me what those numbers were again? The total consolidated revenues?

Randy Underwood

Total revenue in the UK was $32.6 million, that’s in US dollars and that grew 37.4% over the prior year. Consumer lending grew 40.5% and check cashing grew 9.9%.

John Hecht - JMP Securities

With respect to you guys guiding toward the lower end of your guidance, is part of that almost like driven by your conservatism and your pulling back and is that what’s causing you to sort of guide toward the lower end, or is it just general lack of visibility?

Jeffrey Weiss

I think we’d have to say both, John. I mean until relatively recently we did have good visibility going forward, but now we don’t. I don’t know anyone who does and I think our stance has always been to be conservative. So when we had a high degree of confidence that we understood what was going to happen, a quarter, or two, or three ahead, I think we were near foolish, but in what we plan to do within the business and what we said we thought the business would do and we just don’t have that confidence now given the turbulence in the way worlds economy.

John Hecht - JMP Securities

So, it’s nothing specific, it’s more of just you’re just taking a more conservative approach to forecasting your business and maybe accounting for slightly slower store growth, slightly slower, less transaction counts than a unit basis, things of that nature?

Jeffrey Weiss

Exactly and I think we’ve said, both since we’ve been public and when we had public debt in the year before, that our stand is to be cautious in difficult times as opposed to trying to grow out of them.

Operator

Your next question comes from John Rowen from Sedody & Company

John Rowen from Sedody & Company

I guess a couple of homework questions. The other income line, you mentioned that that was part of your Canadian tax service. Can you go ahead and break out just how much of that was in the revenue line? The Canadian tax product that you mentioned in the press release.

Randy Underwood

For the quarter and these are Canadian dollars, but we did a little less than $4 million of tax prep revenue there and that was up about 30% over the prior year.

John Rowen from Sedody & Company

Okay so the other revenue line could come down next quarter?

Jeffrey Weiss

It could come down maybe a little bit, but there are a lot of things in there, our debit cards are doing quite well, our foreign exchange business is doing quite well. Western Union business continues to grow. There are just a lot of things in our revenue that are doing well right for us.

Donald Gayhardt

If you sort of break it out country-by-country and look at the different products, there are some really strong trends as Randy mentioned. The debit card business in Canada took a turn up to terrific for us and a great driver. We’re just getting that program kind of started in the UK. It’s really there that we think that’s going to be a, the spending patterns are up year-over-year in that business in the UK.

Foreign currency exchange in the UK was up almost 50% in local currency. Individual products aren’t huge sellers in other countries, you sort of add them all up, and it’s pretty meaningful.

John Rowen from Sedody & Company

Then on the salaries and benefits line, you guys mentioned that there were some incremental costs there associated with integration of the acquisitions. Can you kind of break that out a little bit as to what you may not see next quarter?

Randy Underwood

I think there are really several things in there. There are new stores that we put on in the first, second and the third quarter, all of the acquisitions that we brought in. We’ve been, as we’ve said for several quarters, ramping up our management team, which means our field level management and adding full level positions where none of the acquisitions that we had in the past, but the restorative elements that we would expect to be adding in the future for future question.

It’s just ramping up right now when we don’t need that talent. Obviously you need to have people trained and ready to go so you can bring stores on in order to have them grow efficiently. So, I don’t know that we’ll see anything really significantly different as we look into the fourth quarter, because we’re kind of continuing on the program we’ve been on for 6 to 9 months now.

John Rowen from Sedody & Company

Ireland, where is your store located?

Donald Gayhardt

Dublin.

John Rowen from Sedody & Company

Just to go back to Ontario, you mentioned that there’s going to be people in the workout group. Do you know the people in the workout group? Are you comfortable with them? What level of input are the industry and the consumer advocates going to have within that group?

Randy Underwood

I think we said a working group, not workout.

Randy Underwood

I think it, as it’s intended, it’ll be three people in the group, and we don’t know at this point, who those three people will be. But, we think we’re well represented and our views are being sought and heard.

John Rowen from Sedody & Company

Are there going to be any hearings in Ohio this week from the Senate?

Randy Underwood

I, you know John, the last we heard is, we don’t know. But we’ll, it’s public information so we’ll obviously let you know and we’ll be happy to keep you as up to date as we can.

Operator

Your next question comes from Liz Pierce of Roth Capital Partners.

Elizabeth Pierce - Roth Capital Partners LLC

Not that there’s much left, but I’m going to throw something out, as the somewhat new kid on the block. This schedule the HR5519, is that what it is? Are you familiar with this on the credit union? I’m just trying to figure out; do you have any comments or color on it?

Donald Gayhardt

I had seen it. To be honest with you I don’t know enough to give you any great insight right now. But, as we know a little bit more and talk with our tracers, I can certainly follow-up offline a little bit. I don’t know enough at this point to be helpful.

Elizabeth Pierce - Roth Capital Partners LLC

So far then, it would seem to me that if your, the trade associations haven’t really, unless they’re just dispersed other places, been fully engaged in what this could mean.

Donald Gayhardt

Well no, we do have this small matter of going home in Ohio and I think that’s taken up, I mean like Colorado and Virginia and all that. I mean really, this is simply the way things work; now that the state house is in session, the first four or five months of the year we tend to be more focused. Not that we’re not focused and we’re not paying attention to the subtle stuff, just the balance of the activity tends to be in the states.

Elizabeth Pierce - Roth Capital Partners LLC

Is there any precedence for something like this at the federal level that would give you cause for concern?

Donald Gayhardt

I guess there really isn’t any precedent, so again I don’t go very deep on this one so…give me three days and maybe we could give you some kind of answer.

Elizabeth Pierce - Roth Capital Partners LLC

Fair enough and are there any other states, because obviously Ohio just kind of, people didn’t expect it. Is there anything else in the hopper, so to speak that has caused you guys to, well maybe we better sort of look at something else, because one thing could lead to another?

Donald Gayhardt

You mean are there any states that are currently, that are active?

Elizabeth Pierce - Roth Capital Partners LLC

Yes anything else that may be because of what’s going on, oh excuse me, going on in Ohio could ignite, put fuel into the fire on another state?

Donald Gayhardt

Yes you know the state houses are recessing now. You have South Carolina is still a grand total of one store, but that’s the state with some activity now. I think Illinois and Indiana; there’s been some legislative activity. We don’t have stores there.

But I think really the balance of the activity is higher in Ohio than South Carolina right now, but it’s an election year, so that brings in many of the states have shorter sessions to begin with this year. Given it’s an election year, the budget issues seem to be taking up more of the air and time in different places. So, I think that we would, might expect to see a great deal of activity beyond Ohio and South Carolina and again there’s stuff that’s out there right now. But, we’ll give you the cupboard cabin out there. It’s government and we are not in the business to get things up there.

Elizabeth Pierce - Roth Capital Partners LLC

Then Jeff, not to bring this up, but just sort of like clarification. The change in the tone in the guidance is really just your lack of visibility and conservatism? I know we’ve said this, but I need to kind of say it again, not versus what you’ve seen in the first month of the quarter?

Jeffrey Weiss

Maybe we should have said this in the beginning. We give guidance in the beginning of the year. It’s not our policy to give quarterly guidance. So, here we are sitting here at the last quarter and probably going to bring this up as well, but it’s not a business where you can go wildly and out perform or under perform expectations. So the results tend to be in a fairly narrow band.

At the beginning of the year we gave guidance of $215 to $230…

Donald Gayhardt

I think the other thing, the range was for $0.15, and we still had that $0.15 range that we feel we had to give some color within the range, so some of that is just the way the math kind of works as you get into the last quarter.

Randy Underwood

And also, I think and we’ve said this many times before, predicting the currency rate is pretty difficult when you start a year off and you try and have a wide range, because predicting the US dollar and whether it is going to strengthen or weaken and by how much is not what we’re particularly skilled at or we’d be doing something else.

So, you kind of have a wide range and certainly it was much higher in the second quarter and it has come down quite a little bit in the third quarter and we’re mostly into the fourth quarter and it’s fairly comparable to where we were in the third quarter. Part of it is just currency has come down and that’s where the translation affected us.

Donald Gayhardt

But, the trends are still good; we’re just trying to give some follow up on both sides of it. I think I would listen to Jeff’s comments about that or review them when the transcript comes out. We do talk a lot about how the business is strong and fundamental, but mainly strong.

Elizabeth Pierce - Roth Capital Partners LLC

I guess that’s what was kind of, it wasn’t in the press release, and so it seems like things were gearing up to be decent and then just kind of a curve ball there. Well, fair enough, sounds good and best of luck Don.

Operator

Your next question comes from [Michelle Dragonetti of Apatos]

Michelle Dragonetti - Apatos

Just a couple of quick housekeeping questions and I’m sorry if I missed it earlier on the call. Can I just get a run down on the availability on the various revolvers, by currency I guess?

Randy Underwood

Michelle we have $75 million on our US revolver which is undrawn in its entirety. We have $25 million Canadian that is undrawn in its entirety and then we have 5 million pounds in the UK of which we’ve drawn about $4 million or roughly 2 million pounds against that for the US and UK store acquisitions that we did here in the last several months.

Operator

Your next question comes from Bob Napoli of Piper Jaffray

Robert Napoli - Piper Jaffray

Your strategy of diversity by geography, product and channel, the pawn shop business in the UK doing well and it’s not a business that you’re in other markets and I just wondered if and I’m sure you thought a lot about this over the last 20 years, whether it should be in other markets or not, but is there any adjustment in your thoughts in that? Is there an opportunity to add a narrow focused pawnshop business in other countries? I mean there seems to be less reason…

Randy Underwood

There are pawn like products that may well fit some of our other markets and I think that is a revision in our thinking. But, probably not in the conventional sense.

Donald Gayhardt

Not full-scale pawnshop operations the way you would typically see them in the US.

Robert Napoli - Piper Jaffray

Okay because there seems to be a lot less regulatory movement in them. You had a lot of regulatory movement in pawnshops many years ago, but it seems to have settled down.

Jeffrey Weiss

I think our expertise in some aspects of the business has grown quite substantially.

Robert Napoli - Piper Jaffray

Is that a 2009 strategy, 2008 strategy?

Jeffrey Weiss

Again, I think it’s premature to comment on new products given that, I think, we’ve always been extremely innovative in this area and have accepted the flattery of imitation, but I think we would prefer that the flattery and imitation be staved off as long as possible.

Robert Napoli - Piper Jaffray

You said this before, Randy, but the liquidity available for acquisitions was how much?

Randy Underwood

$50 million in cash and then the roughly $105 million of undrawn revolver capacity is available.

Operator

Your next question comes from Henry Coffey of Ferris, Baker Watts.

Henry Coffey - Ferris, Baker Watts, Inc.

I was just trying to clarify a couple of details here. In terms of looking at the numbers, the other revenue figure jumped nicely. I’m assuming a lot of that is in addition to some of the products we’ve talked about. Is that where your pawn revenue is showing up?

Randy Underwood

Yes it is, Henry.

Henry Coffey - Ferris, Baker Watts, Inc.

And that’s somewhat sustainable going into the next quarter. The other thing is there’s been a nice creep in your percentage fees you’re earning in Canada. Is that a re-pricing, is that a change in loan size, what’s the, I know you’re trying to sort of move quietly there, but what’s the underpinnings of that?

Randy Underwood

I think Henry it has a lot to do with the size of the loan, there’s some tiered pricing in there as well. That sort of impacts it as it goes up there.

Operator

Your next question comes from Daniel O'Sullivan of Utendahl Capital Partners.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

I didn’t catch the number for revenue in Canada for the quarter. Could I get that please?

Jeffrey Weiss

$62.5 million in revenue.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

That’s net right?

Jeffrey Weiss

Yes.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

So it was basically $% sequentially then? It was $62.6 last quarter?

Jeffrey Weiss

That’s right, $5 sequential. The number is your currency backed, which due to lower currency’s, lower average for the quarter and you also have a very good, typically seasonally lower volumes on the payday side, as I said a little bit of the income packs revenue, prep revenue that we get, that we talked about earlier.

Daniel O'Sullivan - Utendahl Capital Partners, Lp

That tax corporation revenue actually shows up in other as well, right?

Jeffrey Weiss

Shows up in revenue as well, exactly.

Operator

Thank you. At this time I would like to turn the floor back to Jeff Weiss for any closing remarks.

Jeffrey Weiss

At this point I would like to extend the company’s deep appreciation for the contribution Don has made in enabling us to move from a $14 million revenue business almost 18 years ago, to the more than $500 million revenue business we are today. His contribution in every aspect of the business has truly been valuable. He is a great colleague and esteemed friend and I am sure, on behalf of all the employees and shareholders of Dollar, we want to wish him a heartfelt thank you and best wishes for his continued success.

He will remain in association with the company. We certainly hope and have been assured by Don that we can draw on his expertise and insight as we move forward and we wish him the best with his new endeavor.

With that, I also wish to thank all our employees in the countries in which we operate. It is there hard work and dedication that enables us to service our customers so successfully, so a thank you to them and thank you all for taking the time to join us this afternoon.

Ladies and gentlemen this concludes today’s Dollar Financial Corp conference call.

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Source: Dollar Financial Corp F3Q08 (Qtr End 3/31/08) Earnings Call Transcript
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