Q1 2020 Earnings Call

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Thursday

good morning, and welcome to the group Holdings first quarter 2020 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your telephone keypad to withdraw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to guard Jackson investor relations work Euro, please go ahead.

Thank you and good morning. Everyone after the market closed yesterday KERO released results for the first quarter 2020 which are available on the investor section of our website with me on Thursdays call or curious president and chief executive officer Chief Operating Officer Phil Baker Chief Financial Officer Rodger Dean and chief accounting officer Dave Serrano. This call is being webcast will be archived on the investor section of our website before I turn the call over to Don I'd like to note that today's discussion will contain forward-looking statements based on the business environment as we currently see it as if it does include certain risks and uncertainties. Please refer to our press release and our SEC filings for more information on the specific risk factors that can cause our actual results to differ materially from both directions described in today's discussions.

Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events in addition the us gaap affording. We report certain Financial measures that do not conform to generally accepted accounting principles. We believe these non-gaap measures enhance the understanding of our performance reconciliation between these gaap and non-gaap measures are included in the tables found in yesterday's press release with that. I would like to turn the call over to Don

Thanks car before we begin. I'd like to thank everyone for joining us today. And I hope that you're all healthy safe and managing as well as you can through this covid-19 Health crisis.

As we speak today on May 1st. We're still faced with a very uncertain economic Outlook and we'll try our best to help you understand how the public health emergency is impacting our business office. There are some signs that the worst phase or at least what we hope is the worst phase of the Health crisis in certain parts of the country has passed as indicated by slowing infection rates reduce stress our Healthcare System and the preliminary steps to reopen the economy. However, the broad impacts of this pandemic are was going to be felt quite some time.

we think the

First step in addressing the economic crisis is solving the Health crisis and because we're businesspeople and not doctors. We can't accurately predict the duration and severity of the pandemic an impact on businesses and communities.

As a result, we're just not in a position today to offer any guidance or estimates for future performance that said we do plan to revisit guidance when we have more clarity on the white thousand description of the Coronavirus.

During this uncertain stressful time. We are focusing our energy and resources on a few key areas namely one taking care of our customers to supporting our employees, especially those on the front lines and the communities where we operate three lending responsibly and for carefully managing cash and liquidity to ensure that we are well-positioned to whether a sustained economic downturn.

We addressed some of these initiatives and our April 8th update and I'll start by providing some additional detail.

For our customers in mid-march. We formalized a covid-19 customer care plan in line with this plan. We created a dedicated toll-free number and email address. So customers could contact us directly with their concerns at the same time. We empowered our Customer Care Specialists to provide relief to our customers based on their specific situations that relief included payment page and deferrals interest in fee forgiveness, due date changes and extended payment plans and the temporary suspension of returned item fees. Finally. We aligned our credit bureau reporting for customers with delinquent accounts in accordance with the Cara's Act.

For April 29th under Acuras customer care plan. We've granted concessions to 35,000 customers providing relief to 5% of our active borrowers. In addition. We cashed over $13 of stimulus checks in the u.s. And Canada free of charge. We granted the majority of these concessions in April. So you'll see the financial impact in our second quarter. May I please have been part of the solution for so many people under extreme stress during this unanticipated crisis.

Our stores in the US and Canada are are considered essential and remain open to serve. Our customers albeit with reduced hours Monday through Saturday 10 a.m. To 6 p.m. And provide some relief to our Associates in addition to loans. Our customers use our stores to cash checks pay bills. Send money to family and friends and reload and use their debit card wage demand deposit accounts. We've always been will always be essential to our customers consequently. We're deeply commited to providing our services with minimal disruption.

We're pleased across R 426 locations in the US Canada. We experience temporary closures in only nineteen locations and last week alone. We processed more than 90,000 in person transactions across our store Network in North America.

Of course.

All information transactions are conducted with the health and safety of our customers and employees foremost in mind.

We worked hard to protect the safety and well-being of our employees by enhancing cleaning protocols for all of our facilities and employees aren't hearing too strict social distancing and Care guidelines and operating the storage box nearly one hundred percent of our employees are corporate and contact centers in Wichita Chicago and Toronto have been working from home since the end of March. We implemented an emergency leave pay plan to ensure that employees are paid when they're unable to work due to covid-19 and we are paying stipends to our Frontline teammates at additional relief, but finally we've been paying all of our store personnel full-time wages regardless of scheduling changes that have come about because of covid-19.

We have an enormously talented in tenure group of employees at Kuro and while we continue to evaluate our appointment practices as a health care crisis unfolds. We believe that our business model and capital plan that will allow us to keep our employees in place serve our customers prepare for a return to a more normalized business environment.

On the demand side as expected. We saw meaningful reduction a new customer applications from reduced or traffic and lower online demand since the pandemic began.

Resulting decline in the origination volume along with ongoing repayments decreased are earning asset balances through April total owned and managed earning asset volumes declined 13% off as of April 29th from first quarter balances and by comparison sequential monthly earning asset balance is grew 1% last April.

What was it prefer to see normal seasonal increases in loan applications and approvals? These Trends are not surprising in this environment the tumors appear to be borrowing and spending with much more caution off and our loan application lines have declined by approximately 60% since mid March. We have also increased minimum credit scores and added additional income and income and employment verification procedures which are produced our loan approval rate by more than 60%

In terms of credit quality and the four week period beginning the week ending March 15th early stage delinquencies, which we Define as 1 to 30 days late increase on a sequential basis by approximately 35% speaking on April 12th while it's still too early to tell the longer-range outcome for delinquencies and that charge offs as of April 28th delinquencies have improved and are now only 14% higher than the comparable data as of March fifteen using the same sequential weekly data Canadian delinquencies have declined over the past two weeks. But remain more elevated on a relative basis we suspect this is related at least in part to the USS earlier or enactment of various economic stimulus measures.

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More detail on operating expenses and liquidity. However, it is important to note that our business model has an adequate margin of safety to accommodate a substantial increase in our loan loss provision without impacting our ability to generate pre-tax cash flows, which we Define as pre tax income plus depreciation and amortization after taking into account expense reduction measures. The Rodger will discuss that would generate 45 to 50 million dollars in annual savings. Our loan loss provision would increase by could increase by 50% before our pre-owned cash flow would fall to zero.

In addition to the early results on delinquencies. We previously mentioned it is worth noting that during the 2007 to 2009 financial crisis our loan loss provision increased by about 11% during a period of sustained unemployment before return to more normalized levels.

Finally, well, I don't want a date myself too much. I've been in the small dollar lending industry for a long time and this will be my fourth experience helping to manage a business through an economic downturn off while the speed and severity of this decline is unlike anything we've seen before my experience, which is shared by many members of the Kuro leadership team. It's a subprime and under Bangkok consumers have consistently shown a greater ability to manage credit as measured by the relative change in our delinquency and charge-offs and an economic downtown and Prime and near Prime customers off.

We don't usually spend much time addressing the competitive landscape, but given the current environment. I think it Bears some mention here our objective to keep our store contact center and corporate teams together during a crisis is motivated by our desire to do the right thing by our people and to ensure that we're prepared for when businesses reopen and the economy begins to recover what we expect this recovery to be muted at first small dollar lenders that serve under Bank consumers have generally performed well in the aftermath a broad economic downturns that was the case for us and Thursday is coming out of the 07009 crisis. I'm looking ahead of recovery. We take it lenders like Kuro that have scale liquidity and access to Capital omnitracs operations that allow store customers to also use mobile and contact center Solutions Geographic and product line diversification and little or no Reliance on Outsourcing operations participate.

Operations in other countries that may have a disproportionate or delayed impact from covid-19. We think these lenders Will Ferrell better.

Decent conversation within our industry and a limited review available public company information. We believe all lenders have seen declines and origination and new customer accounts. The fair number of all lenders are dramatically scaling back operations engaging in Broad layoffs and furloughs. Some of these lenses are even winding down or liquidating portfolios to conserve cash and reduce credit app.

As I said earlier the economic crisis won't end until the healthcare crisis abates that said we believe we're well prepared for a protracted downturn and positioned to benefit from a different competitive environment and the other side of this pandemic On a related note. We believe that our relationship was stride bank is an important competitive Advantage Kuro stride Bank licences are understating origination and servicing platforms to originate online installment loans. They have been offered pilot loans of two states from point to expand in eight to twelve additional States over the next several months anticipate a question. We have no current plans to work with stride to offer Consumer loans in California.

investors we continue to make discipline decisions while ensuring that we're

Well positioned to benefit from the eventual recovery shortly after quarter-end. We closed in a new non-recourse assets that credit facility in the US and Drew Down thirty five point six million dollars based upon the eligible borrowing base of loans sold to the related STV today. Our nearest debt maturity is our senior revolver, which matures on June 31st 2021. We also suspended a previously-announced $25 million dollars a share repurchase program as of April 29th. We have a strong balance sheet including over two hundred and thirty million dollars of unrestricted cash.

A board of directors declared 8.055 per share second quarter cash dividend on common shares outstanding which will be paid on May 27th to stockholders of record as of May 13th will continue to evaluate the dividend on a quarterly basis moving on to our first quarter results for the quarter ended March Thirty One 2020. We posted Revenue growth of germs 1% primarily due to the year over your impact of the California regulatory change that went into effect the start of the Year, excluding the impact of our California installment loans Revenue grew 6.7% versus the year-ago quarter.

Justin declined 9.7% to 65.8 million and adjusted diluted earnings per share declined 3.8% to 77 cents per share of the quarter using metrics included twelve million dollars or Twenty One cents per share impact for incremental loan-loss provision of what mainly would have been required as we strengthened wage allowance for loan losses related to covid-19 impact on delinquencies. Are we increase the allowance by 13.7% We have not yet seen the impact of covid-19 on credit losses as first-quarter net charge-off rates improved approximately 70 basis points year-over-year.

And u s Revenue was down 1.9% from the prior-year and adjusted ebitda decreased 66% as a result of regulatory changes. We stopped originating installment loans in California January one. So these portfolios are in runoff Revenue outside of California grew year-over-year by 4.6% primarily due to growth and are open end loan portfolio. You are suggested including 5.3 million dollars of incremental provision for allowance Bill lost rates in the US were a hundred thirty five basis points, but that was almost entirely due to California run off and a related mix shift for installment as well as in late quarter drop and single palon for defected the denominator in the NCO rate for single Palos.

Canada Revenue growth 13.9% over the prior-year quarter adjusted ebit of eight point three million dollars is down 29% versus the prior-year quarter first quarter 2020 included a 6.7 million dollar incremental provision expense for allowance Bill net charge-off rates in Canada improved 95 basis points year-over-year wage.

close with

A brief update on catapult as you may recall. We have a 43% ownership stake catapult an online virtual lease on business that primarily serves online retailers catapults leasing office of increased over the past six weeks even while it has like us meaningfully tightened credit decisioning for new applications catapult was posting record deal origination volumes and I approval rates stay-at-home customers are shopping online and priming near Prime online financing providers are tightened credit and today is not seen any meaningful deterioration and it's credit metrics. We think that the non-prime segment of the consumer durables Market the Catapult service is probably around fifty billion dollar category and with its online integration underwriting a servicing capabilities. We think that it continues to have a durable advantage over competitors that Focus mainly on brick-and-mortar retailers.

In summary after promising first two months. We ended q1 2020 tackling. The many challenges associated with the pandemic. I'd like to express my gratitude to our over a thousand nine hundred dedicated employees who continue to serve our serve our customers day in and day out regardless of the challenges or obstacles that they face we continue to believe that the strength of our company and our people and our culture never been more proud of our employees that I am today. We're working hard to meet the challenges brought on by covid-19 while continuing to care for our people and our customers and with that I will turn it over to Rodger.

Thanks, Donny. Good morning. Everyone has documented earlier Consolidated revenue for the quarter was 280.8 million dollars up 1% compared with last year's first-quarter us loan balances in Revenue decreased 10.3% and 1.9% respectively year-over-year primarily due to California palm repositioning and late 2019 and the run off of that portfolio that began when we stopped originated in California installment loans on January 1st, 2020.

Can I get loan balances increased 19.3% on continued open in Lone Grove Consolidated adjusted ebitda came in at $65,000 down 9.7% But this quarter included a $12 million dollar charge for incremental provision expense for allowance build over what we would overlap have normally been required as Don mentioned earlier.

Consolidated adjusted net income and adjusted EPS for the quarter declined year-over-year by 15% and 3.8% respectively again, including the $12 plus tax or 21 cents per share of incremental loan loss provision for allowance build.

From a high-level covid-19 related unemployment and consumer Behavior changes during the last half of March affected our financial results in three major areas.

First loan volume and demand you began tightening Credit in mid-march, in addition. The man as measured by application volume declined as fewer customers visiting stores during the stay-at-home orders and to a lesser extent online application volume declined. Already mentioned the sequential run transfer April.

Second delinquency Trends as expected to give it to the timing of the unemployment Trends and the locked out order is late in the quarter. We did not see an impact on net charge-off rates in the first quarter from covid-19. However delinquencies Rose Quarter in and through April and that drove the twelve million dollars of incremental provision Lomas. Is an expense for allowing a third operating expense reductions.

We took actions in mid-march to reduce operating expenses across several major categories, including advertising variable compensation of freeze on hiring off suspension of Merit increases and savings from work from home initiatives on a combined basis these actions position us to drive 11 million dollars to $13 a quarterly cost reductions compared to our original operating plans. We we intend to keep these expense measures in place off until business volumes and operations begin to return to normal.

Next some brief comments on Advertising customer accounts and cost per funded loan or cpf before moving on to loan portfolio performance.

You're over your comparisons are challenging due to covid-19 impacts as well as the fundamental shift in the composition and growth trends of our portfolios year-over-year in the first quarter of 2019, especially in California and Canada. We acquired a high number of new customers compared to the first quarter of 2020 this drove a meaningful change over here in advertising pattern a new customer calls.

To all metrics on new customer accounts or lower they were generally anticipated as we slowed the pace of new customer acquisition.

The number of new customer additions dropped considerably over the last two weeks of the quarter due to impacts early impacts of the covid-19 payment.

looking at Consolidated new customer counts

We added 113,000 800 new customers this quarter that was down 7.3% from last year our site to store capability added 21500 new customers during to 1.

About advertising and new customers by country starting with the US.

Us advertising expense which is 4.6 million and that's up 72.3% over the same quarter a year ago.

We've historically reduced advertising and customer acquisition seasonally in the first quarter of the Year concentrated in February considering the impact on customers of US federal income tax refunds.

And the first quarter of 2020 based on improved underwriting and evaluation of the seasonal opportunity. We increased advertising over prior levels through the tax revolt season.

We don't of course reduced advertising in the last three weeks of March 2020 due to covid-19 related considerations.

In total new customer accounts were down 6.1% year-over-year, but that's primarily due to California and Ohio and to a lesser extent in late, March the credit tightening.

We stopped acquire a new installment loans in California and and and late. It was in October of 2019 to prepare for the January 12020 law changed their name under new customer volume in Ohio was lower after the April 2019 law changed there.

Looking on the Canada Canadian advertising expense for the quarter was flat year-over-year. It's higher opening loan. Advertising was offset by mid shift and. Our first loan promotions for single pay loans.

New customer accounts were down 13.1% the first quarter of 2020 compared to the first quarter of 2019 this reflected the outside growth of the opening portfolio and roll. On the prior year and the overall shift from rapidly turning single pay loans to longer-term open in loans in Canada.

Next I'll cover overall loan growth and portfolio performance. First a few highlights at the product level.

Company-owned unsecured installment loan balances declined thirty eight point six million or 23.9% versus the same quarter last year.

The decline was driven almost entirely by California portfolio repositioning an optimization. Non-california us balance is grew slightly in Canadian Security checks and balances shrink modestly resulting in about flat balances year-over-year if you take out, California,

U.s. Secured installment loan balances declined 8.7 million dollars or 10.5% versus the same quarter last year also reflecting the California wage optimization, excluding, California the portfolio grew 15.5% year-over-year.

Yes, sir.

Loan balances were down six million a year over here, but you'll call that the law change in Ohio that eliminated the CSO model became effective in April 2019. Subsequently. The CSO balance is in Ohio has run off while balances in Texas are effectively flat year-over-year.

Open in loan balances grew 30.4% year-over-year.

Both the US and Canada each grew by about 30% as reported on a US dollar basis, but on a constant currency basis Canadian open in our opening and balances 39.5%

Looking at single pay Canadian single pay balance has declined nine point six million or 28.7% versus the same quarter a year ago on mix shift.

You have single pay loan balances declined 5.4 million or 15% year-over-year.

Single pay products in general and especially in Canada are more sensitive to store traffic and as such loan volumes were significantly impacted by covid-19 over the last couple weeks of the quarter.

Moving on to one loss reserves and credit quality are Consolidated net charge-off rate improved 70 basis points versus the first quarter of 2019.

Looking at credit metrics by-product open in net charge-off rates improved by 155 basis points year-over-year, the positive effect of Canadian open in the evening was partially offset by an increase for opening NCO rate in the US from a combination of loan growth mix shift to more online volume and advertising channels.

Just a quick reminder that approximately 70% of our Canadian open in customers select to purchase payment protection insurance which covers their monthly payments off any event of job loss or disability. We have seen claimed increase in a present about 2.2% of customers with an insurance with insurance have made a claim that is being paid by the insurer Canadian Premier Life Canadian Premier life is a subsidiary of security in a $63 billion dollar asset A+ rated life insurance company. So we have very strong counterparty there.

We have a sharing and retention agreement with CPL. So increased claims will reduce the net amount of ancillary Revenue that we recognize on the sale of this product wage claims are elevated.

Yes, sir. Net charge-off rates improved a hundred and ten basis points versus the same quarter a year ago partly because of the higher relative loss rates in the former, Ohio portfolio wage and Better Credit performance in Texas.

unsecure

And secure installment loan net charge-off rates were up 155 basis points and a hundred and fifty basis points respectively and impacted negatively by the fact that the California portfolios are running off with shrinking balances.

Single pay net charge-off rates Rose four hundred basis points year-over-year and it was a 550 basis points while us single pay net charge-off rates Rose 295 basis points over here.

Due to the significant Lake order declines and single pay running ads that's the rate is distorted as gross net charge-off dollars were driven by higher daily average life than what existed at quarter-end.

One quick point on the cares act from a corporate perspective the ACT permits Federal loss carrybacks two years in which the corporate tax rate was higher than today generally years with a tax rate of 36% versus 21% today.

We have approximately sixty million dollars in that operating losses. So when we re-measured the value of those in LOLs, we picked up a nine million dollar tax benefit in the quarter. But if you look at our tables the benefit is excluded from our adjusted net income numbers.

Turning to our capital structure and liquidity. Already covered the good news on our new US non-recourse STD credit facility. So I won't repeat that here. We were also pleased to extend the maturity date are u.s. Senior revolver to June 30th 2021.

As of April 29th, we had over two hundred thirty dollars of unrestricted cash and nearly $70 of availability on our revolving credit facility wage for the trailing twelve months ended March 31st, 2020. We generated a little over $125 billion dollars of free cash flow from operations after funding loan growth and capital expenditures.

As I mentioned earlier, we suspended our share repurchase program.

And we've also suspended whole amount of central Capital expenditures including Canadians indirect store expansion that was previously planned.

Based on a first-quarter net income and the strong cash flows. We declared a quarterly dividend of five and half cents per share to shareholders of record as of May 13th. Can you evaluate quarterly dividends as we move through 2020?

Looking at our current liquidity positioned our operating cash flow generation capabilities and the availability of our Ford revolving credit facilities to fund wage growth.

We blue.

We have adequate liquidity to fund our business through 2021 under various scenarios without requiring access to the capital markets We Believe are strong liquidity position with us to manage the near near impacts of covid-19 while positioning us for opportunities as we as we move closer to the eventual recovery.

This concludes our prepared remarks and will now ask the operator to begin Q&A.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your name is set before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster. The phone next question comes from Napoli of William Blair, please go ahead. Good morning. Did you hear your voices and hope you're all doing well the I guess so much to ask here. But you know just focusing on liquidity and you guys went through a lot of good information there but like Rodger what are the are there covenants that as you stress test and you don't have any payments due until you know any facilities do until mid 2021. What are the covenants? Is there anything else?

That would that that uh could accelerate that timeframe of you know needing to repay loans or no. No, I think about like the morning for so long, you know, the short answer is no but the only thing that's worth noting is as you know, the whole facility the SB office is in Canada and the new one in the US have asset performance requirements in them that would affect, you know, if if those if those asset performance governments, uh, both not then it affects our ability to crawl on the facility, you know, right as of as of the end of April, we we cleared the Canadian levels found the the obviously the Adlai of facility that we just closed was under written and designed for the current environment. So but we're very, you know, obviously we're managing.

Very carefully around the the performance requirements of the facilities.

I mean how much room do you have there? And I know Dawn you had brought up and it's just kind of a second question. That credit losses would have to go up by 50% I think you said from current level to get to break even and quite a loss is only one up 11% in the Great Recession is that Institute? Two questions are how much room Rodger than the you know, the the the the end of the metrics that you mentioned on?

Yep. Hey.

Hey Bob, it's not good to hear her voice as well. Hopefully send Okay, um, I think you've correctly characterized of the the remarks about where where we are and and the Headroom we have on the month pretax earnings, you know, we don't we don't, you know, break down and disclose all the you know, the covenants of those Rogers said we're you know, we're managing it carefully. We're you know, we're in good shape as a bath the end of April and we feel like we've got, you know, the the the levels of set where um, uh, we continue to to to to perform well have we have good relationships with with Adlai on this new facility with waterfall on the Canadian facility been in that struggle for a while with them. So we feel good about ability to kind of manage through with with those facilities intact.

Okay, great last question, I guess and just so you I think you said your origination were down 60% know on the 40% that you're still originating. I mean how you know, maybe how much of you Titan? Can you give some some commentary mean? Obviously unemployment is still going up. How are you confident that even with the 40% that keeps making that those unemployment, you know new unemployment?

Claims are not going to be a lot of those new customers are going to lead to credit losses.

Morning, Bobby Joe Baker. Hope you're doing well. It's it's a really good question. So I think we've done a couple of things. We have certainly tightened based on our internal team. So we're lending sort of the top tier of our our scoring customers. In addition. We've put some you know, additional income and also employment verification steps in place off. But we've also seen payment performance be very strong throughout this. I think it's really more of a demand question, but we we've tightened out of an abundance of caution, but we we've really seen, you know, good performer, even for customers. We originated in the last, you know, two or three weeks. We still see very good payment behaviors and and performance. So, I think we feel good about what we're doing. I think it's really more of a demand a question, but we're just managing their risk because you know, it's an uncertain time, but but feel good about where we are.

Hey Bob, just I just wanted to remember we do get we do get biweekly payments here. So we're not you know, we are we are getting a lot of you know, a lot of payment data throughout throughout the month. So we're not used to sitting and waiting for the 1st of the month and hopefully stop clear. So that gives us a little more frequency of of information and still set the stuff that these originated more recently, you know, the first page of fault data. Is is is is held up there which gives us but it's but you know, we're still it's a combination of application reduction demand reduction and our approval rate coming, you know, being basically took in half. So it's it's it's it's a pretty cautious approach right now.

Thank you.

She ate it.

Take care.

Thanks. The next question comes from of Credit Suisse, please go ahead and great. Thanks. I know that you guys have, you know taken withdrawing your guidance has changed, you know, as as it's appropriate. Could you talk a little bit just about how you know given what you do know about the patterns and the way consumers are getting cash in wage what the likely path is or what side you're looking for to you know to see, you know to be able to say, you know, at this point we feel confident that you know, that that we have credit piece under control and at this point, you know, we think that's when consumer demand is going to start to return what what are the signposts that you kind of looking for?

Yeah, hey motions. I'll sort of take a swing at it and see the guys have any any other any other comments, you know, we feel good about the way both sort of the numbers that we see but also, you know, we're we're we mentioned we talked we we we have about 5 to 6% of the portfolio. How may help with various customer care measures but also, you know, we get a lot of feedback from customers we talked to who aren't in customer care and I think that that you know, we're kind of June 1st the the the the I guess that's a the willingness of customers to sort of the communicate with us and and and and then, you know stay kind of current on on stuff and and talk to us about what's going on is really kind of encouraging so I think the you know the the the so I think I think we've been sort of conservative in terms of of how we lending. Is it a lot of customer care team?

And obviously the the the the economic stimulus measures both in the US and in Canada both at the federal level and and the state level, you know, there's there's a lot of there's a lot of support there. So I think it's it's certainly I think us because we we certainly look at our numbers and look at some of the other stuff that's have to publicly in terms of I think most people kind of feeling the the those three things are kind of coming together to to make credit, you know, kind of hold up in the current environment in terms of of of the man. I think that it's it's it's dead. What what mostly what we're going to look for is that the economic data, you know, the macro data starts to kind of level off, you know, we don't obviously, you know, I would say I would like to unemployment come down and then start to kind of level off. I think it's important. We don't, you know, we're not we're not we're not waiting for return to the economy. We had on March 15th before we feel like wage.

We can be able to lend against it's more that we just need a little bit of stability in in the in the in the overall data. Now there's a you know, I talked about this totally various. Let's just imagine that was cool of a hundred customers off that we thought would be good customers for us and through you know, the economic downturn perhaps, you know, you know, sixty 10% of those customers wouldn't qualify ma'am. It's still leads still leads, you know a pool of 90 customers and and I think an environment where the competitive Dynamic is going to be different where they won't be, you know, as many as many competitors jobs that are looking to do business with those nine customers the other part that's hard to that always happens is hard to sort of figure out is is what happens to lenders who are kind of sit a thousand bucks and like the FICO ladder which one what does that way? And we certainly heard a number of the installment lenders talk about, you know, tightening the credit box et cetera. And what they're doing is is is is the bottom ma'am.

It's like oh cheers. They're they're going to they're going to

Stop lending their so we take a lot of those customers getting up kind of, you know, use the school again to see if you into the into the pool customers that we would we would want to do business with them, I guess so, it's just it's if we're looking for sort of a a leveling offer for the macro date and some stability, but we're not, you know, we're not going to we're not looking for return to to what we had, you know the time we met March before we show and he can now begin to put more money into the advertising channel. So, you know when that happens again, that's all you know, it's it's a this is a healthcare driven, uh, um, you know, uh economic Decline and I can't it certainly some of the stuff looks promising is come out in terms of some of the drug therapies and hopefully, you know, social distancing and the likes of these these very measured back to work plans. We'll we'll we'll make this a manageable problem and if you get into the to the summer and into the phone number,

You can hopefully get still get back to school and Etc metal, you know start to to make things work and and and feel better.

Great. Thanks. And you know, when when you kind of think about this whole process, you know, you between the combination of a period of less demand now and the period of time, you know with the payback of you know, the pay down in California loans, you'll end up somewhat smaller and the original plan was to deploy the capital, you know, kind of along side that paid down of California, you know, could you talk a little bit just how you think about like what it's going to take a similar fashion what it's going to take to, you know to know that you can that you've now, you know kind of over the hump from a standpoint of liquidity and can kind of turn to using that that Capital more productively.

Yeah, I don't know. It's it's it's a I don't you know the the beginning it's just it's so hard to sort of forecast. You know, what what's going to happen on on off on unemployment and obviously watch it on a you know, a state-by-state basis. I think you know some good news for us is that I think the bottle across Nevada and California the states are meaningful to us are above the national average in terms of employment unemployment is a percentage of the the the workforce there the rest of the states that were in our our our below that the big States for us are below below the national average, you know, we we talked about it that we have a you know, we we've got we've seen some some good organic growth, um domestically and off and the number of states particular with our open and uh credit product we continue to see I think we'll continue to see see reasonable growth in that in Canada as well. We talked about 14% off.

We're going to Canada and in in the quarter, that's obviously, you know going to going to come down as as get a Canadian customers are acting the same way and acting you know, very kind of cautiously and and and volumes are down. I think that you did mention stride as you know, we're we're expanding with survivors of the two pilots States. I think we'll have somewhere in the neighborhood and built a Broad Creek will have to think we'll have four more States come off line relatively soon as you talk about how you know, uh, another, you know, eight to ten that could come online before the end of the of the second quarter. So we're but again that we're proceeding very cautiously issue with with stride in that program, but it just the fact that we have the it's the mechanisms out there. It's operational we have you know, and it's in some respects give us a good opportunity to sort of more more often sort of tests that that entire platform to make sure that it works well for us and works well for the bank from a payment standpoint the reconciliation settlements all that stuff really work. Well so dead.

I think we have a lot of a lot of of of of of good things going in and you know, you know, the the the pipeline I think of is working well and when there's you know

Kind of fill it up. I think it's going to I think it'll be there for us and and and and work well for us so, you know and it says nothing, you know from the president in the in the current. You know, we're sort of you know, we're okay watching, you know, the cash balance is continue to build and and and give us you know, the the best the best chance to be to manage to and you know extended downturn and then really be ready when when when demand and you know business to start to reopen and and demand, you know starts to look and feel feel better. I know that's not a you know, it's not a great answer but I do a lot of keep saying it certainly people would tell me when the health care crisis is going to Abate. I'll tell you when you know, we can win are volumes will start to move in the right direction. Thanks.

The next question comes from John Rowan of Jani, please. Go ahead morning guys. I just want to be clear. So the expense guidance you said it was, you know, eleven to thirteen million reduction off of your plan. But is that an eleven to thirteen million reduction off of the one Q run rate or how do we frame out? What kind of the two of you on going rate is

Yes. Hey John, it's Rodger. Good morning. Yeah, some of that a little bit of that would have been realized like Marge but it really kind of just think of it in terms of you know, if we look at our first quarter, you know, run rate fourth-quarter run rate, you know, it's it's it's for four at least probably the key to and Q3. It's jerking off of that what what you know, what would have been in our guidance for previous guidance or what you would have probably had your model because of our previous guidance that we suspended but I know it's coming off of that run rate for a couple of quarters for as long as you know, we keep these measures in place and you know, we will obviously it's a dunce point, you know, when we start to see, you know, unemployment stabilized and we start to come it would start to see some evidence that our customers are back to work and and recovering, you know, what we'll have to we'll have to return some of that wage.

Some of that's been but you know some of it pretty much especially on the advertising side, but when we look at things like variable compensation, you know, that's pretty much gone for the year at this stage so off work for a big chunk of it. So, okay that makes sense. Yep. That's fine. And then you guys mentioned that as the level of claims in the wage an insurance product go up your installation fees go down. Can you give us an idea? Is that the entire insularity Revenue? Peace out of Canada or is there something else in that number? And how much does that number shock down? And is there like a sensitivity to it or something? You can help us model? Cuz I think it's $11 last quarter. Yeah about about 80% of that 75% of that is is it related to insurance sales? The rest of it is check cashing money transfers things like that in the stores, but you know the bulb.

of that revenue is from the sale, but

Commission on the sale of the insurance product and then we also have as we said in our comments. We have a we have a retention sharing agreement, but it's not we're not home care any loss reserves or anything like that. So, you know the retention sharing agreement is a smaller component but it historically has been has been positive. It does add to the ancillary Revenue historically off. It will still on the most scenarios add to it, but it's not going to not have as much in terms of shocking it downward. You know, we're still seeing and not surprisingly we're still seeing a claims fax being filed and and more claims being filed. So yeah, so I'm not sure. I'm not sure in terms of trying to shock it at this point John. It's probably it's probably too early.

Okay, but it doesn't go away though, right? Yeah. No. No, I guess I think if you want to Ballpark number, I think it's on a quarterly basis. It could be impacted, you know one to two million bucks on a monthly basis. Okay, and then just to be clear the guidance was a turning earning assets are down 13% sequentially quarter to acute to date, correct?

That's right. Yep. Okay. All right. That's it for me. Thank you. Okay. Thank you. The next question comes from Vincent Stevens, please. Go ahead.

Hey, thanks for calling guys and hope all is well morning. So first I wanted to talk about your omni-channel and the benefits of that if you could share any statistics you have about how many of your customers online or are there any Trends there? So maybe in this time are we seeing growth in online transactions wage is what you're seeing brick-and-mortar and just to confirm that you're actually able to completely closed in service, uh your loans online or or digitally.

Good morning. Mrs. Filmmaker you doing well. It's a very good question so I can give you a couple of data points. If you look at the week of February 16th prior to any real covid-19 impacts fifty 57% of all lending transactions in the US were done online or through the through the contact center officer if you look at the last week, so April 19th that number climbed a 68% in the US and Canada same weeks. So February 16th ninth nineteen percent of all lending transactions were done online or through the contact center and then last week that climb to 33% So a pretty meaningful increase so like you think it gives us a lot of confidence in the audience approach and to answer your question very directly. We absolutely can close these transactions online even without a pending process and in most cases, although we have put more wage.

Come verification and employment verification in place. We still can do that in a very automated fashion. Um, obviously the branches are still open. I'll I'll be at at reduced hours but I think gives us a lot of confidence customers can you know view the details of their loan make payments request adjustments, you know through our apps and mobile websites and I think it's it's it's a really really strong proof that you know, that's why omni-channel is so important and will continue to be important as we work through this and come out of it.

just a great and

Thank you for that next question. Just if you could update us on the duration of your loans by-product. I think if I remember correctly this the short through your loans are relatively short through age. I think maybe in the situation that might be a benefit. Is there say a point in the year when your portfolio is completely refreshed a newly Unwritten for the month of our situation.

Hey Vincent, it's Rodger. Yeah, are are you know, the effective duration of our portfolios about is about nine months including including open end off and you know, so the install that would be much shorter than that. But yes, you know, we it turned its it turns rapidly, you know, obviously the open loan is is a different different products in terms of managing through situations like this because of the you know, the affordability of the payment and and in our ability to monitor utilization and and utilization Trends and things like that. So, but yeah, I think you know, we we I think the points been made a couple of times this this season that these short portfolios turn over very rapidly wage, which means that you know, we we will be position, you know, we're not dealing with a long tail when we start, you know, when we start seeing the demand and the quality of the applications off

Improve and and we start to see people going back to work. You know, there's a great chance to to start leaning back into that again with most of the you know, most of the turn behind them.

Okay, great and just one last one for me. So I understand what you've only been a few weeks since this this coronavirus prices that how quickly do your song writing models adjust to everything so that you feel like your your models have a picked everything up that and you're able to to operate.

Yeah Haven, it's still so basically all of our models are Dynamic. So they they adjust in real time. But obviously we have gone in and and done additional work off if we talked about some additional tightening but and and I think that's been largely successful in their numbers. We're seeing even with origination albeit somewhat limited still look positive. And so I think as long as we think about coming out of this, I think the you know, I think the same thing will happen. We will look state-by-state platform by platform Channel by Channel and have the ability to adjust very rapidly and I think they you know somewhat it was confidence aggressively to do that. And I think that's the power of what we built with the chi-rho score and you know against or versus internet versus contact center wage. I think that's that's really going to be a benefit as we come out of this and be selective and what we do but I mean they've adapted very well and we continue to Champion Challenge and and and look dead.

yeah, really all the data but I think through this we've been really pleased with the predictability of what we have all Viet, you know being cautious and and being

Be improved him. I just had one thing to that which is that, you know, we we have you know, we we we we have the ability to close, you know, a customer a lot is closed completely online without you know, you know talking or chatting with one of our customer service reps we do have or so, but where we feel like we need additional verification where we can can essentially have that application put into a channel where the customer will talk to one of our reps or chat with one of our reps wage. And I think one of the things we do is just put a lot more of the volume of the volume in into those channels on does require, you know some more some more people in small compact Central uh time. So as we you know get is we as you know right to restrict the lien end of the volume a little bit more it'll be leaning into it where because you know, some of the things we look at Birth

What your credit score updates et cetera where you know where those would that there'll be some lags there in terms of of information being reported based upon some of the the Care Act restrictions. So foul that will that mean it will put you to have more volume running through, uh, the the channels where again we can do that in a store very easily online wage. We have a we resolved he's always we've always had a process to have those. Sorry. What's this going here? We've always had had the ability to have those run through a channel where somebody took a customer whose applying has to talk to a rep or chat with a rep.

Perfect. Thanks for the color and stay safe as much as

This concludes our question-and-answer session. I would like to turn the conference back over to Don for any closing remarks.

Thanks everybody for joining us today. I hope everybody stays will say as well and stays healthy and we'll look forward to talking to you after our second quarter. Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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