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CURO Group Holdings Corp. (NYSE:CURO)
Q4 2019 Earnings Call
Feb 6, 2020, 8:15 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the CURO Holdings Fourth Quarter 2019 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. And now I'd like to turn the conference over to your host today, Gar Jackson, Investor Relations. Please go ahead.

Gar Jackson -- Investor Relations

Thank you and good morning everyone. After the market closed yesterday evening, CURO released results for the fourth quarter and full year 2019, which is available on the Investor section of our website at ir.curo.com. With me on today's call are CURO's President and Chief Executive Officer, Don Gayhardt; Chief Operating Officer, Bill Baker; Chief Financial Officer, Roger Dean; and Chief Accounting Officer, Dave Strano.

This call is being webcast and will be archived on the Investors section of our website. Before I turn the call over to Don, I would like to note that today's discussion contains forward-looking statements which include, but are not limited to, our expectations regarding continued growth in Canada in 2020, macro factors impacting the U.S economy and how those factors impact our customers, the geographical expansion of the Stride Bank product during 2020, investments in card products and resources, including market and people to support them, Katapult's addressable market and growth prospects, the strengths of our company and operational model and our ability to drive growth, our excess cash flow for 2020 and it's expected uses, and our financial guidance for full year 2020 and underlying assumptions.

Please refer to our press release and our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the statements made on today's call. 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 to U.S. GAAP reporting, we report certain financial measures that do not conform to Generally Accepted Accounting Principles. These non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in our earnings release. As noted in our earnings release, we have posted supplemental financial information on the Investors portion of our website. With that, I would like to turn the call over to Don.

Don Gayhardt -- President & Chief Executive Officer

Great. Thanks, Gar and thanks to everyone for joining us today to discuss what was a very solid fourth quarter and the continuation of good results and momentum. The year-ended December 31, 2019, we posted 26.5% growth in adjusted EBITDA, 40.8% adjusted net income growth and a 46.6% increase in adjusted diluted earnings per share.

We'll start with Canada, where for the fourth quarter, our Canadian business delivered 18.3% revenue growth over the prior year quarter and $20.3 million of adjusted EBITDA, which is 30.1% of our consolidated adjusted EBITDA versus $8.8 million of adjusted EBITDA in the prior year quarter. Suffice to say that a year later, we are incredibly pleased with how the product transition to Open-End loans has worked out in Canada. Our team in Canada has been extraordinary. And we once again demonstrated our ability to tackle product change on a very large scale and do it in a way that works for us in terms of loan volume and credit, while delivering great value and service to our customers. We have a lot of momentum in Canada and we're very optimistic about our prospects for continued growth there in 2021.

Our U.S. business also continues to perform well with 6% growth in adjusted EBITDA versus the prior year quarter. The sequential deceleration in U.S. revenue versus the third quarter was almost entirely driven by the repositioning and the beginning of the run-off of our California installment loan portfolios, ahead of the regulatory change effective January 1. Absent this California impact, our U.S. revenue grew 6.5% in the fourth quarter versus 6.2% sequential growth in the third quarter. So, very consistent and steady growth.

We continue to see strong growth in loan balances revenue and net earnings. Overall, credit quality is solid with our quarterly net charge-off rate improving 210 basis points year-over-year. Much of the improvement is related to mix shift, but this is an important offshoot of the fact that our fastest growing products are also our lower rate lower net charge off products, most notably, our Canadian Open-End product where the quarterly net charge-off rate was 6.3%, consistent with the third quarter and with our expectations for this product.

We believe that macroeconomic trends continue to be favorable for our customers in both Canada and the U.S. We look at a great deal of data, and not to over simplify, but the most important indicators continue to be the credit quality of our new customers and the ability of our current customers to meet the repayment obligations. On the second point I noted the lower NCO rates earlier and the pace at which our customers cure their delinquency was the same in this fourth quarter, as it was in the prior year period. Both of these are very good leading indicators, but we remain very disciplined.

By design our application approval rates for the quarter were down modestly across the board, U.S., Canada, stores and online as we work to keep cost per funded loan and loan vintage credit results performing well and meeting or exceeding our expectations. At the macro level, job growth and wage growth continue at very solid clips and the most recent consumer confidence numbers for January are at the highest level since August. These trends bode well for our business.

In Canada, we remain focused on portfolio performance and growing share with our market leading Open-End product. Canada's Q4 2019 revenue of $62 million was a record high. Canadian Open-End balances stood at $252.1 million at December 31, 2019 and represented 83.4% of our consolidated gross combined Canadian receivables, up from 75.3% at December 31, 2018. Based on the success we've had in Ontario, we began rolling out the Open-End product in British Columbia this January. British Columbia comprise 8.7% of Canadian revenue in 2019. So the transition is a much smaller undertaking than Ontario and the effect of the transition is included in our 2020 earnings guidance.

During the fourth quarter, we launched our newest loan product in unsecured installment loan originated by Stride Bank. They market and service loans we have of the bank and they license and utilize our proprietary credit decisioning for scoring and approving loans. We're now offering this product in two states in the U.S. and we'll look to expand it geographically over the course of 2020. However, as we mentioned in the past, this product will not be materially additive to 2020 earnings and may actually be slightly dilutive depending on the rollout pace.

We are very focused on building a sustainable and scrupulously compliant underwriting and servicing platform with multiple products and partners. This will require ongoing investment in people, process, processes and technologies and our 2020 guidance reflects the higher level of ongoing spend in all of these areas, as well as higher spend for start-up marketing.

Two new opportunities where we continue to invest and are very pleased with the progress, are Revolve Finance and Katapult, formerly, Zibby. Revolve is our demand deposit account or DDA, sponsored by Republic Bank of Chicago that we introduced in March of 2019. This product provides our customers with full functionality of a bank account, direct deposit of a customers paycheck with access up to three days early, a debit card, bill payment and even optional overdraft protection in addition to an FDIC-insured account for their deposits. We earn fees on accounted card use and for those customers who qualify, overdraft protection. So far we have loaded almost $68 million on over 24,000 unique cards, which is promising growth for a new product. Revolve is a logical extension and companion to our Opt Plus general purpose reloadable card, which in the U.S. is sponsored by Axiom Bank and Metropolitan Bank of New York.

In Canada, our bank sponsor is PACE Savings and Credit Union. Opt Plus provides more core card functionality including later in this quarter, optional overdraft protection. We currently have over 150,000 active cardholders. Cards are a small but important part of our product offerings and we will continue to invest in these offerings to improve the features, mobile functionality and value to our consumers. 2020 will also see us invest more in marketing, promotions and employing training around our card offerings to drive growth, particularly through our branch network.

As discussed last quarter, we participated in two investment rounds in Katapult, an online virtual lease-to-own platform in 2019 and these investments brought our fully diluted ownership in this private company to approximately 44%. Katapult continues to perform well, particularly with key accounts such as Wayfair, Lenovo and Affirm. While Katapult is still a small player, but a growing player, they've almost doubled their leasing volumes over the last year, they work in a very large addressable market. We think that the non-prime segment of the consumer durables market is approximately $50 billion and it's a growing category and we believe that Katapult's online integration, underwriting and service capabilities give them a durable competitive advantage over competitors who focus on brick and mortar retailers.

Overall, we've laid a strong foundation going into the new decade and believe that 2020 will continue to provide growth for continued Canadian success, product diversification and leveraging bank partnerships with both card and credit products. Let me hit on a couple of other key topics before turning it over to Roger.

First, a brief regulatory update, as everyone knows, the new California law took effect January 1. So we're only offering single-pay loans along with our DDA, and other ancillary products in Canada. The wind down of the California installment book and related changes in the market are included in our 2020 guidance.

On the federal side, last February the CFPB published a proposed rule to rescind the ability to repay portion of its small dollar rule and among other provisions, would narrow the scope of the rule. In addition, the CFPB pushed the implementation date back to November 2020. Also in December of last year, a Texas court continued its stay on the payment portion of the rule until April of this year, at which point, it is believed that the CFPB will revisit that portion of the rule.

And finally, before I wrap it up and Roger will provide more details, but we're pleased to announce about the continuation of our share buyback plans as well the initiation of a quarterly dividend, which based upon Tuesday's closing price equates to an annualized yield of 2.3%. We think these represent meaningful steps to return capital to shareholders but should still leave us with an excess of $120 million of free cash flow in 2020 to invest in our growing business lines, pursue strategic acquisitions and potentially pay down debt.

In summary, 2019 was another positive year for CURO and I think the fourth quarter once again demonstrates the strength of our company and our operating model. We're a strong and growing company with strong free cash generation capabilities, we have the strongest omni channel model in the consumer finance industry, we continue to prove our ability to navigate and rapidly adapt to regulatory and competitive changes across the markets we serve. We continue to invest across our company to remain at the forefront of innovation and to leverage this innovation, as well as our scale for the benefit of our underbanked consumers. And with that, I will turn it over to Roger.

Roger Dean -- Executive Vice President & Chief Financial Officer

Thanks, Don, and good morning. As Don mentioned earlier, we closed 2019 with a significant momentum in a number of areas including, outstanding profitability and earnings growth in Canada, managing the California transition, while posting solid growth in the rest of the U.S. business, strong expense discipline and meaningful return of capital to shareholders.

Consolidated revenue for the quarter was $302.3 million, up 5.1% compared with last year's fourth quarter. For the quarter, U.S. and Canadian revenues were $248.3 million and $62 million respectively. Both are the highest in company history. U.S. loan balances decreased 0.4% to $440.1 million due to the California portfolio repositioning Don mentioned earlier. I'll cover more on that in a minute.

Adjusted EBITDA came in at $67.5 million, up 26.5% year-over-year. Consolidated adjusted net income and adjusted EPS for the quarter rose dramatically year-over-year, up 52% and 66.7% respectively. The high growth was a result of, one, quarterly adjusted EBITDA growth in Canada of $11.5 million year-over-year, two, solid U.S. loan growth outside of California, three, disciplined expense management, four, interest savings from last year's refinancings and managed utilization of our Canadian ABL facility, and five, repurchases of common shares.

Next, I'll comment on advertising, customer counts and cost per funded loan, before moving on to loan portfolio performance. As a backdrop, it is important to note that there is a fundamental shift in the composition of our portfolio to year-over-year that drives a meaningful change in advertising patterns and new customer counts, especially in Canada. So while metrics on new customer counts are lower, they are as we expected. We are pleased with the new customer counts, and just as importantly, the underlying credit quality and performance.

Looking at new customers and advertising stats, we added 164,500 new customers this quarter, down 9.9% from last year. For the year ended December 31, 2019, we acquired 602,000 new customers. Our site-to-store capability, a key competitive differentiator, added 29,000 new customers in Q4 and 112,000 for the full year.

Consolidated cost per funded loan was $98 for the quarter. Breaking down advertising and new customers by country, U.S. advertising expense was up $1.4 million or 10.2% for the quarter, but new customer counts were down 9.2% year-over-year, primarily because of California and Ohio. We stopped acquiring new installment loan customers in California on October 1 of 2019 to prepare for the January 1 law changes that Don mentioned earlier. And our new customer volume in Ohio is much lower after the April 2019 law change there. Excluding these two states, new customer counts were down 4%. The remaining decline is mostly on relative OBO [Phonetic] product volumes as we allow machine learning models to mature.

58.9% of U.S. new customers were acquired online versus 53.5% in the fourth quarter of 2018. U.S. cost per funded loan was $104 for the quarter. Moving on to Canada, Canadian advertising expense for the quarter was flat year-over-year as higher Open-End loan advertising was offset by mix shift and fewer first loan promotions for single-pay. Canadian new customer counts were down 14.3% for the fourth quarter of 2019, compared to the fourth quarter of 2018. This is tilt to the initial outsized growth of the Open-End portfolio in Ontario over the second half of last year and the overall shift from rapidly turning single-pay loans to longer-term Open-End loans. Cost per funded loan in Canada was $60 for the quarter.

Next, I'll spend a little time covering overall loan growth and portfolio performance. First, I'll cover a few highlights at the product level. Company-owned unsecured installment loan balances declined $29.6 million or 15.6% versus the same quarter a year ago. The decline was almost entirely driven by California portfolio repositioning and optimization. Non-California U.S. grew slightly and Canadian unsecured installment balances shrinked modestly on mix shift to Open-End loans. U.S. secured installment loan balances declined $4.9 million or 5.3% versus the same quarter a year ago, also because of the California portfolio optimization. Excluding California, the portfolio grew 16.8% year-over-year. CSO loan balances were down slightly year-over-year, but you'll recall that the law change in Ohio that eliminated the CSO model became effective in April of 2019. Subsequently the CSO balances in Ohio have run off, so good growth in Texas to largely replace that run-off.

As expected, single-pay loan balances were affected by Canada's regulatory change and transition to multi-pay loan products. Canadian single-pay balances declined $800,000 or 2.1% versus the same quarter a year ago, but continue to be stable sequentially versus the third quarter of 2019. U.S. single-pay loan balances grew 3.2% year-over-year, driven primarily by California.

Moving on to loan loss reserves and credit quality, our consolidated net charge off rate improved over 200 basis points versus the fourth quarter of 2018. Looking at credit metrics by product, Open-End loan net charge-off rates improved 165 basis points year-over-year. The positive effect of Canadian Open-End seasoning was partially offset by increased Open-End net charge-off rates in the U.S. from a combination of loan growth mix shift to more online volume and advertising channel shifts.

The CSO net charge-off rate improved 270 basis points versus the same quarter a year ago, partly because of higher relative loss rates in the former Ohio CSO portfolio, and better credit performance in Texas. Unsecured and secured installment loan net charge-off rates were up 40 basis points and 90 basis points, respectively and were impacted by the fact that the California portfolios are running off with limited refinances and shrinking balances. U.S. unsecured installment net charge-off rates excluding California, were down over 200 basis points year-over-year, while secured installment rates excluding California ticked up a little over 100 basis points on higher growth in Arizona.

Single-pay net charge-off rates rose 30 basis points year-over-year. Canada was up 70 basis points from the fully phased in effect -- impact of Ontario extended payment plan rules that went into effect over the second half of 2018, while U.S. single-pay net charge-off rates improved 30 basis points year-over-year.

Turning to our capital structure and liquidity, our total available liquidity position at the end of the quarter was $142 million. This was comprised of excess unrestricted cash of approximately $27 million, U.S. revolver capacity of $50 million, Canadian revolver capacity of over $7 million and undrawn borrowing base availability on our Canadian SPV facility of $58 million.

In addition, we are pleased to announce that earlier this week, we executed a non-binding letter of intent for a $200 million non-recourse revolving credit facility to fund our growing U.S. portfolio at very attractive terms. The facility has a 90% advance rate and a 5.75% LIBOR spread. Our ending liquidity position and expectations of strong excess cash flow in 2020 is a good segue to the next two topics.

As Don mentioned earlier, our Board meeting -- at our Board meeting last week, we authorized a new share repurchase program for open market for negotiated purchases of up to $25 million of our common stock. Secondly, we authorized a quarterly dividend program and declared our first dividend since becoming public, $0.055 per share or $0.22 per share annualized.

Finally, I'll close with our outlook for full year 2020. Revenue in the range of $1.165 billion to $1.195 billion, adjusted net income in the range of $135 million to $145 million, adjusted EBITDA in the range of $265 million to $280 million, adjusted diluted earnings per share in the range of $3.10 to $3.35 and an effective income tax rate in the range of 26% to 27%. This guidance reflects the expectations that Don expressed earlier, that is mid 20% earnings growth for Canada, modest U.S. earnings growth as non-California growth will offset declines in California, up to $5 million of investment in new product launches, and disciplined accretive use of significant cash flow. This concludes our prepared remarks and we'll now ask the operator to begin Q&A.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session.[Operator Instructions] And the first question comes from John Hecht with Jefferies.

John Hecht -- Jefferies -- Analyst

Good morning, guys, congratulations on a great quarter and positive guidance. First question, just sort of an update on store trends versus online trends. Where is the mix then with respect to originations and so forth? And where do you see that going in terms of that mix?

Don Gayhardt -- President & Chief Executive Officer

Hey, John, this is Don. I'll have to come that but Bill might have some thoughts on that as well. We -- I don't -- I think we continue to see the the stores being really productive for us. And -- but the mix in the store originations continues to shift from what we call sort of organic stores -- organic customers which is customer just maybe just kind of come to a store, see a TV ad, radio whatever, that come to a store versus the customers who come and from leads to stores. So the -- and we're probably over the last, if you look at it over a longer-term trend, from an organic base, probably somewhere in the neighborhood of the last couple of, probably like a store, our organic traffic is down by sort of one-third.

But we've been able to sort of more than supplement that with the -- with the leads to stores customers. So the growth in traffic -- the traffic at the stores continues to be really positive. Part of it also is we can use the stores because we are so heavily -- the mix -- the product mix is so heavily weighted to the installment line of credit products now and a lot of those customers are on -- a huge percentage of customers are on auto pay. So whereas in the past, if you're doing a single-pay transaction, customers are having to visit the store much more frequently around tied to refinancing cycles.

Now customers that are on auto pay are -- they may come into the store and originate alone. And then we're simply using auto pay feature to to do payments every every couple of weeks. So there is not as much traffic there and it frees a store up to be -- to be much more of a kind of an outbound marketing that we make on. And Bill can give you the numbers and we make a lot of calls out of the store now from the store people out to prospective borrowers and that's been a big -- a big works there.

So we don't really disclose the individual breakdowns kind of for competitive reasons. But we -- we got obviously -- we've got a question about California, if we don't have installment products in California, what's the store base look like in California. And we've heard there is quite a number of our competitors saying in California, that they're simply going to -- going to exit the retail side of the market there. We are quite the opposite. And when we make -- our California store base is still, even without the installment products, still make a lot of money and we're looking forward to hopefully picking up some share there. And it's also a great place, on top of the card products being able to sell the card products through the branches, California is going to be kind of at the -- at the kind of the fulcrum of that for us in 2020 to the market and sell the card products through -- through the branches. So I don't know if Bill has any other thoughts on it, but I think that's, you know, it's a -- it's a good question but stores continue to be overwhelmingly positive and a big part of the omni channel strategy.

Bill Baker -- Executive Vice President & Chief Operating Officer

Yeah, Don. I think that Don covered it. I think the only thing I would add is just that they continue to be important for the servicing component and although all the stores are productive, where we have stores, we actually do better online as well. So they are a nice complement. I think, that both term omni channel continues to be something we put into practice and think is really important.

John Hecht -- Jefferies -- Analyst

Okay, great, thanks guys. Just while you mentioned California, they're done. Roger, just a modeling question. How fast do we think about the run off from the California portfolio that you're shifting?

Roger Dean -- Executive Vice President & Chief Financial Officer

Yeah, good morning, John. I think it's front-loaded in 2020 because of tax season. We could easily see one-third of the balance being amortized by April and then the rest more ratably thereafter. But we -- the way we think about it is -- and this would be a case even if we hadn't stopped originating seasonally, but it's going to be more obviously more accelerated with no new originations. So I think we could lose 30% to 40% of the -- lose, I mean get repayment on or get prepaid on 30% or 40% of the balances in the first four months of the year and then kind of a more ratable run off after that.

John Hecht -- Jefferies -- Analyst

Okay. And then last question is with respect to the revolver and the card products. I know you're investing in them at this point. But how do we think about it over the long term as these scale and season? What the kind of product margins are, and I guess the revenue sources?

Bill Baker -- Executive Vice President & Chief Operating Officer

Yeah, John, this is Bill. So I think you're right. This is an important year for our card products, because we invest a lot, probably just slightly less than $5 million pre-tax this year, but that's with a lot of marketing investment and I think if you look at the drivers of that business, I mean there are certainly, fees interchange, but as we mentioned in the opening remarks that we're excited to offer the optional overdraft protection which, by the way, is much more competitive than you may get at a traditional bank, from a pricing perspective and grace period perspective and I think customers will -- will adopt that and that's also a big driver.

I guess the second point I would make, all the investment that has taken place to date is really within our universe. So our four walls in the stores and our online customers, we think there is a nice opportunity as we look to update the apps this year and offer some of these various product features to expand to other partners, whether that's just online, direct-to-consumer or with other brick and mortar retail partners and we think we've got a very scalable solution, lot of support from our bank sponsors, and keep in mind that we do all of the servicing on our own. And I think we've proven over the years our ability to take advantage of operating leverage and to add scale. So I think the bottom line is, it's an investment year this year, we will be doing some of the technology and then we would look to capture some of the pre-tax and revenue results certainly next year and then the out years.

John Hecht -- Jefferies -- Analyst

Great. I really appreciate that. Thanks guys.

Don Gayhardt -- President & Chief Executive Officer

Thanks, John.

Operator

Thank you. And the next question comes from Bob Napoli with William Blair.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. Good morning and nice job on the quarter and I guess where -- the growth outside of California, what is the growth strategy outside of California? Where are you seeing opportunities to offset the shrinkage in California?

Don Gayhardt -- President & Chief Executive Officer

Yeah, hey, Bob. It's Don. So I think that, I mean, obviously big markets that are outside of California would be Texas, Arizona, Nevada Tennessee, Kansas probably are probably bigger markets. And I think in all of those markets, but we -- as Bill mentioned, he talked about the -- those are big branch markets for us. So we've got the benefit of both the really strong online channel, with the way the stores kind of work and supplement the online channel, the online advertising. So I think -- and this happen to be from a demographic standpoint, population growth and within those markets, wage growth, job growth. Those are really, really strong markets. So -- and I think in general that we -- I believe that we can, as we talked about, we grew kind of 6.5% outside of California in the fourth quarter. So it's -- and I think that we can probably -- we thought we can do that maybe do a little bit better, particularly from some of the -- the card stuff, but it's not -- our guidance doesn't imply us kind of -- we're not -- we're not necessarily going to sort of try to drive a lot more growth in other markets, we really feel like the strategy we have now, the way we're spending ad dollars, the way we're being disciplined on that, the way we're being disciplined on credit, we're going to kind of continue that program in the other markets outside of California and hopefully get some good growth in revenue.

It probably isn't -- Bill mentioned on the card side, it's not going to show up as much on the bottom line in 2020, because of a lot of -- a lot of spend, both on the marketing side, the technology side. So we're going to have a lot of improvements in the mobile, the mobile side of things. And that's -- so that there is some investment there. So I think the -- the message over the states, the rest of this is going to be -- I feel we -- I should say we -- we'll get a lot of good growth in our -- where we are now, we are going to -- we have the Stride Bank product in two states now and it is -- we're really kind of a pilot phase now to make sure that the functionality of the program works through and although everything on the loan management side, and we've been processing payments and etc. all works great. That should give us some good asset growth as we get into the back half of the year and set us up in 2021 to see real meaningful earnings accretion from that -- from that program. And that's a product that will help us expand geographically, online and in some states where we -- where we don't operate right now.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. That's helpful. Then what is the opportunity in the long term in Canada? What do you -- I mean you're growing nicely you've converted some products, is that -- do you think you can grow it in the 10% plus for the next five years opportunity or is that --what do you think is reasonable for the market opportunity there?

Don Gayhardt -- President & Chief Executive Officer

Yeah. So I think -- I think -- we think we can grow earnings probably 20 plus percent. The revenue growth to maybe the mid-teens and some operating leverage and get over 20% earnings growth next year. I do think the opportunity is probably -- again it's hard to just pick an exact number, but I would think it would -- we would be able to continue to grow certainly from a topline standpoint in the double-digit range and get some operating leverage.

The -- we're converting British Columbia on the line of credit product which is going to help this year and help next year. The other thing in Canada is still, if you look at the -- we're kind of in the range of 20% or so of our new customers are coming online versus 65% in the U.S. and the ability to kind of close that gap and some of that is, I think we're doing a lot of stuff that's right to help close the gap, but also just online financial services in general, the adoption rate in Canada just isn't what it is in the U.S. And I really think it's one of the good parts about Canada is that in the installment side of the business, It's kind of a -- it's us and it's Money Mart and Easy Go. The parent company is Go Easy. So it's -- from a competitive standpoint, there is really kind of only three companies of any scale, but I think even within that market, we feel like we have the best online capability.

So as the market continues to shift to more online versus retail, I think we're going to -- we're going to pick up share. We also haven't -- we're, from the -- the line of credit product is a great front, I think possibly extending into even some larger, longer term installment loans, which is something that both of those companies do a lot of. It's something we're kind of taking a look at, and we'll probably do some piloting on that as we get -- as we get later in the year.

Robert Napoli -- William Blair & Company -- Analyst

Last question, I mean you guys have executed very well over a long period of time through very difficult regulatory, but your stock is trading at 3.5 times earnings and you're buying back stock and regulatory issues obviously are the reason, I guess. And there was a hearing yesterday about National rate caps and maybe any thoughts around, I mean I've been around a long time, I've seen efforts to do that forever for the last 30 years. But what are your thoughts on that effort, specifically, or any other regulatory concerns? And do you feel that's why your stock is trading at such a depressed valuation despite good earnings?

Don Gayhardt -- President & Chief Executive Officer

Yeah, Bob, I mean obviously we've -- this is a conversation you and I have have been going on for what -- I don't want to date either of us. But, no, I mean I think that's certainly an overwhelming piece of it and I understand that that investors can figure a lot of stuff out and are obviously really good at pricing risks. And part of what the regulatory questions bring about is are these priceable risks. And I would think that if you look at more specifically on sort of the national rate cap level, I think I would encourage everybody to kind of look at the outcome of that and some of the testimony in that sharing yesterday, which was structured to provide a forum for people that are in favor of rate caps and if you just look at the lineup of academics, it was kind of four to one on the panel in terms of people favoring rate cap. But even -- there was a good article at the end of the American Banker articles this morning is really, I think a really good summary of the concerns on the Democratic side about our rate caps, the right way to regulate small dollar loans and it's really a good argument that we -- and we didn't think about advancing that argument a lot of places over a very long period of time and does pay -- does a rate, an arbitrary rate cap. I mean our argument is quite simple.

If you put it an arbitrary rate cap at 36%, you're probably taking 40 to 50 million Americans out of their credit economy and they're going to be bouncing more checks, paying overdraft fees, having to pay deposits to get their utilities. That small dollar credit properly regulated is a better cheaper option for those consumers. So I -- look, it's not -- it's these are arguments that will go on but I think yesterday's hearing was a great -- and as I said, I encourage everybody to kind of look at it. It was a really interesting debate and healthy kind of debate about this and I think that one that we win over time and I think we are kind of -- again we don't [Indecipherable] everyone, who didn't win in California, obviously in last year. But I think more broadly, I think it's -- California may actually in some respects is turning out to be a good -- it will be a good laboratory for us to sort of look at the effects of on a broad basis on some of these arbitrary rate caps and how consumers that are, call it, Sub 620 FICO customers get kind of priced out of the -- out of the credit economics.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. I listened to that hearing. And I know it was set up to be pro rate caps and led by a lot of the California people, I was surprised how balanced it was, and the concerns from the Democratic side. In many regards, it was pretty, I agree, it was very interesting and worth investors listening to a replay. Thank you.

Operator

Thank you. And the next question comes from Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great, thanks. Just following up on that discussion, Don. Do you envision participating in any of those to kind of advance that point of view?

Don Gayhardt -- President & Chief Executive Officer

So what we participate in like in a public hearing? I mean, I've not done one recently. I've done them in the past. I would -- there is another hearing scheduled but it's currently on the docket for the end of the month of February. I'm not sure what the -- what the lineup is going to be and it's meant to be more industry focused as opposed to academic focus. I'm just not sure what the -- what the lineup is going to look like. We're active in a lot of places. We're -- I'm certainly with our trade association is very active on the hill and we're there a lot. We're in the state [Indecipherable] a lot and we've got both sort of industry trade associations inviting people, industry CEOs like me, we've got our Head of Government Relations is very active in the state, so whether we're in D.C, in public doing one of these, I'm not sure yet. But we're certainly very, very active in a lot of places is trying to advance this argument.

Moshe Orenbuch -- Credit Suisse -- Analyst

Thank you. On the dividends, can you talk a little bit about your thoughts about setting up the dividend? It's obviously a pretty bold move, obviously kind of evidences your confidence in consistency of earnings and what it means in terms of kind of buybacks in the future?

Don Gayhardt -- President & Chief Executive Officer

Yeah. So, I'd just say we did -- we did initiate a dividend and are going to -- and we reauthorized $25 million in the buyback program. The dividend works out to be somewhere in the neighborhood of $9 million of annual distribution there. So taken together, it's going to call $35 million of planned, at this point, capital return. It is -- we talked about we generated a lot of cash in 2019, we'll get a lot of good strong cash generation in 2020 in the core business, and then we get some additional benefit from the run-off of California. But even forgetting -- just if you just look at the dividend, it's kind of a payout ratio on net income. It's relatively modest. So we think it's a good place to start. And it is -- I would also -- we have a lot of available liquidity now. We're going to add to that. We announced we've got a new $200 million revolving facility to finance a line of credit in installment products in the U.S. that were -- that we've signed a letter of intent on, we'll close that shortly at a really attractive rate. So we're kind of increasing our liquidity and flexibility there. So I think it's confidence in the businesses today, and where it's going to go forward. And I think it's a balance of dividends and share repurchases. Share purchases are important, but we are -- we don't -- from a float standpoint, we bought back 75 million of stock or so over the last year. So we are a little bit -- we are always kind of mindful of not -- not shrinking a float too much so that the people that own the stock now, and think about wanting to buy the stock have a liquid tradable securities.

Moshe Orenbuch -- Credit Suisse -- Analyst

Understood. Last question, just in terms of like the exit rate of earnings in 2020. How do you think that comparison? You talked a little bit about some of the things that will kind of give you a little bit of tailwind into 2021. Maybe you could just broadly talk about that a little bit?

Roger Dean -- Executive Vice President & Chief Financial Officer

Yeah. Good morning, Moshe. It's Roger. Yeah, I think, if you think about just breaking down 2020 versus 2019 and kind of what's implied in our guidance, we have the -- the sequential earnings in Canada, obviously have expanded since third quarter of last year consistently. I think we view that as we view Canada earnings growth to be what Don mentioned earlier, mid 20% range on high-teens revenue growth. The U.S. is -- the first three quarters of the year, the U.S. business isn't going to have any growth or much growth at all because of the -- mainly just because of California year-over-year comps. But setting California aside, I think we will see for the full year, for the U.S., we will see modest -- very modest earnings growth with mainly Open-End and mainly Open-End loans and new products offsetting the California run off. So growth for the U.S., it's probably a push to modest growth and so overall, that's kind of what's implied but the -- Don mentioned earlier, it's the state layout, but the growth in our legacy products is going to come from Open-End, both in Canada and the U.S. And then, obviously we are launching, although it's not additive this year, certainly be accretive to 2021, the new product set.

Moshe Orenbuch -- Credit Suisse -- Analyst

Thank you very much.

Operator

Thank you. And the next question comes from Vincent Caintic with Stephens.

Vincent Caintic -- Stephens Inc -- Analyst

Hey, thanks, and good morning. Wanted to talk about the Stride Bank partnership and maybe if you could give a little bit more detail of how it rolls out over the course of 2020 and 2021, the product plans and kind of how quickly you could expand and what's the -- what's the thoughts once relationship matures. Thanks.

Don Gayhardt -- President & Chief Executive Officer

Hey, Vince, it's Don. Good morning. So it's going to take us, well, I'd say, kind of a quarter and a half or so to make sure that fundamentally that all of the engine kind of works properly. You know, it's a good deal more complicated process to have the bank license our technologies and host those technologies and use those technologies. So we've spent a lot of time, a lot of energy on it. It's been a very big, as the developers like to say, heavy lift from an IT standpoint, and we just want to make sure all of that -- all that works well. And as we get through the year, I think we'd like to -- our view is we'd like to exit the year with somewhere in the range of $50 million to $75 million of earning assets in that -- in that program and that those are installment -- closed and installment loans and probably be in -- we're in two states now and you probably -- you're -- as you're growing that business, maybe you exit the year and you're in five or six states by the time you exit the year. Stride is a really interesting innovative really entrepreneurial bank, we've done stuff with them on the payment side in the past, so it's a relationship we've had for a while. So we've known each other and from a team standpoint for a long time. So I think probably -- I don't see it sort of extending outside of this closed and installment product as we look into, probably, I think that will probably, I would say, it'll probably stick to the same kind of products as all the way through 2021.

Longer term, it's kind of hard to speculate on what else we might be working on together, because there's just a lot of opportunity in some states that we don't operate in right now online to offer a really competitive installment product. So again, end the year five or six states, $50 million to $75 million of earning assets and and how that kind of roll into a really healthy business and a good earnings contribution in 2021.

Vincent Caintic -- Stephens Inc -- Analyst

Perfect. And is the -- so you're starting off with a couple of states just to kind of test the waters on the technology, but is the conversations with Stride Bank, is it that they want to license your technology for all 50 states there? And then when you talk with -- I suppose you're talking with other banks as well, sort of what's the appetite for licensing your technology and using them in all the different states?

Don Gayhardt -- President & Chief Executive Officer

I mean, obviously one of the nice -- we think there is a potential to be in all 50 states. We don't -- again, we don't really have a --with Stride, the conversation is really focused around a relatively small handful of states right now. And I'm not, from a competitive standpoint, I'm not -- we're not going to kind of go into more detail on that right now. We -- as I said in my remarks, we -- our view is we want to have multiple partners and multiple products. So we do have some conversations going on with some other partners to look at other products and hopefully we'll have some more to talk about on that front later in the year. But, and again that's a really -- really there's not a lot of granularity in that answer, but that's just the nature of where our conversations are right now.

Vincent Caintic -- Stephens Inc -- Analyst

Got you. Yeah. Thank you. That's really helpful. One, kind of modeling question, so helpful to think about the U.S. kind of being flat overall in terms of loan growth for 2020 year-over-year just because of the -- what's going on with the California mix. Could you help us understand some of the other pieces that are being affected by the cut-off when you run off? I'm assuming that 2020 has a less credit reserves as relative to all of that or just maybe if you could help us just as from a modeling perspective, how we should be thinking about line by line. Maybe there is also marketing costs or other things for California run off.

Roger Dean -- Executive Vice President & Chief Financial Officer

Yeah. Good morning, Vincent. It's Roger. I think that first of all, we were going to -- even with the California run off, we'll see some loan growth in the U.S. and if you just think about, we finished and we disclosed, as we finished the year, the installment balances in California are about $108 million in total between the two products. If you assume that, I don't know 75% of that amortizes -- prepays amortizes by the end of 2020. You've got $70 million, $80 million of loan run-off in California. But we're still going to see loan -- our guidance implies we'll still see overall loan growth in the U.S., by the fourth quarter of 2020, which means you're replacing more than $80 million of run-off with new growth and the provisioning that goes along with that. So I just -- when you add it all up, you don't -- we're not -- it's not like provision is going to be less than net charge-offs or I think there's going to be a pretty consistent relationship throughout the year of the provisioning versus revenue and kind of that pretty much moving somewhat lockstep. I mean we're not -- we're not adjusting any -- we're not -- our plans don't imply that we're going to see any big improvement in allowance coverage rates or a big deterioration in allowance coverage rates. So it's kind of just -- the U.S., there is a lot of moving parts in the U.S. for 2020 as you pointed out, a lot of growth in the non-California products. But when you kind of add it all up, you know, you could see our adjusted EBITDA guidance, if you back Canada out of that, you get flattish or very modest growth in the U.S. and that's from the kind of revenue and the provisioning moving in lockstep and with some pretty strange in some -- for a couple of quarters, some pretty strange year-over-year comps because California peaked. The California portfolio peaked in mid last year and it's going to be in its run off from that point. So the U.S. won't have growth in the first two quarters, year-over-year.

Vincent Caintic -- Stephens Inc -- Analyst

Okay, got you. That's really helpful. And that's a pleasant surprise...

Don Gayhardt -- President & Chief Executive Officer

Vincent, I would just add on the -- you've got some of the rest of -- I think, one thing is, I think advertising costs as a percentage of revenue, those will probably go up and some of that is just mix shift because it's the online business has more advertising costs but less operating costs -- other operating costs. So the mix shift will drive some of that increase in that. And then on both the card side, the Stride side and in general, I think, there is -- we've built some more marketing dollars and so advertising as a percentage of revenue in 2020 will likely be 80 to 100 basis points higher as a percentage of revenue. But if you look at non-advertising costs, corporate and corporate expenses, we'll probably get some leverage there and then interest expense, even though we're going to have some kind of carry costs on this new revolving credit facility, interest expense will probably -- some of that is just some debt pay down, interest expense overall will probably go down slightly in actual dollars in 2020. So more ad spend, some leverage on the corporate and sort of store and call center costs and flattish to down interest expense in 2020.

Vincent Caintic -- Stephens Inc -- Analyst

Okay. That's really helpful. Thank you. And it's a pleasant surprise, I thought that there would be a big reserve release, because of the California wind down. Just last one from me, and maybe this is kind of an overall picture, but we've been -- stock's been volatile because of the political environment, so on and I just maybe wanted to focus back to the consumer. So what have you -- what have you been seeing in terms of the consumer demand? So we've been talking about you have supply issues and trying to have different products, but has the consumer demand continued to be strong? Have you seen the consumer tightening? And have you seen that consumer demand being met by the industry or what's the opportunity that remains out there? Thank you.

Don Gayhardt -- President & Chief Executive Officer

Yeah, Vincent. I'll try to -- it's a big broad question, I'll try to be a little succinct with the answer, but I think in general, the demand and the health of the consumer continues to be really good. The biggest indicator, I think we've said for a long time their demand we think is most closely correlates to consumer confidence, people feel good about their financial situation, feel good about their jobs and their prospect for their job, to continuing their earnings to continue and hopefully go up. So confidence numbers have been good.

Couple of them that have bounced around more in the past six months, some of that you kind of read sort of the academic research on and then sort of the -- the details of it is just somehow bounced, lots of them bounced around based on sort of trade deals and some stuff that is hard for consumers to sort of figure out what it ultimately means for them. Some -- I think some of the fact that the trade stuff, the temper received will come down a lot on that has, at least from the stuff I've seen, has led to more consumers feeling better about their prospects that their job will somehow be interrupted by a trade war. I think from -- we're certainly -- the part of the reason why we've invested in Katapult is that we certainly -- if you look at that, where that business, which is essentially financing $800 to $1000 purchases online, there is no question in our mind that some of that demand that's going to the virtual rent-to-own companies had been demand that in the past might have been met by unsecured installment or line of credit financing that we provide and others in our industry provide.

So I felt like the consumer is helping the market, it's growing overall. It is tipping more in the favor of larger companies that with scale, both in terms of servicing platforms and underwriting technologies and the ability to attract more and cheaper capital. So I think that's helping, but there is no question that some of the demand that used to sort of funnel to us and our unsecured lending competition has moved to the virtual RTO company. But in general we think the economy in the U.S. is healthy. I think the recession-related fears that seem to sort of pop up -- popped up in the third and fourth quarter of 2018 and maybe popped up again in the summer of '19, it still feels like that's -- we're in a pretty good spot and certainly as we look out into 2020.

Vincent Caintic -- Stephens Inc -- Analyst

Great, thank you very much.

Operator

Thank you. And our last question comes from John Rowan with Janney.

John Rowan -- Janney Montgomery Scott -- Analyst

Good morning, guys.

Don Gayhardt -- President & Chief Executive Officer

Hey, John.

John Rowan -- Janney Montgomery Scott -- Analyst

So going back to that hearing a little bit. I thought it was, I'll say entertaining, but ironic that when some of the questioning came from guys who were a little more aligned with the space, Luke Demeyere[Phonetic] went toward Ms. Limon and he simply asked her what does someone do for a $300 or a $400 loan, something that's in the donut hole, where the California regulations are. And she just basically didn't have an answer. She said there is a vibrant market and had absolutely no answers to how that market was construed, who is lending and at what rate. So with that said, right, as we -- as you've exited and others have exited the $2500 and up segment, has there been a corresponding increase in the payday product. Because again, she didn't have an answer to, how are you finding "more affordable loans" that she claims are generous at 36%, when they just eliminated that market above $2500?

Don Gayhardt -- President & Chief Executive Officer

Hey, John. So, I mean, look, we have -- and I think others have said this, I mean, we've seen some -- it started in the fourth quarter as we -- as our installment started the run-off, we've seen some increase in the single-pay business in California. It certainly helps take some of the -- the sting out of the chain, but it doesn't -- it's not -- it's by no means any kind of a one-for-one supplemental replacement for the installment side, mostly because, and this is -- if anyone want to go online, they can Google California installment loans, whatever, you can see there are a large number of companies that aren't state licensed in California that still offer loans online and this is part of the conversation that we had and tried to have in California that simply passing a law isn't going to -- isn't really -- we don't think it's really going to change the availability of that kind of credit in California.

And also that the -- and, look, there are companies that operate in California in the sub 36% market, they're marketplace lenders, there is the traditional branch-based installment lenders like One Main and Landmark, all that are really good companies, but they simply don't offer the credit for customers and this is -- you can look at the trust data that's out there and you can look at the loans tiers that the marketplace lenders report and they're simply not offering credit for customers who are in the low 600s or high 500s from a FICO standpoint. So the idea that a customer, our customer in California is going to be able to sort of just instantly pop over to a marketplace lender or with a traditional branch-based lenders and get alone, It just -- from a -- it's just not our -- our customer is not a One Main, Landmark marketplace lending, those customers are -- they make $10,000 to $15,000 more per year, their stability metrics are better than our customers and they're taking out loans that are -- the average loan in a lot of those securitizations are the unsecured loan is a $6600 loan. So it's a much larger loan to a customer that's got -- a customer needs 40 to 50 more FICO points to qualify for. So I look forward to being able to to sit here a year from now, which I think is part of what came out of the testimony and look at what's happened in California for customers who formerly borrowed money from us so now over elevate the unsecured lenders who operate in the low 600, high 500 kind of FICO range.

John Rowan -- Janney Montgomery Scott -- Analyst

So do you think when they passed this regulation, they understood that there is -- as you are not comparing apples to apples, when they say there is a liquid market at 36%, that they're not talking about a $2500 even what will be great, a $1500 loan whereas these other companies, again good companies, I cover some of them and I think they're great companies provide a very different product, which at the end of the day, a $6,000 loan is -- at a lower rate is going to cost you more in interest, if you really need a $1500 loan. Right? I mean, when you -- when you were talking to these regulators prior to this bill being passed, did they understand that? Because it didn't seem like they had an answer to that in yesterday's hearing and frankly they used just -- they tried to gloss over the issue of what the real health of the market is and what's a like-for-like comparison between your customers FICO scores and the loans that they actually need and what is actually available in market from state license lenders?

Don Gayhardt -- President & Chief Executive Officer

It's -- California was an incredibly frustrating set of conversations because I think there was a -- from a lot of -- a lot of people who both on the legislative side, the regulatory side, I think there's a lot of people that understand that, but I think there is a -- there is a feel good aspect to award this idea that somehow customers are going to be "saved a lot of money" because they can do a calculation on $2 billion of loans that are over 36% and if all those loans are suddenly rewritten to be sub 36%, that saves consumers a lot of money. And I understand the appeal of the politics of that. But it's simply isn't -- it just belies an understanding of what really happens and there's a lot of academic research out there about markets that have put in rate caps or eliminated the small dollar lending and I think also in -- and I won't go too much in it, but in a market be a pre-Internet where you had basically branch-based stuff, you could, really eliminate a lot of the products by simply not like -- by having stores closed, but with the online lending models and the way that the variety of those models and the way that a lot of those are not subject to state licensing, the credit is going to be there, it's already there in the donut hole, and it's significantly more expensive which -- and we think with many more -- many fewer consumer protections that we offer.

So I don't know, as we've said, it is a big state and I'm hopeful that -- and I think some of that came out in the testimony that you heard yesterday that California would be a really interesting kind of laboratory to look at. And I think unfortunately it's going to lead to a lot about outcomes for consumers, but hopefully and that experience will be able to point to that and then chart a way forward for more kind of sensible -- we're not advocating for unlikely, no regulation. We believe and we had 425 regulatory exams across our business last year. So we believe in a licensed, regulated and heavily and scrupulously compliant kind of environment. And I think we can operate in that kind of environment. But an arbitrary rate cap isn't a way forward that provides better outcomes for consumers there.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay. Easier question. The decision to do dividends and repurchases, is that mostly a function of when the bonds are callable and just remind me when they're callable, if they're callable and then just also let me know exactly in total of repurchase authority between any of the open programs. And that's it for me.

Don Gayhardt -- President & Chief Executive Officer

I think that -- I'll let Roger sort of get on the details, but yeah, I mean I think we certainly -- in my comments, again I mentioned that between repurchases and dividends, you're talking about probably $35 million there. And even after that, we still think we can generate in excess of $120 million of free cash, and that will work throughout the year to -- it could be additional investment in the core business, it could be strategic acquisitions but paying down debt is obviously and managing the right size of the balance sheet is something that we'll continue to be focused on, we think we can provide a good return to shareholders and balanced it out with sensible debt reduction as well. So, I'll let Roger kind of comment on those, the call dates, etc.

Roger Dean -- Executive Vice President & Chief Financial Officer

Hey, good morning, John. The bonds mature in 2025. They're first callable at three year point, which would be August of 2021. And as you know, that's the first time they're callable in the premium at that point. I think they call it premiums at half the coupon and then it goes down from there.

John Rowan -- Janney Montgomery Scott -- Analyst

Okay. All right, thank you guys.

Don Gayhardt -- President & Chief Executive Officer

Thanks, John.

Operator

Thank you. And that concludes the question-and-answer session. I would like to return the floor to management for any closing comments.

Don Gayhardt -- President & Chief Executive Officer

Okay. We appreciate everybody joining us. Thanks for all the questions and we look forward to talk to you again after our first quarter. Thanks.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Gar Jackson -- Investor Relations

Don Gayhardt -- President & Chief Executive Officer

Roger Dean -- Executive Vice President & Chief Financial Officer

Bill Baker -- Executive Vice President & Chief Operating Officer

John Hecht -- Jefferies -- Analyst

Robert Napoli -- William Blair & Company -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Vincent Caintic -- Stephens Inc -- Analyst

John Rowan -- Janney Montgomery Scott -- Analyst

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