CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the
“Company”), a market leader in providing short-term credit to
underbanked consumers, today announced financial results for its
third quarter ended September 30, 2019.
“We are pleased to report another excellent quarter that again
exceeded our expectations,” said Don Gayhardt, President and Chief
Executive Officer. “Our Adjusted Net Income nearly tripled
year-over-year on strong loan portfolio growth and performance and
operating expense discipline. We believe that general economic
conditions continue to be strong for our customers and we are very
focused on making disciplined credit and customer acquisition
spending decisions. Our Canadian business delivered $15.3 million
of non-GAAP Adjusted EBITDA versus a $3.4 million AEBITDA loss in
the prior-year quarter and validated our decision to undertake a
significant product transition in our Ontario operations. Our U.S.
business continued to perform well with quarterly year-over-year
growth of 6.2% in revenues, 11.7% in Net revenues and 23.3% in
AEBITDA. Finally, we remain optimistic about the balance of the
year and we are increasing our 2019 earnings and earnings per share
guidance.”
Consolidated Summary Results - Unaudited
For the Three Months Ended
(1)
For the Nine Months Ended (1)
(in thousands, except per share data)
9/30/2019
9/30/2018
Variance
9/30/2019
9/30/2018
Variance
Revenue
$
297,264
$
269,482
10.3
%
$
839,503
$
757,494
10.8
%
Gross margin
96,639
60,594
59.5
%
283,317
243,788
16.2
%
Company Owned gross loans receivable
657,615
537,763
22.3
%
657,615
537,763
22.3
%
Net income (loss) from continuing
operations
27,987
(42,590
)
#
74,327
1,041
#
Adjusted Net Income (2)
32,879
11,415
#
95,266
69,461
37.2
%
Diluted Earnings per Share from continuing
operations
$
0.61
$
(0.93
)
#
$
1.59
$
0.03
#
Adjusted Diluted Earnings per Share
(2)
$
0.71
$
0.24
#
$
2.03
$
1.45
40.0
%
EBITDA (2)
61,199
(31,478
)
#
169,322
80,629
#
Adjusted EBITDA (2)
67,055
38,584
73.8
%
193,598
166,445
16.3
%
Weighted Average Shares - diluted (3)
46,010
45,853
46,887
48,061
# - Variance greater than 100% or not
meaningful
(1) Excludes discontinued operations; see
"Results of Discontinued Operations" for additional details of the
impact of discontinued operations
(2) These are non-GAAP metrics. For a
reconciliation of each non-GAAP metric to the nearest GAAP metric;
see the applicable reconciliations contained under "Results of
Operations - CURO Group Consolidated Operations." For a description
of each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) For the three months ended September
30, 2018, Adjusted Diluted Earnings per Share was calculated using
non-GAAP metric of Adjusted Diluted weighted average shares
outstanding of 48,352.
Third quarter 2019 developments include:
- Revenue increase of $27.8 million, or 10.3%, over the
prior-year period, driven primarily by growth in revenue from
Open-End loans in both the U.S. and Canada.
- Growth in Company Owned gross loans receivable and Gross
combined loans receivables of 22.3% and 18.5%, respectively, versus
the prior-year period. Year-over-year comparisons benefited from
the Q1 2019 Open-End Loss Recognition Change. Excluding the impact
of this change, Company Owned gross loans receivable and Gross
combined loans receivables grew 13.7% and 11.0%, respectively.
- Consolidated quarterly net charge-off ("NCO") rates improvement
of over 350 bps compared to the same quarter a year ago.
- Adjusted Diluted Earnings per Share increase to $0.71 from
$0.24 in the prior-year quarter; Diluted Earnings Per Share from
continuing operations of $0.61.
- Cumulative open market purchases of 2,853,241 shares for $35.0
million through October 23, 2019 under the terms of our $50 million
share repurchase program that was announced in April 2019, plus the
purchase of 2,000,000 shares from Friedman Fleischer & Lowe
Capital Partners II, L.P. and its affiliated investment funds
("FFL"), a related party to the Company.
- Addition of two independent directors to our Board of
Directors, which adds both compliance and human resources
experience and insight, as announced in our Current Report on Form
8-K filed with the Securities and Exchange Commission ("SEC") on
July 22, 2019.
Year-to-date 2019 developments include:
- Revenue increase of $82.0 million, or 10.8%, over the
prior-year period. Year-over-year revenue comparisons include an
estimated $35 million benefit from the Q1 2019 Open-End Loss
Recognition Change, offset by a similar increase in provision
expense.
- Adjusted Net Income and Adjusted Diluted Earnings per Share
growth of 37.2% and 40.0%, respectively, over the prior-year
period; Net Income from continuing operations of $74.3 million and
Diluted Earnings per Share of $1.59.
- Continued success with the Canada Open-End product transition,
as the portfolio matures and NCO rates improve. Canada AEBITDA
increase of $21.5 million over the prior-year period; gross margin
increase of $22.9 million over the same period.
- During April through July 2019, invested an additional $3.8
million in Zibby, an on-line virtual lease-to-own platform. As a
result of this transaction, the Company's fully-diluted ownership
of Zibby increased to 42.3%.
- Completed the exit from the U.K. market during the first
quarter of 2019, resulting in favorable tax consequences related to
the disposal.
- The successful launch of our new demand deposit account,
Revolve Finance, sponsored by Republic Bank of Chicago. Revolve is
being rolled out across our U.S. branches, as well as online, and
provides customers with a checking account solution that combines a
Visa-branded debit card, a number of technology-enabled tools and
optional overdraft protection. Through the end of the third
quarter, customers have loaded $42.5 million on over 31,000 unique
cards.
Fiscal 2019 Outlook
The Company has increased its full-year 2019 earnings guidance
for Adjusted Net Income, Adjusted EBITDA and Adjusted Diluted
Earnings per Share from its guidance included in its Current Report
on Form 8-K filed with the SEC on July 29, 2019, as follows:
- Revenue in the range of $1.145 billion to $1.150 billion, a
decrease from prior guidance of $1.154 billion to $1.170 billion
due to California Installment loan repositioning
- Adjusted Net Income in the range of $125 million to $135
million, narrowing prior guidance of $120 million to $135
million
- Adjusted EBITDA in the range of $260 million to $270 million,
an increase from prior guidance of $250 million to $265
million
- Adjusted Diluted Earnings per Share in the range of $2.75 to
$2.85, an increase from prior guidance of $2.55 to $2.80
- Adjusted effective income tax rate in the range of 26% to
27%
For a reconciliation of each non-GAAP metric to the nearest GAAP
metric, see the specific reconciliations contained under "Fiscal
2019 Outlook - Reconciliations" at the end of this release. For a
description of each non-GAAP metric, see "Non-GAAP Financial
Measures."
Consolidated Revenue by Product and Segment
Year-over-year comparisons for Open-End were affected by the Q1
2019 Open-End Loss Recognition Change. Additionally, throughout
this release, we removed financial results of our former U.K.
operations for all periods presented, as it was discontinued for
accounting and reporting purposes in February 2019. See “Results of
Discontinued Operations” within this release for additional
information.
The following tables summarize revenue by product, including
credit services organization ("CSO") fees, for the periods
indicated:
Three Months Ended
September 30, 2019
September 30, 2018
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
135,541
$
1,692
$
137,233
$
135,028
$
2,632
$
137,660
Secured Installment
28,270
—
28,270
28,562
—
28,562
Open-End
39,605
26,515
66,120
27,554
12,736
40,290
Single-Pay
29,140
20,172
49,312
27,792
22,822
50,614
Ancillary
4,513
11,816
16,329
4,337
8,019
12,356
Total revenue
$
237,069
$
60,195
$
297,264
$
223,273
$
46,209
$
269,482
During the three months ended September 30, 2019, total revenue
grew $27.8 million, or 10.3%, to $297.3 million, compared to the
prior-year period, predominantly driven by growth in Open-End loans
in both countries. Geographically, total revenue in the U.S. and
Canada grew 6.2% and 30.3%, respectively. From a product
perspective, Unsecured Installment revenues rose 0.4% in the U.S.,
offset by a decrease in Canada of 35.7% due to the continued
transition to Open-End loans. Secured Installment revenues and
related receivables were consistent year-over-year. Single-Pay loan
balances stabilized in Canada sequentially but year-over-year
Single-Pay usage and product profitability were impacted negatively
by regulatory changes in Ontario effective July 1, 2018, and the
strategic transition of qualifying customers to Open-End loans
during the third quarter of 2018. Open-End loans in Canada grew
$18.1 million, or 8.3%, sequentially (defined within this release
as the change from the second quarter of 2019 to the third quarter
of 2019, or comparable periods for 2018 sequential metrics).
Open-End loans in Canada grew $98.6 million, or 71.1%, from
September 30, 2018, resulting in year-over-year revenue growth of
$13.8 million, or 108.2%. U.S. Open-End revenue rose 43.7% on
related loan growth of 71.2%. Ancillary revenues increased 32.2%
versus the same quarter a year ago, primarily due to the sale of
insurance products to Installment and Open-End loan customers in
Canada.
Nine Months Ended
September 30, 2019
September 30, 2018
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
390,026
$
5,093
$
395,119
$
366,749
$
11,227
$
377,976
Secured Installment
81,823
—
81,823
81,195
—
81,195
Open-End
104,516
69,445
173,961
76,649
18,086
94,735
Single-Pay
82,733
58,872
141,605
78,835
90,461
169,296
Ancillary
14,136
32,859
46,995
14,565
19,727
34,292
Total revenue
$
673,234
$
166,269
$
839,503
$
617,993
$
139,501
$
757,494
For the nine months ended September 30, 2019, total revenue grew
$82.0 million, or 10.8%, to $839.5 million, compared to the
prior-year period, predominantly driven by growth in Open-End loans
in both countries. Geographically, total revenue in the U.S. and
Canada grew 8.9% and 19.2%, respectively. From a product
perspective, Unsecured Installment revenues rose 6.3% in the U.S.,
offset by a decrease in Canada of 54.6% due to the continued
transition to Open-End loans. Secured Installment revenues and
related receivables remained consistent year-over-year. Canadian
Single-Pay usage and product profitability were impacted negatively
year-over-year by regulatory changes in Ontario effective July 1,
2018, and the strategic transition of qualifying customers to
Open-End loans. Open-End revenues rose 83.6% on related loan growth
in both countries. Ancillary revenues increased 37.0% versus the
same quarter a year ago, primarily due to the sale of insurance to
Installment and Open-End loan customers in Canada.
The following table presents revenue composition, including CSO
fees, of the products and services that we currently offer:
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Installment
55.7
%
61.7
%
56.8
%
60.6
%
Canada Single-Pay
6.8
%
8.5
%
7.0
%
11.9
%
U.S. Single-Pay
9.8
%
10.3
%
9.9
%
10.4
%
Open-End
22.2
%
15.0
%
20.7
%
12.5
%
Ancillary
5.5
%
4.5
%
5.6
%
4.6
%
Total
100.0
%
100.0
%
100.0
%
100.0
%
For the three months ended September 30, 2019 and 2018, revenue
generated through the online channel as a percentage of
consolidated revenue was 46% and 44%, respectively. For the nine
months ended September 30, 2019 and 2018, revenue generated through
the online channel as a percentage of consolidated revenue was 45%
and 42%, respectively.
Loan Volume and Portfolio Performance Analysis
The following table summarizes Company Owned gross loans
receivable, a GAAP-basis balance sheet measure, with reconciliation
to Gross combined loans receivable, a non-GAAP measure(1). Gross
combined loans receivables include loans originated by third-party
lenders through CSO programs, which are not included in the
Consolidated Financial Statements but from which we earn revenue by
providing a guarantee to the unaffiliated lender:
As of
(in millions, unaudited)
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Company Owned gross loans receivable
$
657.6
$
609.6
$
553.2
$
571.5
$
537.8
Gross loans receivable Guaranteed by the
Company
73.1
67.3
61.9
80.4
78.8
Gross combined loans receivable (1)
$
730.7
$
676.9
$
615.1
$
651.9
$
616.6
(1) See "Non-GAAP Financial Measures" at the end of this release
for definition and more information.
Gross combined loans receivable by product is presented below.
Year-over-year comparisons for Open-End are affected by the Q1 2019
Open-End Loss Recognition Change. Excluding the impact of the Q1
2019 Open-End Loss Recognition Change, Open-End receivables
increased $84.9 million, or 46.1% year-over-year.
As of
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
Unsecured Installment
$
174.5
$
164.7
$
161.7
$
190.4
$
185.1
Secured Installment
90.1
85.5
81.0
93.0
91.2
Single-Pay
78.0
76.1
69.7
80.8
77.4
Open-End
315.0
283.3
240.8
207.3
184.1
CSO
73.1
67.3
61.9
80.4
78.8
Total
$
730.7
$
676.9
$
615.1
$
651.9
$
616.6
Gross combined loans receivable increased $114.1 million, or
18.5%, to $730.7 million as of September 30, 2019, from $616.6
million as of September 30, 2018. Geographically, gross combined
loans receivable grew 5.0% and 48.1%, respectively, in the U.S. and
Canada, explained further by product in the following sections.
Unsecured Installment Loans
Unsecured Installment revenue and gross combined loans
receivable decreased from the prior-year quarter due to the
continued mix shift to Open-End loans in Canada and portfolio
optimization in California to manage upcoming January 1, 2020
regulatory changes. Unsecured Installment gross combined loans
receivable decreased $15.7 million, or 6.0%, compared to September
30, 2018. Unsecured Installment loans Guaranteed by the Company
declined $5.1 million year-over-year due to regulatory change in
Ohio, effective April 2019, and the subsequent conversion of Ohio
CSO volume to Company-Owned loans, partially offset by growth in
Texas.
The NCO rate for Company Owned Unsecured Installment gross loans
receivables in the third quarter of 2019 increased approximately
125 bps from the third quarter of 2018 due to geographic mix shift
from Canada to the U.S. and increases in U.S. NCO rates due to
product and credit policy decisions. The NCO rate in the U.S. rose
from 16.8% in the third quarter of 2018 to 18.5% in the third
quarter of 2019, primarily due to credit limit increases. While
credit limit increases generally result in modestly higher NCO
rates in the related loan vintages, the growth in net revenue over
the life of such vintages historically has more than covered the
higher NCO rates.
The Unsecured Installment Allowance for loan losses as a
percentage of Company Owned Unsecured Installment gross loans
receivable ("allowance coverage") increased year-over-year from
19.5% as of September 30, 2018 to 21.9% as of September 30, 2019,
primarily as a result of related higher NCO rates. Past due
receivables as a percentage of total Gross Receivables remained
consistent to the same quarter a year ago. Sequentially, the
allowance coverage increased slightly from 21.4% to 21.9% as of
September 30, 2019.
NCO rates for Unsecured Installment loans Guaranteed by the
Company improved nearly 60 bps compared to the same quarter a year
ago. The CSO liability for losses remained consistent sequentially
from 14.5% to 14.4% for the third quarter of 2019.
2019
2018
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Unsecured Installment loans:
Revenue - Company Owned
$
65,809
$
59,814
$
65,542
$
69,748
$
64,146
Provision for losses - Company Owned
31,891
33,514
33,845
39,565
32,946
Net revenue - Company Owned
$
33,918
$
26,300
$
31,697
$
30,183
$
31,200
Net charge-offs - Company Owned
$
28,973
$
31,970
$
37,919
$
37,951
$
27,308
Revenue - Guaranteed by the Company
$
71,424
$
62,298
$
70,236
$
75,559
$
73,514
Provision for losses - Guaranteed by the
Company
36,664
28,336
27,422
37,352
39,552
Net revenue - Guaranteed by the
Company
$
34,760
$
33,962
$
42,814
$
38,207
$
33,962
Net charge-offs - Guaranteed by the
Company
$
35,916
$
27,486
$
30,421
$
38,522
$
37,995
Unsecured Installment gross combined
loans receivable:
Company Owned
$
174,489
$
164,722
$
161,716
$
190,403
$
185,130
Guaranteed by the Company (1)(2)
70,704
65,055
59,740
77,451
75,807
Unsecured Installment gross combined loans
receivable (1)(2)
$
245,193
$
229,777
$
221,456
$
267,854
$
260,937
Average gross loans receivable:
Average Unsecured Installment gross loans
receivable - Company Owned (3)
$
169,606
$
163,219
$
176,060
$
187,767
$
172,708
Average Unsecured Installment gross loans
receivable - Guaranteed by the Company (3)
$
67,880
$
62,398
$
68,596
$
76,629
$
71,079
Allowance for loan losses and CSO
liability for losses:
Unsecured Installment Allowance for loan
losses (4)
$
38,127
$
35,223
$
33,666
$
37,716
$
36,160
Unsecured Installment CSO liability for
losses (4)
$
10,181
$
9,433
$
8,583
$
11,582
$
12,750
Unsecured Installment Allowance for loan
losses as a percentage of Unsecured Installment gross loans
receivable
21.9
%
21.4
%
20.8
%
19.8
%
19.5
%
Unsecured Installment CSO liability for
losses as a percentage of Unsecured Installment gross loans
guaranteed by the Company
14.4
%
14.5
%
14.4
%
15.0
%
16.8
%
Unsecured Installment past-due
balances:
Unsecured Installment gross loans
receivable
$
46,537
$
38,037
$
40,801
$
49,087
$
49,637
Unsecured Installment gross loans
guaranteed by the Company
$
11,842
$
10,087
$
7,967
$
11,708
$
12,120
Past-due Unsecured Installment gross loans
receivable -- percentage (2)
26.7
%
23.1
%
25.2
%
25.8
%
26.8
%
Past-due Unsecured Installment gross loans
guaranteed by the Company -- percentage (2)
16.7
%
15.5
%
13.3
%
15.1
%
16.0
%
Unsecured Installment other
information:
Originations - Company Owned
$
107,275
$
102,792
$
78,515
$
114,182
$
121,415
Originations - Guaranteed by the Company
(1)
$
89,644
$
80,445
$
68,899
$
89,319
$
91,828
Unsecured Installment ratios:
Provision as a percentage of gross loans
receivable - Company Owned
18.3
%
20.3
%
20.9
%
20.8
%
17.8
%
Provision as a percentage of gross loans
receivable - Guaranteed by the Company
51.9
%
43.6
%
45.9
%
48.2
%
52.2
%
(1) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(2) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
(4) Allowance for loan losses is reported
as a contra-asset reducing gross loans receivable while the CSO
liability for losses is reported as a liability on the Condensed
Consolidated Balance Sheets.
Secured Installment Loans
Secured Installment revenue and the related gross combined loans
receivable balance as of September 30, 2019 remained consistent
year-over-year. Secured Installment Allowance for loan losses and
CSO liability for losses as a percentage of Secured Installment
gross combined loans receivable decreased year-over-year from 12.4%
to 11.3% for the third quarter of 2019 and decreased sequentially
from 11.5% to 11.3% during the third quarter of 2019, primarily as
a result of an 80 bps improvement in the NCO rate.
2019
2018
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Secured Installment loans:
Revenue
$
28,270
$
26,076
$
27,477
$
29,482
$
28,562
Provision for losses
8,819
7,821
7,080
12,035
10,188
Net revenue
$
19,451
$
18,255
$
20,397
$
17,447
$
18,374
Net charge-offs
$
8,455
$
7,630
$
9,822
$
11,132
$
9,285
Secured Installment gross combined loan
balances:
Secured Installment gross combined loans
receivable (1)(2)
$
92,478
$
87,718
$
83,087
$
95,922
$
94,194
Average Secured Installment gross combined
loans receivable (3)
$
90,098
$
85,403
$
89,505
$
95,058
$
90,814
Secured Installment Allowance for loan
losses and CSO liability for losses (2)
$
10,431
$
10,067
$
9,874
$
12,616
$
11,714
Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable
11.3
%
11.5
%
11.9
%
13.2
%
12.4
%
Secured Installment past-due
balances:
Secured Installment past-due gross loans
receivable and gross loans guaranteed by the Company
$
17,645
$
14,570
$
13,866
$
17,835
$
17,754
Past-due Secured Installment gross loans
receivable and gross loans guaranteed by the Company -- percentage
(1)
19.1
%
16.6
%
16.7
%
18.6
%
18.8
%
Secured Installment other
information:
Originations (4)
$
45,990
$
49,051
$
33,490
$
49,217
$
51,742
Secured Installment ratios:
Provision as a percentage of gross
combined loans receivable
9.5
%
8.9
%
8.5
%
12.5
%
10.8
%
(1) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(2) Allowance for loan losses is reported
as a contra-asset reducing gross loans receivable while the CSO
liability for losses is reported as a liability on the Condensed
Consolidated Balance Sheets.
(3) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
(4) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
Open-End Loans
Open-End loan balances as of September 30, 2019 increased by
$130.9 million when compared to September 30, 2018, primarily due
to the continued growth in Canada. The Q1 2019 Open-End Loss
Recognition Change, discussed further below, impacted comparability
as Canada included $19.2 million of past-due Open-End loans as of
September 30, 2019 that would have been charged off under the
former policy. Sequentially, Open-End balances in Canada grew $18.1
million ($20.9 million on a constant currency basis) due to organic
growth of the product and the introduction of Open-End loans in
British Columbia during the third quarter of 2019. Remaining
year-over-year loan growth was driven by the organic growth in
seasoned U.S. markets, such as Tennessee and Kansas, and the
relatively newer Virginia market. Similar to Canada, the Q1 2019
Open-End Loss Recognition Change affected comparability in the
U.S., with the inclusion of $26.8 million of past-due Open-End
loans as of September 30, 2019 that would have been charged off
under the former policy.
The Open-End NCO rate during the third quarter of 2019 was 9.4%,
compared to 17.1% in the same quarter in the prior year, as a
result of a modest improvement in the U.S. and seasoning of the
Canada portfolio. Sequentially, on a non-GAAP pro forma basis, as
described below, NCO rates improved 130 bps, primarily on portfolio
improvements in Canada.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe in which we
charge-off Open-End loans and made related refinements to our loss
provisioning methodology. Prior to January 1, 2019, we deemed
Open-End loans uncollectible and charged-off when a customer missed
a scheduled payment and the loan was considered past-due. Because
of our continuing shift to Open-End loans in Canada and our
analysis of payment patterns on early-stage versus late-stage
delinquencies, we revised our estimates and now consider Open-End
loans uncollectible when the loan has been contractually past-due
for 90 consecutive days. Consequently, past-due Open-End loans and
related accrued interest now remain in loans receivable for 90 days
before being charged off against the allowance for loan losses. All
recoveries on charged-off loans are credited to the allowance for
loan losses. We evaluate the adequacy of the allowance for loan
losses compared to the related gross loans receivable balances that
include accrued interest.
The aforementioned change was treated as a change in accounting
estimate for accounting purposes and applied prospectively
beginning January 1, 2019.
The change affects comparability to prior periods as
follows:
- Gross combined loans receivable:
balances as of September 30, 2019 include $46.1 million of Open-End
loans that are up to 90 days past-due with related accrued
interest, while such balances for periods prior to March 31, 2019
do not include any past-due loans.
- Revenues: for the three and nine
months ended September 30, 2019, gross revenues include interest
earned on past-due loan balances of approximately $15 million and
$35 million, respectively, while revenues in prior-year periods do
not include comparable amounts.
- Provision for Losses:
prospectively from January 1, 2019, past-due, unpaid balances plus
related accrued interest charge-off on day 91. Provision expense is
affected by NCOs (total charge-offs less total recoveries) plus
changes to the Allowance for loan losses. Because NCOs
prospectively include unpaid principal and up to 90 days of related
accrued interest, NCO amounts and rates are higher and the Open-End
Allowance for loan losses as a percentage of Open-End gross loans
receivable is higher. The Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable increased to 17.2% at
September 30, 2019, compared to 9.8% in the comparable prior-year
period.
The following table reports 2019 Open-End loan performance,
including the effect of the Q1 2019 Open-End Loss Recognition
Change:
2019
2018
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Open-End loans:
Revenue
$
66,120
$
54,972
$
52,869
$
47,228
$
40,290
Provision for losses
31,220
29,373
25,317
28,337
31,686
Net revenue
$
34,900
$
25,599
$
27,552
$
18,891
$
8,604
Net charge-offs
$
28,202
$
25,151
$
(1,521
)
$
25,218
$
23,579
Open-End gross loan balances:
Open-End gross loans receivable
$
314,971
$
283,311
$
240,790
$
207,333
$
184,067
Average Open-End gross loans receivable
(1)
$
299,141
$
262,051
$
224,062
$
195,700
$
137,550
Open-End allowance for loan
losses:
Allowance for loan losses
$
54,233
$
51,717
$
46,963
$
19,901
$
18,013
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
17.2
%
18.3
%
19.5
%
9.6
%
9.8
%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$
46,053
$
35,395
$
32,444
$
—
$
—
Open-End past-due gross loans receivable -
percentage
14.6
%
12.5
%
13.5
%
—
%
—
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
In addition, the following table illustrates, on a non-GAAP pro
forma basis, the 2019 quarterly results as if the Q1 2019 Open-End
Loss Recognition Change had been applied to our outstanding
Open-End loan portfolio as of December 31, 2018. This table is
illustrative of retrospective application to determine the NCOs
that would have been incurred in each quarter of 2019 from the
December 31, 2018 loan book. The primary purpose of this pro forma
illustration is to provide a representative level of NCO rates from
applying the Q1 2019 Open-End Loss Recognition Change.
Pro Forma
2019
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Open-End loans:
Revenue
$
66,120
$
54,972
$
52,869
Provision for losses
31,220
29,373
25,317
Net revenue
$
34,900
$
25,599
$
27,552
Net charge-offs
$
29,762
$
29,648
$
31,788
Open-End gross loan balances:
Open-End gross loans receivable
$
314,971
$
283,311
$
240,790
Average Open-End gross loans receivable
(1)
$
299,141
$
262,051
$
245,096
Net-charge offs as a percentage of average
gross loans receivable
9.9
%
11.3
%
13.0
%
Open-End allowance for loan
losses:
Allowance for loan losses
$
54,233
$
51,717
$
46,963
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
17.2
%
18.3
%
19.5
%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$
46,053
$
35,395
$
32,444
Open-End past-due gross loans receivable -
percentage
14.6
%
12.5
%
13.5
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
Single-Pay
Single-Pay revenue during the three months ended September 30,
2019 decreased compared to the three months ended September 30,
2018, primarily due to regulatory changes in Canada (rate and
product changes in Ontario and British Columbia) that accelerated
the shift to Open-End products. U.S. Single-Pay receivables
increased $1.7 million, or 4.1%, offset by a decrease in Canada
receivables of $1.0 million, or 2.8%. Canada Single-Pay balances
were stable sequentially from the second quarter of 2019. The
Single-Pay Allowance for loan losses as a percentage of Single-Pay
gross loans receivable increased sequentially from 6.5% to 7.3%,
and the NCO rate increased 215 bps year-over-year, as a result of
mandated extended payment options for certain Canada Single-Pay
loans.
2019
2018
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Single-Pay loans:
Revenue
$
49,312
$
45,528
$
46,761
$
49,696
$
50,614
Provision for losses
14,736
12,446
8,268
12,825
12,757
Net revenue
$
34,576
$
33,082
$
38,493
$
36,871
$
37,857
Net charge-offs
$
13,913
$
11,458
$
8,610
$
11,838
$
12,892
Single-Pay gross loan balances:
Single-Pay gross loans receivable
$
78,039
$
76,126
$
69,753
$
80,823
$
77,390
Average Single-Pay gross loans receivable
(1)
$
77,083
$
72,940
$
75,288
$
79,107
$
81,028
Single-Pay Allowance for loan losses
$
5,662
$
4,941
$
3,897
$
4,189
$
3,293
Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable
7.3
%
6.5
%
5.6
%
5.2
%
4.3
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
Results of Operations - CURO Group Consolidated
Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
297,264
$
269,482
$
27,782
10.3
%
$
839,503
$
757,494
$
82,009
10.8
%
Provision for losses
123,867
127,692
(3,825
)
(3.0
)%
338,262
290,922
47,340
16.3
%
Net revenue
173,397
141,790
31,607
22.3
%
501,241
466,572
34,669
7.4
%
Advertising costs
16,424
21,349
(4,925
)
(23.1
)%
36,990
44,347
(7,357
)
(16.6
)%
Non-advertising costs of providing
services
60,334
59,847
487
0.8
%
180,934
178,437
2,497
1.4
%
Total cost of providing services
76,758
81,196
(4,438
)
(5.5
)%
217,924
222,784
(4,860
)
(2.2
)%
Gross margin
96,639
60,594
36,045
59.5
%
283,317
243,788
39,529
16.2
%
Operating expense
Corporate, district and other expenses
38,665
27,495
11,170
40.6
%
123,043
95,904
27,139
28.3
%
Interest expense
17,364
23,403
(6,039
)
(25.8
)%
52,077
66,229
(14,152
)
(21.4
)%
Loss on extinguishment of debt
—
69,200
(69,200
)
#
—
80,883
(80,883
)
#
Loss from equity method investment
1,384
—
1,384
#
5,132
—
5,132
#
Total operating expense
57,413
120,098
(62,685
)
(52.2
)%
180,252
243,016
(62,764
)
(25.8
)%
Net income (loss) from continuing
operations before income taxes
39,226
(59,504
)
98,730
#
103,065
772
102,293
#
Provision (benefit) for income taxes
11,239
(16,914
)
28,153
#
28,738
(269
)
29,007
#
Net income (loss) from continuing
operations
27,987
(42,590
)
70,577
#
74,327
1,041
73,286
#
Net (loss) income from discontinued
operations, net of tax
(598
)
(4,432
)
3,834
(86.5
)%
6,943
(8,796
)
15,739
#
Net income (loss)
$
27,389
$
(47,022
)
$
74,411
#
$
81,270
$
(7,755
)
$
89,025
#
# - Variance greater than 100% or not
meaningful
Reconciliation of Net income (loss) from continuing
operations and Diluted Earnings per Share to Adjusted Net Income
and Adjusted Diluted Earnings per Share, non-GAAP measures
(in thousands, except per share data,
unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Net income (loss) from continuing
operations
$
27,987
$
(42,590
)
$
70,577
#
$
74,327
$
1,041
$
73,286
#
Adjustments:
Loss on extinguishment of debt (1)
—
72,165
—
83,848
Restructuring costs (2)
—
—
1,752
—
Legal and related costs (3)
870
(1,178
)
870
(1,178
)
U.K. related costs (4)
348
—
8,844
—
Loss from equity method investment (5)
1,384
—
5,132
—
Share-based compensation (6)
2,771
2,089
7,587
6,112
Intangible asset amortization
751
714
2,308
2,017
Impact of tax law changes (7)
—
(600
)
—
1,200
Cumulative tax effect of adjustments
(1,232
)
(19,185
)
(5,554
)
(23,579
)
Adjusted Net Income
$
32,879
$
11,415
$
21,464
#
$
95,266
$
69,461
$
25,805
37.2
%
Net income (loss) from continuing
operations
$
27,987
$
(42,590
)
$
74,327
$
1,041
Diluted Weighted Average Shares
Outstanding
46,010
45,853
46,887
48,061
Adjusted Diluted Average Shares
Outstanding
46,010
48,352
46,887
48,061
Diluted Earnings (Loss) per Share from
continuing operations
$
0.61
$
(0.93
)
$
1.54
#
$
1.59
$
0.03
$
1.56
#
Per Share impact of adjustments to Net
Income
0.10
1.17
0.44
1.42
Adjusted Diluted Earnings per Share
$
0.71
$
0.24
$
0.47
195.8
%
$
2.03
$
1.45
$
0.58
40.0
%
# - Variance greater than 100% or not
meaningful
Reconciliation of Net income (loss) from continuing
operations to EBITDA and Adjusted EBITDA, non-GAAP measures
Three Months Ended September
30,
Nine Months Ended September
30,
(in thousands, except per share data,
unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Net income (loss) from continuing
operations
$
27,987
$
(42,590
)
$
70,577
#
$
74,327
$
1,041
$
73,286
#
Provision for income taxes
11,239
(16,914
)
28,153
#
28,738
(269
)
29,007
#
Interest expense
17,364
23,403
(6,039
)
(25.8
)%
52,077
66,229
(14,152
)
(21.4
)%
Depreciation and amortization
4,609
4,623
(14
)
(0.3
)%
14,180
13,628
552
4.1
%
EBITDA
61,199
(31,478
)
92,677
#
169,322
80,629
88,693
#
Loss on extinguishment of debt (1)
—
69,200
—
80,883
Restructuring costs (2)
—
—
1,752
—
Legal and related costs (3)
870
(1,178
)
870
(1,178
)
U.K. related costs (4)
348
—
8,844
—
Loss from equity method investment (5)
1,384
—
5,132
—
Share-based compensation (6)
2,771
2,089
7,587
6,112
Other adjustments (8)
483
(49
)
91
(1
)
Adjusted EBITDA
$
67,055
$
38,584
$
28,471
73.8
%
$
193,598
$
166,445
$
27,153
16.3
%
Adjusted EBITDA Margin
22.6
%
14.3
%
23.1
%
22.0
%
# - Variance greater than 100% or not
meaningful
(1)
For the nine months ended September 30,
2018, the $80.9 million of loss on extinguishment of debt is
comprised of (a) $11.7 million incurred in the first quarter of
2018 for the redemption of $77.5 million of the CURO Financial
Technologies Corp.'s ("CFTC") 12.00% Senior Secured Notes due 2022
and (b) $69.2 million incurred in the third quarter of 2018 for the
redemption of the remaining $525.7 million of these notes. The
$69.2 million of third quarter loss on extinguishment of debt is
comprised of $54.0 million make whole premium and $15.2 million of
deferred financing costs, net of premium/discounts. An additional
$3.0 million is included in related costs for the three and nine
months ended September 30, 2018 for duplicative interest paid
through September 30, 2018 prior to repayment of the remaining
12.00% Senior Secured Notes and the Non-Recourse U.S. SPV
Facility.
(2)
Restructuring costs of $1.8 million for
the nine months ended September 30, 2019 were due to eliminating
121 positions in North America. The store employee reductions help
better align store staffing with in-store customer traffic and
volume patterns, as more of our growth comes from online channels
and as store customers require less time in stores as they conduct
more of the follow-up activities online. The elimination of certain
corporate positions relate to efficiency initiatives and has
allowed the Company to reallocate investment to strategic growth
activities.
(3)
Legal and related costs for the three and
nine months ended September 30, 2019 include costs related to
certain securities litigation and related matters of $0.6 million
and legal and advisory costs of $0.3 million related to the
repurchase of shares from FFL. Legal and related costs for the
three and nine months ended September 30, 2018 includes (a) a $1.8
million reduction of the liability related to our offer to
reimburse certain bank overdraft or non-sufficient funds fees
because of possible borrower confusion about certain electronic
payments we initiated on their loans and (b) settlement of certain
matters in California and Canada. For more information, see Note 18
- "Contingent Liabilities" of the Notes to Consolidated Financial
Statements included in our Form 10-K filed with the SEC on March
18, 2019.
(4)
U.K. related costs of $8.8 million for the
nine months ended September 30, 2019 relate to placing the U.K.
subsidiaries into administration on February 25, 2019, which
included $7.6 million to obtain consent from the holders of the
8.25% Senior Secured Notes to deconsolidate the U.K. Segment and
$1.2 million for other costs.
(5)
The Loss from equity method investment for
the nine months ended September 30, 2019 of $5.1 million includes
(a) our share of the estimated GAAP net loss of Cognical Holdings
("Zibby") and (b) a $3.7 million loss recognized during the second
quarter of 2019. From April through July of 2019, Zibby completed
an equity raising round at a value per share less than the value
per share raised in prior raises. As of September 30, 2019, we
owned approximately 42% of the outstanding shares of Zibby on a
fully diluted basis.
(6)
We approved the adoption of share-based
compensation plans during 2010 and 2017 for key members of senior
management. The estimated fair value of share-based awards is
recognized as non-cash compensation expense on a straight-line
basis over the vesting period.
(7)
As a result of the Tax Cuts and Jobs Act
of 2017 ("2017 Tax Act"), which became law on December 22, 2017, we
provided an estimate of the new repatriation tax as of December 31,
2017. Subsequent to further guidance published in the first quarter
of 2018, we booked additional tax expense of $1.2 million for the
2017 repatriation tax. Additionally, the 2017 Tax Act provided for
a new Global Intangible Low-Taxed Income tax starting in 2018 and
we estimated and provided tax expense of $0.6 million in the first
quarter of 2018. We revised this expense in the third quarter of
2018 based on changes in our geographic mix of income.
(8)
Other adjustments include deferred rent
and the intercompany foreign exchange impact. Deferred rent
represents the non-cash component of rent expense.
For the three months ended September 30, 2019 and
2018
Revenue and Net Revenue
Revenue increased $27.8 million, or 10.3%, to $297.3 million for
the three months ended September 30, 2019, from $269.5 million for
the three months ended September 30, 2018. Revenue for the three
months ended September 30, 2019 included interest earned on
past-due Open-End loan balances of approximately $15 million from
the Q1 2019 Open-End Loss Recognition Change. U.S. revenue
increased 6.2%, driven by volume growth. Canadian revenue increased
30.3% (31.6% on a constant currency basis), as volume growth offset
yield compression from negative regulatory impacts on Single-Pay
loan rates and the significant product mix-shift to Open-End
loans.
Provision for losses decreased $3.8 million, or 3.0%, to $123.9
million for the three months ended September 30, 2019, from $127.7
million for the three months ended September 30, 2018. This
decrease included incremental provision expense from the Q1 2019
Open-End Loss Recognition Change, consistent with the incremental
revenue impact. Excluding the impact of the Q1 2019 Open-End Loss
Recognition Change, provision expense declined year-over-year,
primarily due to lower sequential loan growth than in the
prior-year's quarter. For the three months ended September 30,
2019, gross combined loans receivable grew sequentially by $53.7
million, or 7.9%, compared to sequential growth of $126.8 million,
or 25.9% for the three months ended September 30, 2018.
Cost of Providing Services
The total cost of providing services decreased $4.4 million, or
5.5%, to $76.8 million in the three months ended September 30,
2019, compared to $81.2 million in the three months ended September
30, 2018, primarily because of lower advertising costs. The decline
in advertising costs was primarily the result of repositioning of
our California Installment loan portfolio in advance of regulatory
changes and mix-shift, and stability in our Canadian portfolio
following the Ontario deployment of Open-End loans in the third
quarter of 2018.
Operating Expenses
Excluding share-based compensation of $2.8 million, legal and
related costs of $0.9 million and U.K. related costs of $0.3
million, corporate, district and other expenses increased $8.1
million, or 30.4%, primarily due to higher variable compensation
tied to our financial performance.
Our investment in Zibby is accounted for under the equity
method. We record our pro rata share of Zibby's income or losses in
the income statement with a corresponding adjustment to the
carrying value of our investment in "Other" on the Condensed
Consolidated Balance Sheet. Our share of estimated losses for the
three months ended September 30, 2019 was $1.4 million.
Interest Expense
Interest expense for the third quarter of 2019 decreased by $6.0
million compared to the prior-year period, primarily due to our
refinancing activities in 2018. During the third quarter of 2018,
we issued $690.0 million of 8.25% Senior Secured Notes and used the
proceeds from the issuance to extinguish our $527.5 million 12.00%
Senior Secured Notes and our Non-Recourse U.S. SPV Facility. In
addition, we entered into a Non-Recourse Canada SPV Facility in the
third quarter of 2018 with a lower interest rate than our previous
Non-Recourse U.S. SPV Facility.
Provision for Income Taxes
The effective income tax rate for the three months ended
September 30, 2019 was 28.7%, compared to 28.4% for the three
months ended September 30, 2018. The third quarter 2019 effective
income tax rate included unfavorable impacts from the non-tax
deductible loss on our equity method investment and changes in
state income apportionment and a mix shift in taxable income
between the U.S. and Canada. Excluding the impact of the loss on
equity method investment, the effective tax rate for the three
months ended September 30, 2019 was 27.7%.
For the nine months ended September 30, 2019 and 2018
Revenue and Net Revenue
Revenue increased $82.0 million, or 10.8%, to $839.5 million for
the nine months ended September 30, 2019 from $757.5 million for
the nine months ended September 30, 2018. Revenue for the nine
months ended September 30, 2019 included interest earned on
past-due Open-End loan balances of approximately $35 million from
the Q1 2019 Open-End Loss Recognition Change, offset by a higher
provision rate and the higher allowance discussed further below.
U.S. revenue increased 8.9%, driven by volume growth. Canadian
revenue increased 19.2% (23.1% on a constant currency basis), as
volume growth more than offset yield compression from negative
regulatory impacts on Single-Pay loan rates and the significant
product mix-shift to Open-End loans.
Provision for losses increased $47.3 million, or 16.3%, to
$338.3 million for the nine months ended September 30, 2019, from
$290.9 million for the nine months ended September 30, 2018,
primarily due to the Q1 2019 Open-End Loss Recognition Change. The
nine months ended September 30, 2018 included $14.6 million of
provision benefit from changes which included allowance coverage
rates whereas the nine months ended 2019 included $5.1 million of
benefit. Excluding the impact of the allowance coverage change,
provision for losses increased $37.9 million, or 12.4%, because of
the Q1 2019 Open-End Loss Recognition Change and increased earning
asset volume year-over-year as further described in "Segment
Analysis" below.
Cost of Providing Services
The total cost of providing services decreased $4.9 million, or
2.2%, to $217.9 million in the nine months ended September 30,
2019, compared to $222.8 million in the nine months ended September
30, 2018, primarily because of lower advertising costs, offset by
increased loan servicing costs on higher volume. The decline in
advertising costs was primarily the result of repositioning of our
California Installment loan portfolio in advance of regulatory
changes and mix-shift, and stability in our Canadian portfolio
following the Ontario deployment of Open-End loans in the third
quarter of 2018.
Operating Expenses
Corporate, district and other expenses increased $27.1 million,
or 28.3%, primarily as a result of $8.8 million for obtaining the
consent of our holders of the 8.25% Senior Secured Notes and our
bondholders associated with discontinuing our U.K. operations and
other related U.K. separation costs, $2.0 million of legal and
related costs as described above, $1.8 million of restructuring
costs from our reduction-in-force implemented in January 2019 and
$1.5 million of additional share-based compensation. Excluding
these aforementioned costs, corporate, district and other expenses
increased by $13.0 million, or 14.3%, primarily due to higher
professional fees associated with our second year-end for full
compliance with Sarbanes-Oxley and higher variable compensation
tied to our financial performance.
Our investment in Zibby is accounted for under the equity
method. We record our pro rata share of Zibby's income or losses in
the income statement with a corresponding adjustment to the
carrying value of our investment in "Other" on the Condensed
Consolidated Balance Sheet. Our share of estimated losses for the
nine months ended September 30, 2019 was $5.1 million, which
includes the $3.7 million of loss recognized in the second quarter
of 2019, and $1.4 million of our share of estimated losses.
Interest Expense
Interest expense decreased by $14.2 million compared to the
prior-year period, primarily due to our refinancing activities in
2018. During the third quarter of 2018, we issued $690.0 million of
8.25% Senior Secured Notes and used the proceeds from the issuance
to extinguish our $527.5 million 12.00% Senior Secured Notes and
our Non-Recourse U.S. SPV Facility. In addition, we entered into a
Non-Recourse Canada SPV Facility in the third quarter of 2018 with
a lower interest rate than our previous Non-Recourse U.S. SPV
Facility.
Provision for Income Taxes
The effective income tax rate for the nine months ended
September 30, 2019 was 27.9%, compared to (34.8%) for the nine
months ended September 30, 2018. Excluding the non-tax-deductible
loss from our equity method investment, the effective income tax
rate from continuing operations for the nine months ended September
30, 2019 was 26.6%. Excluding non-GAAP adjustments to Net income
related to the 2017 Tax Act as presented in the reconciliation of
Net Income to Adjusted Net Income, the effective income tax rate
from continuing operations for the nine months ended September 30,
2018 was 24.1%.
Segment Analysis
We report financial results for two reportable segments: the
U.S. and Canada. Following is a summary of results of operations
for the segment and period indicated:
U.S. Segment Results
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in thousands, unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
237,069
$
223,273
$
13,796
6.2
%
$
673,234
$
617,992
$
55,242
8.9
%
Provision for losses
102,997
103,256
(259
)
(0.3
)%
280,529
239,576
40,953
17.1
%
Net revenue
134,072
120,017
14,055
11.7
%
392,705
378,416
14,289
3.8
%
Advertising costs
14,186
17,632
(3,446
)
(19.5
)%
31,719
35,200
(3,481
)
(9.9
)%
Non-advertising costs of providing
services
42,636
42,280
356
0.8
%
128,866
127,719
1,147
0.9
%
Total cost of providing services
56,822
59,912
(3,090
)
(5.2
)%
160,585
162,919
(2,334
)
(1.4
)%
Gross margin
77,250
60,105
17,145
28.5
%
232,120
215,497
16,623
7.7
%
Corporate, district and other expenses
32,897
22,360
10,537
47.1
%
106,426
81,113
25,313
31.2
%
Interest expense
14,877
22,169
(7,292
)
(32.9
)%
44,246
64,931
(20,685
)
(31.9
)%
Loss on extinguishment of debt
—
69,200
(69,200
)
#
—
80,883
(80,883
)
#
Loss from equity method investment
1,384
—
1,384
#
5,132
—
5,132
#
Total operating expense
49,158
113,729
(64,571
)
(56.8
)%
155,804
226,927
(71,123
)
(31.3
)%
Segment operating income
28,092
(53,624
)
81,716
#
76,316
(11,430
)
87,746
#
Interest expense
14,877
22,169
(7,292
)
(32.9
)%
44,246
64,931
(20,685
)
(31.9
)%
Depreciation and amortization
3,390
3,536
(146
)
(4.1
)%
10,553
10,322
231
2.2
%
EBITDA
46,359
(27,919
)
74,278
#
131,115
63,823
67,292
#
Loss on extinguishment of debt
—
69,200
(69,200
)
—
80,883
(80,883
)
Restructuring and other costs
—
—
—
1,617
—
1,617
Legal and related costs
870
(1,297
)
2,167
870
(1,297
)
2,167
Other adjustments
42
(99
)
141
(206
)
(224
)
18
U.K. related costs
348
—
348
8,844
—
8,844
Share-based compensation
2,771
2,089
682
7,587
6,112
1,475
Loss from equity method investment
1,384
—
1,384
5,132
—
5,132
Adjusted EBITDA
$
51,774
$
41,974
$
9,800
23.3
%
$
154,959
$
149,297
$
5,662
3.8
%
# - Variance greater than 100% or not
meaningful.
U.S. Segment Results - For the three
months ended September 30, 2019 and 2018
Third quarter 2019 U.S. revenues increased by $13.8 million, or
6.2%, to $237.1 million, compared to the prior-year period. U.S.
revenue growth was driven by a $21.0 million, or 5.0%, increase in
gross combined loans receivable to $444.0 million at September 30,
2019, compared to $423.0 million at September 30, 2018.
Additionally, U.S. revenue for the three months ended September 30,
2019 included interest earned on past-due Open-End loan balances of
approximately $13 million from the Q1 2019 Open-End Loss
Recognition Change.
The provision for losses was consistent year-over-year despite
the increase in loan receivables. The year-over-year provision
change included incremental provision expense from the Q1 2019
Open-End Loss Recognition Change, consistent with the incremental
revenue impact. Excluding the impact of the Q1 2019 Open-End Loss
Recognition Change, provision expense declined year-over-year due
to lower sequential growth in gross loans receivable compared to
the prior year, offset by the aforementioned NCO rate increases.
U.S. gross combined loans receivable grew $35.7 million, or 8.7%,
sequentially during the third quarter of 2019, compared to
sequential growth of $55.3 million, or 15.0%, during the prior-year
period.
U.S. cost of providing services for the three months ended
September 30, 2019 was $56.8 million, a decrease of $3.1 million,
or 5.2%, compared to $59.9 million for the three months ended
September 30, 2018, primarily due to lower advertising costs
associated with repositioning of our California Installment loan
portfolio in advance of regulatory changes.
Corporate, district and other operating expenses increased $10.5
million, or 47.1%, compared to the same period in the prior year,
primarily due to $5.3 million of higher performance-based variable
compensation costs, $0.9 million related to certain litigation
matters and $0.7 million of additional share-based
compensation.
U.S. interest expense for the third quarter of 2019 decreased by
$7.3 million compared to the prior-year period, primarily due to
our refinancing activities in 2018. During the third quarter of
2018, we issued $690.0 million of 8.25% Senior Secured Notes and
used the proceeds from the issuance to extinguish our $527.5
million 12.00% Senior Secured Notes and U.S. SPV facility.
U.S. Segment Results - For the nine
months ended September 30, 2019 and 2018
For the nine months ended September 30, 2019, U.S. revenues
increased by $55.2 million, or 8.9%, to $673.2 million. U.S.
revenue growth was driven by a $21.0 million, or 5.0%, increase in
gross combined loans receivable, to $444.0 million at September 30,
2019, compared to $423.0 million at September 30, 2018.
Additionally, U.S. revenue for the nine months ended September 30,
2019 included interest earned on past-due Open-End loan balances of
approximately $30 million from the Q1 2019 Open-End Loss
Recognition Change, offset by related higher provision rate and
higher provision for losses.
The provision for losses' increase of $41.0 million, or 17.1%,
was primarily due to changes in allowance coverage in the prior
year. The nine months ended September 30, 2018 included $12.5
million of provision benefit from changes in allowance coverage
rates, whereas the nine months ended September 30, 2019 included
$1.7 million of incremental expense. Excluding the impact of the
allowance coverage change, provision for losses increased $30.1
million, or 12.0%, because of the Q1 2019 Open-End Loss Recognition
Change.
U.S. cost of providing services for the nine months ended
September 30, 2019 was $160.6 million, a decrease of $2.3 million,
or 1.4%, compared to $162.9 million for the nine months ended
September 30, 2018, primarily due to lower advertising costs
associated with repositioning our California Installment loan
portfolio in advance of regulatory changes.
Corporate, district and other operating expenses increased $25.3
million, or 31.2%, compared to the same period in the prior year,
primarily due to $8.8 million of U.K. disposition-related costs,
$7.7 million higher performance-based variable compensation costs,
$3.1 million higher professional fees and $1.6 million of
restructuring costs.
U.S. interest expense for the first nine months of 2019
decreased by $20.7 million compared to the prior-year period,
primarily due to our refinancing activities in 2018. During the
third quarter of 2018, we issued $690.0 million of 8.25% Senior
Secured Notes and used the proceeds from the issuance to extinguish
our $527.5 million 12.00% Senior Secured Notes and our U.S. SPV
facility.
Canada Segment Results
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in thousands, unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
60,195
$
46,209
$
13,986
30.3
%
$
166,269
$
139,502
$
26,767
19.2
%
Provision for losses
20,870
24,436
(3,566
)
(14.6
)%
57,733
51,346
6,387
12.4
%
Net revenue
39,325
21,773
17,552
80.6
%
108,536
88,156
20,380
23.1
%
Advertising costs
2,238
3,717
(1,479
)
(39.8
)%
5,271
9,147
(3,876
)
(42.4
)%
Non-advertising costs of providing
services
17,698
17,567
131
0.7
%
52,068
50,718
1,350
2.7
%
Total cost of providing services
19,936
21,284
(1,348
)
(6.3
)%
57,339
59,865
(2,526
)
(4.2
)%
Gross margin
19,389
489
18,900
#
51,197
28,291
22,906
81.0
%
Corporate, district and other expenses
5,768
5,135
633
12.3
%
16,617
14,791
1,826
12.3
%
Interest expense
2,487
1,234
1,253
#
7,831
1,298
6,533
#
Total operating expense
8,255
6,369
1,886
29.6
%
24,448
16,089
8,359
52.0
%
Segment operating income
11,134
(5,880
)
17,014
#
26,749
12,202
14,547
#
Interest expense
2,487
1,234
1,253
#
7,831
1,298
6,533
#
Depreciation and amortization
1,219
1,087
132
12.1
%
3,627
3,306
321
9.7
%
EBITDA
14,840
(3,559
)
18,399
#
38,207
16,806
21,401
#
Restructuring and other costs
—
—
—
135
—
135
Legal settlements
—
119
(119
)
—
119
(119
)
Other adjustments
441
50
391
297
223
74
Adjusted EBITDA
$
15,281
$
(3,390
)
$
18,671
#
$
38,639
$
17,148
$
21,491
#
# - Variance greater than 100% or not
meaningful.
Canada Segment Results - For the three
months ended September 30, 2019 and 2018
Canada revenue increased $14.0 million, or 30.3%, to $60.2
million for the three months ended September 30, 2019, from $46.2
million in the prior-year period. On a constant currency basis,
revenue increased $14.6 million, or 31.6%. Revenue growth in Canada
was impacted favorably by the significant asset growth and the
product transition from Single-Pay and Unsecured Installment loans
to Open-End loans. Additionally, Canada revenue for the three
months ended September 30, 2019 included interest earned on
past-due Open-End loan balances of approximately $2 million from
the Q1 2019 Open-End Loss Recognition Change.
Single-Pay revenue decreased $2.7 million, or 11.6%, to $20.2
million for the three months ended September 30, 2019, and
Single-Pay receivables decreased $1.0 million, or 2.8%, to $35.1
million from $36.1 million in the prior year. The decreases in
Single-Pay revenue and receivables were due to the continued
product mix shift in Canada from Single-Pay loans to Open-End loans
and by regulatory changes effective January and July 2018 that
lowered Single Pay pricing year-over-year.
Canada non-Single-Pay revenue increased $16.6 million, or 71.1%,
to $40.0 million compared to $23.4 million the same quarter a year
ago, on growth of $94.1 million, or 59.8%, in related loan
balances. The increase was primarily related to the launch of
Open-End products in Alberta and Ontario in the fourth quarter of
2017, and significant expansion of the Open-End product in Ontario
in late 2018. Additionally, as a result of the increase in Open-End
loans, ancillary revenue increased $3.8 million versus the same
quarter a year ago, primarily driven by an increase in sales of
insurance to Open-End loan customers.
The provision for losses decreased $3.6 million, or 14.6%, to
$20.9 million for the three months ended September 30, 2019,
compared to $24.4 million in the prior-year period. This decrease
included incremental provision expense from the Q1 2019 Open-End
Loss Recognition Change, consistent with the incremental revenue
impact. Excluding the impact of the Q1 2019 Open-End Loss
Recognition Change, provision expense declined year-over-year
because of lower sequential gross receivable growth and seasoning
of the Open-End loans. Total Open-End and Installment loans grew
$18.0 million sequentially during the third quarter of 2019,
compared to sequential growth of $82.7 million during the same
prior-year period. Total Canada NCO rates improved 425 bps
year-over-year due to the seasoning of Open-End loans. On a
constant currency basis, provision for losses decreased by $3.4
million, or 13.8%, compared to the prior-year period.
Canada cost of providing services for the three months ended
September 30, 2019 was $19.9 million, a decrease of $1.3 million,
or 6.3%, compared to $21.3 million for the three months ended
September 30, 2019, primarily due to lower advertising costs from
mix-shift and stability in our Canadian portfolio following the
Ontario deployment of Open-End loans in the third quarter of 2018.
There was no material impact on the cost of providing services from
exchange rate changes.
Canada operating expenses increased $1.9 million, or 29.6%, to
$8.3 million in the three months ended September 30, 2019 from $6.4
million in the prior-year period, primarily due to interest expense
on the Non-Recourse Canada SPV Facility that began in August
2018.
Canada Segment Results - For the nine
months ended September 30, 2019 and 2018
Canada revenue increased $26.8 million, or 19.2%, to $166.3
million for the nine months ended September 30, 2019 from $139.5
million in the prior-year period. On a constant currency basis,
revenue increased $32.2 million, or 23.1%. Revenue growth in Canada
was impacted favorably by the significant asset growth and product
transition from Single-Pay and Unsecured Installment loans to
Open-End loans that have a lower yield. Additionally, Canada
revenues for the nine months ended September 30, 2019 included
interest earned on past-due Open-End loan balances of approximately
$5 million from the Q1 2019 Open-End Loss Recognition Change,
offset by higher provision rate and higher provision for
losses.
Single-Pay revenue decreased $31.6 million, or 34.9%, to $58.9
million for the nine months ended September 30, 2019, and
Single-Pay receivables decreased $1.0 million, or 2.8%, to $35.1
million from $36.1 million in the prior year. The decreases in
Single-Pay revenue and receivables were due to the continued
product mix shift in Canada from Single-Pay loans to Open-End loans
and by regulatory changes effective January and July 2018 that
lowered Single Pay pricing year-over-year.
Canada non-Single-Pay revenue increased $58.4 million, or
119.0%, to $107.4 million compared to $49.0 million for the
prior-year period, on $94.1 million, or 59.8%, growth in related
loan balances. The increase was primarily related to the launch of
Open-End products in Alberta and Ontario in the fourth quarter of
2017, and significant expansion of the Open-End product in Ontario
in late 2018. As a result of the increase in Open-End loans,
ancillary revenue increased $13.1 million versus the same period a
year ago, primarily driven by an increase in sales of insurance to
Open-End loan customers.
The provision for losses increased $6.4 million, or 12.4%, to
$57.7 million for the nine months ended September 30, 2019 compared
to $51.3 million in the prior-year period primarily due to
provisioning on Open-End loans and mix shift from Single-Pay loans
and Unsecured Installment to Open-End loans. Total Open-End loans
grew by $18.1 million sequentially during the third quarter of
2019, compared to sequential growth of $87.4 million in the third
quarter of 2018. On a constant currency basis, provision for losses
increased by $8.3 million, or 16.1%, compared to the prior-year
period.
The total cost of providing services in Canada decreased $2.5
million, or 4.2%, to $57.3 million for the nine months ended
September 30, 2019 compared to $59.9 million in the prior-year
period. Advertising costs decreased by $3.9 million, or 42.4%,
primarily from mix-shift and stability in our Canadian portfolio
following the Ontario deployment of Open-End loans in the third
quarter of 2018, partially offset by an increase in non-advertising
cost of providing services of $1.4 million. There was no material
impact on the cost of providing services from exchange rate
changes.
Canada operating expenses increased $8.4 million, or 52.0%, to
$24.4 million in the nine months ended September 30, 2019 from
$16.1 million in the prior-year period primarily due to interest
expense on the Non-Recourse Canada SPV Facility that began in
August 2018.
Results of Discontinued Operations
On February 25, 2019, in accordance with the provisions of the
U.K. Insolvency Act 1986 and as approved by the boards of directors
of our U.K. subsidiaries, Curo Transatlantic Limited ("CTL") and
SRC Transatlantic Limited (collectively with CTL, “the U.K.
Subsidiaries”), insolvency practitioners from KPMG were appointed
as administrators (“Administrators”) in respect of the U.K.
Subsidiaries. The effect of the U.K. Subsidiaries’ entry into
administration was to place the management, affairs, business and
property of the U.K. Subsidiaries under the direct control of the
Administrators. Accordingly, we deconsolidated the U.K.
Subsidiaries as of February 25, 2019 and classified them as
Discontinued Operations beginning the first quarter of 2019. The
following is a summary of the financial results of the U.K.
business, which meet the criteria of Discontinued Operations and,
therefore, are excluded from our results of continuing
operations:
(in thousands, unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenue (1)
$
—
$
13,522
$
6,957
$
36,251
Provision for losses (1)
—
6,831
1,703
16,618
Net revenue
—
6,691
5,254
19,633
Cost of providing services (1)
—
3,301
1,082
9,780
Corporate, district and other (1)
—
7,566
3,806
18,012
Interest income (1)
—
(7
)
—
(19
)
Depreciation and amortization (1)
—
124
—
378
Loss on disposition (1)
—
—
39,414
—
Pre-tax loss from Discontinued
Operations
—
(4,293
)
(39,048
)
(8,518
)
Income tax expense (benefit) related to
disposition
598
139
(45,991
)
278
Net (loss) income from discontinued
operations
$
(598
)
$
(4,432
)
$
6,943
$
(8,796
)
Net (loss) income from discontinued
operations
$
(598
)
$
(4,432
)
$
6,943
$
(8,796
)
Income tax expense (benefit) related to
disposition
598
139
(45,991
)
278
Interest income
—
(7
)
—
(19
)
Depreciation and amortization
—
124
—
378
EBITDA (2)
—
(4,176
)
(39,048
)
(8,159
)
U.K. disposition, redress and related
costs
—
3,952
40,845
3,952
Other adjustments
—
(6
)
(10
)
(48
)
Adjusted EBITDA (2)
$
—
$
(230
)
$
1,787
$
(4,255
)
(1) For the nine months ended September
30, 2019, includes operations through February 25, 2019
(2) For a description of each non-GAAP
metric, see "Non-GAAP Financial Measures."
Revenue and expenses related to discontinued operations included
activity prior to the deconsolidation of the U.K. subsidiaries
effective February 25, 2019. In previously issued financial
statements, the $0.2 million and $4.3 million of Adjusted EBITDA
loss ascribed to discontinued operations for the three and nine
months ended September 30, 2018, respectively, were included in
consolidated Adjusted EBITDA. For the nine months ended September
30, 2019, "Loss on disposition" of $39.4 million included the
non-cash effect of eliminating assets and liabilities of the U.K.
Subsidiaries as of the date of deconsolidation, as well as the
effect of cumulative currency exchange rate differences on the U.S.
investment in the U.K.
In connection with the disposition of the U.K. Subsidiaries, the
U.S. entity that owned our interests in the U.K. Subsidiaries
recognized a loss on investment. This loss resulted in an estimated
U.S. federal and state income tax benefit of $46.0 million, to be
applied against future income tax obligations. In the third quarter
of 2019, we revised the estimate of our tax basis in the U.K.
Subsidiaries, resulting in a $0.6 million reduction in the income
tax benefit initially recorded in the first quarter of 2019.
CURO GROUP HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands)
September 30, 2019
(unaudited)
December 31, 2018
ASSETS
Cash
$
62,207
$
61,175
Restricted cash (includes restricted cash
of consolidated VIEs of $21,897 and $12,840 as of September 30,
2019 and December 31, 2018, respectively)
38,754
25,439
Gross loans receivable (includes loans of
consolidated VIEs of $231,533 and $148,876 as of September 30, 2019
and December 31, 2018, respectively)
657,615
571,531
Less: allowance for loan losses (includes
allowance for losses of consolidated VIEs of $25,375 and $12,688 as
of September 30, 2019 and December 31, 2018, respectively)
(108,385
)
(73,997
)
Loans receivable, net
549,230
497,534
Right of use asset - operating leases
118,260
—
Deferred income taxes
1,846
1,534
Income taxes receivable
23,966
16,741
Prepaid expenses and other
32,228
43,588
Property and equipment, net
70,381
76,750
Goodwill
120,110
119,281
Other intangibles, net of accumulated
amortization
32,666
29,784
Other
18,484
12,930
Assets of discontinued operations
—
34,861
Total Assets
$
1,068,132
$
919,617
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued liabilities
(includes accounts payable and accrued liabilities of consolidated
VIEs of $7,259 and $4,980 as of September 30, 2019 and December 31,
2018, respectively)
$
63,685
$
49,146
Deferred revenue
9,052
9,483
Lease liability - operating leases
126,048
—
Income taxes payable
—
1,579
Accrued interest (includes accrued
interest of consolidated VIEs of $777 and $831 as of September 30,
2019 and December 31, 2018, respectively)
5,625
20,904
Liability for losses on CSO lender-owned
consumer loans
10,249
12,007
Deferred rent
—
10,851
Debt (includes debt and issuance costs of
consolidated VIEs of $105,742 and $3,259 as of September 30, 2019
and $111,335 and $3,856 as of December 31, 2018, respectively)
805,407
804,140
Subordinated shareholder debt
—
2,196
Other long-term liabilities
8,594
5,800
Deferred tax liabilities
4,427
13,730
Liabilities of discontinued operations
—
8,882
Total Liabilities
$
1,033,087
$
938,718
Stockholders' Equity
Total Stockholders' Equity (Deficit)
$
35,045
$
(19,101
)
Total Liabilities and Stockholders'
Equity
$
1,068,132
$
919,617
Balance Sheet Changes - September 30, 2019 compared to
December 31, 2018
Restricted Cash - The increase in
Restricted cash from December 31, 2018 is primarily due to
increased consumer demand for loans meeting the Non-Recourse Canada
SPV Facility criteria as well as restricted cash balances related
to Revolve Finance, our new demand deposit account.
Gross Loans Receivable and Allowance for
Loan Losses - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Gross Loans Receivable and
related Allowance for Loan Losses were due to normal seasonality
trends resulting from higher customer demand and loan origination
volumes, as well as the product mix shift from Single-Pay to
Installment and Open-End loans (primarily in Canada).
Right of use asset and lease liability and
Deferred rent - Due to the adoption as of January 1, 2019 of
ASU No. 2016-02, Leases, which requires lessees to record leases on
the balance sheet and disclose key information about leasing
arrangements, we recorded a right of use asset of $118.3 million
and a lease liability of $126.0 million as of September 30,
2019.
Accrued Interest - The decrease
from December 31, 2018 is primarily due to timing of interest
payments on our 8.25% Senior Secured Notes, which are payable
semiannually, in arrears, on March 1 and September 1.
Income taxes receivable - The
increase from December 31, 2018 is primarily due to the current
income tax benefit realized from the loss on disposal of the U.K.
entities. See "Results of Discontinued Operations" section for
additional details.
Fiscal 2019 Outlook - Reconciliations
Reconciliation of Net income from continuing operations and
Diluted Earnings per Share to Adjusted Net Income and Adjusted
Diluted Earnings per share, non-GAAP measures (1)
(unaudited)
Fiscal 2019 Outlook
Year Ending December 31,
2019
(in thousands, except per share data)
Low
High
Net income from continuing
operations
$
101,500
$
111,500
Adjustments:
Non-cash rent expense and foreign currency
exchange rate impact (2)(3)
—
—
Restructuring costs
1,750
1,750
Legal and related costs
900
900
U.K. related costs
8,850
8,850
Loss from equity method investment
5,250
5,250
Share-based compensation
10,000
10,000
Intangible asset amortization
3,000
3,000
Cumulative tax effect of adjustments
(6,250
)
(6,250
)
Adjusted Net Income
$
125,000
$
135,000
Net income
$
101,500
$
111,500
Diluted Weighted Average Shares
Outstanding
45,450
47,350
Diluted Earnings per Share
$
2.23
$
2.35
Per Share impact of adjustments to Net
Income
0.52
0.50
Adjusted Diluted Earnings per
Share
$
2.75
$
2.85
Reconciliation of Net income from continuing operations to
EBITDA and Adjusted EBITDA, non-GAAP measures (1)
(unaudited)
Fiscal 2019 Outlook
Year Ending December 31,
2019
(in thousands)
Low
High
Net income from continuing
operations
$
101,500
$
111,500
Provision for income taxes
40,000
40,000
Interest expense
72,000
72,000
Depreciation and amortization
19,750
19,750
EBITDA
233,250
243,250
Non-cash rent expense and foreign currency
exchange rate impact (2)(3)
—
—
Restructuring costs
1,750
1,750
Legal and related costs
900
900
U.K. related costs
8,850
8,850
Loss from equity method investment
5,250
5,250
Share-based compensation
10,000
10,000
Adjusted EBITDA
$
260,000
$
270,000
(1) For a description of each non-GAAP
metric, see "Non-GAAP Financial Measures".
(2) We have historically excluded the
impact of non-cash interest expense from adjusted earnings metrics.
With the adoption of ASU No.2016-02, Leases, effective January 1,
2019, we anticipate the difference between GAAP-basis rent expense
and cash rent paid will grow. However, we will continue to adjust
for this difference.
(3) We have historically excluded the
impact of foreign currency translation and hedges from adjusted
earnings metrics. We do not include the impact of any hedge
settlement or realized currency gains or losses in our outlook.
About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in two
countries and powered by its fully integrated technology platform,
is a market leader by revenues in providing short-term credit to
underbanked consumers. In 1997, the Company was founded in
Riverside, California by three Wichita, Kansas childhood friends to
meet the growing consumer need for short-term loans. Their success
led to opening stores across the United States and expanding to
offer online loans and financial services across two countries.
Today, CURO combines its market expertise with a fully integrated
technology platform, omni-channel approach and advanced credit
decisioning to provide an array of short-term credit products
across all mediums. CURO operates under a number of brands
including Speedy Cash®, Rapid Cash®, Cash Money®, LendDirect®, Avío
Credit®, Opt+® and Revolve Finance®. With over 20 years of
operating experience, CURO provides financial freedom to the
underbanked.
Conference Call
CURO will host a conference call to discuss these results at
8:15 a.m. Eastern Time on Friday, October 25, 2019. The live
webcast of the call can be accessed at the CURO Investor Relations
website at http://ir.curo.com/.
You may access the call at 1-800-807-9684 (1-412-317-5415 for
international callers). Please ask to join the CURO Group Holdings
call. A replay of the conference call will be available until
November 1, 2019, at 11:15 a.m. Eastern Time. An archived version
of the webcast will be available on the CURO Investors website for
90 days. You may access the conference call replay at
1-877-344-7529 (1-412-317-0088 for international callers). The
replay access code is 10135660.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final unaudited data will be
included in the Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 2019.
Forward-Looking Statements
This press release contains forward-looking statements. These
forward-looking statements include statements related to our
expectations regarding general economic conditions and our fiscal
2019 outlook. In addition, words such as “guidance,” “estimate,”
“anticipate,” “believe,” “forecast,” “step,” “plan,” “predict,”
“focused,” “project,” “is likely,” “expect,” “intend,” “should,”
“will,” “confident,” variations of such words and similar
expressions are intended to identify forward-looking statements.
Our ability to achieve these forward-looking statements is based on
certain assumptions and judgments, including our ability to execute
on our business strategy and our ability to accurately predict our
future financial results. These assumptions and judgments may prove
to be inaccurate in the future. These forward-looking statements
are not guarantees of future performance and involve known and
unknown risks and uncertainties that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence.
There are important factors both within and outside of our control
that could cause our actual results to differ materially from those
in the forward-looking statements. These factors include our level
of indebtedness; errors in our internal forecasts; our dependence
on third-party lenders to provide the cash we need to fund our
loans and our ability to affordably access third-party financing;
actions of regulators and the negative impact of those actions on
our business; our ability to protect our proprietary technology and
analytics and keep up with that of our competitors; disruption of
our information technology systems that adversely affect our
business operations; ineffective pricing of the credit risk of our
prospective or existing customers; inaccurate information supplied
by customers or third parties would could lead to errors in judging
customers’ qualifications to receive loans; improper disclosure of
customer personal data; failure or third parties who provide
products, services or support to us; any failure of
third-party-lenders upon whom we rely to conduct business in
certain states; disruption to our relationships with banks and
other third-part electronic payment solutions providers; disruption
caused by employee or third-party theft and errors in our stores as
well as other factors discussed in our filings with the Securities
and Exchange Commission. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking
statements as a prediction of actual future results. We undertake
no obligation to update, amend or clarify any forward-looking
statement for any reason.
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity
with U.S. GAAP, we provide certain “non-GAAP financial measures,”
including:
- Adjusted Net Income and Adjusted Earnings Per Share, or the
Adjusted Earnings Measures (net income from continuing operations
plus or minus gain (loss) on extinguishment of debt, restructuring
and other costs, loss from equity method investment, goodwill and
intangible asset impairments, certain legal settlements,
transaction-related costs, share-based compensation, intangible
asset amortization and cumulative tax effect of adjustments, on a
total and per share basis);
- EBITDA (earnings before interest, income taxes, depreciation
and amortization);
- Adjusted EBITDA (EBITDA plus or minus certain non-cash and
other adjusting items); and
- Gross Combined Loans Receivable (includes loans originated by
third-party lenders through CSO programs which are not included in
the Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information
is meaningful and useful in understanding the activities and
business metrics of the Company's operations. We believe that these
non-GAAP financial measures reflect an additional way of viewing
aspects of the business that, when viewed with the Company's U.S.
GAAP results, provide a more complete understanding of factors and
trends affecting the business.
We believe that investors regularly rely on non-GAAP financial
measures, such as Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA, to assess operating performance and
that such measures may highlight trends in the business that may
not otherwise be apparent when relying on financial measures
calculated in accordance with U.S. GAAP. In addition, we believe
that the adjustments shown above are useful to investors in order
to allow them to compare our financial results during the periods
shown without the effect of each of these income or expense items.
In addition, we believe that Adjusted Net Income, Adjusted Earnings
per Share, EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of public companies in our industry, many of which
present Adjusted Net Income, Adjusted Earnings per Share, EBITDA
and/or Adjusted EBITDA when reporting their results.
In addition to reporting loans receivable information in
accordance with U.S. GAAP, we provide Gross Combined Loans
Receivable consisting of owned loans receivable plus loans
originated by third-party lenders through the CSO programs, which
we guarantee but do not include in the Consolidated Financial
Statements. Management believes this analysis provides investors
with important information needed to evaluate overall lending
performance.
We provide non-GAAP financial information for informational
purposes and to enhance understanding of the U.S. GAAP Consolidated
Financial Statements. Adjusted Net Income, Adjusted Earnings per
Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable
should not be considered as alternatives to income from continuing
operations, segment operating income, or any other performance
measure derived in accordance with U.S. GAAP, or as an alternative
to cash flows from operating activities or any other liquidity
measure derived in accordance with U.S. GAAP. Readers should
consider the information in addition to, but not instead of or
superior to, the financial statements prepared in accordance with
U.S. GAAP. This non-GAAP financial information may be determined or
calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial
Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA Measures have limitations as analytical tools, and
you should not consider these measures in isolation or as a
substitute for analysis of our income or cash flows as reported
under U.S. GAAP. Some of these limitations are:
- they do not include cash expenditures or future requirements
for capital expenditures or contractual commitments;
- they do not include changes in, or cash requirements for,
working capital needs;
- they do not include the interest expense, or the cash
requirements necessary to service interest or principal payments on
debt;
- depreciation and amortization are non-cash expense items
reported in the statements of cash flows; and
- other companies in our industry may calculate these measures
differently, limiting their usefulness as comparative
measures.
We calculate Adjusted Earnings per Share utilizing diluted
shares outstanding at year-end. If the Company records a loss from
continuing operations under U.S. GAAP, shares outstanding utilized
to calculate Diluted Earnings per Share from continuing operations
are equivalent to basic shares outstanding. Shares outstanding
utilized to calculate Adjusted Earnings per Share from continuing
operations reflect the number of diluted shares the Company would
have reported if reporting net income from continuing operations
under U.S. GAAP.
As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are
not included in the consolidated financial statements but from
which we earn revenue and for which we provide a guarantee to the
lender. Management believes this analysis provides investors with
important information needed to evaluate overall lending
performance.
We evaluate stores based on revenue per store, provision for
losses at each store and store-level EBITDA, with consideration
given to the length of time a store has been open and its
geographic location. We monitor newer stores for their progress to
profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA are used by investors to analyze
operating performance and to evaluate our ability to incur and
service debt and the capacity for making capital expenditures.
Adjusted EBITDA is also useful to investors to help assess our
estimated enterprise value. The computation of Adjusted EBITDA as
presented in this release may differ from the computation of
similarly-titled measures provided by other companies.
(CURO-NWS)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191024006010/en/
Investor Relations: Roger Dean Executive Vice President and
Chief Financial Officer Phone: 844-200-0342 Email: IR@curo.com Or
Global IR Group Gar Jackson, Phone: 949-873-2789 Email:
gar@globalirgroup.com
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