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 (in thousands, unaudited):
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U.S. Segment Results
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2019
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2018
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Change $
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Change %
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2019
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2018
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Change $
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Change %
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Revenue
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$
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237,069
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$
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223,273
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$
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13,796
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6.2
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%
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$
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673,234
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$
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617,992
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$
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55,242
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8.9
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%
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Provision for losses
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102,997
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103,256
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(259
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)
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(0.3
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)%
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280,529
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239,576
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40,953
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17.1
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%
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Net revenue
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134,072
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120,017
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14,055
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11.7
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%
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392,705
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378,416
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14,289
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3.8
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%
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Advertising costs
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14,186
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17,632
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(3,446
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)
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(19.5
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)%
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31,719
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35,200
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(3,481
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)
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(9.9
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)%
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Non-advertising costs of providing services
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42,636
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42,280
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356
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0.8
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%
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128,866
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127,719
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|
1,147
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0.9
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%
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Total cost of providing services
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56,822
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59,912
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(3,090
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)
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(5.2
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)%
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160,585
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162,919
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(2,334
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)
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(1.4
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)%
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Gross margin
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77,250
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60,105
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17,145
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28.5
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%
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232,120
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215,497
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16,623
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7.7
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%
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Corporate, district and other expenses
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32,897
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22,360
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10,537
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47.1
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%
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106,426
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81,113
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25,313
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31.2
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%
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Interest expense
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14,877
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22,169
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(7,292
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)
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(32.9
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)%
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44,246
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64,931
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(20,685
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)
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(31.9
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)%
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Loss on extinguishment of debt
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—
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69,200
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(69,200
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)
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#
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—
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80,883
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(80,883
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)
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#
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Loss from equity method investment
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1,384
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—
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1,384
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#
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5,132
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—
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5,132
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#
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Total operating expense
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49,158
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113,729
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(64,571
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)
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(56.8
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)%
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155,804
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226,927
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(71,123
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)
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(31.3
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)%
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Segment operating income (loss)
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28,092
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(53,624
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)
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81,716
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#
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76,316
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(11,430
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)
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87,746
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#
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Interest expense
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14,877
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22,169
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(7,292
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)
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(32.9
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)%
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44,246
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64,931
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(20,685
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)
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(31.9
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)%
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Depreciation and amortization
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3,390
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3,536
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(146
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)
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(4.1
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)%
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10,553
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10,322
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|
231
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2.2
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%
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EBITDA
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46,359
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(27,919
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)
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74,278
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#
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131,115
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63,823
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67,292
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#
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Loss on extinguishment of debt
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—
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69,200
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(69,200
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)
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—
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80,883
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(80,883
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)
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Restructuring costs
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—
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—
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—
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1,617
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—
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1,617
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Legal and related costs
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870
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(1,297
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)
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2,167
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870
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(1,297
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)
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2,167
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Other adjustments
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42
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(99
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)
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141
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(206
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)
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(224
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)
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18
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U.K. related costs
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348
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—
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348
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8,844
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—
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8,844
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Share-based compensation
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2,771
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2,089
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682
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7,587
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6,112
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1,475
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Loss from equity method investment
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1,384
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—
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1,384
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5,132
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—
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5,132
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Adjusted EBITDA
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$
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51,774
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$
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41,974
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$
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9,800
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23.3
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%
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$
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154,959
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$
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149,297
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$
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5,662
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3.8
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%
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# - Variance greater than 100% or not meaningful.
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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 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.
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Canada Segment Results
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2019
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2018
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Change $
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Change %
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2019
|
2018
|
Change $
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Change %
|
|
Revenue
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$
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60,195
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|
$
|
46,209
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$
|
13,986
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|
30.3
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%
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$
|
166,269
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$
|
139,502
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$
|
26,767
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|
19.2
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%
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Provision for losses
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20,870
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|
24,436
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(3,566
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)
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(14.6
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)%
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|
57,733
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|
51,346
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|
6,387
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|
12.4
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%
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|
Net revenue
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39,325
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|
21,773
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|
17,552
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|
80.6
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%
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|
108,536
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|
88,156
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|
20,380
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|
23.1
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%
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Advertising costs
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2,238
|
|
3,717
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(1,479
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)
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(39.8
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)%
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|
5,271
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|
9,147
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(3,876
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)
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(42.4
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)%
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Non-advertising costs of providing services
|
17,698
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|
17,567
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|
131
|
|
0.7
|
%
|
|
52,068
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|
50,718
|
|
1,350
|
|
2.7
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%
|
|
Total cost of providing services
|
19,936
|
|
21,284
|
|
(1,348
|
)
|
(6.3
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)%
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|
57,339
|
|
59,865
|
|
(2,526
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)
|
(4.2
|
)%
|
|
Gross margin
|
19,389
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|
489
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|
18,900
|
|
#
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|
|
51,197
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|
28,291
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|
22,906
|
|
81.0
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%
|
|
Corporate, district and other expenses
|
5,768
|
|
5,135
|
|
633
|
|
12.3
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%
|
|
16,617
|
|
14,791
|
|
1,826
|
|
12.3
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%
|
|
Interest expense
|
2,487
|
|
1,234
|
|
1,253
|
|
#
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|
7,831
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|
1,298
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|
6,533
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|
#
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|
Total operating expense
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8,255
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|
6,369
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|
1,886
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|
29.6
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%
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|
24,448
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|
16,089
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|
8,359
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|
52.0
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%
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|
Segment operating income (loss)
|
11,134
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|
(5,880
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)
|
17,014
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|
#
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|
26,749
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|
12,202
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|
14,547
|
|
#
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|
|
Interest expense
|
2,487
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|
1,234
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|
1,253
|
|
#
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|
|
7,831
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|
1,298
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|
6,533
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|
#
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Depreciation and amortization
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1,219
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|
1,087
|
|
132
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|
12.1
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%
|
|
3,627
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|
3,306
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|
321
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|
9.7
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%
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|
EBITDA
|
14,840
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(3,559
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)
|
18,399
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|
#
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|
|
38,207
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|
16,806
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|
21,401
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|
#
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Restructuring costs
|
—
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|
—
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|
—
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|
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|
|
135
|
|
—
|
|
135
|
|
|
|
Legal and related costs
|
—
|
|
119
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|
(119
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)
|
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|
|
—
|
|
119
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|
(119
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)
|
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Other adjustments
|
441
|
|
50
|
|
391
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|
|
|
297
|
|
223
|
|
74
|
|
|
|
Adjusted EBITDA
|
$
|
15,281
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|
$
|
(3,390
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)
|
$
|
18,671
|
|
#
|
|
|
$
|
38,639
|
|
$
|
17,148
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|
$
|
21,491
|
|
#
|
|
|
# - Change greater than 100% or not meaningful.
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|
|
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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.
Supplemental Non-GAAP Financial Information
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, certain legal and related costs, loss from equity method investment, goodwill and intangible asset impairments, certain costs related to the disposition of U.K., 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 our Condensed 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 offer another way to view aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our 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 below 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 Condensed 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 our U.S. GAAP Condensed 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:
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•
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they do not include cash expenditures or future requirements for capital expenditures or contractual commitments;
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•
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they do not include changes in, or cash requirements for, working capital needs;
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•
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they do not include the interest expense, or the cash requirements necessary to service interest or principal payments on debt;
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•
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depreciation and amortization are non-cash expense items reported in the statements of cash flows; and
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•
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other companies in our industry may calculate these measures differently, limiting their usefulness as comparative measures.
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We calculate Adjusted Earnings per Share utilizing diluted shares outstanding at year-end. If we record a loss from continuing operations under US 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 we would have reported if reporting net income from continuing operations under US GAAP.
As noted above, Gross Combined Loans Receivable includes loans originated by third-party lenders through CSO programs which are not included in the Condensed 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 our 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 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 Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.
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 (in thousands, except per share data, unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2019
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2018
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Change $
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Change %
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2019
|
2018
|
Change $
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Change %
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Net income (loss) from continuing operations
|
$
|
27,987
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$
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(42,590
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)
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$
|
70,577
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#
|
|
$
|
74,327
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$
|
1,041
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$
|
73,286
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#
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Adjustments:
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Loss on extinguishment of debt (1)
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—
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72,165
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—
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83,848
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Restructuring costs (2)
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—
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—
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1,752
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—
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Legal and related costs (3)
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870
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(1,178
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)
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870
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(1,178
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)
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U.K. related costs (4)
|
348
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—
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8,844
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—
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Loss from equity method investment (5)
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1,384
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—
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5,132
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—
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Share-based compensation (6)
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2,771
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2,089
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7,587
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6,112
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Intangible asset amortization
|
751
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714
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2,308
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2,017
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Impact of tax law changes (7)
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—
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(600
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)
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—
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1,200
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Cumulative tax effect of adjustments
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(1,232
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)
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(19,185
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)
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(5,554
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)
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(23,579
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)
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Adjusted Net Income
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$
|
32,879
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$
|
11,415
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$
|
21,464
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#
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$
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95,266
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$
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69,461
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$
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25,805
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37.2
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%
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Net income (loss) from continuing operations
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$
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27,987
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$
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(42,590
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)
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$
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74,327
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$
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1,041
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Diluted Weighted Average Shares Outstanding
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46,010
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45,853
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46,887
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48,061
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Adjusted Diluted Average Shares Outstanding
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46,010
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48,352
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46,887
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48,061
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Diluted Earnings per Share from continuing operations
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$
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0.61
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$
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(0.93
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)
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$
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1.54
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#
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$
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1.59
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$
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0.03
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$
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1.56
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#
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Per Share impact of adjustments to Net Income
|
0.10
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1.17
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|
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|
0.44
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|
1.42
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Adjusted Diluted Earnings per Share
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$
|
0.71
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$
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0.24
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$
|
0.47
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#
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$
|
2.03
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$
|
1.45
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$
|
0.58
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40.0
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%
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Reconciliation of Net income (loss) from continuing operations to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2019
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2018
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Change $
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Change %
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2019
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2018
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Change $
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Change %
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Net income (loss) from continuing operations
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$
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27,987
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$
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(42,590
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)
|
$
|
70,577
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#
|
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$
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74,327
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$
|
1,041
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$
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73,286
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#
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Provision for income taxes
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11,239
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(16,914
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)
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28,153
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#
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28,738
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(269
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)
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29,007
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#
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Interest expense
|
17,364
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23,403
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(6,039
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)
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(25.8
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)%
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52,077
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66,229
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(14,152
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)
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(21.4
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)%
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Depreciation and amortization
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4,609
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4,623
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(14
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)
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(0.3
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)%
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14,180
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13,628
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|
552
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4.1
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%
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EBITDA
|
61,199
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(31,478
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)
|
92,677
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#
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|
169,322
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80,629
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|
88,693
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|
#
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Loss on extinguishment of debt (1)
|
—
|
|
69,200
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|
|
|
|
|
—
|
|
80,883
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|
|
|
|
|
Restructuring costs (2)
|
—
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|
—
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|
|
|
|
|
1,752
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|
—
|
|
|
|
|
|
Legal and related costs (3)
|
870
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|
(1,178
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)
|
|
|
|
|
870
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|
(1,178
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)
|
|
|
|
|
U.K. related costs (4)
|
348
|
|
—
|
|
|
|
|
|
8,844
|
|
—
|
|
|
|
|
|
Loss from equity method investment (5)
|
1,384
|
|
—
|
|
|
|
|
|
5,132
|
|
—
|
|
|
|
|
|
Share-based compensation (6)
|
2,771
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|
2,089
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|
|
|
|
|
7,587
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|
6,112
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|
|
|
|
|
Other adjustments (8)
|
483
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|
(49
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)
|
|
|
|
|
91
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|
(1
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)
|
|
|
|
|
Adjusted EBITDA
|
$
|
67,055
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|
$
|
38,584
|
|
$
|
28,471
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|
73.8
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%
|
|
$
|
193,598
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|
$
|
166,445
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|
$
|
27,153
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|
16.3
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%
|
|
Adjusted EBITDA Margin
|
22.6
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%
|
14.3
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%
|
|
|
|
23.1
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%
|
22.0
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%
|
|
|
|
|
|
|
|
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(1)
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For the nine months ended September 30, 2018, the $80.9 million of loss on extinguishment of debt is comprised of (i) $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 (ii) $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.
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(2)
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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.
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(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 (i) 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 (ii) 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.
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(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.
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(5)
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The Loss from equity method investment for the nine months ended September 30, 2019 of $5.1 million includes (i) our share of the estimated GAAP net loss of Zibby and (ii) 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 42.3% of the outstanding shares of Zibby on a fully diluted basis.
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(6)
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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.
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(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.
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(8)
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Other adjustments include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense.
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Currency Information
We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.
Constant Currency Analysis
We have operations in the U.S. and Canada. In the three months ended September 30, 2019 and 2018, 20.2% and 17.1%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.
Three Months Ended September 30, 2019 and 2018
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Average Exchange Rates
|
|
|
|
|
Three Months Ended September 30,
|
|
Change
|
|
|
2019
|
2018
|
|
$
|
%
|
|
Canadian Dollar
|
$
|
0.7576
|
|
$
|
0.7652
|
|
|
|
($0.0076
|
)
|
(1.0
|
)%
|
Nine Months Ended September 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Exchange Rates
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
|
|
2019
|
2018
|
|
$
|
%
|
|
Canadian Dollar
|
$
|
0.7526
|
|
$
|
0.7771
|
|
|
|
($0.0245
|
)
|
(3.2
|
)%
|
The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
The revenues and gross margin below during the three months ended September 30, 2019 were calculated using the actual average exchange rate during the three months ended September 30, 2018 (in thousands, unaudited).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
Canada – constant currency basis:
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
60,805
|
|
|
$
|
46,209
|
|
|
$
|
14,596
|
|
|
31.6
|
%
|
|
Gross Margin
|
|
19,597
|
|
|
489
|
|
|
19,108
|
|
|
#
|
|
|
# - variance greater than 100% or not meaningful
|
The revenues and gross margin below during the nine months ended September 30, 2019 were calculated using the actual average exchange rate during the nine months ended September 30, 2018 (in thousands, unaudited).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
|
|
|
2019
|
|
2018
|
|
$
|
|
%
|
|
|
Canada – constant currency basis:
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
171,664
|
|
|
$
|
139,502
|
|
|
$
|
32,162
|
|
|
23.1
|
%
|
|
|
Gross Margin
|
|
52,861
|
|
|
28,291
|
|
|
24,570
|
|
|
86.8
|
%
|
|
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, our Senior Revolver, our Cash Money Revolving Credit Facility, funds from third-party lenders under our CSO programs, and our Non-Recourse Canada SPV Facility (defined below). During August 2018, we issued $690.0 million 8.25% Senior Secured Notes due September 2025 ("8.25% Senior Secured Notes") (i) to redeem the outstanding 12.00% Senior Secured Notes due 2022 of CFTC, (ii) to repay a portion of the outstanding indebtedness under the five-year revolving credit facility of CURO Receivables Finance I, LLC, our wholly-owned subsidiary, which consists of a term loan and revolving borrowing capacity, (iii) for general corporate purposes and (iv) to pay fees, expenses, premiums and accrued interest in connection with the foregoing.
As of September 30, 2019, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures, meet our debt obligations, and fund our share repurchase program. Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable.
Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers which would reduce cash outflow requirements while increasing cash inflows through loan repayments to the extent we experience any short-term or long-term funding shortfalls. We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements and reduce our capital spending in order to generate additional liquidity. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.
Borrowings
Our debt consisted of the following as of September 30, 2019 and December 31, 2018 (net of deferred financing costs) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
December 31,
|
|
|
2019
|
2018
|
|
8.25% Senior Secured Notes (due 2025)
|
$
|
677,924
|
|
$
|
676,661
|
|
|
Non-Recourse Canada SPV Facility
|
102,483
|
|
107,479
|
|
|
Senior Revolver
|
25,000
|
|
20,000
|
|
|
Debt
|
$
|
805,407
|
|
$
|
804,140
|
|
Credit Facilities and Other Resources
8.25% Senior Secured Notes
As noted above, we issued our 8.25% Senior Secured Notes in August 2018. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year. In connection with the 8.25% Senior Secured Notes, we capitalized financing costs of $12.9 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Debt, and is being amortized over the term of the 8.25% Senior Secured Notes and included as a component of interest expense.
12.00% Senior Secured Notes
In February and November 2017, CFTC issued $470.0 million and $135.0 million, respectively, of 12.00% Senior Secured Notes ("12.00% Senior Secured Notes"). Interest on the 12.00% Senior Secured Notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The February 2017 issuance refinanced similar notes that were nearing maturity. The extinguishment of the existing notes resulted in a pretax loss of $80.9 million during September 2018. In connection with these 2017 debt issuances we capitalized financing costs of $18.3 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Debt, and is being amortized over the term of the 12.00% Senior Secured Notes as a component of interest expense.
On March 7, 2018, CFTC redeemed $77.5 million of its 12.00% Senior Secured Notes using a portion of the proceeds from our initial public offering as required by the underlying indentures (the transaction whereby the 12.00% Senior Secured Notes were partially redeemed, the “Redemption”) at a price equal to 112.00% of the principal amount of the 12.00% Senior Secured Notes redeemed, plus accrued and unpaid interest paid thereon to the date of Redemption. Following the Redemption, $527.5 million of the original outstanding principal amount of the 12.00% Senior Secured Notes remain outstanding. The Redemption was conducted pursuant to the Indenture governing the 12.00% Senior Secured Notes (the “Indenture”), dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent.
The remainder of the 12.00% Senior Secured Notes were extinguished effective September 7, 2018 as a result of the issuance of the 8.25% Senior Secured Notes as described above.
Non-Recourse U.S. SPV Facility
In November 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the “SPV Borrower”) and a wholly-owned subsidiary, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that provided for an $80.0 million term loan and $70.0 million of revolving borrowing capacity that could expand over time (“Non-Recourse U.S. SPV Facility”). The loans bore interest at an annual rate of up to 12.00% plus the greater of (i) 1.0% per annum and (ii) three-month LIBOR. The SPV Borrower also pays a 0.50% per annum fee on the unused portion of the commitments. In connection with this facility, the capitalized financing costs at the time of extinguishment, as discussed below, were $5.3 million, net of amortization. These capitalized financing costs were included in the Condensed Consolidated Balance Sheet as a component of "Debt" and were amortized over the term of the Non-Recourse U.S. SPV Facility. During September 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the revolver's balance of $42.4 million.
On October 11, 2018, we extinguished the remaining term loan balance of $80.0 million. We made the final termination payment of $2.7 million on October 26, 2018, resulting in a loss on the extinguishment of debt of $9.7 million for the quarter ended December 31, 2018.
Non-Recourse Canada SPV Facility
On August 2, 2018, CURO Canada Receivables Limited Partnership, a newly created, bankruptcy-remote special purpose vehicle (the “Canada SPV Borrower”) and a wholly-owned subsidiary, entered into a four-year revolving credit facility with Waterfall Asset Management, LLC that provides for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million (“Non-Recourse Canada SPV Facility”). The loans bear interest at an annual rate of 6.75% plus the three-month CDOR. As of September 30, 2019, outstanding borrowings under the Non-Recourse Canada SPV Facility were $102.5 million, net of deferred financing costs of $3.3 million.
Senior Revolver
On September 1, 2017, we closed on a $25.0 million Senior Secured Revolving Loan Facility (the "Senior Revolver"). In February 2018, the Senior Revolver capacity was increased to $29.0 million. In November 2018, the Senior Revolver capacity was increased to $50.0 million as permitted by the Indenture to the Senior Secured Notes. The Senior Revolver is now syndicated with participation by four banks. The negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for our 8.25% Senior Secured Notes. We believe this facility complements our other financing sources, while providing seasonal short-term liquidity. Under the Senior Revolver, there is $50.0 million maximum availability, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The Senior Revolver accrues interest at the one-month LIBOR (which may not be negative) plus 5% per annum and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all of our subsidiaries that guarantee our 8.25% Senior Secured Notes and is secured by a lien on substantially all of our assets and the guarantor subsidiaries that is senior to the lien securing our 8.25% Senior Secured Notes. The Senior Revolver had an outstanding balance of $25.0 million at September 30, 2019.
In connection with this facility we capitalized financing costs of $0.1 million, the balance of which we included in the Condensed Consolidated Balance Sheets as a component of “Other assets,” and are being amortized over the term of the facility and included as a component of interest expense.
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., one of our Canadian subsidiaries, maintains a C$10 million revolving credit facility with Royal Bank of Canada. The Cash Money Revolving Credit Facility provides short-term liquidity required to meet the working capital needs of our Canadian operations. Aggregate draws under the revolving credit facility are limited to the lesser of: (i) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and (ii) C$10 million. As of September 30, 2019 and December 31, 2018, the borrowing capacity under our revolving credit facility was reduced by C$0.3 million in stand-by-letters of credit.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Money’s assets and contains various covenants that include, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at September 30, 2019 and December 31, 2018.
Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):
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Nine Months Ended September 30,
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2019
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2018
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Net cash provided by continuing operating activities
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$
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464,293
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$
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357,079
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Net cash used in continuing investing activities
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(391,188
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)
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(421,423
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Net cash (used in) provided by continuing financing activities
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(58,488
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)
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90,449
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Continuing Operating Activities
Net cash provided by continuing operating activities for the nine months ended September 30, 2019 was $464.3 million, primarily attributable to net income from continuing operations of $74.3 million, the effect of non-cash reconciling items of $364.3 million, which includes provision for loan losses of $338.3 million, and changes in our operating assets and liabilities which provided $25.6 million.
Net cash provided by continuing operating activities for the nine months ended September 30, 2018 was $357.1 million. Contributing to current year net cash provided by continuing operating activities non-cash reconciling items, such as depreciation and amortization, provision for loan losses and loss on extinguishment of debt for a total of $398.1 million. Contributions from non-cash reconciling items were offset by changes in our operating assets and liabilities of $42.1 million.
Continuing Investing Activities
Net cash used in continuing investing activities for the nine months ended September 30, 2019 was $391.2 million, primarily reflecting the net origination of loans of $374.4 million. In addition, we used cash to purchase $8.7 million of property and equipment, including software licenses and $8.2 million of additional investment in Zibby.
Net cash used in continuing investing activities for the nine months ended September 30, 2018 was $421.4 million, primarily reflecting the net origination of loans of $412.4 million. In addition, we used cash to purchase $8.0 million of property and equipment, including software licenses, and to purchase $1.0 million of Zibby preferred shares.
Origination of loans will fluctuate from period-to-period, depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically occurs during the first quarter of the year and is driven by income tax refunds in the U.S. Typically, customers will use the proceeds from income tax refunds to pay outstanding loan balances, resulting in an increase in our net cash balances and a decrease in our consumer loans receivable balances. Consumer loans receivable balances typically reflect growth during the remainder of the year.
Continuing Financing Activities
Net cash used in continuing financing activities for the nine months ended September 30, 2019 was $58.5 million, primarily due to (i) $27.1 million of cash used to repurchase 2,000,000 shares of our common stock, at a price of $13.55 per share, owned by FFL and (ii) $25.1 million of cash used to repurchase 2,089,644 shares of our common stock under the share repurchase program which began during the second quarter of 2019.
Net cash provided by continuing financing activities for the nine months ended September 30, 2018 was $90.4 million. During the quarter, we extinguished $527.5 million of our 12.00% Senior Secured Notes from the issuance of our 8.25% Senior Secured Notes of $690.0 million. As part of the extinguishment, we paid $63.4 million of call premium. We also entered into a Non-Recourse Canada SPV facility during the quarter, which provided $89.9 million of proceeds and was offset by net payments on our U.S. SPV facility of $44.6 million. Net proceeds from the issuance of common stock and proceeds from the exercise of stock options were $12.0 million as of September 30, 2018.
Contractual Obligations
There have been no significant developments with respect to our contractual obligations since December 31, 2018, as described in our 2018 Form 10-K.
Regulatory Environment and Compliance
There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2018, as described in our 2018 Form 10-K except for the following:
California Assembly Bill 539
On September 13, 2019, the California legislature passed Assembly Bill 539 which imposes an interest rate cap on all consumer loans between $2,500 and $10,000 of 36%, plus the Federal Funds Rate. On October 10, 2019, Governor Newsom signed the bill into law and it is scheduled to become effective on January 1, 2020. Revenue from California Unsecured and Secured Installment loans amounted to 11.8% and 13.0% of total revenue from continuing operations for the trailing three and 12 months ended, respectively, September 30, 2019. As of September 30, 2019, California Unsecured and Secured Installment gross loans receivable were $86.4 million and $41.4 million, respectively. While we continue to optimize our installment loan portfolio in California as a result of this bill, we continue to evaluate the effect on our results of operations and financial condition and alternatives available to service customers in the California market. Refer to “Risk Factors” in Item 1A. of Part II of this Form 10-Q for additional information regarding the impact of this bill to our business.
California Consumer Privacy Act
In 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020. CCPA broadens consumer rights with respect to personal information, imposing expanded obligations to disclose the categories and uses of personal information a business collects, providing consumers a right to access that information, a right to opt out of the sale of personal information and the right to request that a business delete personal information about the consumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the costs of data breach litigation. CCPA has been subject to a handful of amendments, of which AB25 is most impactful to us. Although AB25 sunsets January 2021, it narrows the definition of who constitutes a consumer, thereby excluding employees from CCPA rights other than notice and a private right of action for data breach. The State Attorney General has proposed regulations to help interpret the CCPA; final adoption is expected in February 2020. A potential ballot initiative may have additional impact should it make it to the polls in November 2020. Despite amendments and regulations, the CCPA remains ambiguous in many regards, and we anticipate further amendments both for CCPA and specifically addressing employee data next year. Other states and possibly the federal government may adopt laws similar to the CCPA. While it is too early to know its full impact, these developments could ultimately result in the imposition of requirements on CURO and other consumer financial service providers that could increases costs or otherwise adversely affect our business.
British Columbia Business Practices and Consumer Amendment Act
Effective January 1, 2017, the British Columbia Ministry of Public Safety and Solicitor General (the "Ministry") reduced the total cost of borrowing from C$23 per C$100 lent to C$17 per C$100 lent. A further reduction to C$15 per C$100 lent came into effect on September 1, 2018. On February 26, 2019, the Minister of Public Safety and Solicitor General introduced in Parliament Bill 7 titled “Business Practices and Consumer Amendment Act." This bill received Royal Assent on May 16, 2019 and became law. There are no material changes to our current operations as a result of this legislation. The bill primarily allows the Ministry to (i) define a high cost credit product and (ii) require licensing and consumer protection oversight. It also authorizes the Ministry to prescribe regulations regarding high cost credit products including a cooling off period between loans, cost/optional services disclosure requirements, and prohibition of concurrent loan products. It is too early to predict the outcome of the regulations setting process and its impact on our operations.
CFPB Rulemaking Update
In February 2019, the CFPB issued two notices of proposed rulemaking proposing (i) to delay the August 19, 2019 compliance date for the so-called "Mandatory Underwriting Provisions" of the 2017 Final Payday, Vehicle Title, and Certain High-Cost Installment Loans (the "2017 Final Rule") Rule to November 19, 2020 and (ii) to rescind such Mandatory Underwriting Provisions (the “2019 Proposed Rule”). The CFPB issued a final rule on June 6, 2019 delaying the compliance date for the Mandatory Underwriting Provisions of the 2017 Final Rule to November 19, 2020. The Mandatory Underwriting Provisions which the 2019 Proposed Rule would rescind, which are still under consideration include: (i) a provision that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including our payday and vehicle title loans with a term of 45 days or less, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) a provision that prescribes mandatory underwriting requirements for making this ability-to-repay determination; (iii) a provision that exempts certain loans from the mandatory underwriting requirements; and (iv) a provision that establishes related definitions, reporting, and recordkeeping requirements. The 2017 Final Rule is stayed, however, based on an order entered August 6, 2019 by the Western District of Texas, Austin Division (the "Court Order"). The parties in the litigation are required to file a Joint Status Report with the court no later than December 6, 2019.
The compliance date for the "Payment Provision" of the 2017 Final Rule was August 19, 2019, but is also currently stayed pursuant to the Court Order. Under the proposed "Payment Provisions":
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If two consecutive attempts to collect money from a particular account of the borrower, made through any channel (e.g., paper check, ACH, prepaid card) are returned for insufficient funds, the lender cannot make any further attempts to collect from such account unless the borrower has provided a new and specific authorization for additional payment transfers. The 2017 Final Rule contains specific requirements and conditions for the authorization. While the CFPB has explained that these provisions are designed to limit bank penalty fees to which consumers may be subject, and while banks do not charge penalty fees on debit card authorization requests, the 2017 Final Rule nevertheless treats card authorization requests as payment attempts subject to these limitations.
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A lender generally must give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumer’s checking, savings, or prepaid account. The notice must include information such as the date of the payment request, payment channel and payment amount (broken down by principal, interest, fees, and other charges), as well as additional information for “unusual attempts,” such as when the payment is for a different amount than the regular payment, initiated on a date other than the date of a regularly scheduled payment or initiated in a different channel that the immediately preceding payment attempt. A lender must also provide the borrower with a "consumer rights notice" in a prescribed form after two consecutive failed payment attempts.
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The CFPB has indicated it has received a formal request to revisit the treatment of debit cards under the Payment Provisions and intends to examine the Payment Provisions further. If the CFPB determines that further action is warranted, it may commence a separate rulemaking initiative.
CFPB Supervision and Examination: The CFPB has supervisory powers over many providers of consumer financial products and services, including explicit authority to examine (and require registration) of payday lenders. The CFPB released its Supervision and Examination Manual, which includes a section on Short-Term, Small-Dollar Lending Procedures, and began field examinations of industry participants in 2012. The CFPB commenced its first supervisory examination of us in October 2014. The scope of the CFPB’s examination included a review of our Compliance Management System, our Short-Term Small Dollar lending procedures, and our compliance with Federal consumer financial protection laws. The 2014 examination had no material impact on our financial condition or results of operations, and we received the final CFPB Examination Report in September 2015.
The CFPB commenced its second examination of us in February 2017 and completed the related field work in June 2017. The scope of the 2017 examination included a review of our Compliance Management System, our substantive compliance with applicable federal laws, and matters requiring attention. The 2017 examination had no material impact on our financial condition or results of operations, and we received the final CFPB Examination Report in February 2018.
The CFPB commenced its third examination of us on October 7, 2019. This examination is a limited scope review to ensure continued compliance. While we do not expect that matters arising from this examination will have a material impact on us, we have made in recent years and are continuing to make, at least in part to meet CFPB expectations, certain enhancements to our compliance procedures and consumer disclosures.