CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the
“Company”), a market leader in providing short-term credit to
underbanked consumers, today announced financial results for its
fourth quarter and full year ended December 31, 2019.
“We are pleased to report excellent quarterly and annual
earnings growth,” said Don Gayhardt, President and Chief Executive
Officer. “For the full year, our revenue and Adjusted Diluted
Earnings per Share(1) grew 9.3% and 46.6%, respectively, versus
2018, and we generated substantial free cash that we invested in
new growth opportunities and returned to shareholders in the form
of $72.3 million of share repurchases. For our fourth quarter,
outstanding growth in Canada, where revenue and Adjusted EBITDA(1)
grew 18.3% and 131.2%, respectively, coupled with disciplined
expense management, offset lower year-over-year growth in the U.S.
caused by repositioning and optimization of our California
Installment loan portfolios. We
are introducing 2020 guidance which reflects our expectation
that:
- Canada will continue to be a strong growth engine;
- U.S. regulatory changes will be manageable with earnings growth outside of California
offsetting California declines;
- Significant excess cash flow will be generated; and
- We will continue to diversify our funding sources and be
disciplined in our return of capital.”
Consolidated Summary Results -
Unaudited
For the Three Months Ended
(2)
For the Twelve Months Ended
(2)
(in thousands, except per share data)
12/31/2019
12/31/2018
Variance
12/31/2019
12/31/2018
Variance
Revenue
$
302,294
$
287,579
5.1
%
$
1,141,797
$
1,045,073
9.3
%
Gross margin
95,299
81,682
16.7
%
378,616
325,470
16.3
%
Company Owned gross loans receivable
665,828
571,531
16.5
%
665,828
571,531
16.5
%
Net income from continuing operations
29,571
15,418
91.8
%
103,898
16,459
#
Adjusted Net Income (1)
34,793
22,885
52.0
%
130,059
92,346
40.8
%
Diluted Earnings per Share from continuing
operations
$
0.68
$
0.32
#
$
2.26
$
0.34
#
Adjusted Diluted Earnings per Share
(1)
$
0.80
$
0.48
66.7
%
$
2.83
$
1.93
46.6
%
EBITDA (1)
61,526
40,208
53.0
%
230,848
120,837
91.0
%
Adjusted EBITDA (1)
67,534
53,378
26.5
%
261,132
219,823
18.8
%
Weighted Average Shares - diluted
43,243
47,773
45,974
47,965
# - Variance greater than 100% or not
meaningful
(1) These are non-GAAP metrics. For a
reconciliation of each non-GAAP metric to the nearest GAAP metric,
see the applicable reconciliations contained under "Results of
Operations - CURO Group Consolidated Operations." For a description
of each non-GAAP metric, see "Non-GAAP Financial Measures."
(2) Excludes discontinued operations; see
"Results of Discontinued Operations" for additional details.
Fourth quarter 2019 and
subsequent developments include:
- Revenue increase of $14.7 million, or 5.1%, over the prior-year
period, driven primarily by revenue growth from Open-End loans in
the U.S. and Canada, which more than outpaced the year-over-year
decline in Unsecured and Secured Installment loan revenues stemming
from California portfolio repositioning.
- Growth in Company Owned gross loans receivable and Gross
combined loans receivables of 16.5% and 13.9%, respectively, versus
the prior-year period. Year-over-year comparisons benefited from
the Q1 2019 Open-End Loss Recognition Change. See "Loan Volume and
Portfolio Performance Analysis" for additional details on the Q1
2019 Open-End Loss Recognition Change. Excluding the impact of this
change, Company Owned gross loans receivable and Gross combined
loans receivables grew 7.7% and 6.2%, respectively. Further,
excluding the negative impact of California portfolio
repositioning, Company Owned gross loans receivable grew 21.6%
year-over-year.
- Consolidated quarterly net charge-off ("NCO") rates improvement
of 200 basis points ("bps") compared to the prior-year quarter,
primarily because of improvement in Canada. U.S. NCO rate
comparisons were affected primarily by modestly higher charge-offs
in the California Unsecured Installment portfolio and elevated
Open-End charge-offs after strong asset expansion in the third
quarter of 2019.
- Net income from continuing operations and Adjusted Net Income
increase of 91.8% and 52.0%, respectively.
- Diluted Earnings per Share from continuing operations increase
to $0.68 from $0.32 and Adjusted Diluted Earnings per Share
increase to $0.80 from $0.48, as compared to the prior-year
quarter.
- Announcement of the acquisition of Ad Astra Recovery Services,
Inc., our exclusive provider of third-party collection services for
the U.S. business. The acquisition, which was completed on January
3, 2020, is expected to provide multiple synergies and be accretive
to 2020 earnings as disclosed in our Current Report on Form 8-K
filed with the Securities and Exchange Commission ("SEC") on
December 16, 2019.
- Authorization by our Board of
Directors of a new share repurchase program, up to $25.0
million, of CURO common stock.
- Initiation of a dividend program and declaration of our first
quarterly cash dividend of $0.055 per share ($0.22 per share
annualized) to be paid on March 2, 2020 to stockholders of record
as of the close of business on February 18, 2020.
- Executed a non-binding letter of intent for an additional $200
million Non-Recourse Revolving Credit Facility to fund our growing
U.S. portfolios. This facility has a 90% advance rate with a 5.75%
LIBOR spread.
Full-year 2019 developments include:
- Revenue increase of $96.7 million, or 9.3%, over the prior
year. Year-over-year revenue comparisons include approximately $49
million benefit from the Q1 2019 Open-End Loss Recognition Change,
offset by a similar increase in provision expense.
- Net Income from continuing operations of $103.9 million, an
increase of $87.4 million compared to the prior year, and Diluted
Earnings per Share of $2.26, up from $0.34 in the prior year.
- Adjusted Net Income and Adjusted Diluted Earnings per Share
growth of 40.8% and 46.6%, respectively, over the prior year.
- Continued success with the Canada Open-End product transition,
as the portfolio grew and matured and NCO rates improved. Canada
Adjusted EBITDA increased $33.0 million over the prior year, from
$25.9 million to $58.9 million.
- During the period from April through July 2019, investment of
an additional $3.8 million in Cognical Holdings, Inc. ("Katapult,"
formerly known as Zibby), an on-line virtual lease-to-own platform.
As a result of this investment, our diluted ownership of Katapult
increased to 43.8%.
- Completion of the exit from the U.K. market during the first
quarter of 2019, resulting in favorable U.S. tax consequences
related to the loss on disposal.
- Addition of two independent directors to our Board of
Directors, which brought both compliance and human resources
experience and insight, as announced in our Current Report on Form
8-K filed with the SEC on July 22, 2019.
- Cumulative open market purchases of 4,069,796 shares through
February 5, 2020 under the terms of our $50 million share
repurchase program that was announced in April 2019. As of February
5, 2020, the authorized total under the repurchase program has been
fully utilized.
- The purchase of 2,000,000 shares from Friedman Fleischer &
Lowe Capital Partners II, L.P. and its affiliated investment funds
("FFL"), a related party to the Company, as disclosed in our
Current Report on Form 8-K filed with the SEC on September 3,
2019.
2020 Outlook
The Company is initiating its full-year 2020 revenue and
non-GAAP adjusted earnings guidance, as follows:
- Revenue in the range of $1.165 billion to $1.195 billion,
an increase of $23.2 million, or
2.0%, to $53.2 million, or 4.7% over 2019
- Adjusted Net Income in the range of $135 million to $145
million, an increase of $4.6
million, or 3.5% to $13.6 million, or 10.4%, over 2019
- Adjusted EBITDA in the range of $265 million to $280 million,
an increase of $3.9 million, or
1.5%, to $18.9 million, or 7.2%, over 2019
- Adjusted Diluted Earnings per Share in the range of $3.10 to
$3.35, an increase of $0.27 per
share, or 9.5%, to $0.52 per share, or 18.4%, over 2019
- Effective income tax rate in the range of 26% to 27%,
consistent with 2019
For a reconciliation of each non-GAAP metric to the nearest GAAP
metric, see the specific reconciliations contained under "Fiscal
2020 Outlook - Reconciliations" at the end of this release. For a
description of each non-GAAP metric, see "Non-GAAP Financial
Measures."
Consolidated Revenue by Product and Segment
Year-over-year comparisons for Open-End loan portfolio metrics
are affected by the Q1 2019 Open-End Loss Recognition Change.
Additionally, throughout this release, we exclude financial results
of our former U.K. operations for all periods presented, as they
were discontinued for accounting and reporting purposes in February
2019. See “Results of Discontinued Operations” for additional
information.
The following tables summarize revenue by product, including
credit services organization ("CSO") fees, for the periods
indicated:
Three Months Ended
December 31, 2019
December 31, 2018
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
133,953
$
1,658
$
135,611
$
143,135
$
2,172
$
145,307
Secured Installment
28,690
—
28,690
29,482
—
29,482
Open-End
43,278
28,017
71,295
29,580
17,647
47,227
Single-Pay
30,192
19,652
49,844
28,710
20,986
49,696
Ancillary
4,159
12,695
16,854
4,241
11,626
15,867
Total revenue
$
240,272
$
62,022
$
302,294
$
235,148
$
52,431
$
287,579
During the three months ended December 31, 2019, total revenue
grew $14.7 million, or 5.1%, to $302.3 million, compared to the
prior-year period, predominantly driven by growth in Open-End loans
in both countries. Geographically, total revenue in the U.S. and
Canada grew 2.2% and 18.3%, respectively. From a product
perspective, Unsecured Installment and Secured Installment revenues
decreased 6.7% and 2.7%, respectively, due to portfolio
repositioning and optimization in California ahead of regulatory
changes effective January 1, 2020. Single-Pay loan balances grew
4.4% sequentially (defined within this release as the change from
the third quarter of 2019 to the fourth quarter of 2019, or
comparable periods for 2018 sequential metrics) and were flat
year-over-year (3.2% loan growth in the U.S. was offset by declines
in Canada from migration to Open-End loans). Open-End loans in
Canada grew $94.1 million, or 59.5% ($72.0 million, or 45.5%,
excluding past-due receivables), from December 31, 2018, which
fueled related revenue growth of $10.4 million, or 58.8%. U.S.
Open-End revenue rose 46.3% on related loan growth of $34.1
million, or 69.3% ($6.1 million, or 12.4%, excluding past-due
receivables). Ancillary revenues increased 6.2% versus the
comparable quarter a year ago, primarily due to the sale of
insurance products to Open-End and Installment loan customers in
Canada.
Year Ended
December 31, 2019
December 31, 2018
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
523,979
$
6,751
$
530,730
$
509,884
$
13,399
$
523,283
Secured Installment
110,513
—
110,513
110,677
—
110,677
Open-End
147,794
97,462
245,256
106,229
35,733
141,962
Single-Pay
112,925
78,524
191,449
107,545
111,447
218,992
Ancillary
18,295
45,554
63,849
18,806
31,353
50,159
Total revenue
$
913,506
$
228,291
$
1,141,797
$
853,141
$
191,932
$
1,045,073
For the year ended December 31, 2019, total revenue grew $96.7
million, or 9.3%, to $1,141.8 million, compared to the prior year,
predominantly driven by growth in Open-End loans in both countries.
Geographically, total revenue in the U.S. and Canada grew 7.1% and
18.9%, respectively. From a product perspective, Unsecured
Installment revenues rose $14.1 million, or 2.8%, in the U.S., with
full-year comparisons affected by the aforementioned fourth quarter
2019 portfolio repositioning and optimization in California and a
decrease in Canada of $6.6 million due to the continued transition
to Open-End loans. Secured Installment revenues and related
receivables were flat year-over-year as growth in other states
offset California declines from portfolio repositioning. U.S.
Single-Pay revenue increased $5.4 million, or 5.0%, compared to the
prior year. Canadian Single-Pay usage and product profitability
were impacted negatively year-over-year by regulatory changes in
Ontario effective July 1, 2018, and the strategic transition of
qualifying customers to Open-End loans. Open-End revenues rose
$103.3 million, or 72.8%, on related loan growth in Canada and
U.S., primarily in Tennessee, Virginia and Kansas. Ancillary
revenues increased $13.7 million, or 27.3%, versus the prior year,
primarily due to the sale of insurance to Installment and Open-End
loan customers in Canada.
The following table presents revenue composition, including CSO
fees, of the products and services that we currently offer:
Three Months Ended December
31,
Year Ended December 31,
2019
2018
2019
2018
Installment
54.4
%
60.8
%
56.2
%
60.6
%
Canada Single-Pay
6.5
%
7.3
%
6.9
%
10.7
%
U.S. Single-Pay
10.0
%
10.0
%
9.9
%
10.3
%
Open-End
23.6
%
16.4
%
21.5
%
13.6
%
Ancillary
5.5
%
5.5
%
5.5
%
4.8
%
Total
100.0
%
100.0
%
100.0
%
100.0
%
For the three months ended December 31, 2019 and 2018, revenue
generated through the online channel as a percentage of
consolidated revenue was 47% and 44%, respectively. For the year
ended December 31, 2019 and 2018, revenue generated through the
online channel as a percentage of consolidated revenue was 46% and
42%, respectively.
Loan Volume and Portfolio Performance Analysis
The following table summarizes Company Owned gross loans
receivable, a GAAP-basis balance sheet measure, with reconciliation
to Gross combined loans receivable, a non-GAAP measure(1). Gross
combined loans receivable include loans originated by third-party
lenders through CSO programs, which are not included in the
Consolidated Financial Statements but from which we earn revenue by
providing a guarantee to the unaffiliated lender.
As of
(in millions, unaudited)
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
Company Owned gross loans receivable
$
665.8
$
657.6
$
609.6
$
553.2
$
571.5
Gross loans receivable Guaranteed by the
Company
76.7
73.1
67.3
61.9
80.4
Gross combined loans receivable (1)
$
742.5
$
730.7
$
676.9
$
615.1
$
651.9
(1)
See "Non-GAAP Financial Measures"
at the end of this release for definition and more information.
Gross combined loans receivable by product is presented below.
Year-over-year comparisons for Open-End are affected by the Q1 2019
Open-End Loss Recognition Change. Excluding the impact of the Q1
2019 Open-End Loss Recognition Change, Open-End receivables
increased $78.1 million, or 37.7%, year-over-year.
As of
December 31, 2019
September 30, 2019
June 30, 2019
March 31, 2019
December 31, 2018
Unsecured Installment
$
160.8
$
174.5
$
164.7
$
161.7
$
190.4
Secured Installment
88.1
90.1
85.5
81.0
93.0
Single-Pay
81.4
78.0
76.1
69.7
80.8
Open-End
335.5
315.0
283.3
240.8
207.3
CSO
76.7
73.1
67.3
61.9
80.4
Total
$
742.5
$
730.7
$
676.9
$
615.1
$
651.9
Gross combined loans receivable increased $90.5 million, or
13.9%, to $742.5 million as of December 31, 2019, from $651.9
million as of December 31, 2018, primarily due to an increase in
Open-End loans of 69.3% and 59.5% in the U.S. and Canada,
respectively. Gross combined loans receivable performance by
product is explained further in the following sections.
Unsecured Installment Loans
Unsecured Installment revenue and related gross combined loans
receivable decreased 6.7% and 12.2%, respectively, from the
prior-year quarter, due to portfolio repositioning and optimization
in California to manage January 1, 2020 regulatory changes.
Unsecured Installment gross combined loans receivable decreased
$32.8 million compared to December 31, 2018.
Unsecured Installment loans in California were $71.4 million, or
44.4%, as of December 31, 2019, a decrease of $30.1 million from
$101.5 million as of December 31, 2018, and of $15.0 million from
$86.4 million as of September 30, 2019.
Unsecured Installment loans Guaranteed by the Company declined
$3.1 million year-over-year due to regulatory change in Ohio,
effective April 2019, and the subsequent conversion of some Ohio
CSO volume to Company Owned loans, partially offset by growth in
Texas.
The NCO rate for Company Owned Unsecured Installment gross loans
receivables in the fourth quarter of 2019 increased approximately
40 bps year-over-year, primarily due to mix shift associated with
California portfolio repositioning and optimization. California NCO
rates for Unsecured Installment loans historically are lower than
our other major states. California comprised 48.8% of total U.S.
Company Owned Unsecured Installment loans as of December 31, 2019
compared to 58.0% in the prior year. Also, due to the
repositioning, California NCO rates have increased slightly
year-over-year. Company Owned Unsecured Installment NCO rates for
the U.S. excluding California were flat year-over-year.
The Unsecured Installment Allowance for loan losses as a
percentage of Company Owned Unsecured Installment gross loans
receivable ("allowance coverage") increased year-over-year from
19.8% as of December 31, 2018 to 22.1% as of December 31, 2019,
primarily as a result of the aforementioned increase in U.S. NCO
rates and higher past-due balances. Past-due receivables as a
percentage of total gross receivables increased 100 bps from the
same quarter a year ago, consistent with the change in NCO rates.
Sequentially, allowance coverage increased from 21.9% to 22.1% as
of December 31, 2019.
NCO rates for Unsecured Installment loans Guaranteed by the
Company improved 270 bps compared to the same quarter a year ago.
The CSO liability for losses decreased sequentially from 14.4% to
14.2% for the fourth quarter of 2019.
2019
2018
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Unsecured Installment loans:
Revenue - Company Owned
$
63,428
$
65,809
$
59,814
$
65,542
$
69,748
Provision for losses - Company Owned
33,183
31,891
33,514
33,845
39,565
Net revenue - Company Owned
$
30,245
$
33,918
$
26,300
$
31,697
$
30,183
Net charge-offs - Company Owned
$
35,729
$
28,973
$
31,970
$
37,919
$
37,951
Revenue - Guaranteed by the Company
$
72,183
$
71,424
$
62,298
$
70,236
$
75,559
Provision for losses - Guaranteed by the
Company
34,858
36,664
28,336
27,422
37,352
Net revenue - Guaranteed by the
Company
$
37,325
$
34,760
$
33,962
$
42,814
$
38,207
Net charge-offs - Guaranteed by the
Company
$
34,486
$
35,916
$
27,486
$
30,421
$
38,522
Unsecured Installment gross combined
loans receivable:
Company Owned
$
160,782
$
174,489
$
164,722
$
161,716
$
190,403
Guaranteed by the Company (1)(2)
74,317
70,704
65,055
59,740
77,451
Unsecured Installment gross combined loans
receivable (1)(2)
$
235,099
$
245,193
$
229,777
$
221,456
$
267,854
Average gross loans receivable:
Average Unsecured Installment gross loans
receivable - Company Owned (3)
$
167,636
$
169,606
$
163,219
$
176,060
$
187,767
Average Unsecured Installment gross loans
receivable - Guaranteed by the Company (3)
$
72,511
$
67,880
$
62,398
$
68,596
$
76,629
Allowance for loan losses and CSO
liability for losses:
Unsecured Installment Allowance for loan
losses (4)
$
35,587
$
38,127
$
35,223
$
33,666
$
37,716
Unsecured Installment CSO liability for
losses (4)
$
10,553
$
10,181
$
9,433
$
8,583
$
11,582
Unsecured Installment Allowance for loan
losses as a percentage of Unsecured Installment gross loans
receivable
22.1
%
21.9
%
21.4
%
20.8
%
19.8
%
Unsecured Installment CSO liability for
losses as a percentage of Unsecured Installment gross loans
guaranteed by the Company
14.2
%
14.4
%
14.5
%
14.4
%
15.0
%
Unsecured Installment past-due
balances:
Unsecured Installment gross loans
receivable
$
43,100
$
46,537
$
38,037
$
40,801
$
49,087
Unsecured Installment gross loans
guaranteed by the Company
$
12,477
$
11,842
$
10,087
$
7,967
$
11,708
Past-due Unsecured Installment gross loans
receivable -- percentage (2)
26.8
%
26.7
%
23.1
%
25.2
%
25.8
%
Past-due Unsecured Installment gross loans
guaranteed by the Company -- percentage (2)
16.8
%
16.7
%
15.5
%
13.3
%
15.1
%
Unsecured Installment other
information:
Originations - Company Owned
$
87,080
$
107,275
$
102,792
$
78,515
$
114,182
Originations - Guaranteed by the Company
(1)
$
91,004
$
89,644
$
80,445
$
68,899
$
89,319
Unsecured Installment ratios:
Provision as a percentage of gross loans
receivable - Company Owned
20.6
%
18.3
%
20.3
%
20.9
%
20.8
%
Provision as a percentage of gross loans
receivable - Guaranteed by the Company
46.9
%
51.9
%
43.6
%
45.9
%
48.2
%
(1) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Consolidated Financial Statements.
(2) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
(4) Allowance for loan losses is reported
as a contra-asset reducing gross loans receivable while the CSO
liability for losses is reported as a liability on the Consolidated
Balance Sheets.
Secured Installment Loans
Secured Installment revenue and the related gross combined loans
receivable for the three months ended December 31, 2019 decreased
2.7% and 5.7%, respectively, compared to the prior-year period,
primarily as a result of portfolio repositioning and optimization
to manage California regulatory changes effective January 1, 2020.
Secured Installment gross combined loans receivable decreased $5.5
million, compared to December 31, 2018. California accounted for
$36.5 million, or 40.4%, of total Secured Installment gross
combined loans receivable as of December 31, 2019, a decrease of
$12.3 million from $48.8 million as of December 31, 2018, and of
$4.9 million from $41.4 million as of September 30, 2019. Secured
Installment Allowance for loan losses and CSO liability for losses
as a percentage of Secured Installment gross combined loans
receivable decreased year-over-year from 13.2% to 11.5% for the
fourth quarter of 2019, and modestly increased on a sequential
basis from 11.3% to 11.5% during the fourth quarter of 2019,
reflecting the increase in past-due receivables.
2019
2018
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Secured Installment loans:
Revenue
$
28,690
$
28,270
$
26,076
$
27,477
$
29,482
Provision for losses
11,492
8,819
7,821
7,080
12,035
Net revenue
$
17,198
$
19,451
$
18,255
$
20,397
$
17,447
Net charge-offs
$
11,548
$
8,455
$
7,630
$
9,822
$
11,132
Secured Installment gross combined loan
balances:
Secured Installment gross combined loans
receivable (1)(2)
$
90,411
$
92,478
$
87,718
$
83,087
$
95,922
Average Secured Installment gross combined
loans receivable (3)
$
91,445
$
90,098
$
85,403
$
89,505
$
95,058
Secured Installment Allowance for loan
losses and CSO liability for losses (2)
$
10,375
$
10,431
$
10,067
$
9,874
$
12,616
Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable
11.5
%
11.3
%
11.5
%
11.9
%
13.2
%
Secured Installment past-due
balances:
Secured Installment past-due gross loans
receivable and gross loans guaranteed by the Company
$
17,902
$
17,645
$
14,570
$
13,866
$
17,835
Past-due Secured Installment gross loans
receivable and gross loans guaranteed by the Company -- percentage
(1)
19.8
%
19.1
%
16.6
%
16.7
%
18.6
%
Secured Installment other
information:
Originations (4)
$
40,961
$
45,990
$
49,051
$
33,490
$
49,217
Secured Installment ratios:
Provision as a percentage of gross
combined loans receivable
12.7
%
9.5
%
8.9
%
8.5
%
12.5
%
(1) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(2) Allowance for loan losses is reported
as a contra-asset reducing gross loans receivable while the CSO
liability for losses is reported as a liability on the Consolidated
Balance Sheets.
(3) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
(4) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Consolidated Financial Statements.
Open-End Loans
Open-End loan balances as of December 31, 2019 increased by
$128.2 million, or 61.8%, compared to December 31, 2018, on 45.5%
growth in Canada and 12.4% growth in the U.S (excluding the impact
of the Q1 2019 Open-End Loss Recognition Change). The Q1 2019
Open-End Loss Recognition Change, discussed further below, impacted
comparability as $50.1 million of past-due Open-End loans as of
December 31, 2019 would have been charged off under the former
policy.
The consolidated Open-End NCO rate during the fourth quarter of
2019 improved 165 bps versus the same quarter in the prior year,
primarily as a result of seasoning of the Canada portfolio. Canada
NCO rates improved 290 bps year-over-year. U.S. NCO rates increased
180 bps for the same periods from a combination of loan growth, mix
shift to more online volume and advertising channel shifts.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe in which we
charge-off Open-End loans and made related refinements to our loss
provisioning methodology. Prior to January 1, 2019, we deemed
Open-End loans uncollectible and charged-off when a customer missed
a scheduled payment and the loan was considered past-due. Because
of our continuing shift to Open-End loans in Canada and our
analysis of payment patterns on early-stage versus late-stage
delinquencies, we revised our estimates and now consider Open-End
loans uncollectible when the loan has been contractually past-due
for 90 consecutive days. Consequently, past-due Open-End loans and
related accrued interest now remain in loans receivable for 90 days
before being charged off against the allowance for loan losses. All
recoveries on charged-off loans are credited to the allowance for
loan losses. We evaluate the adequacy of the allowance for loan
losses compared to the related gross loans receivable balances that
include accrued interest.
The aforementioned change was treated as a change in accounting
estimate for accounting purposes and applied prospectively
beginning January 1, 2019.
The change affects comparability to prior periods as
follows:
- Gross combined loans receivable:
balances as of December 31, 2019 include $50.1 million of Open-End
loans that are up to 90 days past-due with related accrued
interest, while such balances for periods prior to March 31, 2019
do not include any past-due loans.
- Revenues: for the three months and
year ended December 31, 2019, gross revenues include interest
earned on past-due loan balances of approximately $14 million and
$49 million, respectively, while revenues in prior-year periods do
not include comparable amounts.
- Provision for Losses:
prospectively from January 1, 2019, past-due, unpaid balances plus
related accrued interest charge-off on day 91. Provision expense is
affected by NCOs (total charge-offs less total recoveries) plus
changes to the Allowance for loan losses. Because NCOs
prospectively include unpaid principal and up to 90 days of related
accrued interest, NCO amounts and rates are higher and the Open-End
Allowance for loan losses as a percentage of Open-End gross loans
receivable is higher. The Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable increased to 16.4% at
December 31, 2019, compared to 9.6% in the comparable prior-year
period.
The following table reports 2019 Open-End loan performance,
including the effect of the Q1 2019 Open-End Loss Recognition
Change:
2019
2018
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Open-End loans:
Revenue
$
71,295
$
66,120
$
54,972
$
52,869
$
47,228
Provision for losses
37,816
31,220
29,373
25,317
28,337
Net revenue
$
33,479
$
34,900
$
25,599
$
27,552
$
18,891
Net charge-offs
$
37,426
$
28,202
$
25,151
$
(1,521
)
$
25,218
Open-End gross loan balances:
Open-End gross loans receivable
$
335,524
$
314,971
$
283,311
$
240,790
$
207,333
Average Open-End gross loans receivable
(1)
$
325,248
$
299,141
$
262,051
$
224,062
$
195,700
Open-End allowance for loan
losses:
Allowance for loan losses
$
55,074
$
54,233
$
51,717
$
46,963
$
19,901
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
16.4
%
17.2
%
18.3
%
19.5
%
9.6
%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$
50,072
$
46,053
$
35,395
$
32,444
$
—
Open-End past-due gross loans receivable -
percentage
14.9
%
14.6
%
12.5
%
13.5
%
—
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
In addition, the following table illustrates, on a non-GAAP pro
forma basis, the 2019 quarterly results as if the Q1 2019 Open-End
Loss Recognition Change had been applied to our outstanding
Open-End loan portfolio as of December 31, 2018. This table is
illustrative of retrospective application to determine the NCOs
that would have been incurred in each quarter of 2019 from the
December 31, 2018 loan book. The primary purpose of this pro forma
illustration is to provide a representative level of NCO rates from
applying the Q1 2019 Open-End Loss Recognition Change.
Pro Forma
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Open-End loans:
Net charge-offs
$
38,748
$
29,762
$
29,648
$
31,788
Open-End gross loan balances:
Open-End gross loans receivable
$
335,524
$
314,971
$
283,311
$
240,790
Average Open-End gross loans receivable
(1)
$
325,248
$
299,141
$
262,051
$
245,096
Net-charge offs as a percentage of average
gross loans receivable
11.9
%
9.9
%
11.3
%
13.0
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
Single-Pay
Single-Pay revenue during the three months ended December 31,
2019 remained flat compared to the three months ended December 31,
2018. U.S. Single-Pay receivables increased $1.4 million, or 3.2%,
year-over-year, offset by a decrease in Canada receivables of $0.8
million, or 2.1%, from mix shift to Open-End loans. Year-over-year,
NCO rates increased 30 bps, driven entirely by Canada. The
Single-Pay Allowance for loan losses as a percentage of Single-Pay
gross loans receivable decreased sequentially from 7.3% to
7.2%.
2019
2018
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Single-Pay loans:
Revenue
$
49,844
$
49,312
$
45,528
$
46,761
$
49,696
Provision for losses
12,289
14,736
12,446
8,268
12,825
Net revenue
$
37,555
$
34,576
$
33,082
$
38,493
$
36,871
Net charge-offs
$
12,145
$
13,913
$
11,458
$
8,610
$
11,838
Single-Pay gross loan balances:
Single-Pay gross loans receivable
$
81,447
$
78,039
$
76,126
$
69,753
$
80,823
Average Single-Pay gross loans receivable
(1)
$
78,787
$
77,083
$
72,940
$
75,288
$
79,107
Single-Pay Allowance for loan losses
$
5,869
$
5,662
$
4,941
$
3,897
$
4,189
Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable
7.2
%
7.3
%
6.5
%
5.6
%
5.2
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
Results of Operations - CURO Group Consolidated
Operations
Condensed Consolidated Statements of
Operations
(in thousands, unaudited)
Three Months Ended December
31,
Year Ended December 31,
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
302,294
$
287,579
$
14,715
5.1
%
$
1,141,797
$
1,045,073
$
96,724
9.3
%
Provision for losses
130,289
130,678
(389
)
(0.3
)%
468,551
421,600
46,951
11.1
%
Net revenue
172,005
156,901
15,104
9.6
%
673,246
623,473
49,773
8.0
%
Advertising costs
16,408
15,016
1,392
9.3
%
53,398
59,363
(5,965
)
(10.0
)%
Non-advertising costs of providing
services
60,298
60,203
95
0.2
%
241,232
238,640
2,592
1.1
%
Total cost of providing services
76,706
75,219
1,487
2.0
%
294,630
298,003
(3,373
)
(1.1
)%
Gross margin
95,299
81,682
13,617
16.7
%
378,616
325,470
53,146
16.3
%
Operating expense
Corporate, district and other expenses
37,060
36,497
563
1.5
%
160,103
132,401
27,702
20.9
%
Interest expense
17,686
18,153
(467
)
(2.6
)%
69,763
84,382
(14,619
)
(17.3
)%
Loss on extinguishment of debt
—
9,686
(9,686
)
#
—
90,569
(90,569
)
#
Loss from equity method investment
1,163
—
1,163
#
6,295
—
6,295
#
Total operating expense
55,909
64,336
(8,427
)
(13.1
)%
236,161
307,352
(71,191
)
(23.2
)%
Net income from continuing operations
before income taxes
39,390
17,346
22,044
#
142,455
18,118
124,337
#
Provision for income taxes
9,819
1,928
7,891
#
38,557
1,659
36,898
#
Net income from continuing operations
29,571
15,418
14,153
91.8
%
103,898
16,459
87,439
#
Net (loss) income from discontinued
operations, net of tax
647
(29,716
)
30,363
#
7,590
(38,512
)
46,102
#
Net income (loss)
$
30,218
$
(14,298
)
$
44,516
#
$
111,488
$
(22,053
)
$
133,541
#
# - Variance greater than 100% or not
meaningful
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)
Three Months Ended December
31,
Year Ended December 31,
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Net income from continuing operations
$
29,571
$
15,418
$
14,153
91.8
%
$
103,898
$
16,459
$
87,439
#
Adjustments:
Loss on extinguishment of debt (1)
—
9,982
—
93,830
Restructuring costs (2)
—
—
1,752
—
Legal and related costs (3)
2,173
889
3,043
(289
)
U.K. related costs (4)
—
—
8,844
—
Loss from equity method investment (5)
1,163
—
6,295
—
Share-based compensation (6)
2,736
2,098
10,323
8,210
Intangible asset amortization
576
733
2,884
2,750
Impact of tax law changes (7)
—
(2,810
)
—
(1,610
)
Cumulative tax effect of adjustments
(1,426
)
(3,425
)
(6,980
)
(27,004
)
Adjusted Net Income
$
34,793
$
22,885
$
11,908
52.0
%
$
130,059
$
92,346
$
37,713
40.8
%
Net income from continuing operations
$
29,571
$
15,418
$
103,898
$
16,459
Diluted Weighted Average Shares
Outstanding
43,243
47,773
45,974
47,965
Diluted Earnings per Share from continuing
operations
$
0.68
$
0.32
$
0.36
#
$
2.26
$
0.34
$
1.92
#
Per Share impact of adjustments to Net
Income
0.12
0.16
0.57
1.59
Adjusted Diluted Earnings per Share
$
0.80
$
0.48
$
0.32
66.7
%
$
2.83
$
1.93
$
0.90
46.6
%
# - Variance greater than 100% or not
meaningful
Note: Footnotes follow Reconciliation of
Net income table immediately below
Reconciliation of Net income from
continuing operations to EBITDA and Adjusted EBITDA, non-GAAP
measures
Three Months Ended December
31,
Year Ended December 31,
(in thousands, except per share data,
unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Net income from continuing operations
$
29,571
$
15,418
$
14,153
91.8
%
$
103,898
$
16,459
$
87,439
#
Provision for income taxes
9,819
1,928
7,891
#
38,557
1,659
36,898
#
Interest expense
17,686
18,153
(467
)
(2.6
)%
69,763
84,382
(14,619
)
(17.3
)%
Depreciation and amortization
4,450
4,709
(259
)
(5.5
)%
18,630
18,337
293
1.6
%
EBITDA
61,526
40,208
21,318
53.0
%
230,848
120,837
110,011
91.0
%
Loss on extinguishment of debt (1)
—
9,686
—
90,569
Restructuring costs (2)
—
—
1,752
—
Legal and related costs (3)
2,173
889
3,043
(289
)
U.K. related costs (4)
—
—
8,844
—
Loss from equity method investment (5)
1,163
—
6,295
—
Share-based compensation (6)
2,736
2,098
10,323
8,210
Other adjustments (8)
(64
)
497
27
496
Adjusted EBITDA
$
67,534
$
53,378
$
14,156
26.5
%
$
261,132
$
219,823
$
41,309
18.8
%
Adjusted EBITDA Margin
22.3
%
18.6
%
22.9
%
21.0
%
# - Variance greater than 100% or not
meaningful
(1)
For the year ended December 31,
2018, the $90.6 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,
(ii) $69.2 million incurred in the third quarter of 2018 for the
redemption of the remaining $525.7 million of these notes and (iii)
$9.7 million incurred in the fourth quarter of 2018 for the
redemption of the Non-Recourse U.S. SPV Facility. An additional
$3.3 million is included in related costs for the year ended
December 31, 2018 for duplicative interest paid through October 11,
2018 prior to repayment of the remaining 12.00% Senior Secured
Notes and the Non-Recourse U.S. SPV Facility.
(2)
Restructuring costs of $1.8
million for the year ended December 31, 2019 were due to
eliminating 121 positions in North America in the first quarter.
The store employee reductions help better align store staffing with
in-store customer traffic and volume patterns, as more of our
growth comes from online channels and as store customers require
less time in stores as they conduct more of the follow-up
activities online. The elimination of certain corporate positions
relate to efficiency initiatives and has allowed the Company to
reallocate investment to strategic growth activities.
(3)
Legal and related costs for the
year ended December 31, 2019 include (i) costs related to certain
securities litigation and related matters of $2.5 million, (ii)
legal and advisory costs of $0.3 million related to the repurchase
of shares from FFL and (iii) $0.3 million of legal and advisory
costs related to the purchase of Ad Astra. Legal and related costs
for the year ended December 31, 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, (ii) a securities class action lawsuit
and (iii) settlement of certain matters in California and Canada.
For more information, see Note 16 - "Contingent Liabilities" of the
Notes to Consolidated Financial Statements included in our Form
10-K filed with the SEC on March 18, 2019.
(4)
U.K. related costs of $8.8
million for the year ended December 31, 2019 relate to placing the
U.K. subsidiaries into administration on February 25, 2019, which
includes $7.6 million to obtain consent from the holders of the
8.25% Senior Secured Notes to deconsolidate the U.K. Segment and
$1.2 million for other costs.
(5)
The Loss from equity method
investment for the year ended December 31, 2019 of $6.3 million
includes (a) our share of the estimated GAAP net loss of Katapult
and (b) a $3.7 million market value adjustment recognized during
the second quarter of 2019 as a result of an equity raising round
from April through July of 2019 that implied a value per share less
than the value per share raised in prior raises. As of December 31,
2019, we owned 43.8% of the outstanding shares of Katapult on a
diluted basis.
(6)
We approved the adoption of
share-based compensation plans during 2010 and 2017 for key members
of senior management. The estimated fair value of share-based
awards is recognized as non-cash compensation expense on a
straight-line basis over the vesting period.
(7)
As a result of the Tax Cuts and
Jobs Act of 2017 ("2017 Tax Act"), which became law on December 22,
2017, we provided an estimate of the new repatriation tax as of
December 31, 2017. Subsequent to further guidance published in the
first quarter of 2018, we booked additional tax expense of $1.2
million for the 2017 repatriation tax. Based upon additional
interpretations and finalization of our 2017 income tax returns,
the total repatriation tax was further adjusted in the fourth
quarter of 2018, producing a tax benefit of $2.8 million in that
period. This resulted in a net tax benefit of $1.6 million for the
full year.
(8)
Other adjustments include the
intercompany foreign exchange impact and, prior to January 1, 2019,
deferred rent. Deferred rent represented the non-cash component of
rent expense, which was recognized ratably on a straight-line basis
over the lease term. As of January 1, 2019, we adopted ASU No.
2016-02, Leases, which requires all leases to be recognized on the
balance sheet. As a result, we no longer recognize deferred
rent.
For the three months ended December 31, 2019 and 2018
Revenue and Net Revenue
Revenue increased $14.7 million, or 5.1%, to $302.3 million for
the three months ended December 31, 2019, from $287.6 million for
the three months ended December 31, 2018. Revenue for the three
months ended December 31, 2019 included interest earned on past-due
Open-End loan balances of approximately $14 million as a result of
the Q1 2019 Open-End Loss Recognition Change. U.S. revenue
increased 2.2%, driven by Open-End growth, partially offset by a
decrease in Installment loans as a result of California portfolio
repositioning and optimization to manage January 1, 2020 regulatory
changes. Canadian revenue increased 18.3% primarily due to growth
in Open-End loans and Ancillary revenues.
Provision for losses remained consistent for the three months
ended December 31, 2019 compared to the prior-year period.
Geographically, U.S. provision for losses increased $2.5 million,
or 2.3%, due to the Q1 2019 Open-End Loss Recognition Change,
offset by less provisioning as the California Installment loan
portfolios declined. Canada provision for losses decreased $2.9
million, or 13.5%, on loan growth and the impact of the Q1 2019
Open-End Loss Recognition Change, offset by 290 bps improvement in
Open-End NCO rates.
Cost of Providing Services
The total cost of providing services increased $1.5 million, or
2.0%, to $76.7 million in the three months ended December 31, 2019,
compared to $75.2 million in the three months ended December 31,
2018, primarily because of higher advertising costs.
Operating Expenses
Corporate, district and other expenses were $37.1 million for
the three months ended December 31, 2019, an increase of $0.6
million, or 1.5%, compared to the three months ended December 31,
2018.
We account for our investment in Katapult under the equity
method. We record our pro rata share of Katapult's income or losses
in the income statement with a corresponding adjustment to the
carrying value of our investment in "Other" on the Consolidated
Balance Sheet. Our share of estimated losses for the three months
ended December 31, 2019 was $1.2 million.
Interest Expense
Interest expense for the fourth quarter of 2019 decreased $0.5
million, or 2.6%, compared to the prior-year period, primarily due
to long-term debt refinancing activities in the second half of
2018.
Provision for Income Taxes
The effective income tax rate for the three months ended
December 31, 2019 was 24.9%, compared to a tax rate of 11.1% for
the three months ended December 31, 2018. The fourth quarter 2019
increase in effective income tax rate was due to unfavorable
impacts from the non-tax deductible loss on our equity method
investment, changes in state income apportionment and a mix shift
in taxable income between the U.S. and Canada. Excluding non-GAAP
adjustments to Adjusted Net Income as presented in the
reconciliation of Net income to Adjusted Net Income, the Adjusted
effective income tax rate from continuing operations for the three
months ended December 31, 2019 was 24.4%, compared to a tax rate of
26.3% for the three months ended December 31, 2018.
For the year ended December 31, 2019 and 2018
Revenue and Net Revenue
Revenue increased $96.7 million, or 9.3%, to $1,141.8 million
for the year ended December 31, 2019 from $1,045.1 million for the
year ended December 31, 2018. Revenue for the year ended December
31, 2019 included interest earned on past-due Open-End loan
balances of approximately $49 million from the Q1 2019 Open-End
Loss Recognition Change, offset by a higher provision rate and the
higher allowance discussed further below. U.S. revenue increased
7.1%, driven by growth in Open-End loans. Canadian revenue
increased 18.9% (21.8% on a constant currency basis), as loan
growth offset yield compression from negative regulatory impacts on
Single-Pay loan yields and the significant product mix-shift to
lower-yielding Open-End loans.
Provision for losses increased $47.0 million, or 11.1%, to
$468.6 million for the year ended December 31, 2019, from $421.6
million for the year ended December 31, 2018, primarily due to the
Q1 2019 Open-End Loss Recognition Change and loan growth
year-over-year as further described in "Segment Analysis"
below.
Cost of Providing Services
The total cost of providing services decreased $3.4 million, or
1.1%, to $294.6 million in the year ended December 31, 2019,
compared to $298.0 million in the year ended December 31, 2018, on
lower advertising costs, offset by an increase of 1.1% in all other
costs of providing services. The decline in advertising costs was
primarily the result of reduced spending in California, and
normalized levels in Canada compared to the elevated spending in
the prior year due to the transition to Open-End loans in Ontario
in the third quarter of 2018.
Operating Expenses
Corporate, district and other expenses increased $27.7 million,
or 20.9%, primarily as a result of $8.8 million for obtaining the
consent of our holders of the 8.25% Senior Secured Notes and our
bondholders associated with discontinuing our U.K. operations and
other related U.K. separation costs, $3.0 million of legal and
related costs as described in footnote 3 to the preceding tables,
$1.8 million of restructuring costs from our reduction-in-force
implemented in January 2019 and $2.1 million of additional
share-based compensation. Excluding these costs, corporate,
district and other expenses increased by $11.7 million, or 9.4%,
primarily due to higher professional fees and higher variable
compensation based on financial performance.
Our share of estimated losses for Katapult for the year ended
December 31, 2019 was $6.3 million, which includes a market
adjustment of $3.7 million for loss recognized in the second
quarter of 2019 and $2.5 million of our share of estimated losses
in 2019.
Interest Expense
Interest expense decreased by $14.6 million, or 17.3%, compared
to the prior-year period, primarily due to long-term debt
refinancings in 2018. During the third quarter of 2018, we issued
$690.0 million of 8.25% Senior Secured Notes and used the proceeds
from the issuance to extinguish our $527.5 million 12.00% Senior
Secured Notes and our Non-Recourse U.S. SPV Facility. In addition,
we entered into a Non-Recourse Canada SPV Facility in the third
quarter of 2018 with a lower interest rate than our previous
Non-Recourse U.S. SPV Facility.
Provision for Income Taxes
The effective income tax rate for the year ended December 31,
2019 was 27.1%, compared to a tax rate of 9.2% for the year ended
December 31, 2018. The effective income tax rate for the year ended
December 31, 2019 included unfavorable impacts from the non-tax
deductible loss on our equity method investment, changes in state
income apportionment and a mix shift in taxable income between the
U.S. and Canada. Excluding non-GAAP adjustments to Adjusted Net
Income as presented in the reconciliation of Net income to Adjusted
Net Income, the Adjusted effective income tax rate from continuing
operations for the year ended December 31, 2019 was 25.9% compared
to a tax rate of 24.7% for the year ended December 31, 2018.
Segment Analysis
We report financial results for two reportable segments: the
U.S. and Canada. Following is a summary of results of operations
for the segment and period indicated:
U.S. Segment Results
Three Months Ended December
31,
Year Ended December 31,
(dollars in thousands, unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
240,272
$
235,149
$
5,123
2.2
%
$
913,506
$
853,141
$
60,365
7.1
%
Provision for losses
111,576
109,035
2,541
2.3
%
392,105
348,611
43,494
12.5
%
Net revenue
128,696
126,114
2,582
2.0
%
521,401
504,530
16,871
3.3
%
Advertising costs
15,016
13,632
1,384
10.2
%
46,735
48,832
(2,097
)
(4.3
)%
Non-advertising costs of providing
services
42,848
43,151
(303
)
(0.7
)%
171,714
170,870
844
0.5
%
Total cost of providing services
57,864
56,783
1,081
1.9
%
218,449
219,702
(1,253
)
(0.6
)%
Gross margin
70,832
69,331
1,501
2.2
%
302,952
284,828
18,124
6.4
%
Corporate, district and other expenses
31,754
31,648
106
0.3
%
138,180
112,761
25,419
22.5
%
Interest expense
15,079
15,450
(371
)
(2.4
)%
59,325
80,381
(21,056
)
(26.2
)%
Loss on extinguishment of debt
—
9,686
(9,686
)
#
—
90,569
(90,569
)
#
Loss from equity method investment
1,163
—
1,163
#
6,295
—
6,295
#
Total operating expense
47,996
56,784
(8,788
)
(15.5
)%
203,800
283,711
(79,911
)
(28.2
)%
Segment operating income
22,836
12,547
10,289
82.0
%
99,152
1,117
98,035
#
Interest expense
15,079
15,450
(371
)
(2.4
)%
59,325
80,381
(21,056
)
(26.2
)%
Depreciation and amortization
3,263
3,501
(238
)
(6.8
)%
13,816
13,823
(7
)
(0.1
)%
EBITDA
41,178
31,498
9,680
30.7
%
172,293
95,321
76,972
80.8
%
Loss on extinguishment of debt
—
9,686
(9,686
)
—
90,569
(90,569
)
Restructuring and other costs
—
—
—
1,617
—
1,617
Legal and related costs
2,173
889
1,284
3,043
(408
)
3,451
Other adjustments
22
443
(421
)
(184
)
219
(403
)
U.K. related costs
—
—
—
8,844
—
8,844
Share-based compensation
2,736
2,098
638
10,323
8,210
2,113
Loss from equity method investment
1,163
—
1,163
6,295
—
6,295
Adjusted EBITDA
$
47,272
$
44,614
$
2,658
6.0
%
$
202,231
$
193,911
$
8,320
4.3
%
# - Variance greater than 100% or not
meaningful.
U.S. Segment Results - For the three
months ended December 31, 2019 and 2018
Fourth quarter 2019 U.S. revenues increased by $5.1 million, or
2.2%, to $240.3 million, compared to the prior-year period. U.S.
revenue growth was primarily driven by growth in Open-End loans,
which increased $34.1 million, or 69.3%, offset by portfolio
optimization ahead of regulatory changes in California impacting
Installment loans as discussed above. U.S. revenue for the three
months ended December 31, 2019 included interest earned on past-due
Open-End loan balances of approximately $12 million from the Q1
2019 Open-End Loss Recognition Change.
The provision for losses increased $2.5 million, or 2.3%,
despite the decline in total gross combined loans receivable
primarily due to the Q1 2019 Open-End Loss Recognition Change. NCO
rates were consistent year-over-year, with an increase of
approximately 50 bps for the three months ended December 31, 2019
compared to the prior-year period.
U.S. cost of providing services for the three months ended
December 31, 2019 was $57.9 million, an increase of $1.1 million,
or 1.9%, compared to $56.8 million for the three months ended
December 31, 2018, because of modestly higher advertising
costs.
Corporate, district and other operating expenses were consistent
compared to the same period in the prior year.
U.S. interest expense for the fourth quarter of 2019 decreased
by $0.4 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 year
ended December 31, 2019 and 2018
For the year ended December 31, 2019, U.S. revenues increased by
$60.4 million, or 7.1%, to $913.5 million. U.S. revenue growth was
primarily driven by growth in Open-End loans, which increased $34.1
million, or 69.3%, compared to the prior year, offset by regulatory
changes in California impacting Installment loans as discussed
above. Additionally, U.S. revenue for the year ended December 31,
2019 included interest earned on past-due Open-End loan balances of
approximately $42 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 $43.5 million, or 12.5%,
was primarily due to the Q1 2019 Open-End Loss Recognition Change.
In addition, the year ended December 31, 2018 included $13.6
million of provision benefit from changes in allowance coverage
rates, whereas the year ended December 31, 2019 included $1.2
million of incremental expense.
U.S. cost of providing services for the year ended December 31,
2019 was $218.4 million, a decrease of $1.3 million, or 0.6%,
compared to $219.7 million for the year ended December 31, 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 $25.4
million, or 22.5%, compared to the prior year, primarily due to
$8.8 million of U.K. disposition-related costs, $9.1 million higher
performance-based variable compensation costs, $2.1 million of
higher share-based compensation expense, $3.5 million higher legal
and related costs, and $1.6 million of restructuring costs.
U.S. interest expense for the year ended December 31, 2019
decreased by $21.1 million compared to the prior year, primarily
due to our refinancing activities in 2018. During the third quarter
of 2018, we issued $690.0 million of 8.25% Senior Secured Notes and
used the proceeds from the issuance to extinguish our $527.5
million 12.00% Senior Secured Notes and our U.S. SPV facility.
Canada Segment Results
Three Months Ended December
31,
Year Ended December 31,
(dollars in thousands, unaudited)
2019
2018
Change $
Change %
2019
2018
Change $
Change %
Revenue
$
62,022
$
52,430
$
9,592
18.3
%
$
228,291
$
191,932
$
36,359
18.9
%
Provision for losses
18,713
21,643
(2,930
)
(13.5
)%
76,446
72,989
3,457
4.7
%
Net revenue
43,309
30,787
12,522
40.7
%
151,845
118,943
32,902
27.7
%
Advertising costs
1,392
1,384
8
0.6
%
6,663
10,531
(3,868
)
(36.7
)%
Non-advertising costs of providing
services
17,450
17,052
398
2.3
%
69,518
67,770
1,748
2.6
%
Total cost of providing services
18,842
18,436
406
2.2
%
76,181
78,301
(2,120
)
(2.7
)%
Gross margin
24,467
12,351
12,116
98.1
%
75,664
40,642
35,022
86.2
%
Corporate, district and other expenses
5,306
4,849
457
9.4
%
21,923
19,640
2,283
11.6
%
Interest expense
2,607
2,703
(96
)
(3.6
)%
10,438
4,001
6,437
#
Total operating expense
7,913
7,552
361
4.8
%
32,361
23,641
8,720
36.9
%
Segment operating income
16,554
4,799
11,755
#
43,303
17,001
26,302
#
Interest expense
2,607
2,703
(96
)
(3.6
)%
10,438
4,001
6,437
#
Depreciation and amortization
1,187
1,208
(21
)
(1.7
)%
4,814
4,514
300
6.6
%
EBITDA
20,348
8,710
11,638
#
58,555
25,516
33,039
#
Restructuring costs
—
—
—
135
—
135
Legal and related costs
—
—
—
—
119
(119
)
Other adjustments
(86
)
54
(140
)
211
277
(66
)
Adjusted EBITDA
$
20,262
$
8,764
$
11,498
131.2
%
$
58,901
$
25,912
$
32,989
127.3
%
# - Variance greater than 100% or not
meaningful.
Canada Segment Results - For the three
months ended December 31, 2019 and 2018
Canada revenue increased $9.6 million, or 18.3%, to $62.0
million for the three months ended December 31, 2019, from $52.4
million in the prior year. Revenue growth in Canada was impacted
favorably by the significant loan growth and successful transition
from Single-Pay and Unsecured Installment loans to Open-End loans.
Additionally, Canada revenue for the three months ended December
31, 2019 included interest earned on past-due Open-End loan
balances of approximately $2 million from the Q1 2019 Open-End Loss
Recognition Change. There was no material impact on revenue from
exchange rate changes.
Single-Pay revenue decreased $1.3 million, or 6.4%, to $19.7
million for the three months ended December 31, 2019, and
Single-Pay receivables decreased $0.8 million, or 2.1%, to $35.8
million from $36.6 million in the prior year. The decreases in
Single-Pay revenue and receivables were due to product mix shift in
Canada from Single-Pay loans to Open-End loans.
Canada non-Single-Pay revenue increased $10.9 million, or 34.7%,
to $42.4 million compared to $31.4 million the same quarter a year
ago, on growth of $93.1 million, or 53.7%, in related loan
balances. The increase was driven by significant expansion of the
Open-End loans, beginning with Ontario in the third quarter of
2018. Additionally, with increased Open-End loan volume and
customer acquisition, ancillary revenue increased $1.1 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 $2.9 million, or 13.5%, to
$18.7 million for the three months ended December 31, 2019,
compared to $21.6 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 remained flat year-over-year
because of the impact of loss provisioning on loan growth was
offset by lower NCO rates for Open-End loans. Total Canada NCO
rates improved 235 bps year-over-year primarily on seasoning of
Open-End loans. There was no material impact on provision for
losses from exchange rate changes for the three months ended
December 31, 2019.
Canada cost of providing services for the three months ended
December 31, 2019 was $18.8 million, an increase of $0.4 million,
or 2.2%, compared to $18.4 million for the three months ended
December 31, 2018, primarily due to increased loan servicing costs
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 to $7.9 million for the
three months ended December 31, 2019 compared to $7.6 million in
the prior-year period.
Canada Segment Results - For the year
ended December 31, 2019 and 2018
Canada revenue increased $36.4 million, or 18.9%, to $228.3
million for the year ended December 31, 2019 from $191.9 million in
the prior-year period. On a constant currency basis, revenue
increased $41.8 million, or 21.8%. Revenue growth in Canada was
impacted favorably by the significant loan growth and successful
transition from Single-Pay and Unsecured Installment loans to
Open-End loans. Additionally, Canada revenues for the year ended
December 31, 2019 included interest earned on past-due Open-End
loan balances of approximately $7 million from the Q1 2019 Open-End
Loss Recognition Change, offset by higher provision rate and higher
provision for losses.
Single-Pay revenue decreased $32.9 million, or 29.5%, to $78.5
million for the year ended December 31, 2019, and Single-Pay
receivables decreased $0.8 million, or 2.1%, to $35.8 million from
$36.6 million in the prior year. The decreases in Single-Pay
revenue and receivables were due to 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 $69.3 million, or 86.1%,
to $149.8 million compared to $80.5 million for the prior-year
period, on $93.1 million, or 53.7%, growth in related loan
balances. The increase was driven by significant expansion of the
Open-Ends, beginning with Ontario in the third quarter of 2018.
Additionally, with increased Open-End loan volume and customer
acquisitions, Ancillary revenue increased $14.2 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 $3.5 million, or 4.7%, to
$76.4 million for the year ended December 31, 2019 compared to
$73.0 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 $14.8 million sequentially during the fourth quarter of
2019, compared to sequential growth of $19.4 million in the fourth
quarter of 2018. Excluding the impact of the allowance coverage
change, provision for losses increased $7.9 million, or 10.7%,
because of the Q1 2019 Open-End Loss Recognition Change and
increased earning asset volume year-over-year. On a constant
currency basis, provision for losses increased by $5.3 million, or
7.3%, compared to the prior-year period.
The total cost of providing services in Canada decreased $2.1
million, or 2.7%, to $76.2 million for the year ended December 31,
2019 compared to $78.3 million in the prior-year period.
Advertising costs decreased by $3.9 million, or 36.7%, 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 $1.7 million. There was no material impact on
the cost of providing services from exchange rate changes.
Canada operating expenses increased $8.7 million, or 36.9%, to
$32.4 million in the year ended December 31, 2019 from $23.6
million in the prior-year period, primarily due to interest expense
on the Non-Recourse Canada SPV Facility that began in August
2018.
Results of Discontinued Operations
On February 25, 2019, in accordance with the provisions of the
U.K. Insolvency Act 1986 and as approved by the boards of directors
of our U.K. subsidiaries, Curo Transatlantic Limited ("CTL") and
SRC Transatlantic Limited (collectively with CTL, “the U.K.
Subsidiaries”), insolvency practitioners from KPMG were appointed
as administrators (“Administrators”) in respect of the U.K.
Subsidiaries. The effect of the U.K. Subsidiaries’ entry into
administration was to place the management, affairs, business and
property of the U.K. Subsidiaries under the direct control of the
Administrators. Accordingly, we deconsolidated the U.K.
Subsidiaries as of February 25, 2019 and classified them as
Discontinued Operations beginning the first quarter of 2019. The
following is a summary of the financial results of the U.K.
business, which meet the criteria of Discontinued Operations and,
therefore, are excluded from our results of continuing
operations:
(in thousands, unaudited)
Three Months Ended December
31,
Year Ended December 31,
2019
2018
2019
2018
Revenue (1)
$
—
$
12,987
$
6,957
$
49,238
Provision for losses (1)
—
5,014
1,703
21,632
Net revenue
—
7,973
5,254
27,606
Cost of providing services (1)
—
2,399
1,082
12,179
Corporate, district and other (1)
—
13,126
3,806
31,138
Interest income (1)
—
(7
)
—
(26
)
Depreciation and amortization (1)
—
123
—
501
Goodwill impairment (1)
—
22,496
—
22,496
Loss on disposition (1)
—
—
39,414
—
Pre-tax loss from Discontinued
Operations
—
(30,164
)
(39,048
)
(38,682
)
Income tax benefit related to
disposition
(647
)
(448
)
(46,638
)
(170
)
Net income (loss) from discontinued
operations
$
647
$
(29,716
)
$
7,590
$
(38,512
)
Net income (loss) from discontinued
operations
$
647
$
(29,716
)
$
7,590
$
(38,512
)
Income tax benefit related to
disposition
(647
)
(448
)
(46,638
)
(170
)
Interest income
—
(7
)
(4
)
(26
)
Depreciation and amortization
—
123
(4
)
501
EBITDA (2)
—
(30,048
)
(39,056
)
(38,207
)
U.K. disposition, redress and related
costs
—
9,780
40,845
13,732
Goodwill impairment
—
22,496
—
22,496
Other adjustments
—
(6
)
(2
)
(54
)
Adjusted EBITDA (2)
$
—
$
2,222
$
1,787
$
(2,033
)
(1) For the year ended December 31, 2019,
includes operations through February 25, 2019
(2) For a description of each non-GAAP
metric, see "Non-GAAP Financial Measures."
Revenue and expenses related to discontinued operations included
activity prior to the deconsolidation of the U.K. subsidiaries
effective February 25, 2019. The $2.2 million and $2.0 million of
Adjusted EBITDA loss ascribed to discontinued operations for the
three months and year ended December 31, 2018, respectively, were
included in consolidated Adjusted EBITDA. For the year ended
December 31, 2019, "Loss on disposition" of $39.4 million included
the non-cash effect of eliminating assets and liabilities of the
U.K. Subsidiaries as of the date of deconsolidation, as well as the
effect of cumulative currency exchange rate differences on the U.S.
investment in the U.K.
In connection with the disposition of the U.K. Subsidiaries, the
U.S. entity that owned our interests in the U.K. Subsidiaries
recognized a loss on investment. This loss resulted in an estimated
U.S. Federal and state income tax benefit of $46.6 million, to be
applied against future income tax obligations. In the fourth
quarter of 2019, we revised the estimate of our tax basis in the
U.K. Subsidiaries, resulting in a $0.6 million addition to the
income tax benefit initially recorded in the first quarter of
2019.
CURO GROUP HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands)
December 31, 2019 (unaudited)
December 31, 2018
ASSETS
Cash
$
75,242
$
61,175
Restricted cash (includes restricted cash
of consolidated VIEs of $17,427 and $12,840 as of December 31, 2019
and 2018, respectively)
34,779
25,439
Gross loans receivable (includes loans of
consolidated VIEs of $244,492 and $148,876 as of December 31, 2019
and 2018, respectively)
665,828
571,531
Less: allowance for loan losses (includes
allowance for losses of consolidated VIEs of $24,425 and $12,688 as
of December 31, 2019 and 2018, respectively)
(106,835
)
(73,997
)
Loans receivable, net
558,993
497,534
Right of use asset - operating leases
117,453
—
Deferred income taxes
5,055
1,534
Income taxes receivable
11,426
16,741
Prepaid expenses and other
35,890
43,588
Property and equipment, net
70,811
76,750
Goodwill
120,609
119,281
Other intangibles, net of accumulated
amortization
33,927
29,784
Other
17,710
12,930
Assets of discontinued operations
—
34,861
Total Assets
$
1,081,895
$
919,617
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued liabilities
(includes accounts payable and accrued liabilities of consolidated
VIEs of $13,462 and $4,980 as of December 31, 2019 and 2018,
respectively)
$
60,083
$
49,146
Deferred revenue
10,170
9,483
Lease liability - operating leases
124,999
—
Income taxes payable
—
1,579
Accrued interest (includes accrued
interest of consolidated VIEs of $871 and $831 as of December 31,
2019 and 2018, respectively)
19,847
20,904
Liability for losses on CSO lender-owned
consumer loans
10,623
12,007
Deferred rent
—
10,851
Debt (includes debt and issuance costs of
consolidated VIEs of $115,243 and $3,022 as of December 31, 2019
and $111,335 and $3,856 as of December 31, 2018, respectively)
790,544
804,140
Subordinated shareholder debt
—
2,196
Other long-term liabilities
10,664
5,800
Deferred income tax liabilities
4,452
13,730
Liabilities of discontinued operations
—
8,882
Total Liabilities
$
1,031,382
$
938,718
Stockholders' Equity
Total Stockholders' Equity (Deficit)
$
50,513
$
(19,101
)
Total Liabilities and Stockholders'
Equity
$
1,081,895
$
919,617
Balance Sheet Changes - December 31, 2019 compared to
December 31, 2018
Cash - The increase in Cash from
December 31, 2018 is primarily due to portfolio optimization in
advance of regulatory changes in California impacting our
Installment products and lower interest expense compared to the
prior year, partially offset by net payments on our Senior Revolver
and Non-Recourse Canada SPV Facility and repurchases of our common
stock.
Restricted Cash - The increase in
Restricted cash from December 31, 2018 is primarily due to
increased consumer demand for loans meeting the Non-Recourse Canada
SPV Facility criteria as well as restricted cash balances related
to Revolve Finance, our new demand deposit account.
Gross Loans Receivable and Allowance for
Loan Losses - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Gross Loans Receivable and
related Allowance for Loan Losses were due to the product mix shift
from Single-Pay to Installment and Open-End loans (primarily in
Canada).
Right of use asset and lease liability and
Deferred rent - Due to the adoption as of January 1, 2019 of
ASU No. 2016-02, Leases, which requires lessees to record leases on
the balance sheet and disclose key information about leasing
arrangements, we had a right of use asset of $117.5 million and a
lease liability of $125.0 million as of December 31, 2019.
Fiscal 2020 Outlook - Reconciliations
Reconciliation of Net income from
continuing operations and Diluted Earnings per Share to Adjusted
Net Income and Adjusted Diluted Earnings per share, non-GAAP
measures(1)
(unaudited)
Fiscal 2020 Outlook
Year Ending December 31,
2020
(in thousands, except per share data)
Low
High
Net income from continuing
operations
$
125,700
$
135,500
Adjustments:
Share-based compensation
9,600
9,600
Intangible asset amortization
2,400
2,400
Cumulative tax effect of adjustments
(3,000
)
(3,000
)
Adjusted Net Income
$
134,700
$
144,500
Net income
$
125,700
$
135,500
Diluted Weighted Average Shares
Outstanding
43,400
43,100
Diluted Earnings per Share
$
2.89
$
3.14
Per Share impact of adjustments to Net
Income
0.21
0.21
Adjusted Diluted Earnings per
Share
$
3.10
$
3.35
Reconciliation of Net income from
continuing operations to EBITDA and Adjusted EBITDA, non-GAAP
measures (1)
(unaudited)
Fiscal 2020 Outlook
Year Ending December 31,
2020
(in thousands)
Low
High
Net income from continuing
operations
$
125,700
$
135,500
Provision for income taxes
44,300
48,000
Interest expense
68,000
69,500
Depreciation and amortization
18,300
18,300
EBITDA
256,300
271,300
Non-cash rent expense and foreign currency
exchange rate impact (2)(3)
(900
)
(900
)
Share-based compensation
9,600
9,600
Adjusted EBITDA
$
265,000
$
280,000
(1) For a description of each non-GAAP
metric, see "Non-GAAP Financial Measures".
(2) We have historically excluded the
impact of non-cash rent expense from adjusted earnings metrics.
With the adoption of ASU No.2016-02, Leases, effective January 1,
2019, we anticipate the difference between GAAP-basis rent expense
and cash rent paid will grow. However, we will continue to adjust
for this difference.
(3) We have historically excluded the
impact of foreign currency translation and hedges from adjusted
earnings metrics. We do not include the impact of any hedge
settlement or realized currency gains or losses in our outlook.
About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in two
countries and powered by its fully integrated technology platform,
is a market leader by revenues in providing short-term credit to
underbanked consumers. In 1997, the Company was founded in
Riverside, California by three Wichita, Kansas childhood friends to
meet the growing consumer need for short-term loans. Their success
led to opening stores across the United States and expanding to
offer online loans and financial services across two countries.
Today, CURO combines its market expertise with a fully integrated
technology platform, omni-channel approach and advanced credit
decisioning to provide an array of short-term credit products
across all mediums. CURO operates under a number of brands
including Speedy Cash®, Rapid Cash®, Cash Money®, LendDirect®, Avío
Credit®, Opt+® and Revolve Finance®. With over 20 years of
operating experience, CURO provides financial freedom to the
underbanked.
Conference Call
CURO will host a conference call to discuss these results at
8:15 a.m. Eastern Time on Thursday, February 6, 2020. The live
webcast of the call can be accessed at the CURO Investor Relations
website at http://ir.curo.com/.
You may access the call at 1-866-807-9684 (1-412-317-5415 for
international callers). Please ask to join the CURO Group Holdings
call. A replay of the conference call will be available until
February 13, 2020, at 11:15 a.m. Eastern Time. An archived version
of the webcast will be available on the CURO Investors website for
90 days. You may access the conference call replay at
1-877-344-7529 (1-412-317-0088 for international callers). The
replay access code is 10138582.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final audited data will be
included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019.
Forward-Looking Statements
This press release contains forward-looking statements. These
forward-looking statements include statements related to our fiscal
2020 outlook, reconciliations to that outlook and its drivers; our
expectation that the acquisition of Ad Astra Recovery Services will
provide multiple synergies and be accretive to 2020 earnings; and
our expectation that, following adoption of ASU No 2016-02, Leases,
the difference between GAAP-basis rent expense and cash rent paid
will grow. In addition, words such as “guidance,” “estimate,”
“anticipate,” “believe,” “forecast,” “step,” “plan,” “predict,”
“focused,” “project,” “is likely,” “expect,” “intend,” “should,”
“will,” “confident,” variations of such words and similar
expressions are intended to identify forward-looking statements.
Our ability to achieve these forward-looking statements is based on
certain assumptions and judgments, including our ability to execute
on our business strategy and our ability to accurately predict our
future financial results. These assumptions and judgments may prove
to be inaccurate in the future. These forward-looking statements
are not guarantees of future performance and involve known and
unknown risks and uncertainties that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence.
There are important factors both within and outside of our control
that could cause our actual results to differ materially from those
in the forward-looking statements. These factors include errors in
our internal forecasts; our level of indebtedness; our ability to
integrate acquired businesses; our dependence on third-party
lenders to provide the cash we need to fund our loans and our
ability to affordably access third-party financing; actions of
regulators and the negative impact of those actions on our
business; our ability to protect our proprietary technology and
analytics and keep up with that of our competitors; disruption of
our information technology systems that adversely affect our
business operations; ineffective pricing of the credit risk of our
prospective or existing customers; inaccurate information supplied
by customers or third parties could lead to errors in judging
customers’ qualifications to receive loans; improper disclosure of
customer personal data; failure of third parties who provide
products, services or support to us; any failure of third-party
lenders upon whom we rely to conduct business in certain states;
disruption to our relationships with banks and other third-party
electronic payment solutions providers; disruption caused by
employee or third-party theft and errors in our stores as well as
other factors discussed in our filings with the Securities and
Exchange Commission. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a
prediction of actual future results. We undertake no obligation to
update, amend or clarify any forward-looking statement for any
reason.
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity
with U.S. GAAP, we provide certain “non-GAAP financial measures,”
including:
- Adjusted Net Income and Adjusted Earnings Per Share, or the
Adjusted Earnings Measures (net income from continuing operations
plus or minus (gain) loss on extinguishment of debt, restructuring
and other costs, loss from equity method investment, goodwill and
intangible asset impairments, certain legal settlements, 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);
- Adjusted effective income tax rate (effective tax rate plus or
minus certain non-cash and other adjusting items); and
- Gross Combined Loans Receivable (includes loans originated by
third-party lenders through CSO programs which are not included in
the Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information
is meaningful and useful in understanding the activities and
business metrics of the Company's operations. We believe that these
non-GAAP financial measures reflect an additional way of viewing
aspects of the business that, when viewed with the Company's U.S.
GAAP results, provide a more complete understanding of factors and
trends affecting the business.
We believe that investors regularly rely on non-GAAP financial
measures, such as Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA, to assess operating performance and
that such measures may highlight trends in the business that may
not otherwise be apparent when relying on financial measures
calculated in accordance with U.S. GAAP. In addition, we believe
that the adjustments shown above are useful to investors in order
to allow them to compare our financial results during the periods
shown without the effect of each of these income or expense items.
In addition, we believe that Adjusted Net Income, Adjusted Earnings
per Share, EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of public companies in our industry, many of which
present Adjusted Net Income, Adjusted Earnings per Share, EBITDA
and/or Adjusted EBITDA when reporting their results.
In addition to reporting loans receivable information in
accordance with U.S. GAAP, we provide Gross Combined Loans
Receivable consisting of owned loans receivable plus loans
originated by third-party lenders through the CSO programs, which
we guarantee but do not include in the Consolidated Financial
Statements. Management believes this analysis provides investors
with important information needed to evaluate overall lending
performance.
We provide non-GAAP financial information for informational
purposes and to enhance understanding of the U.S. GAAP Consolidated
Financial Statements. Adjusted Net Income, Adjusted Earnings per
Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable
should not be considered as alternatives to income from continuing
operations, segment operating income, or any other performance
measure derived in accordance with U.S. GAAP, or as an alternative
to cash flows from operating activities or any other liquidity
measure derived in accordance with U.S. GAAP. Readers should
consider the information in addition to, but not instead of or
superior to, the financial statements prepared in accordance with
U.S. GAAP. This non-GAAP financial information may be determined or
calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial
Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA Measures have limitations as analytical tools, and
you should not consider these measures in isolation or as a
substitute for analysis of our income or cash flows as reported
under U.S. GAAP. Some of these limitations are:
- they do not include cash expenditures or future requirements
for capital expenditures or contractual commitments;
- they do not include changes in, or cash requirements for,
working capital needs;
- they do not include the interest expense, or the cash
requirements necessary to service interest or principal payments on
debt;
- depreciation and amortization are non-cash expense items
reported in the statements of cash flows; and
- other companies in our industry may calculate these measures
differently, limiting their usefulness as comparative
measures.
We calculate Adjusted Earnings per Share utilizing diluted
shares outstanding at year-end. If the Company records a loss from
continuing operations under U.S. GAAP, shares outstanding utilized
to calculate Diluted Earnings per Share from continuing operations
are equivalent to basic shares outstanding. Shares outstanding
utilized to calculate Adjusted Earnings per Share from continuing
operations reflect the number of diluted shares the Company would
have reported if reporting net income from continuing operations
under U.S. GAAP.
As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are
not included in the consolidated financial statements but from
which we earn revenue and for which we provide a guarantee to the
lender. Management believes this analysis provides investors with
important information needed to evaluate overall lending
performance.
We evaluate stores based on revenue per store, provision for
losses at each store and store-level EBITDA, with consideration
given to the length of time a store has been open and its
geographic location. We monitor newer stores for their progress to
profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA are used by investors to analyze
operating performance and to evaluate our ability to incur and
service debt and the capacity for making capital expenditures.
Adjusted EBITDA is also useful to investors to help assess our
estimated enterprise value. The computation of Adjusted EBITDA as
presented in this release may differ from the computation of
similarly-titled measures provided by other companies.
(CURO-NWS)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200205005835/en/
Investor Relations: Roger Dean Executive Vice President and
Chief Financial Officer Phone: 844-200-0342 Email: IR@curo.com Or
Global IR Group Gar Jackson Phone: 949-873-2789 Email:
gar@globalirgroup.com
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