CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Single-Pay(1)
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Total
|
Current loans receivable
|
|
$
|
81,447
|
|
$
|
117,682
|
|
$
|
70,565
|
|
$
|
285,452
|
|
$
|
555,146
|
|
Delinquent loans receivable
|
|
—
|
|
43,100
|
|
17,510
|
|
50,072
|
|
110,682
|
|
Total loans receivable
|
|
81,447
|
|
160,782
|
|
88,075
|
|
335,524
|
|
665,828
|
|
Less: allowance for losses
|
|
(5,869
|
)
|
(35,587
|
)
|
(10,305
|
)
|
(55,074
|
)
|
(106,835
|
)
|
Loans receivable, net
|
|
$
|
75,578
|
|
$
|
125,195
|
|
$
|
77,770
|
|
$
|
280,450
|
|
$
|
558,993
|
|
(1) Of the $81.4 million of Single-Pay receivables, $22.4 million relate to mandated extended payment options for certain Canada Single-Pay loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Total
|
Delinquent loans receivable
|
|
|
|
|
|
|
0-30 days past due
|
|
$
|
15,369
|
|
$
|
8,039
|
|
$
|
21,823
|
|
$
|
45,231
|
|
31-60 days past due
|
|
12,403
|
|
4,885
|
|
13,191
|
|
30,479
|
|
61 + days past due
|
|
15,328
|
|
4,586
|
|
15,058
|
|
34,972
|
|
Total delinquent loans receivable
|
|
$
|
43,100
|
|
$
|
17,510
|
|
$
|
50,072
|
|
$
|
110,682
|
|
The following tables summarize loans guaranteed by the Company under CSO programs and the related delinquent receivables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Current loans receivable guaranteed by the Company
|
|
$
|
44,865
|
|
$
|
1,509
|
|
$
|
46,374
|
|
Delinquent loans receivable guaranteed by the Company
|
|
9,232
|
|
311
|
|
9,543
|
|
Total loans receivable guaranteed by the Company
|
|
54,097
|
|
1,820
|
|
55,917
|
|
Less: Liability for losses on CSO lender-owned consumer loans
|
|
(9,142
|
)
|
(47
|
)
|
(9,189
|
)
|
Loans receivable guaranteed by the Company, net
|
|
$
|
44,955
|
|
$
|
1,773
|
|
$
|
46,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Delinquent loans receivable
|
|
|
|
|
|
0-30 days past due
|
|
$
|
7,589
|
|
$
|
255
|
|
$
|
7,844
|
|
31-60 days past due
|
|
939
|
|
32
|
|
971
|
|
61+ days past due
|
|
704
|
|
24
|
|
728
|
|
Total delinquent loans receivable
|
|
$
|
9,232
|
|
$
|
311
|
|
$
|
9,543
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Current loans receivable guaranteed by the Company
|
|
$
|
61,840
|
|
$
|
1,944
|
|
$
|
63,784
|
|
Delinquent loans receivable guaranteed by the Company
|
|
12,477
|
|
392
|
|
12,869
|
|
Total loans receivable guaranteed by the Company
|
|
74,317
|
|
2,336
|
|
76,653
|
|
Less: Liability for losses on CSO lender-owned consumer loans
|
|
(10,553
|
)
|
(70
|
)
|
(10,623
|
)
|
Loans receivable guaranteed by the Company, net
|
|
$
|
63,764
|
|
$
|
2,266
|
|
$
|
66,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Delinquent loans receivable
|
|
|
|
|
0-30 days past due
|
|
$
|
10,392
|
|
$
|
326
|
|
$
|
10,718
|
|
31-60 days past due
|
|
1,256
|
|
40
|
|
1,296
|
|
61 + days past due
|
|
829
|
|
26
|
|
855
|
|
Total delinquent loans receivable
|
|
$
|
12,477
|
|
$
|
392
|
|
$
|
12,869
|
|
The following table summarizes activity in the allowance for loan losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Single-Pay
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Other
|
Total
|
Balance, beginning of period
|
$
|
5,869
|
|
$
|
35,587
|
|
$
|
10,305
|
|
$
|
55,074
|
|
$
|
—
|
|
$
|
106,835
|
|
Charge-offs
|
(40,521
|
)
|
(38,558
|
)
|
(13,110
|
)
|
(43,509
|
)
|
(1,279
|
)
|
(136,977
|
)
|
Recoveries
|
30,004
|
|
5,783
|
|
2,909
|
|
6,411
|
|
575
|
|
45,682
|
|
Net charge-offs
|
(10,517
|
)
|
(32,775
|
)
|
(10,201
|
)
|
(37,098
|
)
|
(704
|
)
|
(91,295
|
)
|
Provision for losses
|
9,639
|
|
26,182
|
|
9,622
|
|
40,991
|
|
704
|
|
87,138
|
|
Effect of foreign currency translation
|
(298
|
)
|
(29
|
)
|
—
|
|
(2,509
|
)
|
—
|
|
(2,836
|
)
|
Balance, end of period
|
$
|
4,693
|
|
$
|
28,965
|
|
$
|
9,726
|
|
$
|
56,458
|
|
$
|
—
|
|
$
|
99,842
|
|
Allowance for loan losses as a percentage of gross loan receivables
|
8.6
|
%
|
23.5
|
%
|
13.4
|
%
|
18.0
|
%
|
N/A
|
|
17.7
|
%
|
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Balance, beginning of period
|
$
|
10,553
|
|
$
|
70
|
|
$
|
10,623
|
|
Charge-offs
|
(41,511
|
)
|
(862
|
)
|
(42,373
|
)
|
Recoveries
|
13,762
|
|
779
|
|
14,541
|
|
Net charge-offs
|
(27,749
|
)
|
(83
|
)
|
(27,832
|
)
|
Provision for losses
|
26,338
|
|
60
|
|
26,398
|
|
Balance, end of period
|
$
|
9,142
|
|
$
|
47
|
|
$
|
9,189
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans in total (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Single-Pay
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Other
|
Total
|
Balance, beginning of period
|
$
|
5,869
|
|
$
|
46,140
|
|
$
|
10,375
|
|
$
|
55,074
|
|
$
|
—
|
|
$
|
117,458
|
|
Charge-offs
|
(40,521
|
)
|
(80,069
|
)
|
(13,972
|
)
|
(43,509
|
)
|
(1,279
|
)
|
(179,350
|
)
|
Recoveries
|
30,004
|
|
19,545
|
|
3,688
|
|
6,411
|
|
575
|
|
60,223
|
|
Net charge-offs
|
(10,517
|
)
|
(60,524
|
)
|
(10,284
|
)
|
(37,098
|
)
|
(704
|
)
|
(119,127
|
)
|
Provision for losses
|
9,639
|
|
52,520
|
|
9,682
|
|
40,991
|
|
704
|
|
113,536
|
|
Effect of foreign currency translation
|
(298
|
)
|
(29
|
)
|
—
|
|
(2,509
|
)
|
—
|
|
(2,836
|
)
|
Balance, end of period
|
$
|
4,693
|
|
$
|
38,107
|
|
$
|
9,773
|
|
$
|
56,458
|
|
$
|
—
|
|
$
|
109,031
|
|
The following table summarizes activity in the allowance for loan losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Single-Pay
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Other
|
Total
|
Balance, beginning of period
|
$
|
4,189
|
|
$
|
37,716
|
|
$
|
12,191
|
|
$
|
19,901
|
|
$
|
—
|
|
$
|
73,997
|
|
Charge-offs
|
(36,521
|
)
|
(44,237
|
)
|
(12,671
|
)
|
(3,638
|
)
|
(1,351
|
)
|
(98,418
|
)
|
Recoveries
|
27,911
|
|
6,318
|
|
3,123
|
|
5,159
|
|
898
|
|
43,409
|
|
Net charge-offs
|
(8,610
|
)
|
(37,919
|
)
|
(9,548
|
)
|
1,521
|
|
(453
|
)
|
(55,009
|
)
|
Provision for losses
|
8,268
|
|
33,845
|
|
7,153
|
|
25,317
|
|
453
|
|
75,036
|
|
Effect of foreign currency translation
|
50
|
|
24
|
|
—
|
|
224
|
|
—
|
|
298
|
|
Balance, end of period
|
$
|
3,897
|
|
$
|
33,666
|
|
$
|
9,796
|
|
$
|
46,963
|
|
$
|
—
|
|
$
|
94,322
|
|
Allowance for loan losses as a percentage of gross loan receivables
|
5.6
|
%
|
20.8
|
%
|
12.1
|
%
|
19.5
|
%
|
N/A
|
|
17.0
|
%
|
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Unsecured Installment
|
Secured Installment
|
Total
|
Balance, beginning of period
|
$
|
11,582
|
|
$
|
425
|
|
$
|
12,007
|
|
Charge-offs
|
(40,980
|
)
|
(1,076
|
)
|
(42,056
|
)
|
Recoveries
|
10,560
|
|
802
|
|
11,362
|
|
Net charge-offs
|
(30,420
|
)
|
(274
|
)
|
(30,694
|
)
|
Provision for losses
|
27,422
|
|
(73
|
)
|
27,349
|
|
Balance, end of period
|
$
|
8,584
|
|
$
|
78
|
|
$
|
8,662
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, a non-GAAP metric, in total (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Single-Pay
|
Unsecured Installment
|
Secured Installment
|
Open-End
|
Other
|
Total
|
Balance, beginning of period
|
$
|
4,189
|
|
$
|
49,298
|
|
$
|
12,616
|
|
$
|
19,901
|
|
$
|
—
|
|
$
|
86,004
|
|
Charge-offs
|
(36,521
|
)
|
(85,217
|
)
|
(13,747
|
)
|
(3,638
|
)
|
(1,351
|
)
|
(140,474
|
)
|
Recoveries
|
27,911
|
|
16,878
|
|
3,925
|
|
5,159
|
|
898
|
|
54,771
|
|
Net charge-offs
|
(8,610
|
)
|
(68,339
|
)
|
(9,822
|
)
|
1,521
|
|
(453
|
)
|
(85,703
|
)
|
Provision for losses
|
8,268
|
|
61,267
|
|
7,080
|
|
25,317
|
|
453
|
|
102,385
|
|
Effect of foreign currency translation
|
50
|
|
24
|
|
—
|
|
224
|
|
—
|
|
298
|
|
Balance, end of period
|
$
|
3,897
|
|
$
|
42,250
|
|
$
|
9,874
|
|
$
|
46,963
|
|
$
|
—
|
|
$
|
102,984
|
|
NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivables under CSO programs were $6.8 million and $14.7 million at March 31, 2020 and December 31, 2019, respectively, and are reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The Company bears the risk of loss through its guarantee to purchase specific customer loans that are in default with the lenders. The terms of these loans range up to six months. See the 2019 Form 10-K for further details of the Company's accounting policy.
As of March 31, 2020 and December 31, 2019, the incremental maximum amount payable under all such guarantees was $45.7 million and $62.7 million, respectively. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover some or the entire amount from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the Allowance for loan losses, which it recognizes for its consumer loans. Liability for incurred losses on CSO loans Guaranteed by the Company was $9.2 million and $10.6 million at March 31, 2020 and December 31, 2019, respectively.
The Company placed $5.7 million and $6.2 million in collateral accounts for the benefit of lenders at March 31, 2020 and December 31, 2019, respectively, which is reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each such lender.
Deferred revenue associated with the CSO program was immaterial as of March 31, 2020 and December 31, 2019 and there were no costs to obtain, or costs to fulfill, capitalized under the program. See Note 3, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.
NOTE 5 – DEBT
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
8.25% Senior Secured Notes (due 2025)
|
|
$
|
678,727
|
|
|
$
|
678,323
|
|
Non-Recourse Canada SPV Facility
|
|
84,724
|
|
|
112,221
|
|
Senior Revolver
|
|
25,000
|
|
|
—
|
|
Debt
|
|
$
|
788,451
|
|
|
$
|
790,544
|
|
8.25% Senior Secured Notes
In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes which mature on September 1, 2025. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1. In connection with the 8.25% Senior Secured Notes, the balance of capitalized financing costs of $11.3 million, net of amortization, is included in the unaudited Condensed Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 8.25% Senior Secured Notes as a component of interest expense.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company used the proceeds of this issuance (i) to redeem the outstanding 12.00% Senior Secured Notes of CFTC, (ii) to repay a portion of the outstanding indebtedness under the five-year revolving credit facility of CURO Receivables Finance I, LLC, a wholly-owned subsidiary, which consisted 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 therewith.
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 provided 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. The Canada SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. In April 2019, the facility's maturity date was extended one year, to September 2, 2023.
As of March 31, 2020, outstanding borrowings under the Non-Recourse Canada SPV Facility were $84.7 million, net of deferred financing costs of $2.6 million. For further information on the Non-Recourse Canada SPV, refer to Note 2, "Variable Interest Entities."
Senior Revolver
On September 1, 2017, the Company entered into the Senior Revolver with $25.0 million of capacity. In November 2018, the Senior Revolver capacity was increased to $50.0 million as permitted by the Indenture to the 8.25% Senior Secured Notes. The Senior Revolver is now syndicated with participation by four banks.
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 current term has been extended to June 30, 2021. The Senior Revolver accrues interest at one-month LIBOR plus 5.00% (subject to a 5% overall minimum).
The terms of the Senior Revolver also require that its outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries that guarantee the 8.25% Senior Secured Notes and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 8.25% Senior Secured Notes. Additionally, the negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for the 8.25% Senior Secured Notes. The revolver had an outstanding balance of $25.0 million at March 31, 2020.
The Senior Revolver contains various conditions to borrowing and affirmative, negative and financial maintenance covenants. Certain of the more significant covenants are (i) minimum eligible collateral value, (ii) consolidated interest coverage ratio and (iii) consolidated leverage ratio. The Senior Revolver also contains various events of default, the occurrence of which could result in termination of the lenders’ commitments to lend and the acceleration of all obligations under the Senior Revolver.
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., a Canadian subsidiary ("Cash Money"), maintains a C$10.0 million revolving credit facility with Royal Bank of Canada (the "Cash Money Revolving Credit Facility"), which provides short-term liquidity required to meet the working capital needs of the Company's 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$10.0 million. As of March 31, 2020, the borrowing capacity under the Cash Money Revolving Credit Facility, which was C$9.9 million, net of C$0.1 million in outstanding 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 require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as 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 March 31, 2020 and December 31, 2019.
Non-Recourse U.S. SPV Facility
Refer to Note 19, "Subsequent Events" for additional information regarding a new Asset-Backed Revolving Credit Facility entered into on April 8, 2020.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 – SHARE-BASED COMPENSATION
The Company's stockholder-approved 2017 Incentive Plan provides for the issuance of up to 5.0 million shares, subject to certain adjustment provisions, which may be issued in the form of stock options, restricted stock awards, RSUs, stock appreciation rights, performance awards and other awards that may be settled in or based on common stock. Awards may be granted to officers, employees, consultants and directors. The 2017 Incentive Plan provides that shares of common stock subject to awards granted become available for re-issuance if such awards expire, terminate, are canceled for any reason or are forfeited by the recipient.
Restricted Stock Units
Grants of time-based RSUs are valued at the date of grant based on the closing market price of common stock and are expensed using the straight-line method over the service period. These RSUs are subject to time-based vesting and typically vest over a three-year period.
Grants of market-based RSUs are valued using the Monte Carlo simulation pricing model. The market-based RSUs vest after three years if the Company's total stockholder return over the three-year performance period meets a specified target relative to other companies in its selected peer group. Expense recognition for the market-based awards occurs over the service period using the straight-line method.
Unvested shares of RSUs may be forfeited upon termination of employment depending on the circumstances of the termination, or failure to achieve the required performance condition, if applicable.
A summary of the activity of time-based and market-based unvested RSUs as of March 31, 2020 and changes during the three months ended March 31, 2020 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs
|
|
|
|
Time-Based
|
Market-Based
|
|
Weighted Average
Grant Date Fair Value per Share
|
December 31, 2019
|
1,061,753
|
|
394,861
|
|
|
$
|
11.47
|
|
Granted
|
571,773
|
|
368,539
|
|
|
10.55
|
|
Vested
|
(197,859
|
)
|
—
|
|
|
11.39
|
|
Forfeited
|
(12,756
|
)
|
(2,613
|
)
|
|
12.07
|
|
March 31, 2020
|
1,422,911
|
|
760,787
|
|
|
$
|
11.08
|
|
Share-based compensation expense for the three months ended March 31, 2020 and 2019, which includes compensation costs from stock options and RSUs, was $3.2 million and $2.2 million, respectively, and is included in the unaudited Condensed Consolidated Statements of Operations as a component of "Corporate, district and other expenses."
As of March 31, 2020, there was $19.6 million of total unrecognized compensation cost related to stock options and RSUs, of which $13.8 million related to time-based RSUs and $5.6 million related to market-based RSUs. Total unrecognized compensation costs will be recognized over a weighted-average period of 2.1 years.
NOTE 7 – INCOME TAXES
The Company's effective income tax rate was 5.1% and 25.9% for the three months ended March 31, 2020 and 2019, respectively. The decrease in effective income tax rate was primarily due to a tax benefit from the CARES Act, which was enacted by the U.S. Federal government on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously-paid Federal income taxes. In the first quarter of 2020, the Company recorded an income tax benefit of $9.1 million related to the carry-back NOL from tax years 2018 and 2019, which will offset income earned in years prior to tax reform and generate a refund of previously paid taxes at 35%. In addition, losses from the Company's equity method investment in Katapult are not tax deductible, thus increasing the March 31, 2020 effective tax rate.
The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the earnings of $153.8 million were distributed to the U.S., the Company would be subject to Canadian withholding taxes of an estimated $7.7 million. In the event the earnings
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
were distributed to the U.S., the Company would adjust the income tax provision for the applicable period and would determine the amount of foreign tax credit that would be available.
NOTE 8 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company is required to use valuation techniques that are consistent with the market approach, income approach and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on observable market data obtained from independent sources, or unobservable, meaning those that reflect the Company's own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are listed below.
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.
Level 2 – Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including its own data.
Financial Assets and Liabilities Carried at Fair Value
The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Carrying Value March 31,
2020
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets:
|
|
|
|
|
|
Cash Surrender Value of Life Insurance
|
$
|
5,696
|
|
$
|
5,696
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5,696
|
|
Financial liabilities:
|
|
|
|
|
|
Non-qualified deferred compensation plan
|
$
|
3,818
|
|
$
|
3,818
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,818
|
|
The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Carrying Value December 31,
2019
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets:
|
|
|
|
|
|
Cash Surrender Value of Life Insurance
|
$
|
6,171
|
|
$
|
6,171
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,171
|
|
Financial liabilities:
|
|
|
|
|
|
Non-qualified deferred compensation plan
|
$
|
4,666
|
|
$
|
4,666
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4,666
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial Assets and Liabilities Not Carried at Fair Value
The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Carrying Value March 31,
2020
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets:
|
|
|
|
|
|
Cash
|
$
|
138,714
|
|
$
|
138,714
|
|
$
|
—
|
|
$
|
—
|
|
$
|
138,714
|
|
Restricted cash
|
41,527
|
|
41,527
|
|
—
|
|
—
|
|
41,527
|
|
Loans receivable, net
|
464,595
|
|
—
|
|
—
|
|
464,595
|
|
464,595
|
|
Equity method investment
|
8,450
|
|
—
|
|
—
|
|
8,450
|
|
8,450
|
|
Financial liabilities:
|
|
|
|
|
|
Liability for losses on CSO lender-owned consumer loans
|
$
|
9,189
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,189
|
|
$
|
9,189
|
|
8.25% Senior Secured Notes
|
678,727
|
|
—
|
|
478,503
|
|
—
|
|
478,503
|
|
Non-Recourse Canada SPV facility
|
84,724
|
|
—
|
|
—
|
|
87,365
|
|
87,365
|
|
Senior Revolver
|
25,000
|
|
—
|
|
—
|
|
25,000
|
|
25,000
|
|
The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
Carrying Value December 31,
2019
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial assets:
|
|
|
|
|
|
Cash
|
$
|
75,242
|
|
$
|
75,242
|
|
$
|
—
|
|
$
|
—
|
|
$
|
75,242
|
|
Restricted cash
|
34,779
|
|
34,779
|
|
—
|
|
—
|
|
34,779
|
|
Loans receivable, net
|
558,993
|
|
—
|
|
—
|
|
558,993
|
|
558,993
|
|
Equity method investment
|
10,068
|
|
—
|
|
—
|
|
10,068
|
|
10,068
|
|
Financial liabilities:
|
|
|
|
|
|
Liability for losses on CSO lender-owned consumer loans
|
$
|
10,623
|
|
$
|
—
|
|
$
|
—
|
|
$
|
10,623
|
|
$
|
10,623
|
|
8.25% Senior Secured Notes
|
678,323
|
|
—
|
|
596,924
|
|
—
|
|
596,924
|
|
Non-Recourse Canada SPV facility
|
112,221
|
|
—
|
|
—
|
|
115,243
|
|
115,243
|
|
Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the Allowance for loan losses. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. The carrying value of loans receivable approximates their fair value. Refer to Note 3, "Loans Receivable and Revenue" for additional information.
During 2019, Katapult completed an incremental equity round at a value per share less than the value per share raised in prior raises. This round included additional investments from existing shareholders and investments by new investors, and was considered indicative of the fair value of shares in Katapult. Accordingly, the Company recognized a $3.7 million loss on its investment to adjust it to market value. As of March 31, 2020, the Company owned approximately 42.5% of the outstanding shares of Katapult.
In connection with CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company is required to purchase from the lender defaulted loans that it has guaranteed. Refer to Note 3, "Loans Receivable and Revenue" for additional information.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The 8.25% Senior Secured Notes fair value disclosure was based on broker quotations. The fair values of the Non-Recourse Canada SPV facility and the Senior Revolver were based on the cash needed for their respective final settlements.
NOTE 9 – STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Paid-in capital
|
|
Retained Earnings (Deficit)
|
|
AOCI (1)
|
|
Total Stockholders' Equity
|
|
Shares Outstanding
|
|
Par Value
|
|
|
|
|
|
Balances at December 31, 2019
|
41,156,224
|
|
|
$
|
9
|
|
|
$
|
(72,343
|
)
|
|
$
|
68,087
|
|
|
$
|
93,423
|
|
|
$
|
(38,663
|
)
|
|
$
|
50,513
|
|
Net income from continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,013
|
|
|
—
|
|
|
36,013
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
292
|
|
|
—
|
|
|
292
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,193
|
)
|
|
(22,193
|
)
|
Dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,256
|
)
|
—
|
|
—
|
|
|
(2,256
|
)
|
Share based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
3,194
|
|
|
—
|
|
|
—
|
|
|
3,194
|
|
Proceeds from exercise of stock options
|
42,094
|
|
|
—
|
|
|
—
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
126
|
|
Repurchase of common stock
|
(540,762
|
)
|
|
—
|
|
|
(5,509
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,509
|
)
|
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes
|
121,891
|
|
|
—
|
|
|
—
|
|
|
(609
|
)
|
|
—
|
|
|
—
|
|
|
(609
|
)
|
Balances at March 31, 2020
|
40,779,447
|
|
|
$
|
9
|
|
|
$
|
(77,852
|
)
|
|
$
|
70,798
|
|
|
$
|
127,472
|
|
|
$
|
(60,856
|
)
|
|
$
|
59,571
|
|
(1) Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Paid-in capital
|
|
Retained Earnings (Deficit)
|
|
AOCI (1)
|
|
Total Stockholders' Equity (Deficit)
|
|
Shares Outstanding
|
|
Par Value
|
|
|
|
|
|
Balances at December 31, 2018
|
46,412,231
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
60,015
|
|
|
$
|
(18,065
|
)
|
|
$
|
(61,060
|
)
|
|
$
|
(19,101
|
)
|
Net income from continuing operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,673
|
|
|
—
|
|
|
28,673
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,375
|
|
|
—
|
|
|
8,375
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,695
|
|
|
16,695
|
|
Share based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
2,172
|
|
|
—
|
|
|
—
|
|
|
2,172
|
|
Proceeds from exercise of stock options
|
7,888
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes
|
11,170
|
|
|
—
|
|
|
—
|
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
(110
|
)
|
Balances at March 31, 2019
|
46,431,289
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
62,117
|
|
|
$
|
18,983
|
|
|
$
|
(44,365
|
)
|
|
$
|
36,744
|
|
(1) Accumulated other comprehensive income (loss)
|
Dividend
On February 5, 2020, the Company's Board of Directors announced the initiation of a dividend program and declared its first cash dividend of $0.055 per share. A dividend of $2.2 million was paid on March 2, 2020 to stockholders of record as of the close of
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
business on February 18, 2020. Subsequently, on April 30, 2020, the Company's Board of Directors declared a dividend. See Note 19, "Subsequent Events" for more information.
NOTE 10 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Net income from continuing operations
|
$
|
36,013
|
|
|
$
|
28,673
|
|
Net income from discontinued operations, net of tax
|
292
|
|
|
8,375
|
|
Net income
|
$
|
36,305
|
|
|
$
|
37,048
|
|
|
|
|
|
Weighted average common shares - basic
|
40,817
|
|
|
46,424
|
|
Dilutive effect of stock options and restricted stock units
|
1,075
|
|
|
895
|
|
Weighted average common shares - diluted
|
41,892
|
|
|
47,319
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
Continuing operations
|
$
|
0.88
|
|
|
$
|
0.62
|
|
Discontinued operations
|
0.01
|
|
|
0.18
|
|
Basic earnings per share
|
$
|
0.89
|
|
|
$
|
0.80
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
Continuing operations
|
$
|
0.86
|
|
|
$
|
0.61
|
|
Discontinued operations
|
0.01
|
|
|
0.18
|
|
Diluted earnings per share
|
$
|
0.87
|
|
|
$
|
0.79
|
|
Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating "Diluted earnings per share." For the three months ended March 31, 2020 and March 31, 2019, there were 1.3 million and 1.4 million, respectively, of potential shares of common stock excluded from the calculation of Diluted earnings per share because their effect was anti-dilutive.
The Company utilizes the "control number" concept in the computation of Diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing Diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Cash paid for:
|
|
|
|
Interest
|
$
|
31,184
|
|
|
$
|
32,195
|
|
Income taxes, net of refunds
|
1,065
|
|
|
1,456
|
|
Non-cash investing activities:
|
|
|
|
Property and equipment accrued in accounts payable
|
$
|
869
|
|
|
$
|
349
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's Chief Operating Decision Maker ("CODM") reviews financial information for operational decision making purposes, including revenues, net revenue, gross margin, segment operating income and other items.
U.S. As of March 31, 2020, the Company operated a total of 214 U.S. retail locations and has an online presence in 27 states. The Company provides Single-Pay loans, Installment loans and Open-End loans, vehicle title loans, check cashing, money transfer services, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in the U.S. As disclosed in Note 17, "Acquisition," the acquisition of Ad Astra closed during the three months ended March 31, 2020. The results of Ad Astra are included within the U.S. reporting segment.
Canada. As of March 31, 2020, the Company operated a total of 202 stores across seven Canadian provinces and territories and has an online presence in five provinces. The Company provides Single-Pay loans, Installment loans and Open-End loans, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.
The following table illustrates summarized financial information concerning reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Revenues by segment: (1)
|
|
|
|
|
U.S.
|
|
$
|
221,768
|
|
|
$
|
226,119
|
|
Canada
|
|
59,038
|
|
|
51,820
|
|
Consolidated revenue
|
|
$
|
280,806
|
|
|
$
|
277,939
|
|
Net revenues by segment:
|
|
|
|
|
U.S.
|
|
$
|
135,727
|
|
|
$
|
141,139
|
|
Canada
|
|
31,543
|
|
|
34,415
|
|
Consolidated net revenue
|
|
$
|
167,270
|
|
|
$
|
175,554
|
|
Gross margin by segment:
|
|
|
|
|
U.S.
|
|
$
|
87,540
|
|
|
$
|
89,803
|
|
Canada
|
|
12,159
|
|
|
15,694
|
|
Consolidated gross margin
|
|
$
|
99,699
|
|
|
$
|
105,497
|
|
Segment operating income (loss):
|
|
|
|
|
U.S.
|
|
$
|
33,426
|
|
|
$
|
31,195
|
|
Canada
|
|
4,524
|
|
|
7,524
|
|
Consolidated operating profit
|
|
$
|
37,950
|
|
|
$
|
38,719
|
|
Expenditures for long-lived assets by segment:
|
|
|
|
|
U.S.
|
|
$
|
4,280
|
|
|
$
|
2,430
|
|
Canada
|
|
553
|
|
|
689
|
|
Consolidated expenditures for long-lived assets
|
|
$
|
4,833
|
|
|
$
|
3,119
|
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table provides the proportion of gross loans receivable by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
U.S.
|
|
$
|
288,127
|
|
|
$
|
363,453
|
|
Canada
|
|
276,310
|
|
|
302,375
|
|
Total gross loans receivable
|
|
$
|
564,437
|
|
|
$
|
665,828
|
|
The following table represents the Company's net long-lived assets, comprised of property and equipment, by segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
U.S.
|
|
$
|
42,536
|
|
|
$
|
43,618
|
|
Canada
|
|
24,251
|
|
|
27,193
|
|
Total net long-lived assets
|
|
$
|
66,787
|
|
|
$
|
70,811
|
|
The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
NOTE 13 – COMMITMENTS AND CONTENGENCIES
Securities Litigation
On December 5, 2018, a putative securities fraud class action lawsuit was filed against the Company and its chief executive officer, chief financial officer and chief operating officer in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662. On May 31, 2019, plaintiffs filed a consolidated complaint naming Doug Rippel, Chad Faulkner, Mike McKnight, Friedman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P., and FFL Parallel Fund II, L.P. as additional defendants. The complaint alleges that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and that certain defendants also violated Section 20(a) of the Exchange Act as "control persons" of CURO. Plaintiffs purport to bring these claims on behalf of a class of investors who purchased Company common stock between April 27, 2018 and October 24, 2018.
Plaintiffs allege generally that, during the putative class period, the Company made misleading statements and omitted material information regarding its efforts to transition the Canadian inventory of products from Single-Pay loans to Open-End loans. Plaintiffs assert that the Company and the individual defendants made these misstatements and omissions to keep the stock price high. Plaintiffs seek unspecified damages and other relief.
While the Company is vigorously contesting this lawsuit, it cannot determine the final resolution or when it might be resolved. In addition to the expenses incurred in defending this litigation and any damages that may be awarded in the event of an adverse ruling, management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcome, this litigation may have a material adverse impact on results because of defense costs, including costs related to indemnification obligations, diversion of resources and other factors.
During the first quarter of 2019, the Company received an inquiry from the SEC regarding the Company's public disclosures surrounding its efforts to transition the Canadian inventory of products from Single-Pay loans to Open-End loans.
City of Austin
The Company was cited in July 2016 by the City of Austin, Texas for alleged violations of the Austin ordinance addressing products offered by CSOs. The Austin ordinance regulates aspects of products offered under the Company's CAB program, including loan sizes and repayment terms. The Company believes that: (i) the Austin ordinance (similar to its counterparts elsewhere in Texas) conflicts with Texas state law and (ii) in any event, the Company's product complies with the ordinance, when the ordinance is properly construed. The Austin Municipal Court agreed with the Company's position that the ordinance conflicts with Texas law and, accordingly, did not address the second argument. In September 2017, the Travis County Court reversed the Municipal Court’s decision and remanded the case for further proceedings. To date, a hearing and trial on the merits have not been scheduled. The Company does not anticipate having a final determination of the lawfulness of its CAB program under the Austin ordinance (and similar ordinances in other Texas cities) in the near future. A final adverse decision could result in material monetary liability
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
in Austin and elsewhere in Texas, and would force the Company to restructure the loans it originates in Austin and elsewhere in Texas.
Other Legal Matters
The Company is a defendant in certain litigation matters encountered from time-to-time in the ordinary course of business. Certain of these matters may be covered to an extent by insurance. While it is difficult to predict the outcome of any particular proceeding, the Company does not believe the result of any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.
NOTE 14 – LEASES
Operating leases entered into by the Company are primarily for retail stores in certain U.S. states and Canadian provinces. Leases classified as finance are immaterial to the Company as of March 31, 2020. Operating leases expire at various times through 2032. The Company determines if an arrangement is a lease at inception. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" on the Consolidated Balance Sheets.
Typically, a contract is or contains a lease if it conveys the right to control the use of an identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the customer has both (i) the right to obtain substantially all of the economic benefits from use of the identified asset and (ii) the right to direct the use of the identified asset. If the customer has the right to control the use of an identified asset for only a portion of the term of the contract, the contract contains a lease for that portion of the term.
The Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at commencement date. The rate implicit in the Company's leases typically are not readily determinable. As a result, the Company uses its estimated incremental borrowing rate, as allowed by ASC 842, in determining the present value of lease payments. The incremental borrowing rate is based on internal and external information available at the lease commencement date and is determined using a portfolio approach (i.e. using the weighted average terms of all leases in the Company's portfolio). This rate is the theoretical rate the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as that of the portfolio.
The Company uses quoted interest rates obtained from financial institutions as an input, adjusted for Company specific factors, to derive the incremental borrowing rate as the discount rate for the leases. As new leases are added each period, the Company evaluates whether the incremental borrowing rate has changed. If the incremental borrowing rate has changed, the Company will apply the rate to new leases if not doing so would result in a material difference to the ROU asset and lease liability presented on the balance sheet.
The majority of the leases have an original term of five years with two five-year renewal options. The consumer price index is used in determining future lease payments and for purposes of calculating operating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Most of the leases have escalation clauses and certain leases also require payment of period costs, including maintenance, insurance and property taxes. Some of the leases are with related parties and have terms similar to the non-related party leases. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the operating lease costs and other information for the three months ended March 31, 2020 and March 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
2019
|
Operating lease costs:
|
|
|
Third-Party
|
$
|
7,626
|
|
$
|
7,621
|
|
Related-Party
|
864
|
|
847
|
|
Total operating lease costs
|
$
|
8,490
|
|
$
|
8,468
|
|
|
|
|
Operating cash flow - Operating leases
|
$
|
8,433
|
|
$
|
8,615
|
|
New ROU assets - Operating leases
|
$
|
5,647
|
|
$
|
—
|
|
Weighted average remaining lease term - Operating leases
|
6.3 years
|
|
6.1 years
|
|
Weighted average discount rate - Operating leases
|
10.3
|
%
|
10.3
|
%
|
The following table summarizes the aggregate operating lease maturities that the Company is contractually obligated to make under operating leases as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party
|
|
Related-Party
|
|
Total
|
Remainder of 2020
|
|
$
|
22,437
|
|
|
$
|
2,809
|
|
|
$
|
25,246
|
|
2021
|
|
27,464
|
|
|
3,767
|
|
|
31,231
|
|
2022
|
|
24,640
|
|
|
3,661
|
|
|
28,301
|
|
2023
|
|
19,995
|
|
|
1,316
|
|
|
21,311
|
|
2024
|
|
15,343
|
|
|
962
|
|
|
16,305
|
|
2025
|
|
11,178
|
|
|
861
|
|
|
12,039
|
|
Thereafter
|
|
30,416
|
|
|
2,655
|
|
|
33,071
|
|
Total
|
|
151,473
|
|
|
16,031
|
|
|
167,504
|
|
Less: Imputed interest
|
|
(41,963
|
)
|
|
(3,826
|
)
|
|
(45,789
|
)
|
Operating lease liabilities
|
|
$
|
109,510
|
|
|
$
|
12,205
|
|
|
$
|
121,715
|
|
As a result of the COVID-19 pandemic that began during the three months ended March 31, 2020, CURO reviewed ROU assets for indicators of impairment. Under US GAAP, the model used to review ROU assets for impairment is consistent to that used for other long-lived assets, such as fixed assets. In applying the appropriate guidance, the Company noted there was no indicators of impairment as of March 31, 2020 related to its ROU assets.
NOTE 15 – 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 the U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as Administrators for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place their management, affairs, business and property of the U.K. Subsidiaries under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries, which comprised the U.K. reportable operating segment, as of February 25, 2019 and classified them as Discontinued Operations for all periods presented.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents the results of operations of the U.K. Subsidiaries, which meet the criteria of Discontinued Operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019(1)
|
Revenue
|
|
$
|
—
|
|
|
$
|
6,957
|
|
Provision for losses
|
|
—
|
|
|
1,703
|
|
Net revenue
|
|
—
|
|
|
5,254
|
|
|
|
|
|
|
Cost of providing services
|
|
|
|
|
Office
|
|
—
|
|
|
246
|
|
Other costs of providing services
|
|
—
|
|
|
61
|
|
Advertising
|
|
—
|
|
|
775
|
|
Total cost of providing services
|
|
—
|
|
|
1,082
|
|
Gross margin
|
|
—
|
|
|
4,172
|
|
Operating (income) expense
|
|
|
|
|
Corporate, district and other expenses
|
|
—
|
|
|
3,810
|
|
Interest income
|
|
—
|
|
|
(4
|
)
|
(Gain) loss on disposition
|
|
(390
|
)
|
|
39,414
|
|
Total operating (income) expense
|
|
(390
|
)
|
|
43,220
|
|
Pre-tax income (loss) from operations of discontinued operations
|
|
390
|
|
|
(39,048
|
)
|
Income tax expense (benefit) related to disposition
|
|
98
|
|
|
(47,423
|
)
|
Net income from discontinued operations
|
|
$
|
292
|
|
|
$
|
8,375
|
|
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019.
|
Revenue and expenses related to discontinued operations included activity prior to the deconsolidation of the U.K. subsidiaries effective February 25, 2019. For the three months ended March 31, 2019, "(Gain) 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 the Company's 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 $47.4 million as of March 31, 2019, to be applied against future income tax obligations. Subsequently, in 2019, the Company revised the estimated U.S. Federal and state income tax benefit to $46.6 million. During the three months ended March 31, 2020, the Company received $0.4 million of disbursements from the Administrator related to the wind-down of the U.K. Subsidiaries.
As of March 31, 2020 and December 31, 2019, the unaudited Condensed Consolidated Balance Sheets were not impacted by the U.K. Subsidiaries as all balances were written off when the U.K. segment entered into administration during the first quarter of 2019.
The following table presents cash flows of the U.K. Subsidiaries (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019(1)
|
Net cash provided by (used in) discontinued operating activities
|
$
|
390
|
|
|
$
|
(504
|
)
|
Net cash used in discontinued investing activities
|
—
|
|
|
(14,213
|
)
|
Net cash used in discontinued financing activities
|
—
|
|
|
—
|
|
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019.
|
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – GOODWILL
The change in the carrying amount of Goodwill by operating segment for the three months ended March 31, 2020 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Canada
|
|
Total
|
Goodwill at December 31, 2019
|
$
|
91,131
|
|
|
$
|
29,478
|
|
|
$
|
120,609
|
|
Acquisition (Note 17)
|
14,791
|
|
|
—
|
|
|
14,791
|
|
Foreign currency translation
|
—
|
|
|
(2,575
|
)
|
|
(2,575
|
)
|
Goodwill at March 31, 2020
|
105,922
|
|
|
26,903
|
|
|
132,825
|
|
The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment of goodwill on October 1) and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2019 Form 10-K filed with the SEC on March 9, 2020, for additional information on the Company's policy for assessing goodwill for impairment.
U.S. and Canada Reporting Units
During the three months ended March 31, 2020, the Company determined a triggering event had occurred for the U.S. and Canada reporting units as a result of COVID-19. The global crisis caused by the pandemic drove significant declines in macroeconomic market conditions and altered the assumptions used in the Company's forecast for both reporting units. After performing an interim review, the Company concluded that the fair value of each reporting unit was in excess of its respective carrying value.
Ad Astra Acquisition
The Company completed the acquisition of Ad Astra on January 3, 2020. Goodwill of $14.8 million was recorded on the U.S. reporting unit during the three months ended March 31, 2020, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. See Note 17, "Acquisition" for more information related to the business combination.
NOTE 17 – ACQUISITION
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency.
The Company began consolidating the financial results of this acquisition in the unaudited Condensed Consolidated Financial Statements on January 3, 2020. For the three months ended March 31, 2019, prior to the acquisition, $4.7 million of costs related to Ad Astra were included in "Other costs of providing services." Subsequent to the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. Ad Astra incurred $3.5 million of operating expense during the three months ended March 31, 2020.
The transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of March 31, 2020. As of March 31, 2020, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities based on the information available.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
(in thousands)
|
Amounts acquired on January 3, 2020
|
Cash consideration transferred:
|
$
|
17,811
|
|
|
|
Cash and cash equivalents
|
3,360
|
|
Accounts receivable
|
465
|
|
Property and equipment
|
358
|
|
Intangible assets
|
1,101
|
|
Goodwill
|
14,791
|
|
Operating lease asset
|
235
|
|
Accounts payable and accrued liabilities
|
(2,264
|
)
|
Operating lease liabilities
|
(235
|
)
|
Total
|
$
|
17,811
|
|
Goodwill of $14.8 million represents the excess over the fair value of the net tangible and intangible assets acquired. Goodwill is not deductible for income tax purposes.
NOTE 18 – SHARE REPURCHASE PROGRAM
In February 2020, the Company's Board of Directors authorized a new share repurchase program for up to $25.0 million of its common stock. Under the program, shares were repurchased in the open market or in privately negotiated transactions at times and amounts considered appropriate by CURO. Due to uncertainty caused by COVID-19, the Board suspended the program on March 15, 2020. There were no material purchases in the program during the three months ended March 31, 2020.
In April 2019, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, was completed in February 2020. Under this program, the Company repurchased 455,255 shares of its common stock at an average price of $10.45 per share for total consideration of $4.8 million during the three months ended March 31, 2020. Purchases under the program were made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares are available for use in connection with equity plans or other corporate purposes.
Separately, in August 2019, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with FFL, a related party. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. The purchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase program authorized in April 2019.
NOTE 19 – SUBSEQUENT EVENTS
New Non-Recourse U.S. SPV Facility
On April 8, 2020, the Company entered into a Non-Recourse U.S. SPV Facility to provide financing for U.S. Unsecured Installment and Open-End receivables, including those generated under its technology, marketing and servicing relationship with Stride Bank. The Non-Recourse U.S. SPV Facility provides for $100.0 million of borrowing capacity, subject to the borrowing base of eligible collateral and certain other conditions. Concurrent with the closing, the Company drew $35.2 million on the facility.
Dividend
On April 30, 2020, the Company's Board of Directors declared a dividend under its previously announced dividend program, of $0.055 per share to be paid on May 27, 2020 to stockholders of record as of the close of business on May 13, 2020.