UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number 1-38315
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware
 
90-0934597
(State or other jurisdiction
Of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3527 North Ridge Road, Wichita, KS
 
67205
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (316) 772-3801
Former name, former address and former fiscal year, if changed since last report: No Changes

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.001 par value per share
CURO
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
 
 
Smaller reporting company
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☒
At May 1, 2020 there were 40,789,687 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.





CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
FIRST QUARTER ENDED MARCH 31, 2020
INDEX
 
 
 
 
 
 
 
Page
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
March 31, 2020 and December 31, 2019
 
 
 
Three months ended March 31, 2020 and 2019
6
 
 
 
Three months ended March 31, 2020 and 2019
7
 
 
 
Three months ended March 31, 2020 and 2019
8
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 


2


GLOSSARY

Terms and abbreviations used throughout this report are defined below.
Term or abbreviation
 
Definition
12.00% Senior Secured Notes
 
12.00% Senior Secured Notes, issued in February and November 2017 for a total of $470.0 million due March 1, 2022, fully extinguished September 2018
2017 Tax Act
 
Tax Cuts and Jobs Act of 2017
2019 Form 10-K
 
Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 9, 2020.
8.25% Senior Secured Notes
 
8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which mature on September 1, 2025
Ad Astra
 
Ad Astra Recovery Services, Inc., our former provider of third-party collection services for the U.S. business that we acquired in January 2020
Adjusted EBITDA
 
EBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details.
ALL
 
Allowance for loan losses
Allowance Build
 
Incremental COVID-related provision expense as a result of additions to the Allowance for Loan Losses
Allowance coverage
 
Allowance for loan losses as a percentage of gross loans receivable
AOCI
 
Accumulated Other Comprehensive Income (Loss)
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Average gross loans receivable
 
Utilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
CAB
 
Credit access bureau
CARES Act
 
Coronavirus Aid, Relief, and Economic Security Act
Cash Money
 
Cash Money Cheque Cashing Inc., a Canadian subsidiary
Cash Money Revolving Credit Facility
 
C$10.0 million revolving credit facility with Royal Bank of Canada
CECL
 
Current expected credit loss
CFTC
 
CURO Financial Technologies Corp., a wholly-owned subsidiary of the Company
CODM
 
Chief Operating Decision Maker
Condensed Consolidated Financial Statements
 
The unaudited condensed consolidated financial statements presented in this Form 10-Q
COVID-19
 
An infectious disease caused by the 2019 novel coronavirus disease
CSO
 
Credit services organization
EBITDA
 
Earnings Before Interest, Taxes, Depreciation and Amortization
EPS
 
Earnings per share
Exchange Act
 
Securities Exchange Act of 1934
FASB
 
Financial Accounting Standards Board
FFL
 
Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated investment funds, a related party to the Company
Form 10-Q
 
Quarterly Report on Form 10-Q
Gross Combined Loans Receivable
 
Gross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company
Guaranteed by the Company
 
Loans originated by third-party lenders through CSO program which we guarantee but are not include in the Condensed Consolidated Financial Statements
Katapult
 
Cognical Holdings, Inc. (formerly known as Zibby), a private lease-to-own platform for online, brick and mortar and omni-channel retailers
NCO
 
Net charge-off; total charge-offs less total recoveries
NOL
 
Net operating loss
Non-Recourse Canada SPV Facility
 
A four-year revolving credit facility with Waterfall Asset Management, LLC with capacity up to C$250.0 million
Non-Recourse U.S. SPV Facility
 
A four year, asset-backed revolving credit facility with Atalaya Capital Management with capacity up to $200.0 million if certain conditions are met
ROU
 
Right of use

3


Term or abbreviation
 
Definition
RSU
 
Restricted Stock Unit
SEC
 
Securities and Exchange Commission
Senior Revolver
 
Senior Secured Revolving Loan Facility
SRC
 
Smaller Reporting Company
Stride Bank
 
In 2019, we partnered with Stride Bank, N.A. to launch a bank-sponsored Unsecured Installment loan originated by Stride Bank. We market and service loans on behalf of Stride Bank and the bank licenses our proprietary credit decisioning for Stride Bank's scoring and approval.
U.S.
 
United States of America
US GAAP
 
Generally accepted accounting principles in the United States
VIE
 
Variable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiary


4



PART I.     FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
March 31, 2020
 
December 31,
2019
 
 
ASSETS
Cash
$
138,714

 
$
75,242

Restricted cash (includes restricted cash of consolidated VIEs of $22,317 and $17,427 as of March 31, 2020 and December 31, 2019, respectively)
41,527

 
34,779

Gross loans receivable (includes loans of consolidated VIEs of $231,258 and $244,492 as of March 31, 2020 and December 31, 2019, respectively)
564,437

 
665,828

Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $27,421 and $24,425 as of March 31, 2020 and December 31, 2019, respectively)
(99,842
)
 
(106,835
)
Loans receivable, net
464,595


558,993

Income taxes receivable
24,435

 
11,426

Prepaid expenses and other
34,120

 
35,890

Property and equipment, net
66,787

 
70,811

Right of use asset - operating leases
114,272

 
117,453

Deferred tax assets

 
5,055

Goodwill
132,825

 
120,609

Other intangibles, net
33,944

 
33,927

Other assets
15,547

 
17,710

Total Assets
$
1,066,766

 
$
1,081,895

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
 
 
 
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $13,267 and $13,462 as of March 31, 2020 and December 31, 2019, respectively)
$
53,603

 
$
60,083

Deferred revenue
6,655

 
10,170

Lease liability - operating leases
121,715

 
124,999

Accrued interest (includes accrued interest of consolidated VIEs of $627 and $871 as of March 31, 2020 and December 31, 2019, respectively)
5,392

 
19,847

Liability for losses on CSO lender-owned consumer loans
9,189

 
10,623

Debt (includes debt and issuance costs of consolidated VIEs of $87,365 and $2,491 as of March 31, 2020 and $115,243 and $3,022 as of December 31, 2019, respectively)
788,451

 
790,544

Other long-term liabilities
9,095

 
10,664

Deferred tax liabilities
13,095

 
4,452

Total Liabilities
1,007,195

 
1,031,382

Commitments and contingencies (Note 13)


 


Stockholders' Equity


 


Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued

 

Common stock - $0.001 par value; 225,000,000 shares authorized; 46,934,750 and 46,770,765 shares issued; and 40,779,447 and 41,156,224 shares outstanding at the respective period ends
9

 
9

Treasury stock, at cost - 6,155,303 and 5,614,541 shares as of the respective period ends
(77,852
)
 
(72,343
)
Paid-in capital
70,798

 
68,087

Retained earnings
127,472

 
93,423

Accumulated other comprehensive loss
(60,856
)
 
(38,663
)
Total Stockholders' Equity
59,571

 
50,513

Total Liabilities and Stockholders' Equity
$
1,066,766

 
$
1,081,895


See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

5


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Revenue
$
280,806

 
$
277,939

Provision for losses
113,536

 
102,385

Net revenue
167,270

 
175,554

 
 
 
 
Cost of providing services
 
 
 
Salaries and benefits
26,007

 
28,701

Occupancy
14,016

 
14,237

Office
5,674

 
5,113

Other costs of providing services
9,655

 
14,220

Advertising
12,219

 
7,786

Total cost of providing services
67,571

 
70,057

Gross margin
99,699

 
105,497

 
 
 
 
Operating expense
 
 
 
Corporate, district and other expenses
42,807

 
49,088

Interest expense
17,324

 
17,690

Loss from equity method investment
1,618

 

Total operating expense
61,749

 
66,778

Income from continuing operations before income taxes
37,950

 
38,719

Provision for income taxes
1,937

 
10,046

Net income from continuing operations
36,013


28,673

Net income (loss) from discontinued operations, before income tax
390

 
(39,048
)
Income tax expense (benefit) related to disposition

98

 
(47,423
)
Net income from discontinued operations
292

 
8,375

Net income
$
36,305


$
37,048

 
 
 
 
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

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
40,817

 
46,424

Diluted
41,892

 
47,319


See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

6


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Net income
$
36,305

 
$
37,048

Other comprehensive (loss) income:

 

Foreign currency translation adjustment, net of $0 tax in both periods
(22,193
)
 
16,695

Other comprehensive (loss) income
(22,193
)
 
16,695

Comprehensive income
$
14,112

 
$
53,743


See accompanying Notes to unaudited Condensed Consolidated Financial Statements.



7

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)


 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net income from continuing operations
$
36,013

 
$
28,673

Adjustments to reconcile net income to net cash provided by continuing operating activities:
 
 
 
Depreciation and amortization
4,537

 
4,920

Provision for loan losses
113,536

 
102,385

Amortization of debt issuance costs and bond discount
688

 
872

Deferred income tax (benefit) expense
14,093

 
(10,343
)
Loss on disposal of property and equipment
44

 
991

Loss from equity method investment
1,618

 

Share-based compensation
3,194

 
2,172

Changes in operating assets and liabilities:
 
 
 
Accrued interest on loans receivable
16,671

 
1,937

Prepaid expenses and other assets
982

 
9,938

Other assets
332

 
(6,374
)
Accounts payable and accrued liabilities
(7,492
)
 
2,326

Deferred revenue
(3,276
)
 
(1,709
)
Income taxes payable

 
29,562

Income taxes receivable
(13,134
)
 
(9,890
)
Accrued interest
(14,389
)
 
(15,329
)
Other liabilities
(1,548
)
 
868

Net cash provided by continuing operating activities
151,869

 
140,999

Net cash provided by (used in) discontinued operating activities
390

 
(504
)
Net cash provided by operating activities
152,259

 
140,495

Cash flows from investing activities
 
 
 
Purchase of property, equipment and software
(3,658
)
 
(3,119
)
Loans receivable originated or acquired
(439,244
)
 
(420,568
)
Loans receivable repaid
378,843

 
355,621

Investments in Katapult

 
(1,568
)
Acquisition of Ad Astra, net of acquiree's cash received
(14,418
)
 

Net cash used in continuing investing activities
(78,477
)
 
(69,634
)
Net cash used in discontinued investing activities

 
(14,213
)
Net cash used in investing activities
(78,477
)
 
(83,847
)
Cash flows from financing activities
 
 
 
Proceeds from Non-Recourse Canada SPV facility
23,560

 
3,762

Payments on Non-Recourse Canada SPV facility
(42,497
)
 
(24,831
)
Debt issuance costs paid
(150
)
 
(199
)
Proceeds from credit facilities
69,938

 
30,478

Payments on credit facilities
(44,938
)
 
(50,478
)
Proceeds from exercise of stock options
126

 
40

Payments to net share settle restricted stock units vesting
(609
)
 
(37
)
Repurchase of common stock
(5,908
)
 

Dividends paid to stockholders
(2,247
)
 

Net cash used in financing activities (1)
(2,725
)
 
(41,265
)
Effect of exchange rate changes on cash and restricted cash
(837
)
 
1,938

Net increase in cash and restricted cash
70,220

 
17,321

Cash and restricted cash at beginning of period
110,021

 
99,857

Cash and restricted cash at end of period
180,241

 
117,178

(1) Financing activities were not impacted by discontinued operations



8

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals above:

 
 
March 31,
 
 
2020
 
2019
Cash
 
$
138,714

 
$
82,859

Restricted cash (includes restricted cash of consolidated VIEs of $22,317 and $15,460 as of March 31, 2020 and March 31, 2019, respectively)
 
41,527

 
34,319

Total cash and restricted cash used in the Statements of Cash Flows
 
180,241

 
117,178


See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

9


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations and Basis of Presentation

The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its wholly-owned subsidiaries as a consolidated entity, except where otherwise stated.

CURO is a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the U.S., Canada and, through February 25, 2019, the U.K.

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with US GAAP, and with the accounting policies described in its 2019 Form 10-K filed with the SEC on March 9, 2020. Interim results of operations are not necessarily indicative of the results that might be expected for future interim periods or for the year ending December 31, 2020.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, the Company qualifies as an SRC as defined by the SEC, which allows registrants to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of the last business day of the most recently completed second fiscal quarter. Under these rules, the Company met the definition of an SRC as of June 30, 2019, and it will reevaluate as of June 30, 2020.

The Condensed Consolidated Financial Statements and the accompanying notes reflect all adjustments (consisting only of adjustments of a normal and recurring nature) which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented.

COVID-19

A novel strain of coronavirus, COVID-19, surfaced in late 2019 and has subsequently spread worldwide, including to the U.S. and Canada. On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. Macroeconomic conditions, in general, and the Company's operations have been significantly affected by the COVID-19 pandemic and there are no reliable estimates of how long the pandemic will last or the scope or magnitude of its near-term or long-term impact. In response, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. However, CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, the Company remains focused on protecting the health and wellbeing of its employees, customers and the communities in which it operates while assuring the continuity of its business operations. While CURO continues serving its customers through both store and online channels, store hours are reduced, enhanced cleaning protocols for all facilities are in place, and social distancing guidelines are in effect to aid in combating the spread of the pandemic.

On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company expects to delay payment of employer payroll taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.

Refer to Note 7, "Income Taxes" for the CARES Act impact to the Company's provision for income taxes.

In light of COVID-19, the Company also considered implications of the pandemic on its estimates and assumptions as of March 31, 2020. After review of the information available regarding conditions as of March 31, 2020, the Company increased its allowance for loan losses, as disclosed in Note 3, "Loans and Receivable and Revenue." The increase in volatility of foreign currency exchange rates between the U.S. dollar and Canadian dollar, as a result of COVID-19 and other factors such as oil price volatility, had a material impact on the Company's Condensed Consolidated Balance Sheet. Gross loans receivable in Canada decreased $26.5 million, or 8.7%, as a result of fluctuations in the foreign currency exchange rate from December 31, 2019 to March 31, 2020 between the U.S dollar and Canadian dollar.

The effect of the COVID-19 pandemic will not be fully reflected in the Company's results of operations and overall financial performance until future periods. The extent of the impact of COVID-19 on the Company's business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the pandemic.


10


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of CURO and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Ad Astra 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. Ad Astra, now a wholly-owned subsidiary, is included in the Condensed Consolidated Financial Statements. Prior to the acquisition, all costs related to Ad Astra were included in "Other costs of providing services." Following the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. See Note 17, "Acquisition" for further information.
U.K. Segment Placed into Administration

On February 25, 2019, the Company placed its U.K. segment into administration, which resulted in the treatment of the U.K. segment as discontinued operations for all periods presented. Throughout this Form 10-Q, current and prior period financial information is presented on a continuing operations basis, excluding the results and positions of the U.K. segment. See Note 15, "Discontinued Operations" for additional information.

Equity Investment in Unconsolidated Entity

The Company holds an equity investment in Katapult, a private lease-to-own platform for online, brick and mortar and omni-channel retailers. Katapult provides customers with payment options in store or via the Katapult link on a retailer's website. As of March 31, 2020, the Company owned 42.5% of Katapult. The Company records the equity method investment in "Other assets" on the Condensed Consolidated Balance Sheets. See Note 8, "Fair Value Measurements" for additional detail on Katapult's fair value considerations.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions, such as those posed by COVID-19, that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods presented. Some of the significant estimates that the Company made in the accompanying Condensed Consolidated Financial Statements include allowances for loan losses, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, CSO liability for losses and estimated tax liabilities. Actual results may differ from those estimates.

Goodwill

The annual impairment review for goodwill, done on October 1, consists of performing a qualitative assessment to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount as a basis for determining whether or not further testing is required. The Company may elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. The Company can resume the qualitative assessment for any reporting unit in any subsequent period. If the Company determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the Company will then apply a two-step process of (i) determining the fair value of the reporting unit and (ii) comparing it to the carrying value of the net assets allocated to the reporting unit. When performing the two-step process, if the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. In the event the estimated fair value of a reporting unit is less than the carrying value, the Company would recognize an impairment loss equal to such excess, which could significantly and adversely impact reported results of operations and stockholders’ equity.

During the fourth quarter of 2019, the Company performed a quantitative assessment for the U.S. and Canada reporting units. Management concluded that the estimated fair values of these two reporting units were greater than their respective carrying values. Due to COVID-19, the Company determined that a goodwill impairment evaluation triggering event occurred during the three months ended March 31, 2020. After performing an interim review of impairment as of March 31, 2020, both reporting units continue to have estimated fair values greater than their respective carrying values.

11


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



Refer to Note 16, "Goodwill" for further information.

Recently Adopted Accounting Pronouncements

ASU 2018-15

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (i) that are reasonably certain to be exercised by the customer or (ii) for which exercise of the renewal option is controlled by the cloud service provider. The Company adopted ASU 2018-15 on a prospective basis as of January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the unaudited Condensed Consolidated Financial Statements.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The Company adopted ASU 2018-13 as of January 1, 2020, which did not have a material impact on the unaudited Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and 11 in November 2019, and ASU 2020-02 in February 2020. The standard, as amended, changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they currently do under the other-than-temporary impairment model. The standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2019-04 clarifies that equity instruments without readily determinable fair values for which an entity has elected the measurement alternative should be remeasured to fair value as of the date that an observable transaction occurred. ASU 2019-05 provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. ASU 2019-10 amends the mandatory effective date for ASU 2016-13. The amendments are effective for fiscal years beginning after December 15, 2022 for entities that are eligible to be defined by the SEC as a SRC, for which the Company qualifies. ASU 2019-11 provides clarity and improves the codification to ASU 2016-13. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. As issued, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016 13, including the fair value option. If the fair value option is not utilized, adoption of ASU 2016-13 will increase the allowance for credit losses with a resulting negative adjustment to retained earnings on the date of adoption. The Company does not expect to adopt ASU 2016-13 until at least January 1, 2021 as permitted under ASU 2019-10. The Company is currently assessing the impact the adoption of ASU 2016-13 will have on its Consolidated Financial Statements.

ASU 2020-01

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2020-01 will have on its Consolidated Financial Statements.


12


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently assessing the impact the adoption of ASU 2020-04 will have on its Consolidated Financial Statements.

ASU 2019-12

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (Topic 740). The ASU intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The amendments of the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2019-12 is not expected to have a material impact on the Company's Consolidated Financial Statements.

NOTE 2 - VARIABLE INTEREST ENTITIES

In August 2018, the Company closed the Non-Recourse Canada SPV facility, whereby certain loan receivables were sold to the wholly-owned VIE to collateralize debt incurred under the facility. See Note 5, "Debt" for additional details on the Non-Recourse Canada SPV facility.

The Company has determined that it is the primary beneficiary of the VIE and is required to consolidate the entity. The Company includes the assets and liabilities related to the VIE in the unaudited Condensed Consolidated Balance Sheets. As required, CURO parenthetically discloses on the unaudited Condensed Consolidated Balance Sheets the VIE's assets that can only be used to settle the VIE's obligations and liabilities if the VIE's creditors have no recourse against the Company's general credit.

The carrying amounts of consolidated VIE's assets and liabilities associated with the VIE subsidiary were as follows (in thousands):
 
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
Restricted cash
 
$
22,317

 
$
17,427

Loans receivable less allowance for loan losses
 
203,837

 
220,067

      Total Assets
 
$
226,154

 
$
237,494

Liabilities
 
 
 
 
Accounts payable and accrued liabilities
 
$
13,267

 
$
13,462

Deferred revenue
 
39

 
46

Accrued interest
 
627

 
871

Intercompany payable
 
80,240

 
69,639

Debt
 
84,874

 
112,221

      Total Liabilities
 
$
179,047

 
$
196,239


On April 8, 2020, the Company entered into the 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. Refer to Note 19, "Subsequent Events" for additional details.

NOTE 3 – LOANS RECEIVABLE AND REVENUE

The COVID-19 pandemic has impacted customers, which has resulted in past-due gross loans receivable and gross combined loans receivables guaranteed by the Company, as a percentage of total gross combined loans receivable, to increase as of March 31, 2020 compared to December 31, 2019. Additionally, it has created uncertainty regarding the performance of net-charge offs

13


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


over the loss-development period. The Company has maintained its historical allowance approach, but has adjusted future loss estimates for an increase in past-due gross loans receivable due to adverse market conditions at March 31, 2020 caused by COVID-19. The estimates and assumptions used to determine an appropriate allowance for loan losses and liability for losses on CSO lender-owned consumer loans are those that are available through the filing of this Form 10-Q and which are indicative of conditions occurring as of March 31, 2020. As a result of future loss estimates due to uncertainty caused by COVID-19, and the related impact to past due loans receivable as of March 31, 2020, CURO has determined an additional $12.0 million allowance for loan loss was required.

The following table summarizes revenue by product (in thousands):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Unsecured Installment
 
$
122,409

 
$
135,778

Secured Installment
 
26,286

 
27,477

Open-End
 
70,982

 
52,869

Single-Pay
 
45,157

 
46,761

Ancillary
 
15,972

 
15,054

   Total revenue(1)
 
$
280,806

 
$
277,939

(1) Includes revenue from CSO programs of $68.1 million and $71.7 million for the three months ended March 31, 2020 and 2019, respectively.

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
 
 
March 31, 2020
 
 
Single-Pay(1)
Unsecured Installment
Secured Installment
Open-End
Total
Current loans receivable
 
$
54,728

$
88,152

$
57,284

$
264,019

$
464,183

Delinquent loans receivable
 

34,966

15,301

49,987

100,254

   Total loans receivable
 
54,728

123,118

72,585

314,006

564,437

   Less: allowance for losses
 
(4,693
)
(28,965
)
(9,726
)
(56,458
)
(99,842
)
Loans receivable, net
 
$
50,035

$
94,153

$
62,859

$
257,548

$
464,595

(1) Of the $54.7 million of Single-Pay receivables, $16.4 million relate to mandated extended payment options for certain Canada Single-Pay loans.

 
 
March 31, 2020
 
 
Unsecured Installment
Secured Installment
Open-End
Total
Delinquent loans receivable
 
 
 
 
 
0-30 days past due
 
$
12,511

$
7,168

$
21,381

$
41,060

31-60 days past due
 
9,566

3,991

12,390

25,947

61 + days past due
 
12,889

4,142

16,216

33,247

Total delinquent loans receivable
 
$
34,966

$
15,301

$
49,987

$
100,254


14


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


15


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



16


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



17


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.

18


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.

19


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

20


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


21


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.

22


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

23


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



24


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

(1) For revenue by product, see Note 3, "Loans Receivable and Revenue."


25


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

26


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.


27

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: