CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the
“Company”), a market leader in providing short-term credit to
underbanked consumers, today announced financial results for its
second quarter ended June 30, 2020.
“The second quarter of 2020 was one of the most challenging in
our history and I couldn't be prouder of our 3,900 team members,
who managed our business and served our customers with urgency,
effectiveness and compassion. In the quarter, lower customer loan
demand and our decision to tighten credit resulted in a 20.9%
sequential decline in loan balances and a 27.5% decline
year-over-year,” said Don Gayhardt, President and Chief Executive
Officer. “This drove year-over-year revenue and net revenue
declines of $81.8 million and $20.5 million, respectively. However,
our cost reduction measures limited the decrease in Adjusted EBITDA
to just $2.6 million compared to last year’s second quarter while
Adjusted EPS increased by $0.01 compared to the prior-year period.
Our Canadian business continues to perform well. Loan balances
declined just 4.4% year-over-year and NCO rates improved 28.4%,
leading to Canada Adjusted EBITDA expansion of $4.4 million, or
37.6%.
“Second quarter trends suggested that our customers are managing
their finances prudently as demonstrated by high repayment rates on
higher cost products, lower open-end line utilization and modest
loan demand. Our historically low delinquency levels reflected our
customers’ strong financial positions entering the pandemic,
reduced personal spending during the stay-at-home orders and the
impact of stimulus payments and other governmental initiatives to
support the economy. Lower loan originations and strong credit
metrics strengthened our liquidity position - our cash balance
increased to $269.3 million and our unused revolving credit
capacity extended our total liquidity to $363.4 million at quarter
end.
“Uncertainty surrounding the North American economy’s reopening
and overall direction may continue to weigh on our loan growth in
the near term. However, with a solid balance sheet and substantial
liquidity, we are well positioned to participate in a recovery and
grow market share. We are hopeful that the growth we experienced in
customer application volumes through July accelerate across the
balance of 2020.
“We are focused on several growth initiatives outside of our
core lending business that are benefiting from the current
environment. We intend to capitalize on the increased comfort level
that our Canadian customers have with online financial services by
driving more business to our online channel, which we believe
offers the best user experience in the market. Our Revolve demand
deposit account and Opt+ general purpose reloadable card products
offered through our bank sponsors are experiencing greater traction
with online customers, which extends the reach of these products
far beyond the four walls of our stores. We are encouraged by the
continued growth of Katapult, where we have a 42.5% ownership
interest. Katapult’s eCommerce origination volume more than tripled
year-to-date compared to the same period a year ago, driving
positive earnings for the first time.”
Consolidated Summary Results - Unaudited
Three Months Ended June
30,(2)
For the Six Months Ended June
30,(2)
(in thousands, except per share data)
2020
2019
Variance
2020
2019
Variance
Revenue
$
182,509
$
264,300
(30.9)
%
$
463,315
$
542,239
(14.6)
%
Gross margin
76,499
81,181
(5.8)
%
176,198
186,678
(5.6)
%
Company Owned gross loans receivable
456,512
609,593
(25.1)
%
456,512
609,593
(25.1)
%
Unrestricted Cash
269,342
82,859
225.1
%
269,342
82,859
225.1
%
Net income
21,080
17,667
19.3
%
57,093
46,340
23.2
%
Adjusted Net Income (1)
22,170
24,437
(9.3)
%
54,446
62,387
(12.7)
%
Diluted Earnings per Share
$
0.51
$
0.38
34.2
%
$
1.37
$
0.98
39.8
%
Adjusted Diluted Earnings per Share
(1)
$
0.53
$
0.52
1.9
%
$
1.31
$
1.32
(0.8)
%
EBITDA (1)
44,876
46,794
(4.1)
%
104,687
108,123
(3.2)
%
Adjusted EBITDA (1)
51,129
53,689
(4.8)
%
116,916
126,543
(7.6)
%
Weighted Average Shares — diluted
41,545
47,107
41,686
47,335
(1) These are non-GAAP metrics. For a
reconciliation of each non-GAAP metric to the nearest GAAP metric,
see the applicable reconciliations contained under "Results of
Operations." For a description of each non-GAAP metric, see
"Non-GAAP Financial Measures."
(2) Excludes discontinued operations; see
"Results of Discontinued Operations" for additional details.
Second quarter 2020 developments include:
- Company Owned gross loans receivable and Gross combined loans
receivable decline of 25.1% and 27.5%, respectively, versus the
prior-year period.
- Sequential decline (described within this release as the change
from the first quarter of 2020 to the second quarter of 2020) in
Company Owned gross loans receivable and Gross combined loans
receivable of $107.9 million and $129.8 million, respectively.
- Continued expected reduction in loan balances from regulatory
changes effective January 1, 2020 affecting Unsecured and Secured
Installment loans in California. Excluding affected loan portfolios
in California, Company Owned gross loans receivable declined 15.7%
year-over-year.
- Revenue decrease of $81.8 million, or 30.9%, over the
prior-year period due to the decrease in loan balances.
- Revenue from Open-End loans in Canada grew $3.2 million, or
14.0%, year-over-year, but declined for all other products.
- Net Revenue decline of $20.5 million, or 13.4%, and gross
margin decline of $4.7 million, or 5.8%, year-over-year as revenue
declines were offset by lower provision expense and cost
management.
- Past due Company Owned gross loans receivable and Gross
combined loans receivable as a percentage of total receivables at
trailing five-quarter low points for all products.
- For the six months ended June 30, 2020, Cognical Holdings, Inc.
("Katapult") originated approximately $100.0 million in leases
compared to just $30.0 million in the first half of 2019. Even with
this outsized growth, credit trends have continued to improve so
Katapult turned profitable to us this quarter.
- Diluted Earnings per Share from continuing operations increased
to $0.51 from $0.38 as compared to the prior-year quarter. Adjusted
Diluted Earnings per Share rose to $0.53 compared to $0.52 for the
second quarter of 2019.
- Declaration of quarterly cash dividend of $0.055 per share
($0.22 per share annualized), paid on May 27, 2020 to stockholders
of record as of the close of business on May 13, 2020. Today, our
Board of Directors declared a $0.055 per share dividend payable on
August 24, 2020 to stockholders of record as of August 13,
2020.
- On April 8, 2020, we announced the closing of a new
Asset-Backed Revolving Credit Facility to provide financing for
U.S. Unsecured Installment and Open-End receivables, including
those generated under our technology, marketing and servicing
relationship with Stride Bank ("Non-Recourse U.S. SPV Facility").
On July 31, 2020, we closed on additional commitments bringing the
total borrowing capacity on the Non-Recourse U.S. SPV Facility up
to $200.0 million, dependent upon the borrowing base of eligible
collateral.
- Established the Customer Care Program, which enables our team
members to provide relief to customers affected by COVID-19 in
various ways, ranging from due date extensions, interest or fee
forgiveness, payment waivers or extended payment plans, depending
on a customer’s individual circumstances. As of June 30, 2020, we
have granted concessions on more than 50,000 loans, or 11% of our
active loans, and waived over $3.7 million in payments and fees. We
also temporarily suspended all returned item fees.
Year-to-date 2020 developments include:
- Revenue decrease of $78.9 million, or 14.6%, over the
prior-year period due to the aforementioned decrease in loan
balances. Revenue from Open-End loans grew $19.9 million, or 18.4%,
year-over-year including increases in both the U.S. and Canada, but
declined for all other products by $98.8 million, or 22.7%.
California Installment revenues were $42.8 million for the six
months ended June 30, 2020.
- Net Revenue decline of $28.8 million, or 8.8%, and gross margin
decline of $10.5 million, or 5.6%, year-over-year as the revenue
decline was offset by lower provision expense and controlled
costs.
- Diluted Earnings per Share from continuing operations increased
to $1.37 from $0.98 as compared to the prior-year period. Adjusted
Diluted Earnings per Share of $1.31 compared to $1.32 for the
prior-year period.
- Completion of our acquisition of Ad Astra Recovery Services,
Inc. ("Ad Astra"), which had been our exclusive provider of
third-party collection services for the U.S. business, on January
3, 2020.
- Instituted a cash dividend policy in the first quarter of
2020.
Throughout this release, we exclude financial results of our
former U.K. operations for all periods presented, as they were
discontinued for accounting and reporting purposes in February
2019. See “Results of Discontinued Operations” for additional
information.
Consolidated Revenue by Product and Segment
The following table summarizes revenue by product, including
credit services organization ("CSO") fees, for the period
indicated:
Three Months Ended
June 30, 2020
June 30, 2019
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
69,143
$
1,286
$
70,429
$
120,482
$
1,630
$
122,112
Secured Installment
19,401
—
19,401
26,076
—
26,076
Open-End
30,917
25,819
56,736
32,318
22,654
54,972
Single-Pay
14,317
8,415
22,732
26,425
19,103
45,528
Ancillary
3,542
9,669
13,211
4,745
10,867
15,612
Total revenue
$
137,320
$
45,189
$
182,509
$
210,046
$
54,254
$
264,300
Year-over-year comparisons for the second quarter were impacted
by factors related to COVID-19, including lower consumer demand,
increased or accelerated repayments as customers benefited from
government stimulus programs, our decision to tighten credit and
the resulting favorable credit performance (collectively, "COVID-19
Impacts"). During the three months ended June 30, 2020, total
revenue declined $81.8 million, or 30.9%, to $182.5 million,
compared to the prior-year period. Geographically, U.S. and Canada
revenues declined 34.6% and 16.7%, respectively.
From a product perspective, Unsecured Installment and Secured
Installment revenues decreased $51.7 million, or 42.3%, and $6.7
million, or 25.6%, respectively, because of COVID-19 Impacts,
regulatory changes in California effective January 1, 2020, and
regulatory changes for CSOs in Ohio effective May 1, 2019.
Single-Pay revenue declined $22.8 million, or 50.1%, for the
three months ended June 30, 2020 compared to the prior-year period,
primarily due to COVID-19 impacts on loan balances, which declined
$40.0 million, or 52.5%, year over year. Single-Pay loan volumes
were particularly affected by the broad reduction in storefront
usage by customers during the time of self-quarantine and
stay-at-home orders, as well as by increased payments..
Open-End loans receivable in Canada grew $12.7 million, or 5.8%,
from June 30, 2019, with related revenue growth of $3.2 million, or
14.0%. Open-End growth in Canada was partially offset by a decrease
in U.S. Open-End loans of $10.9 million, or 17.0%, with related
revenue decrease of $1.4 million, or 4.3%. Open-End loan balances
in both countries were also affected by the demand dynamics of
COVID-19 Impacts; namely, reduced application volumes and lower
utilization of approved credit lines.
Ancillary revenues, which included the sale of insurance
products to Open-End and Installment loan customers in Canada,
decreased 15.4% versus the prior-year period, stemming from
COVID-19 Impacts.
The following table summarizes revenue by product, including CSO
fees, for the period indicated:
Six Months Ended
June 30, 2020
June 30, 2019
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
189,972
$
2,866
$
192,838
$
254,485
$
3,405
$
257,890
Secured Installment
45,687
—
45,687
53,553
—
53,553
Open-End
72,907
54,811
127,718
64,911
42,930
107,841
Single-Pay
42,471
25,418
67,889
53,593
38,696
92,289
Ancillary
8,051
21,132
29,183
9,623
21,043
30,666
Total revenue
$
359,088
$
104,227
$
463,315
$
436,165
$
106,074
$
542,239
Year-over-year comparisons for the six-month periods also were
impacted by COVID-19 Impacts. During the six months ended June 30,
2020, total revenue declined $78.9 million, or 14.6%, to $463.3
million, compared to the prior-year period. Geographically, U.S.
and Canada revenues declined 17.7% and 1.7%, respectively.
From a product perspective, Unsecured Installment and Secured
Installment revenues decreased 25.2% and 14.7%, respectively,
because of COVID-19 Impacts, regulatory changes in California
effective January 1, 2020 and regulatory changes for CSOs in Ohio
effective May 1, 2019.
Single-Pay revenue declined $24.4 million, or 26.4%, for the six
months ended June 30, 2020 compared to the prior-year period,
primarily due to COVID-19 impacts on loan balances, which declined
$40.0 million, or 52.5%, year over year. Single-Pay loan volumes
were particularly affected by the broad reduction in storefront
usage by customers during the time of self-quarantine and
stay-at-home orders, as well as by increased payments.
Open-End revenues grew $19.9 million, or 18.4%, compared to the
prior-year period primarily due to $12.7 million, or 5.8%, of
Open-End loan growth in Canada, partially offset by a $10.9
million, or 17.0%, decline in the U.S. Additionally, Open-End loan
balances in both countries were affected by the demand dynamics of
COVID-19 Impacts; namely, reduced application volumes and lower
utilization of approved credit lines.
Ancillary revenues, which included the sale of insurance
products to Open-End and Installment loan customers in Canada,
decreased 4.8% versus the prior-year period, primarily stemming
from COVID-19 Impacts.
The following table presents revenue composition, including CSO
fees, of the products and services that we currently offer:
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019
Installment
49.2
%
56.1
%
51.5
%
57.4
%
Canada Single-Pay
4.6
%
7.2
%
5.5
%
7.1
%
U.S. Single-Pay
7.8
%
10.0
%
9.2
%
9.9
%
Open-End
31.1
%
20.8
%
27.6
%
19.9
%
Ancillary
7.3
%
5.9
%
6.2
%
5.7
%
Total
100.0
%
100.0
%
100.0
%
100.0
%
Online revenues as a percentage of
consolidated revenue
47.1
%
43.9
%
47.3
%
44.9
%
Online revenue as a percentage of consolidated revenue increased
during the three and six months ended June 30, 2020 as consumers
self-quarantined due to COVID-19. Our online channel provides
consumers with a safe and contactless option in the event of
temporary store closures for store cleaning purposes. For the three
and six months ended June 30, 2020, online originations accounted
for 49.3% and 43.3%, respectively, of our total loan originations,
compared to 35.3% and 35.1%, respectively, for the prior-year
periods.
Loan Volume and Portfolio Performance Analysis
The following table summarizes Company Owned gross loans
receivable, a GAAP-basis balance sheet measure, with reconciliation
to Gross combined loans receivable, a non-GAAP measure(1). Gross
combined loans receivable include loans originated by third-party
lenders through CSO programs, which are not included in the
Consolidated Financial Statements but from which we earn revenue by
providing a guarantee to the unaffiliated lender.
As of
(in millions, unaudited)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Company Owned gross loans receivable
$
456.5
$
564.4
$
665.8
$
657.6
$
609.6
Gross loans receivable Guaranteed by the
Company
34.1
55.9
76.7
73.1
67.3
Gross combined loans receivable (1)
$
490.6
$
620.3
$
742.5
$
730.7
$
676.9
(1) See "Non-GAAP Financial Measures" at
the end of this release for definition and more information.
Gross combined loans receivable by product is presented
below:
As of
(in millions, unaudited)
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Unsecured Installment
$
81.6
$
123.1
$
160.8
$
174.5
$
164.7
Secured Installment
53.6
72.6
88.1
90.1
85.5
Single-Pay
36.1
54.7
81.4
78.0
76.1
Open-End
285.2
314.0
335.5
315.0
283.3
CSO
34.1
55.9
76.7
73.1
67.3
Total
$
490.6
$
620.3
$
742.5
$
730.7
$
676.9
Gross combined loans receivable decreased $186.3 million, or
27.5%, to $490.6 million as of June 30, 2020, from $676.9 million
as of June 30, 2019. Sequentially, gross combined loans receivable
decreased $129.8 million, or 20.9%. The decrease from both periods
was driven by COVID-19 Impacts and, for Installment loans, the
impact of regulatory changes in California effective January 1,
2020.
Gross combined loans receivable performance by product is
explained further in the following sections.
Unsecured Installment Loans - Company
Owned
Company Owned Unsecured Installment revenue and related gross
loans receivable decreased $26.4 million, or 44.1%, and $83.1
million, or 50.5%, respectively, from the prior-year period due to
COVID-19 Impacts and regulatory changes in California effective
January 1, 2020.
Unsecured Installment loans in California were $37.0 million, or
45.3%, of total Company Owned Unsecured Installment loans as of
June 30, 2020, a decrease of $49.5 million, or 57.2%, from June 30,
2019. Sequentially, California Company Owned Unsecured Installment
loans decreased $14.5 million, or 28.1%, from $51.5 million as of
March 31, 2020. Excluding California, Company Owned Unsecured
Installment loans receivable decreased $33.6 million, or 43.0%,
from the prior-year period, while revenues for the three months
ended June 30, 2020 decreased $13.7 million, or 39.6%, compared to
the prior-year period, due to COVID-19 Impacts. Sequentially,
excluding California, Company Owned Unsecured Installment loans
receivable decreased $27.0 million, or 37.7%, from March 31, 2020,
while revenue decreased $17.2 million, or 45.1%.
NCOs declined $8.9 million, or 27.7%, in the second quarter of
2020 compared to the second quarter of 2019. However, the NCO rate
for Company Owned Unsecured Installment gross loans receivables in
the second quarter of 2020 increased approximately 300 basis points
("bps") year-over-year. Year-over-year NCO rate comparisons were
affected significantly by the quarterly sequential trends in loan
balances (i.e., the denominator in the NCO rate calculation). The
year-over-year increase in NCO rate was due to the timing and
matching of NCOs and gross loans receivable. As receivables age 90
days prior to charge off, charge-offs in a quarter relate to
receivables and originations from the prior quarter and earlier.
Loan balances grew sequentially in the second quarter of 2019,
which temporarily had the effect of lowering the NCO rate. Loan
balances declined sequentially in the second quarter of 2020, which
temporarily had the effect of increasing the NCO rate. These trends
and effects are collectively referred to as the "Denominator
Effect" for the remainder of this release and impacted
comparability of NCO rates year-over-year. In addition, California
NCO rates for Unsecured Installment loans are historically lower
than our other states. California comprised 52.1% of total U.S.
Company Owned Unsecured Installment loans as of June 30, 2020,
compared to 57.5% as of June 30, 2019. The NCO rate for Company
Owned Unsecured Installment gross loans receivables improved
sequentially by 50 bps due primarily to COVID-19 Impacts.
The Unsecured Installment Allowance for loan losses as a
percentage of Company Owned Unsecured Installment gross loans
receivable ("allowance coverage") increased year-over-year, from
21.4% as of June 30, 2019 to 22.6% as of June 30, 2020, as a result
of the previously-mentioned increase in NCO rates and loan
modifications under the Customer Care Program as Troubled Debt
Restructurings (“TDRs”). Loans classified as TDRs remain included
within Company Owned gross loans receivable. Amounts waived on
these loans are immediately charged-off and the impairment for
these loans is included within the Allowance for loan losses.
Determination of the impairment for TDRs includes an estimate of
lifetime losses on these loans, which is greater than estimated
incurred losses at a point in time. Sequentially, past-due balances
improved from 28.4% to 21.8% and allowance coverage decreased from
23.5% to 22.6% during the three months ended June 30, 2020.
Unsecured Installment Loans - Guaranteed
by the Company
Unsecured Installment loans Guaranteed by the Company declined
$32.0 million year-over-year due primarily to COVID-19 Impacts and
regulatory changes in Ohio effective May 1, 2019.
NCOs declined $12.1 million, or 43.9%, in the second quarter of
2020 compared to the second quarter of 2019. NCO rates for
Unsecured Installment loans Guaranteed by the Company improved 865
bps compared to the prior-year period and 780 bps sequentially.
Because Unsecured Installment loans Guaranteed by the Company are
charged off after two missed payments, there is a more direct
correlation between NCOs and the NCO rate than for Company Owned
Unsecured Installment loans. The CSO liability for losses as a
percentage of loans Guaranteed by the Company increased
year-over-year from 14.5% to 15.5% as of June 30, 2020 due
primarily to an increased liability for certain loans modified
under the Customer Care Program. Sequentially, past-due balances as
a percent of gross loans receivable decreased from 17.1% to 12.1%
and the CSO liability for losses declined from 16.9% to 15.5%
during the three months ended June 30, 2020.
2020
2019
(dollars in thousands, unaudited)
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
Unsecured Installment loans:
Revenue - Company Owned
$
33,405
$
55,569
$
63,428
$
65,809
$
59,814
Provision for losses - Company Owned
12,932
26,182
33,183
31,891
33,514
Net revenue - Company Owned
$
20,473
$
29,387
$
30,245
$
33,918
$
26,300
Net charge-offs - Company Owned
$
23,110
$
32,775
$
35,729
$
28,973
$
31,970
Revenue - Guaranteed by the Company
$
37,024
$
66,840
$
72,183
$
71,424
$
62,298
Provision for losses - Guaranteed by the
Company
11,418
26,338
34,858
36,664
28,336
Net revenue - Guaranteed by the
Company
$
25,606
$
40,502
$
37,325
$
34,760
$
33,962
Net charge-offs - Guaranteed by the
Company
$
15,432
$
27,749
$
34,486
$
35,916
$
27,486
Unsecured Installment gross combined
loans receivable:
Company Owned
$
81,601
$
123,118
$
160,782
$
174,489
$
164,722
Guaranteed by the Company (1)(2)
33,082
54,097
74,317
70,704
65,055
Unsecured Installment gross combined loans
receivable (1)(2)
$
114,683
$
177,215
$
235,099
$
245,193
$
229,777
Average gross loans receivable:
Average Unsecured Installment gross loans
receivable - Company Owned (3)
$
102,360
$
141,950
$
167,636
$
169,606
$
163,219
Average Unsecured Installment gross loans
receivable - Guaranteed by the Company (3)
$
43,590
$
64,207
$
72,511
$
67,880
$
62,398
Allowance for loan losses and CSO
liability for losses:
Unsecured Installment Allowance for loan
losses (4)
$
18,451
$
28,965
$
35,587
$
38,127
$
35,223
Unsecured Installment CSO liability for
losses (4)
$
5,128
$
9,142
$
10,553
$
10,181
$
9,433
Unsecured Installment Allowance for loan
losses as a percentage of Unsecured Installment gross loans
receivable
22.6
%
23.5
%
22.1
%
21.9
%
21.4
%
Unsecured Installment CSO liability for
losses as a percentage of Unsecured Installment gross loans
guaranteed by the Company
15.5
%
16.9
%
14.2
%
14.4
%
14.5
%
Unsecured Installment past-due
balances:
Unsecured Installment gross loans
receivable
$
17,766
$
34,966
$
43,100
$
46,537
$
38,037
Unsecured Installment gross loans
guaranteed by the Company
$
4,019
$
9,232
$
12,477
$
11,842
$
10,087
Past-due Unsecured Installment gross loans
receivable — percentage (2)
21.8
%
28.4
%
26.8
%
26.7
%
23.1
%
Past-due Unsecured Installment gross loans
guaranteed by the Company -- percentage (2)
12.1
%
17.1
%
16.8
%
16.7
%
15.5
%
Unsecured Installment other
information:
Originations - Company Owned
$
24,444
$
55,941
$
87,080
$
107,275
$
102,792
Originations - Guaranteed by the Company
(1)
$
33,700
$
64,836
$
91,004
$
89,644
$
80,445
Unsecured Installment ratios:
Provision as a percentage of gross loans
receivable - Company Owned
15.8
%
21.3
%
20.6
%
18.3
%
20.3
%
Provision as a percentage of gross loans
receivable - Guaranteed by the Company
34.5
%
48.7
%
46.9
%
51.9
%
43.6
%
(1) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(2) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
(4) We report Allowance for loan losses as
a contra-asset reducing gross loans receivable and the CSO
liability for losses as a liability on the Condensed Consolidated
Balance Sheets.
Secured Installment Loans
Secured Installment revenue and the related gross combined loans
receivable for the three months ended June 30, 2020 decreased 25.6%
and 37.7%, respectively, compared to the prior-year period. The
decrease was due to COVID-19 Impacts and regulatory changes in
California effective January 1, 2020. California accounted for
$21.6 million, or 39.6%, of total Secured Installment gross
combined loans receivable as of June 30, 2020, compared to $42.3
million, or 48.3%, as of June 30, 2019, a decrease of $20.7 million
year-over-year. Excluding California, Secured Installment loans
receivable decreased $12.3 million, or 27.2%, from the prior-year
period, while revenues decreased $2.6 million, or 15.7%,
year-over-year, due to COVID-19 Impacts.
NCOs increased $1.5 million year-over-year, resulting in a 515
bps increase in the NCO rate over that same time period and 160 bps
sequentially. Year-over-year NCO rates were impacted by the
Denominator Effect. Elevated NCOs were attributable to the higher
past-due receivables balance as of March 31, 2020. Secured
Installment Allowance for loan losses and CSO liability for losses
as a percentage of Secured Installment gross combined loans
receivable increased to 14.5% from 11.5% in the corresponding
period in 2019 and from 13.1% at the end of the first quarter of
2020. These increases were attributable to higher NCO rates as
described above, as well as the classification of certain loan
modifications under the Customer Care Program as TDRs, partially
offset by the impact of lower past-due receivables as of June 30,
2020.
2020
2019
(dollars in thousands, unaudited)
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
Secured Installment loans:
Revenue
$
19,401
$
26,286
$
28,690
$
28,270
$
26,076
Provision for losses
7,238
9,682
11,492
8,819
7,821
Net revenue
$
12,163
$
16,604
$
17,198
$
19,451
$
18,255
Net charge-offs
$
9,092
$
10,284
$
11,548
$
8,455
$
7,630
Secured Installment gross combined loan
balances:
Secured Installment gross combined loans
receivable (1)(2)
$
54,635
$
74,405
$
90,411
$
92,478
$
87,718
Average Secured Installment gross combined
loans receivable (3)
$
64,520
$
82,408
$
91,445
$
90,098
$
85,403
Secured Installment Allowance for loan
losses and CSO liability for losses (4)
$
7,919
$
9,773
$
10,375
$
10,431
$
10,067
Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable
14.5
%
13.1
%
11.5
%
11.3
%
11.5
%
Secured Installment past-due
balances:
Secured Installment past-due gross loans
receivable and gross loans guaranteed by the Company
$
9,072
$
15,612
$
17,902
$
17,645
$
14,570
Past-due Secured Installment gross loans
receivable and gross loans guaranteed by the Company — percentage
(1)
16.6
%
21.0
%
19.8
%
19.1
%
16.6
%
Secured Installment other
information:
Originations (2)
$
11,242
$
20,990
$
40,961
$
45,990
$
49,051
Secured Installment ratios:
Provision as a percentage of gross
combined loans receivable
13.2
%
13.0
%
12.7
%
9.5
%
8.9
%
(1) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(2) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(3) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
(4) We report Allowance for loan losses as
a contra-asset reducing gross loans receivable and the CSO
liability for losses as a liability on the Condensed Consolidated
Balance Sheets.
Open-End Loans
Open-End loan balances as of June 30, 2020 increased $1.8
million, or 0.7% ($12.3 million, or 4.3%, on a constant-currency
basis), compared to June 30, 2019, on 5.8% (10.6% on a
constant-currency basis) growth in Canada, offset by a decline in
the U.S. of $10.9 million, or 17.0%. Open-End loan balances as of
June 30, 2020 decreased $28.9 million, or 9.2% ($38.4 million, or
12.2%, on a constant-currency basis), sequentially due to COVID-19
Impacts.
The Open-End Allowance for loan losses as a percentage of
Open-End gross loans receivable decreased sequentially from 18.0%
to 16.6% as of June 30, 2020. The decrease was primarily due to a
shift in the geographic mix of receivables, the sequential decline
in past-due balances as a percentage of gross loans receivable from
15.9% to 10.9% and an 85 bps sequential improvement in Open-End NCO
rates. Year-over-year, NCO rates were impacted by the Denominator
Effect and increased 100 bps. The decrease in allowance coverage
was partially attributable to the continued Open-End product
maturation in Canada.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe over which
we charge-off Open-End loans and made related refinements to our
loss provisioning methodology. Prior to January 1, 2019, we deemed
Open-End loans uncollectible and charged-off when a customer missed
a scheduled payment and the loan was considered past-due. Because
of our continuing shift to Open-End loans in Canada and our
analysis of payment patterns on early-stage versus late-stage
delinquencies, we revised our estimates and now consider Open-End
loans uncollectible when the loan has been contractually past-due
for 90 consecutive days. Consequently, past-due Open-End loans and
related accrued interest now remain in loans receivable for 90 days
before being charged off against the allowance for loan losses. All
recoveries on charged-off loans are credited to the allowance for
loan losses. We evaluate the adequacy of the allowance for loan
losses compared to the related gross loans receivable balances that
include accrued interest.
Prospectively from January 1, 2019, past-due, unpaid balances
plus related accrued interest charge-off on day 91.
The aforementioned change was treated as a change in accounting
estimate for accounting purposes and applied prospectively
beginning January 1, 2019.
2020
2019
(dollars in thousands, unaudited)
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
Open-End loans:
Revenue
$
56,736
$
70,982
$
71,295
$
66,120
$
54,972
Provision for losses
21,341
40,991
37,816
31,220
29,373
Net revenue
$
35,395
$
29,991
$
33,479
$
34,900
$
25,599
Net charge-offs
$
31,684
$
37,098
$
37,426
$
28,202
$
25,151
Open-End gross loan balances:
Open-End gross loans receivable
$
285,156
$
314,006
$
335,524
$
314,971
$
283,311
Average Open-End gross loans receivable
(1)
$
299,581
$
324,765
$
325,248
$
299,141
$
262,051
Open-End allowance for loan
losses:
Allowance for loan losses
$
47,319
$
56,458
$
55,074
$
54,233
$
51,717
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
16.6
%
18.0
%
16.4
%
17.2
%
18.3
%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$
31,208
$
49,987
$
50,072
$
46,053
$
35,395
Open-End past-due gross loans receivable —
percentage
10.9
%
15.9
%
14.9
%
14.6
%
12.5
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
In addition, the following table illustrates, on a non-GAAP pro
forma basis, the 2019 quarterly results as if the Q1 2019 Open-End
Loss Recognition Change had been applied to our outstanding
Open-End loan portfolio as of December 31, 2018. This table is
illustrative of retrospective application to determine the NCOs
that would have been incurred in each quarter of 2019 from the
December 31, 2018 loan book. The primary purpose of this pro forma
illustration is to provide a representative level of NCO rates from
applying the Q1 2019 Open-End Loss Recognition Change.
Pro Forma
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Open-End loans:
Pro Forma Net charge-offs
$
38,748
$
29,762
$
29,648
$
31,788
Open-End gross loan balances:
Open-End gross loans receivable
$
335,524
$
314,971
$
283,311
$
240,790
Pro Forma Average Open-End gross loans
receivable (1)
$
325,248
$
299,141
$
262,051
$
245,096
Pro Forma Net-charge offs as a percentage
of average gross loans receivable
11.9
%
9.9
%
11.3
%
13.0
%
(1) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
Single-Pay
Single-Pay revenue declined year-over-year and sequentially by
approximately 50% for the three months ended June 30, 2020,
primarily due to COVID-19 Impacts. Related receivables declined
52.5% year-over-year and 34.0% sequentially. Single-Pay loan volume
was particularly affected by the reduction in store traffic as
customers self-quarantined and increased repayments. The Single-Pay
Allowance for loan losses as a percentage of Single-Pay gross loans
receivable decreased sequentially from 8.6% to 7.8% as a result of
mix shift between the U.S. and Canada.
2020
2019
(dollars in thousands, unaudited)
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
Single-Pay loans:
Revenue
$
22,732
$
45,157
$
49,844
$
49,312
$
45,528
Provision for losses
(2,588)
9,639
12,289
14,736
12,446
Net revenue
$
25,320
$
35,518
$
37,555
$
34,576
$
33,082
Net charge-offs
$
(598)
$
10,517
$
12,145
$
13,913
$
11,458
Single-Pay gross loan balances:
Single-Pay gross loans receivable
$
36,130
$
54,728
$
81,447
$
78,039
$
76,126
Average Single-Pay gross loans receivable
(1)
$
45,429
$
68,088
$
78,787
$
77,083
$
72,940
Single-Pay Allowance for loan losses
$
2,802
$
4,693
$
5,869
$
5,662
$
4,941
Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable
7.8
%
8.6
%
7.2
%
7.3
%
6.5
%
(1) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
Results of Consolidated Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
182,509
$
264,300
$
(81,791)
(30.9)
%
$
463,315
$
542,239
$
(78,924)
(14.6)
%
Provision for losses
50,693
112,010
(61,317)
(54.7)
%
164,229
214,395
(50,166)
(23.4)
%
Net revenue
131,816
152,290
(20,474)
(13.4)
%
299,086
327,844
(28,758)
(8.8)
%
Advertising costs
5,750
12,780
(7,030)
(55.0)
%
17,969
20,566
(2,597)
(12.6)
%
Non-advertising costs of providing
services
49,567
58,329
(8,762)
(15.0)
%
104,919
120,600
(15,681)
(13.0)
%
Total cost of providing services
55,317
71,109
(15,792)
(22.2)
%
122,888
141,166
(18,278)
(12.9)
%
Gross margin
76,499
81,181
(4,682)
(5.8)
%
176,198
186,678
(10,480)
(5.6)
%
Operating expense
Corporate, district and other expenses
36,781
35,290
1,491
4.2
%
79,588
84,378
(4,790)
(5.7)
%
Interest expense
18,311
17,023
1,288
7.6
%
35,635
34,713
922
2.7
%
(Gain) loss from equity method
investment
(741)
3,748
(4,489)
#
877
3,748
(2,871)
(76.6)
%
Total operating expense
54,351
56,061
(1,710)
(3.1)
%
116,100
122,839
(6,739)
(5.5)
%
Net income from continuing operations
before income taxes
22,148
25,120
(2,972)
(11.8)
%
60,098
63,839
(3,741)
(5.9)
%
Provision for income taxes
1,068
7,453
(6,385)
(85.7)
%
3,005
17,499
(14,494)
(82.8)
%
Net income from continuing operations
21,080
17,667
3,413
19.3
%
57,093
46,340
10,753
23.2
%
Net income (loss) from discontinued
operations, net of tax
993
(834)
1,827
#
1,285
7,541
(6,256)
(83.0)
%
Net income
$
22,073
$
16,833
$
5,240
31.1
%
$
58,378
$
53,881
$
4,497
8.3
%
# - Variance greater than 100% or not
meaningful
Reconciliation of Net income from continuing operations and
Diluted Earnings per Share to Adjusted Net Income and Adjusted
Diluted Earnings per Share, non-GAAP measures
(in thousands, except per share data,
unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$
21,080
$
17,667
$
3,413
19.3
%
$
57,093
$
46,340
$
10,753
23.2
%
Adjustments:
Legal and other costs (1)
938
—
2,087
1,752
U.K. related costs (2)
—
679
—
8,496
(Gain) loss from equity method investment
(3)
(741)
3,748
877
3,748
Share-based compensation (4)
3,310
2,644
6,504
4,816
Intangible asset amortization
759
761
1,496
1,557
Canada GST adjustment (5)
2,160
—
2,160
—
Income tax valuations (6)
(3,472)
—
(3,472)
—
Impact of tax law changes (7)
—
—
(9,114)
—
Cumulative tax effect of adjustments
(8)
(1,864)
(1,062)
(3,185)
(4,322)
Adjusted Net Income
$
22,170
$
24,437
$
(2,267)
(9.3)
%
$
54,446
$
62,387
$
(7,941)
(12.7)
%
Net income from continuing operations
$
21,080
$
17,667
$
57,093
$
46,340
Diluted Weighted Average Shares
Outstanding
41,545
47,107
41,686
47,335
Diluted Earnings per Share from continuing
operations
$
0.51
$
0.38
$
0.13
34.2
%
$
1.37
$
0.98
$
0.39
39.8
%
Per Share impact of adjustments to Net
income from continuing operations
0.02
0.14
(0.06)
0.34
Adjusted Diluted Earnings per Share
$
0.53
$
0.52
$
0.01
1.9
%
$
1.31
$
1.32
$
(0.01)
(0.8)
%
Note: Footnotes follow Reconciliation of
Net income table immediately below
Reconciliation of Net income from continuing operations to
EBITDA and Adjusted EBITDA, non-GAAP measures
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share data,
unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$
21,080
$
17,667
$
3,413
19.3
%
$
57,093
$
46,340
$
10,753
23.2
%
Provision for income taxes
1,068
7,453
(6,385)
(85.7)
%
3,005
17,499
(14,494)
(82.8)
%
Interest expense
18,311
17,023
1,288
7.6
%
35,635
34,713
922
2.7
%
Depreciation and amortization
4,417
4,651
(234)
(5.0)
%
8,954
9,571
(617)
(6.4)
%
EBITDA
44,876
46,794
(1,918)
(4.1)
%
104,687
108,123
(3,436)
(3.2)
%
Legal and other costs (1)
938
—
2,087
1,752
U.K. related costs (2)
—
679
—
8,496
(Gain) loss from equity method investment
(3)
(741)
3,748
877
3,748
Share-based compensation (4)
3,310
2,644
6,504
4,816
Canada GST adjustment (5)
2,160
—
2,160
—
Other adjustments (9)
586
(176)
601
(392)
Adjusted EBITDA
$
51,129
$
53,689
$
(2,560)
(4.8)
%
$
116,916
$
126,543
$
(9,627)
(7.6)
%
Adjusted EBITDA Margin
28.0
%
20.3
%
25.2
%
23.3
%
(1)
Legal and other costs for the six months
ended June 30, 2020 included (i) settlement costs related to
certain legal matters (ii) costs related to certain securities
litigation and related matter, (iii) severance costs for certain
corporate employees and (iv) legal and advisory costs related to
the purchase of Ad Astra. Legal and other costs of $1.8 million for
the six months ended June 30, 2019 were due to eliminating 121
positions in North America. The store employee reductions helped
better align store staffing with in-store customer traffic and
volume patterns, as more of our growth comes from online channels
and as store customers require less time in stores as they conduct
more of the follow-up activities online. The elimination of certain
corporate positions related to efficiency initiatives and has
allowed the Company to reallocate investment to strategic growth
activities.
(2)
U.K. related costs of $8.5 million for the
six months ended June 30, 2019 relate to placing the U.K.
subsidiaries into administration on February 25, 2019, which
included $7.6 million to obtain consent from the holders of the
8.25% Senior Secured Notes to deconsolidate the U.K. Segment and
$0.9 million for other costs.
(3)
The Loss from equity method investment for
the six months ended June 30, 2020 of $0.9 million includes our
share of the estimated GAAP net loss of Katapult. As of June 30,
2020, we owned 42.5% of the outstanding shares of Katapult. The
Loss from equity method investment for the six months ended June
30, 2019 of $3.7 million represented the market value adjustment
recognized during the second quarter of 2019 as a result of an
equity raising round from April through July of 2019 that implied a
value per share less than the value per share raised in prior
raises.
(4)
We approved the adoption of share-based
compensation plans during 2010 and 2017 for key members of senior
management. The estimated fair value of share-based awards is
recognized as non-cash compensation expense on a straight-line
basis over the vesting period.
(5)
We received a Notice of Adjustment from
Canadian tax authority auditors in the second quarter 2020 related
to the treatment of certain expenses in prior years for purposes of
calculating the Goods and Services Tax ("GST") due.
(6)
In the second quarter of 2020, a Texas
court ruling related to the apportionment of income to the state
for another company resulted in a change in estimate regarding the
realization of a tax benefit previously taken. Accordingly, we
recorded a $1.1 million liability for our estimated exposure
related to this position. Also in the second quarter of 2020, we
released a $4.6 million valuation allowance related to Net
Operating Losses ("NOLs") for certain entities in Canada. .
(7)
On March 27, 2020, the Coronavirus Aid,
Relief and Economic Security Act ("CARES Act") was enacted by the
U.S. Federal government 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 income taxes. For the
six months ended June 30, 2020, we recorded an income tax benefit
of $9.1 million related to the carryback of NOL from tax years 2018
and 2019.
(8)
Cumulative tax effect of adjustments
included in Reconciliation of Net income from continuing operations
to EBITDA and Adjusted EBITDA table is calculated using the
estimated incremental tax rate by country.
(9)
Other adjustments primarily include the
intercompany foreign-currency exchange impact.
For the three months ended June 30, 2020 and 2019
Revenue and Net Revenue
Revenue decreased $81.8 million, or 30.9%, to $182.5 million for
the three months ended June 30, 2020, from $264.3 million for the
three months ended June 30, 2019, as a result of the declines in
combined gross loan receivables discussed previously.
Year-over-year U.S. and Canada revenues decreased 34.6% and 16.7%,
respectively.
Provision for losses decreased by $61.3 million, or 54.7%, for
the three months ended June 30, 2020 compared to the prior-year
period. The decrease in provision for loan losses was due to the
sequential decline in loan balances in the second quarter of 2020
and better credit performance from COVID-19 Impacts as discussed in
more detail in the "Loan Product and Portfolio Performance" and
"Segment Analysis" sections.
Cost of Providing Services
Non-advertising costs of providing services decreased $8.8
million, or 15.0%, to $49.6 million in the three months ended June
30, 2020, compared to $58.3 million in the three months ended June
30, 2019. Of the $8.8 million decrease, $3.7 million was related to
third-party collection costs incurred in 2019 related to Ad Astra,
which were included in Non-advertising costs of providing services.
Subsequent to our acquisition of Ad Astra, a wholly owned
subsidiary as of January 3, 2020, its operating costs are included
within "Corporate, district and other expenses," consistent with
presentation of our other internal collection costs. The remaining
decrease year-over-year in Non-advertising costs of providing
services was due to (i) lower underwriting and other variable costs
as a result of lower demand, (ii) lower collection costs after
stimulus-related pay-downs and (iii) lower discretionary variable
compensation.
Advertising costs decreased $7.0 million, or 55.0%,
year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses
Corporate, district and other expenses were $36.8 million for
the three months ended June 30, 2020, an increase of $1.5 million,
or 4.2%, compared to the three months ended June 30, 2019.
Corporate, district and other expenses in the three months ended
June 30, 2020 included $2.1 million of collection costs related to
Ad Astra, which we included in Non-advertising costs of providing
services prior to acquisition. For the three months ended June 30,
2020, corporate, district and other expenses also included (i) $3.3
million of share-based compensation costs, (ii) $2.2 million of
Canadian GST described in our reconciliation to Adjusted Net Income
above, and (iii) $0.9 million of legal and other costs also
described in our reconciliation to Adjusted Net Income above. For
the three months ended June 30, 2019, corporate district and other
costs included (i) share-based compensation costs of $2.6 million
and (ii) U.K. related costs of $0.7 million as described in our
reconciliation to Adjusted Net Income above.
Excluding Ad Astra costs, share-based compensation expense and
other costs described above, comparable corporate, district and
other expenses decreased $3.7 million year-over-year, primarily due
to the timing and extent of variable compensation and other cost
reductions including work-from-home initiatives to manage COVID-19
Impacts.
Equity Method Investment
We account for our investment in Katapult under the equity
method. We record our pro rata share of Katapult's income or losses
on a two-month lag in the Condensed Consolidated Statement of
Operations, with a corresponding adjustment to the carrying value
of our investment in "Other assets" on the Condensed Consolidated
Balance Sheet. For the three months ended June 30, 2020, our share
of Katapult's income was $0.7 million.
Interest Expense
Interest expense for the three months ended June 30, 2020
remained consistent with the prior-year period on flat
year-over-year average borrowings.
Provision for Income Taxes
The effective income tax rate for the three months ended June
30, 2020 was 4.8%, compared to a tax rate of 29.7% for the three
months ended June 30, 2019. The decrease in the effective income
tax rate was primarily due to a tax benefit of $4.6 million from
the release of a valuation allowance previously recorded against
NOLs for certain entities in Canada. This benefit was partially
offset by uncertain tax position reserve adjustments in the U.S. of
$1.1 million. Additionally, during the quarter, we recognized
income from our equity method investment in Katapult, which is not
taxable due to the gain offsetting prior accumulated losses.
Excluding the impact of the NOL benefit in Canada, the uncertain
tax position reserve adjustment, and our investment in Katapult,
our adjusted effective income tax rate for the three months ended
June 30, 2020 was 21.2%, due primarily to changes in state income
mix during the quarter.
For the six months ended June 30, 2020 and 2019
Revenue and Net Revenue
Revenue decreased $78.9 million, or 14.6%, to $463.3 million for
the six months ended June 30, 2020, from $542.2 million for the six
months ended June 30, 2019, as a result of the declines in combined
gross loans receivable discussed above. Year-over-year, U.S. and
Canada Revenues decreased 17.7% and 1.7%, respectively.
Provision for losses decreased by $50.2 million, or 23.4%, for
the six months ended June 30, 2020 compared to the prior-year
period. The decrease in provision for loan losses was primarily due
to lower loan volume and lower NCOs as a result of COVID-19 Impacts
as discussed in more detail in the "Loan Product and Portfolio
Performance" and "Segment Analysis" sections.
Cost of Providing Services
Non-advertising costs of providing services decreased $15.7
million, or 13.0%, to $104.9 million in the six months ended June
30, 2020, compared to $120.6 million in the six months ended June
30, 2019. Of the $15.7 million decrease, $8.4 million was related
to third-party collection costs incurred in 2019 related to Ad
Astra, which were included in Non-advertising costs of providing
services. Subsequent to our acquisition of Ad Astra, we include its
operating costs within "Corporate, district and other expenses,"
consistent with the presentation of our other internal collection
costs. The remaining decrease year-over-year in Non-advertising
costs of providing services was due to (i) lower underwriting and
other variable costs as a result of lower demand, (ii) lower
collection costs after governmental stimulus-related pay-downs and
(iii) lower discretionary variable compensation.
Advertising costs decreased $2.6 million, or 12.6%,
year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses
Corporate, district and other expenses were $79.6 million for
the six months ended June 30, 2020, a decrease of $4.8 million, or
5.7%, compared to the three months ended June 30, 2019. Corporate,
district and other expenses in the six months ended June 30, 2020
included $5.6 million of collection costs related to Ad Astra,
which prior to the acquisition of it in January 2020 were included
in Non-advertising costs of providing services. For the six months
ended June 30, 2020, corporate, district and other expenses also
included (i) $6.5 million of share-based compensation costs, (ii)
$2.2 million of Canadian GST described in our reconciliation to
Adjusted Net Income above and (iii) $2.1 million of legal and other
costs also described in our reconciliation to Adjusted Net Income
above. For the six months ended June 30, 2019, corporate district
and other costs included (i) U.K. related costs of $8.5 million,
(ii) $4.8 million of share-based compensation and (iii) $1.8
million of legal and other costs as described in our reconciliation
to Adjusted Net Income above.
Excluding Ad Astra costs, share-based compensation expense and
other costs described above, comparable corporate, district and
other expenses decreased $6.1 million year-over-year, primarily due
to the timing and extent of variable compensation and other cost
reductions including work-from-home initiatives to manage COVID-19
Impacts.
Equity Method Investment
We account for our investment in Katapult under the equity
method. We record our pro rata share of Katapult's income or
losses, on a two-month lag in the Condensed Consolidated Statement
of Operations with a corresponding adjustment to the carrying value
of our investment in "Other assets" on the Condensed Consolidated
Balance Sheet. For the six months ended June 30, 2020, our share of
Katapult's loss was $0.9 million.
Interest Expense
Interest expense for the six months ended June 30, 2020 remained
consistent with the prior-year period on flat year-over-year
average borrowings.
Provision for Income Taxes
The effective income tax rate for the six months ended June 30,
2020 was 5.0%, compared to a tax rate of 27.4% for the six months
ended June 30, 2019. The decrease in the effective income tax rate
was the result of two discrete, one-time developments related to
usage of NOLs. First, the CARES Act, which was enacted on March 27,
2020 in response to COVID-19, 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. We have recorded an income tax benefit
of $9.1 million related to the carry-back of NOL from tax years
2018 and 2019, which will offset our tax liability for years prior
to tax reform and generate a refund of previously-paid taxes at a
35% statutory rate. Second, we recorded a tax benefit of $4.6
million related to the release of a valuation allowance previously
recorded against NOLs for certain entities in Canada. These
benefits were partially offset by uncertain tax position reserve
adjustments in the U.S. of $1.1 million. During the six months
ended June 30, 2020, we also recognized a $0.9 million loss from
our equity method investment in Katapult, which is not tax
deductible. Excluding the impact of the CARES Act, the valuation
allowance release benefit in Canada, the uncertain tax position
reserve adjustment and our investment in Katapult, our adjusted
effective income tax rate for the three months ended June 30, 2020
was 25.6%.
Segment Analysis
We report financial results for two reportable segments: the
U.S. and Canada. Following is a summary of results of operations
for the segment and period indicated:
U.S. Segment Results
Three Months Ended June 30,
Six Months Ended June 30,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
137,320
$
210,046
$
(72,726)
(34.6)
%
$
359,088
$
436,165
$
(77,077)
(17.7)
%
Provision for losses
41,530
92,552
(51,022)
(55.1)
%
127,571
177,532
(49,961)
(28.1)
%
Net revenue
95,790
117,494
(21,704)
(18.5)
%
231,517
258,633
(27,116)
(10.5)
%
Advertising costs
5,269
11,179
(5,910)
(52.9)
%
16,214
17,533
(1,319)
(7.5)
%
Non-advertising costs of providing
services
33,661
41,248
(7,587)
(18.4)
%
70,903
86,230
(15,327)
(17.8)
%
Total cost of providing services
38,930
52,427
(13,497)
(25.7)
%
87,117
103,763
(16,646)
(16.0)
%
Gross margin
56,860
65,067
(8,207)
(12.6)
%
144,400
154,870
(10,470)
(6.8)
%
Corporate, district and other expenses
29,631
29,649
(18)
(0.1)
%
67,281
73,529
(6,248)
(8.5)
%
Interest expense
16,113
14,641
1,472
10.1
%
30,959
29,369
1,590
5.4
%
(Gain) loss from equity method
investment
(741)
3,748
(4,489)
#
877
3,748
(2,871)
(76.6)
%
Total operating expense
45,003
48,038
(3,035)
(6.3)
%
99,117
106,646
(7,529)
(7.1)
%
Segment operating income
11,857
17,029
(5,172)
(30.4)
%
45,283
48,224
(2,941)
(6.1)
%
Interest expense
16,113
14,641
1,472
10.1
%
30,959
29,369
1,590
5.4
%
Depreciation and amortization
3,309
3,437
(128)
(3.7)
%
6,686
7,163
(477)
(6.7)
%
EBITDA
31,279
35,107
(3,828)
(10.9)
%
82,928
84,756
(1,828)
(2.2)
%
Legal and other costs
938
—
938
2,087
1,617
470
U.K. related costs
—
679
(679)
—
8,496
(8,496)
(Gain) loss from equity method
investment
(741)
3,748
(4,489)
877
3,748
(2,871)
Share-based compensation
3,310
2,644
666
6,504
4,816
1,688
Other adjustments
305
(143)
448
164
(248)
412
Adjusted EBITDA
$
35,091
$
42,035
$
(6,944)
(16.5)
%
$
92,560
$
103,185
$
(10,625)
(10.3)
%
# - Variance greater than 100% or not
meaningful.
U.S. Segment Results - For the three
months ended June 30, 2020 and 2019
U.S. revenues decreased by $72.7 million, or 34.6%, to $137.3
million, compared to the prior-year period for the three months
ended June 30, 2020, as a result of the declines in combined gross
loans receivable discussed above. Excluding the impact of
California Installment loan runoff stemming from regulatory changes
effective January 1, 2020, U.S. revenues decreased $56.0 million,
or 31.9%.
The provision for losses decreased $51.0 million, or 55.1%,
primarily as a result of lower loan volume, as previously
discussed.
Non-advertising costs of providing services for the three months
ended June 30, 2020 of $33.7 million, decreased $7.6 million, or
18.4%, compared to $41.2 million for the three months ended June
30, 2019. The decrease was primarily driven by Ad Astra costs of
$3.7 million, which prior to its acquisition were included in
Corporate, district and other expenses. The remaining decrease
year-over-year in Non-advertising costs of providing services was
due to (i) lower underwriting and other variable costs as a result
of lower demand, (ii) lower collection costs after governmental
stimulus-related pay-downs and (iii) lower discretionary variable
compensation.
Advertising costs decreased $5.9 million, or 52.9%,
year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses of $29.6 million for the
three months ended June 30, 2020, were flat compared to the
prior-year period. Corporate, district and other expenses for the
three months ended June 30, 2020 included $2.1 million of
collection costs related to Ad Astra, which were historically
included in Non-advertising costs of providing services. For the
three months ended June 30, 2020, corporate, district and other
costs included (i) $0.9 million of legal and other costs described
in our reconciliation to Adjusted Net Income above and (ii) $3.3
million of share-based compensation costs. For the three months
ended June 30, 2019, corporate, district and other expenses
included (i) U.K. related costs of $0.7 million as described in our
reconciliation to Adjusted Net Income above and (ii) share-based
compensation costs of $2.6 million.
Excluding the aforementioned items, comparable corporate
district and other expenses decreased $3.1 million year-over-year,
primarily due to the timing and extent of variable compensation and
certain cost reductions, including work-from-home initiatives, to
manage COVID-19 Impacts.
We hold a 42.5% ownership stake in Katapult and account for this
ownership under the equity method of accounting. During the second
quarter of 2020, Katapult’s leasing volumes benefited from the
shift to online shopping during COVID-19 stay-at-home and
quarantine orders. Katapult posted its highest weekly origination
volumes and highest historical approval rates during the height of
COVID-19 as stay-at-home consumers shopped online due to retail
store closings and prime and near-prime online financing providers
tightened credit and drove more customers to Katapult. Through the
end of June, Katapult originated approximately $100 million in
leases year-to-date compared to $30 million in the first half of
2019. Currently, one retail partner accounts for a majority of
Katapult's volume. Credit trends have continued to improve even
with the outsized growth in volume such that Katapult has turned
profitable to us during the second quarter. We recognize our share
of Katapult’s income on a two-month lag, from which we recorded
income of $0.7 million for the second quarter of 2020 and a loss of
$0.9 million for the six months ended June 30, 2020.
U.S. interest expense for the three months ended June 30, 2020
increased $1.5 million, or 10.1%, primarily related to the new
Non-Recourse U.S. SPV Facility, on which we drew $35.2 million when
it closed in April 2020.
U.S. Segment Results - For the six
months ended June 30, 2020 and 2019
U.S. revenues decreased by $77.1 million, or 17.7%, to $359.1
million, compared to the prior-year period for the six months ended
June 30, 2020, as a result of decreases in combined gross loans
receivable. Excluding the aforementioned impact of California
Installment loan runoff, U.S. revenues decreased by $47.2 million,
or 13.0%.
The provision for losses decreased $50.0 million, or 28.1%, for
the six months ended June 30, 2020, compared to the prior-year
period, primarily as a result of lower loan volume.
Non-advertising costs of providing services for the six months
ended June 30, 2020 of $70.9 million, decreased $15.3 million, or
17.8%, compared to $86.2 million for the six months ended June 30,
2019. The decrease was primarily driven by Ad Astra costs of $8.4
million, which prior to its acquisition were included in Corporate,
district and other expenses. The remaining decrease year-over-year
in Non-advertising costs of providing services was due to (i) lower
underwriting and other variable costs as a result of lower demand,
(ii) lower collection costs after stimulus-related pay-downs and
(iii) lower discretionary variable compensation.
Advertising costs decreased $1.3 million, or 7.5%,
year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses were $67.3 million for
the six months ended June 30, 2020, a decrease of $6.2 million, or
8.5%, compared to the three months ended June 30, 2019. Corporate,
district and other expenses for the six months ended June 30, 2020
included $5.6 million of collection costs related to Ad Astra,
which were historically included in Non-advertising costs of
providing services. For the six months ended June 30, 2020,
corporate, district and other costs included (i) $2.1 million of
legal and other costs described in our reconciliation to Adjusted
Net Income above and (ii) $6.5 million of share-based compensation
costs. For the six months ended June 30, 2019, corporate, district
and other expenses included (i) U.K. related costs of $8.5 million
as described in our reconciliation to Adjusted Net Income above,
and (ii) share-based compensation costs of $4.8 million.
Excluding these items, comparable corporate, district and other
expenses decreased $5.5 million year-over-year, primarily due to
the timing and extent of variable compensation and certain cost
reductions, including work-from-home initiatives, to manage
COVID-19 Impacts for the six months ended June 30, 2019.
As described above, we recognize our share of Katapult’s income
on a two-month lag and recorded a loss of $0.9 million for the
first half of 2020.
U.S. interest expense for the six months ended June 30, 2020
increased $1.6 million, or 5.4%, primarily related to the new
Non-Recourse U.S. SPV Facility, on which we drew $35.2 million when
it closed in April 2020.
Canada Segment Results
Three Months Ended June 30,
Six Months Ended June 30,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
45,189
$
54,254
$
(9,065)
(16.7)
%
$
104,227
$
106,074
$
(1,847)
(1.7)
%
Provision for losses
9,163
19,458
(10,295)
(52.9)
%
36,658
36,863
(205)
(0.6)
%
Net revenue
36,026
34,796
1,230
3.5
%
67,569
69,211
(1,642)
(2.4)
%
Advertising costs
481
1,601
(1,120)
(70.0)
%
1,755
3,033
(1,278)
(42.1)
%
Non-advertising costs of providing
services
15,906
17,081
(1,175)
(6.9)
%
34,016
34,370
(354)
(1.0)
%
Total cost of providing services
16,387
18,682
(2,295)
(12.3)
%
35,771
37,403
(1,632)
(4.4)
%
Gross margin
19,639
16,114
3,525
21.9
%
31,798
31,808
(10)
—
%
Corporate, district and other expenses
7,150
5,641
1,509
26.8
%
12,307
10,849
1,458
13.4
%
Interest expense
2,198
2,382
(184)
(7.7)
%
4,676
5,344
(668)
(12.5)
%
Total operating expense
9,348
8,023
1,325
16.5
%
16,983
16,193
790
4.9
%
Segment operating income
10,291
8,091
2,200
27.2
%
14,815
15,615
(800)
(5.1)
%
Interest expense
2,198
2,382
(184)
(7.7)
%
4,676
5,344
(668)
(12.5)
%
Depreciation and amortization
1,108
1,214
(106)
(8.7)
%
2,268
2,408
(140)
(5.8)
%
EBITDA
13,597
11,687
1,910
16.3
%
21,759
23,367
(1,608)
(6.9)
%
Legal and other costs
—
—
—
—
135
(135)
Canada GST adjustment
2,160
—
2,160
2,160
—
2,160
Other adjustments
281
(33)
314
437
(144)
581
Adjusted EBITDA
$
16,038
$
11,654
$
4,384
37.6
%
$
24,356
$
23,358
$
998
4.3
%
Canada Segment Results - For the three
months ended June 30, 2020 and 2019
Canada revenue decreased $9.1 million, or 16.7% ($7.4 million,
or 13.6%, on a constant-currency basis), to $45.2 million for the
three months ended June 30, 2020, from $54.3 million in the prior
year, as a result of the declines in gross loans receivable
discussed previously.
Canada non-Single-Pay revenue increased $1.6 million, or 4.6%
($3.0 million, or 8.5%, on a constant-currency basis), to $36.8
million, compared to $35.2 million in the prior-year period, on
growth of $9.1 million, or 3.9% ($20.0 million, or 8.6%, on a
constant-currency basis), in related loan balances. The increase
was driven by continued growth of Open-End loans despite COVID-19
Impacts. Ancillary revenue, which includes sales of insurance to
Open-End loan customers, decreased $1.2 million, or 11.0% ($0.8
million, or 7.7% on a constant-currency basis). The decrease was
driven by additional insurance claims from consumers impacted by
COVID-19 during the second quarter of 2020.
Single-Pay revenue decreased $10.7 million, or 55.9% ($10.4
million, or 54.3%, on a constant-currency basis), to $8.4 million
for the three months ended June 30, 2020, and Single-Pay
receivables decreased $20.9 million, or 59.6% ($20.3 million, or
57.7% on a constant-currency basis), to $14.2 million, from $35.1
million, in the prior year. The decreases in Single-Pay revenue and
receivables were due to a significant decline in demand
attributable to COVID-19 Impacts.
The provision for losses decreased $10.3 million, or 52.9%
($10.0 million, or 51.3%, on a constant-currency basis), to $9.2
million for the three months ended June 30, 2020, compared to $19.5
million in the prior-year period. The decrease in provision for
loan losses was primarily a result of lower loan volume and lower
NCOs as a result of COVID-19 Impacts as discussed previously. On a
quarterly basis, despite COVID-19 Impacts, loss rates improved
approximately 190 bps, or 28.4%, year over year due to
stimulus-related pay-downs and overall portfolio maturation.
Canada cost of providing services for the three months ended
June 30, 2020 was $16.4 million, a decrease of $2.3 million, or
12.3% ($1.7 million, or 9.1%, on a constant-currency basis),
compared to $18.7 million for the three months ended June 30, 2019,
primarily related to certain cost reductions to manage COVID-19
Impacts and reduced advertising efforts during the second quarter
of 2020.
Canada operating expenses for the three months ended June 30,
2020 were $9.3 million, an increase of $1.3 million, or 16.5% ($1.6
million, or 20.0%, on a constant-currency basis), compared to $8.0
million in the prior-year period, primarily related to $2.2 million
of Canadian GST described in our reconciliation to Adjusted Net
Income above.
Canada Segment Results - For the six
months ended June 30, 2020 and 2019
Canada revenue decreased $1.8 million, or 1.7% (increased $0.3
million, or 0.3%, on a constant-currency basis), to $104.2 million
for the six months ended June 30, 2020, from $106.1 million in the
prior year, as a result of the declines in gross loans
receivable.
Canada non-Single-Pay revenue increased $11.4 million, or 17.0%
($12.9 million, or 19.2%, on a constant-currency basis), to $78.8
million, compared to $67.4 million in the prior-year period, on
growth of $9.1 million, or 3.9% ($20.0 million, or 8.6%, on a
constant-currency basis), in related loan balances. The increase
was driven by continued growth of Open-End loan despite COVID-19
related impacts. Ancillary revenue, which includes sales of
insurance to Open-End loan customers, remained flat year-over-year
due to increased insurance claims from consumers impacted by
COVID-19 during the second quarter of 2020.
Single-Pay revenue decreased $13.3 million, or 34.3% ($12.9
million, or 33.5%, on a constant-currency basis), to $25.4 million
for the six months ended June 30, 2020, and Single-Pay receivables
decreased $20.9 million, or 59.6% ($20.3 million, or 57.7% on a
constant-currency basis), to $14.2 million from $35.1 million, in
the prior year. The decreases in Single-Pay revenue and receivables
were due to product mix shift from Single-Pay loans to Open-End
loans, as well as significant declines in demand attributable to
COVID-19 Impacts.
The provision for losses decreased $0.2 million, or 0.6%
(increased $0.5 million, or 1.3%, on a constant-currency basis), to
$36.7 million for the six months ended June 30, 2020, compared to
$36.9 million in the prior-year period. The decrease in provision
for loan losses was primarily a result lower loan volume and lower
NCOs as a result of COVID-19 Impacts as discussed previously. On a
quarterly basis, despite COVID-19 Impacts, loss rates improved
approximately 190 bps, or 28.4%, year over year due to
stimulus-related pay-downs.
Canada cost of providing services for the six months ended June
30, 2020 was $35.8 million, a decrease of $1.6 million, or 4.4%
($0.9 million, or 2.3%, on a constant-currency basis), compared to
$37.4 million for the six months ended June 30, 2019, primarily
related to certain cost reductions to manage COVID-19 Impacts and
reduced advertising efforts through the second quarter of 2020.
Canada operating expenses for the six months ended June 30, 2020
were $17.0 million, an increase of $0.8 million, or 4.9% ($1.1
million, or 7.1%, on a constant-currency basis), compared to $16.2
million in the prior-year period, primarily related to $2.2 million
of Canadian GST described in our reconciliation to Adjusted Net
Income above, partially offset by lower interest expense.
Results of Discontinued Operations
On February 25, 2019, in accordance with the provisions of the
U.K. Insolvency Act 1986 and as approved by the Boards of Directors
of 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, we 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.
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 our results of
continuing operations:
(in thousands, unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
2020
2019(1)
Revenue
$
—
$
—
$
—
$
6,957
Provision for losses
—
—
—
1,703
Net revenue
—
—
—
5,254
Cost of providing services
—
—
—
1,082
Corporate, district and other expenses
—
—
—
3,806
(Gain) loss on disposition
(1,324)
—
(1,714)
39,414
Pre-tax income (loss) from Discontinued
Operations
1,324
—
1,714
(39,048)
Income tax expense (income) related to
disposition
331
834
429
(46,589)
Net income (loss) from discontinued
operations
$
993
$
(834)
$
1,285
$
7,541
(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 six months ended June 30,
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 our interests in the U.K. Subsidiaries
recognized a loss on investment. This loss resulted in an estimated
U.S. Federal and state income tax benefit of $46.6 million, which
will be available to offset our future income tax obligations. In
the second quarter of 2019, we revised the estimate of our tax
basis in the U.K. Subsidiaries, resulting in a $0.8 million
reduction in the income tax benefit recorded in the first quarter
of 2019.
During the six months ended June 30, 2020, we received our final
distribution from the Administrators related to the wind-down of
the U.K. Subsidiaries.
CURO GROUP HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands)
(unaudited)
June 30, 2020
December 31, 2019
ASSETS
Cash and cash equivalents
$
269,342
$
75,242
Restricted cash (includes restricted cash
of consolidated VIEs of $39,248 and $17,427 as of June 30, 2020 and
December 31, 2019, respectively)
63,274
34,779
Gross loans receivable (includes loans of
consolidated VIEs of $290,828 and $244,492 as of June 30, 2020 and
December 31, 2019, respectively)
456,512
665,828
Less: allowance for loan losses (includes
allowance for losses of consolidated VIEs of $47,988 and $24,425 as
of June 30, 2020 and December 31, 2019, respectively)
(76,455)
(106,835)
Loans receivable, net
380,057
558,993
Income taxes receivable
18,805
11,426
Prepaid expenses and other
32,860
35,890
Property and equipment, net
64,259
70,811
Right of use asset - operating leases
111,860
117,453
Deferred tax assets
—
5,055
Goodwill
133,977
120,609
Other intangibles, net
35,707
33,927
Other assets
17,018
17,710
Total Assets
$
1,127,159
$
1,081,895
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Accounts payable and accrued liabilities
(includes accounts payable and accrued liabilities of consolidated
VIEs of $20,567 and $13,462 as of June 30, 2020 and December 31,
2019, respectively)
$
63,960
$
60,083
Deferred revenue
4,974
10,170
Lease liability - operating leases
119,767
124,999
Accrued interest (includes accrued
interest of consolidated VIEs of $1,030 and $871 as of June 30,
2020 and December 31, 2019, respectively)
20,005
19,847
Liability for losses on CSO lender-owned
consumer loans
5,164
10,623
Debt (includes debt and issuance costs of
consolidated VIEs of $126,315 and $5,630 as of June 30, 2020 and
$115,243 and $3,022 as of December 31, 2019, respectively)
799,828
790,544
Other long-term liabilities
11,461
10,664
Deferred tax liabilities
9,058
4,452
Total Liabilities
$
1,034,217
$
1,031,382
Stockholders' Equity
Total Stockholders' Equity
$
92,942
$
50,513
Total Liabilities and Stockholders'
Equity
$
1,127,159
$
1,081,895
Balance Sheet Changes - June 30, 2020 compared to December
31, 2019
Cash - The increase in Cash from
December 31, 2019 is primarily due to lower demand for loan
products due to impacts from COVID-19 and the run-off of the
California Installment loan portfolios stemming from regulatory
changes effective January 1, 2020.
Restricted Cash - The increase in
Restricted cash from December 31, 2019 was primarily due to
restricted cash balances related to Revolve Finance, our demand
deposit account, and our new Non-Recourse U.S. SPV Facility.
Gross Loans Receivable Allowance for Loan
Losses - As noted in "Loan Volume and Portfolio Performance
Analysis" above, changes in Gross Loans Receivable and related
Allowance for Loan Losses were due to expected lower customer
demand and loan origination volumes as a result of COVID-19 impacts
and regulatory changes in California.
Income Taxes Receivable and Deferred tax
liabilities - The change in Income taxes receivable and
Deferred tax liabilities resulted from the NOL carry-backs, as
allowed by the CARES Act, enacted in March 2020, in response to the
COVID-19 pandemic. See "Results of Consolidated Operations" above
for additional details.
Goodwill - The increase in Goodwill
from December 31, 2019 was due to our acquisition of Ad Astra on
January 3, 2020, which resulted in $14.8 million of goodwill as of
March 31, 2020, offset by foreign currency rate changes.
Liability for losses on CSO lender-owned
consumer loans - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Liability for losses on CSO
lender-owned consumer loans were due to expected lower customer
demand and loan origination volumes as a result of COVID-19.
Debt - The increase in Debt from
December 31, 2019 was due to $35.2 million draw on our new
Non-Recourse U.S. SPV Facility, partially offset by a net reduction
in the Non-Recourse Canada SPV Facility.
Debt Capitalization Summary
(June 30, 2020 balances in thousands)
Capacity
Interest Rate
Maturity
Counter-parties
Balance as of June 30, 2020
Non-Recourse Canada SPV Facility (1)
C$175.0 million
3-Mo CDOR + 6.75%
September 2, 2023
Waterfall Asset Management
$
91,109
Senior Secured Revolving Credit
Facility
$50.0 million
1-Mo LIBOR + 5.00%
June 30, 2021
BayCoast Bank; Stride Bank;
Hancock-Whitney Bank; Metropolitan Commercial Bank
—
Non-Recourse U.S. SPV Facility (2)
$200.0 million
1-Mo LIBOR + 6.25%(3)
April 8, 2024
Atalaya Capital Management, MetaBank
35,206
Cash Money Revolving Credit Facility
(1)
C$10.0 million
Canada Prime Rate +1.95%
On-demand
Royal Bank of Canada
—
8.25% Senior Secured Notes (due 2025)
$690.0 million
8.25%
September 1, 2025
$
690,000
(1) Capacity amounts are denominated in
Canadian dollars, while outstanding balances as of June 30, 2020
are denominated in U.S. dollars.
(2) The Non-Recourse U.S. SPV Facility was
entered into on April 8, 2020. Concurrent with the closing, we drew
$35.2 million on the facility.
(3) The Non-Recourse U.S. SPV Facility
initially provided for $100.0 million of borrowing capacity and, on
July 31, 2020, additional commitments were obtained increasing
capacity to $200.0 million. As a result of the increase in
commitments, interest now accrues at an annual rate of one-month
LIBOR (with a floor of 1.65%) plus 6.25% on balances up to $145.5
million. Balances over that amount accrue interest at an annual
rate of one-month LIBOR (with a floor of 1.65%) plus 9.75%.
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity
with U.S. GAAP, we provide certain “non-GAAP financial measures,”
including:
- Adjusted Net Income and Adjusted Earnings Per Share, or the
Adjusted Earnings Measures (net income from continuing operations
plus or minus restructuring and other costs, loss from equity
method investment, goodwill and intangible asset impairments,
certain legal settlements, certain costs related to the disposition
of U.K., transaction-related costs, share-based compensation,
intangible asset amortization and cumulative tax effect of
adjustments, on a total and per share basis);
- EBITDA (earnings before interest, income taxes, depreciation
and amortization);
- Adjusted EBITDA (EBITDA plus or minus certain non-cash and
other adjusting items);
- Adjusted effective income tax rate (effective tax rate plus or
minus certain non-cash and other adjusting items); and
- Gross Combined Loans Receivable (includes loans originated by
third-party lenders through CSO programs which are not included in
the Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information
is meaningful and useful in understanding the activities and
business metrics of the Company's operations. We believe that these
non-GAAP financial measures reflect an additional way of viewing
aspects of the business that, when viewed with the Company's U.S.
GAAP results, provide a more complete understanding of factors and
trends affecting the business.
We believe that investors regularly rely on non-GAAP financial
measures, such as Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA, to assess operating performance and
that such measures may highlight trends in the business that may
not otherwise be apparent when relying on financial measures
calculated in accordance with U.S. GAAP. In addition, we believe
that the adjustments shown above are useful to investors in order
to allow them to compare our financial results during the periods
shown without the effect of each of these income or expense items.
In addition, we believe that Adjusted Net Income, Adjusted Earnings
per Share, EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of public companies in our industry, many of which
present Adjusted Net Income, Adjusted Earnings per Share, EBITDA
and/or Adjusted EBITDA when reporting their results.
In addition to reporting loans receivable information in
accordance with U.S. GAAP, we provide Gross Combined Loans
Receivable consisting of owned loans receivable plus loans
originated by third-party lenders through the CSO programs, which
we guarantee but do not include in the Consolidated Financial
Statements. Management believes this analysis provides investors
with important information needed to evaluate overall lending
performance.
We provide non-GAAP financial information for informational
purposes and to enhance understanding of the U.S. GAAP Consolidated
Financial Statements. Adjusted Net Income, Adjusted Earnings per
Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable
should not be considered as alternatives to income from continuing
operations, segment operating income, or any other performance
measure derived in accordance with U.S. GAAP, or as an alternative
to cash flows from operating activities or any other liquidity
measure derived in accordance with U.S. GAAP. Readers should
consider the information in addition to, but not instead of or
superior to, the financial statements prepared in accordance with
US GAAP. This non-GAAP financial information may be determined or
calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial
Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA Measures have limitations as analytical tools, and
you should not consider these measures in isolation or as a
substitute for analysis of our income or cash flows as reported
under US GAAP. Some of these limitations are:
- they do not include cash expenditures or future requirements
for capital expenditures or contractual commitments;
- they do not include changes in, or cash requirements for,
working capital needs;
- they do not include the interest expense, or the cash
requirements necessary to service interest or principal payments on
debt;
- depreciation and amortization are non-cash expense items
reported in the statements of cash flows; and
- other companies in our industry may calculate these measures
differently, limiting their usefulness as comparative
measures.
We calculate Adjusted Earnings per Share utilizing diluted
shares outstanding at year-end. If the Company records a loss from
continuing operations under US GAAP, shares outstanding utilized to
calculate Diluted Earnings per Share from continuing operations are
equivalent to basic shares outstanding. Shares outstanding utilized
to calculate Adjusted Earnings per Share from continuing operations
reflect the number of diluted shares the Company would have
reported if reporting net income from continuing operations under
US GAAP.
As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are
not included in the consolidated financial statements but from
which we earn revenue and for which we provide a guarantee to the
lender. Management believes this analysis provides investors with
important information needed to evaluate overall lending
performance.
We evaluate stores based on revenue per store, provision for
losses at each store and store-level EBITDA, with consideration
given to the length of time a store has been open and its
geographic location. We monitor newer stores for their progress to
profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA are used by investors to analyze
operating performance and to evaluate our ability to incur and
service debt and the capacity for making capital expenditures.
Adjusted EBITDA is also useful to investors to help assess our
estimated enterprise value. The computation of Adjusted EBITDA as
presented in this release may differ from the computation of
similarly-titled measures provided by other companies.
Forward-Looking Statements
This press release contains forward-looking statements. These
forward-looking statements include our assumptions about the impact
of COVID-19 on our financial results, our belief that we are well
positioned to participate in a recovery and grow market share, our
expectation that customer application volumes will continue to
accelerate during 2020, our belief in the attributes of our online
channel in Canada and that it will experience growth, our
expectation that Katapult will continue to grow and our belief in
the usefulness of the various non-GAAP financial measures used in
this release. In addition, words such as “guidance,” “estimate,”
“anticipate,” “believe,” “forecast,” “step,” “plan,” “predict,”
“focused,” “project,” “is likely,” “expect,” “intend,” “should,”
“will,” “confident,” variations of such words and similar
expressions are intended to identify forward-looking statements.
Our ability to achieve these forward-looking statements is based on
certain assumptions and judgments, including the effects on our and
Katapult's business of the COVID-19 pandemic, COVID-19's impact on
our and Katapult's ability to continue to service customers, our
revenue and overall financial performance and the manner in which
we are able to conduct our operations (as well as similar matters
related to Katapult), increases in charge-offs in light of the
impact of the COVID-19 pandemic, our ability to execute on our
business strategy and our ability to accurately predict our future
financial results and those of Katapult. These assumptions and
judgments may prove to be inaccurate in the future. These
forward-looking statements are not guarantees of future performance
and involve known and unknown risks and uncertainties that are
difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. There are important factors both within and
outside of our control that could cause our actual results to
differ materially from those in the forward-looking statements.
These factors include the impact of COVID-19 on the macro-economic
environment and how that may impact our customers and those of
Katapult, our dependence on third-party lenders to provide the cash
we need to fund our loans and our ability to affordably access
third-party financing; errors in our internal forecasts; our level
of indebtedness; our ability to integrate acquired businesses; our
dependence on third-party lenders to provide the cash we need to
fund our loans and our ability to affordably access third-party
financing; actions of regulators and the negative impact of those
actions on our business; our ability to protect our proprietary
technology and analytics and keep up with that of our competitors;
disruption of our information technology systems that adversely
affect our business operations; ineffective pricing of the credit
risk of our prospective or existing customers; inaccurate
information supplied by customers or third parties could lead to
errors in judging customers’ qualifications to receive loans;
improper disclosure of customer personal data; failure of third
parties who provide products, services or support to us; any
failure of third-party lenders upon whom we rely to conduct
business in certain states; disruption to our relationships with
banks and other third-party electronic payment solutions providers;
disruption caused by employee or third-party theft and errors in
our stores as well as other factors discussed in our filings with
the Securities and Exchange Commission. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual future
results. We undertake no obligation to update, amend or clarify any
forward-looking statement for any reason.
About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in two
countries and powered by its fully integrated technology platform,
is a market leader by revenues in providing short-term credit to
underbanked consumers. In 1997, the Company was founded in
Riverside, California by three Wichita, Kansas childhood friends to
meet the growing consumer need for short-term loans. Their success
led to opening stores across the United States and expanding to
offer online loans and financial services across two countries.
Today, CURO combines its market expertise with a fully integrated
technology platform, omni-channel approach and advanced credit
decisioning to provide an array of short-term credit products
across all mediums. CURO operates under a number of brands
including Speedy Cash®, Rapid Cash®, Cash Money®, LendDirect®, Avío
Credit®, Opt+® and Revolve Finance®. With over 20 years of
operating experience, CURO provides financial freedom to the
underbanked.
Conference Call
CURO will host a conference call to discuss these results at
8:15 a.m. Eastern Time on Tuesday, August 4, 2020. The live webcast
of the call can be accessed at the CURO Investor Relations website
at http://ir.curo.com/.
You may access the call at 1-866-807-9684 (1-412-317-5415 for
international callers). Please ask to join the CURO Group Holdings
call. A replay of the conference call will be available until
August 11, 2020, at 11:15 a.m. Eastern Time. An archived version of
the webcast will be available on the CURO Investors website for 90
days. You may access the conference call replay at 1-877-344-7529
(1-412-317-0088 for international callers). The replay access code
is 10146508.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final unaudited data will be
included in the Company’s Quarterly Report on Form 10-Q for the
three and six months ended June 30, 2020.
(CURO-NWS)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200803005748/en/
Investor Relations: Roger Dean Executive Vice President and
Chief Financial Officer Phone: 844-200-0342 Email: IR@curo.com
Or
Financial Profiles, Inc. Curo@finprofiles.com
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