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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 3, 2020 there were 40,885,113 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
SECOND QUARTER ENDED JUNE 30, 2020
INDEX
Page
Item 1.
Financial Statements (unaudited)
June 30, 2020 and December 31, 2019
5
Three and six months ended June 30, 2020 and 2019
6
Three and six months ended June 30, 2020 and 2019
7
Six months ended June 30, 2020 and 2019
8
10
Item 2.
36
Item 3.
70
Item 4.
70
Item 1.
71
Item 1A.
71
Item 2.
71
Item 3.
71
Item 4.
71
Item 5.
71
Item 6.
72
73

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 Final CFPB Rule The final rule issued by the CFPB in 2017 in Payday, Vehicle Title and Certain high Cost Installment loans.
2019 Proposed Rule The subsequent CFPB rulemaking process which proposed to rescind the mandatory underwriting provisions of the 2017 Final CFPB Rule.
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.
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
Bps Basis points
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
CFPB Consumer Financial Protection Bureau
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
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 for the three and six months period ended June 30, 2020
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
3


Term or abbreviation Definition
OCCC Texas Office of Consumer Credit Commissioner
ROU Right of use
RSU Restricted Stock Unit
SEC Securities and Exchange Commission
Senior Revolver Senior Secured Revolving Loan Facility
SRC Smaller Reporting Company as defined by the SEC
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.
TDR Troubled Debt Restructuring. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties.
U.K. Subsidiaries collectively, Curo Transatlantic Limited ("CTL") and SRC Transatlantic Limited
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 subsidiaries

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)
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   
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; 47,039,848 and 46,770,765 shares issued; and 40,884,545 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 74,079    68,087   
Retained earnings 147,301    93,423   
Accumulated other comprehensive loss (50,595)   (38,663)  
Total Stockholders' Equity 92,942    50,513   
Total Liabilities and Stockholders' Equity $ 1,127,159    $ 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
June 30, 		Six Months Ended
June 30,
2020 2019 2020 2019
Revenue $ 182,509    $ 264,300    $ 463,315    $ 542,239   
Provision for losses 50,693    112,010    164,229    214,395   
Net revenue 131,816    152,290    299,086    327,844   
Cost of providing services
Salaries and benefits 24,723    26,086    50,730    54,787   
Occupancy 13,043    13,932    27,059    28,169   
Office 3,800    5,457    9,474    10,570   
Other costs of providing services 8,001    12,854    17,656    27,074   
Advertising 5,750    12,780    17,969    20,566   
Total cost of providing services 55,317    71,109    122,888    141,166   
Gross margin 76,499    81,181    176,198    186,678   
Operating expense
Corporate, district and other expenses 36,781    35,290    79,588    84,378   
Interest expense 18,311    17,023    35,635    34,713   
(Gain) loss from equity method investment (741)   3,748    877    3,748   
Total operating expense 54,351    56,061    116,100    122,839   
Income from continuing operations before income taxes 22,148    25,120    60,098    63,839   
Provision for income taxes 1,068    7,453    3,005    17,499   
Net income from continuing operations 21,080    17,667    57,093    46,340   
Net income (loss) from discontinued operations, before income tax 1,324    —    1,714    (39,048)  
Income tax expense (benefit) related to disposition
331    834    $ 429    $ (46,589)  
Net income (loss) from discontinued operations 993    (834)   $ 1,285    $ 7,541   
Net income $ 22,073    $ 16,833    $ 58,378    $ 53,881   
Basic earnings (loss) per share:
Continuing operations $ 0.52    $ 0.38    $ 1.40    $ 1.00   
Discontinued operations 0.02    (0.02)   0.03    0.16   
Basic earnings per share $ 0.54    $ 0.36    $ 1.43    $ 1.16   
Diluted earnings (loss) per share:
Continuing operations $ 0.51    $ 0.38    $ 1.37    $ 0.98   
Discontinued operations 0.02    (0.02)   0.03    0.16   
Diluted earnings per share $ 0.53    $ 0.36    $ 1.40    $ 1.14   
Weighted average common shares outstanding:
Basic 40,810    46,451    40,814    46,438   
Diluted 41,545    47,107    41,686    47,335   

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
June 30, 		Six Months Ended
June 30,
2020 2019 2020 2019
Net income $ 22,073    $ 16,833    $ 58,378    $ 53,881   
Other comprehensive (loss) income:
Foreign currency translation adjustment, net of $0 tax in both periods
10,261    3,635    (11,932)   20,330   
Other comprehensive (loss) income 10,261    3,635    (11,932)   20,330   
Comprehensive income $ 32,334    $ 20,468    $ 46,446    $ 74,211   

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)
Six Months Ended June 30,
2020 2019
Cash flows from operating activities
Net income from continuing operations $ 57,093    $ 46,340   
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Depreciation and amortization 8,954    9,571   
Provision for loan losses 164,229    214,395   
Amortization of debt issuance costs and bond discount 1,600    1,568   
Deferred income tax (benefit) expense 9,861    (3,596)  
Loss on disposal of property and equipment 116    1,834   
Loss from equity method investment 877    3,748   
Share-based compensation 6,504    4,816   
Changes in operating assets and liabilities:
Accrued interest on loans receivable 28,654    (1,171)  
Prepaid expenses and other assets 3,286    16,344   
Other assets 99    (6,893)  
Accounts payable and accrued liabilities 965    9,527   
Deferred revenue (5,040)   (915)  
Income taxes payable —    25,123   
Income taxes receivable (7,413)   (8,253)  
Accrued interest 200    (1,247)  
Other liabilities 815    1,128   
Net cash provided by continuing operating activities 270,800    312,319   
Net cash provided by (used in) discontinued operating activities 1,714    (504)  
Net cash provided by operating activities
272,514    311,815   
Cash flows from investing activities
Purchase of property and equipment (4,724)   (6,164)  
Loans receivable originated or acquired
(648,044)   (879,081)  
Loans receivable repaid
616,223    661,882   
Investments in Katapult
—    (4,368)  
Acquisition of Ad Astra, net of acquiree's cash received
(14,418)   —   
Net cash used in continuing investing activities (50,963)   (227,731)  
Net cash used in discontinued investing activities —    (14,213)  
Net cash used in investing activities (50,963)   (241,944)  
Cash flows from financing activities
Proceeds from Non-Recourse U.S. SPV facility 35,206    —   
Proceeds from Non-Recourse Canada SPV facility 23,180    3,750   
Payments on Non-Recourse Canada SPV facility (41,812)   (24,752)  
Debt issuance costs paid (3,531)   (198)  
Proceeds from credit facilities 69,778    68,002   
Payments on credit facilities (69,778)   (88,002)  
Payments on subordinated stockholder debt —    (2,245)  
Proceeds from exercise of stock options 126    27   
Payments to net share settle restricted stock units vesting (638)   —   
Repurchase of common stock (5,908)   (1,762)  
Dividends paid to stockholders (4,500)   —   
Net cash provided by (used in) financing activities (1)
2,123    (45,180)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,079)   1,461   
Net increase in cash, cash equivalents and restricted cash 222,595    26,152   
Cash, cash equivalents and restricted cash at beginning of period 110,021    99,857   
Cash, cash equivalents and restricted cash at end of period $ 332,616    $ 126,009   
(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 unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and 2019 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows:
June 30,
2020 2019
Cash and cash equivalents $ 269,342    $ 92,297   
Restricted cash (includes restricted cash of consolidated VIEs of $39,248 and $14,819 as of June 30, 2020 and June 30, 2019, respectively)
63,274    33,712   
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows $ 332,616    $ 126,009   

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. Interim results of operations are not necessarily indicative of 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, 2020, and it will reevaluate its status as of June 30, 2021.

The unaudited 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. Resurgences of the pandemic in various states in which the Company operates also adds uncertainty as jurisdictions establish protocols to lessen the burden of these cases, as described further below. Refer to Note 3, "Loans Receivable and Revenue" for an explanation of the effect of the pandemic on the Company's loans receivable and the allowance for loan losses as of June 30, 2020.

In response to the pandemic, 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 well being 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 incurred subsequent to 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.

The CARES Act also included two provisions that directly impacted the demand for the Company's products as well as its customers’ ability to make payments on their existing loans. The CARES Act included one-time Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 (or $198,000 for tax joint filers) and $500 per child under 17 years old, up to $3,400 for a family of four if certain eligibility criteria were met. The CARES Act also provided Unemployment benefit expansion, including (i) an additional $600 federal stimulus payment automatically added to each week of state benefits received between March 29 and July 25, 2020; (ii) expanded Pandemic Unemployment Assistance coverage to self-employed workers, independent contractors, people with limited employment history and people who have used all of their regular unemployment insurance benefits; and (iii) Pandemic Emergency Unemployment Compensation, which extends unemployment insurance benefits from 26 weeks to 39 weeks within a 12-month benefit year.
10


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


On March 18, 2020, the Canadian government announced a set of pandemic measures as part of the Government of Canada’s COVID-19 Economic Response Plan. This plan included several provisions that directly impacted the demand for the Company's products as well as its customers’ ability to make payments on their existing loans, including (i) the Canada Emergency Response Benefit which provides a $2,000 benefit every four weeks for 24 weeks to eligible workers who become unemployed or under-employed as a result of COVID-19; (ii) a $300 per child Canada Child Benefit paid on May 20, 2020; (iii) a one-time special payment through Canada’s Goods and Services Tax credit for low and modest-income families that averages $400 for individuals and $600 for couples; and iv) temporary wage increases for low-income essential workers funded at the federal level but disbursed at the provincial level.

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

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.

Principles of Consolidation

The unaudited 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 unaudited 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 the retailers' customers with payment options in store or via the Katapult link on a retailer's website. As of June 30, 2020, the Company owned 42.5% of Katapult. The Company records the equity method investment in "Other assets" on the unaudited 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 the unaudited Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions, such as those impacted 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 unaudited 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.

11


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

Troubled Debt Restructuring

In certain circumstances, the Company modifies the terms of its loans receivable for borrowers. Under US GAAP, a modification of loans receivable terms is considered a TDR if the borrower is experiencing financial difficulty and the Company grants a concession to the borrower it would not have otherwise granted. In light of the COVID-19 pandemic, the Company established an enhanced Customer Care Program, which enables its team members to provide relief to customers in various ways, ranging from due date changes, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. The Company modifies loans only if it believes the customer has the ability to pay under the restructured terms. The Company continues to accrue and collect interest on these loans in accordance with the restructured terms.

The Company records its allowance for loan losses related to TDRs by discounting the estimated cash flows associated with the respective TDR at the effective interest rate immediately after the loan modification and records any difference between the discounted cash flows and the carrying value as an allowance adjustment. A loan that has been classified as a TDR remains so until the loan is paid off or charged off. A TDR is charged off consistent with the Company's policies for the related loan product. For additional information on the Company's loss recognition policy, see the Company's 2019 Form 10-K.

Refer to Note 3, "Loans Receivable and Revenue" for further information on TDRs as of June 30, 2020.

Goodwill

The annual impairment review for goodwill, performed as of 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. In the second quarter of 2020, the Company performed an interim qualitative assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more-likely-than-not determination that the fair values of the reporting units fell below their respective carrying values. The Company did not record an impairment loss during the six months ended June 30, 2020 as a result of its interim qualitative assessment of either reporting unit.

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.

12


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

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 amended standard 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 qualify as an SRC, for which the Company currently 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. 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 deferred the adoption of ASU 2016-13 as permitted under ASU 2019-10. The Company is currently assessing the impact that 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.

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 that adoption of ASU 2020-04 will have on its Consolidated Financial Statements.

13


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

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 Topic 740. 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

As of June 30, 2020, the Company held two credit facilities whereby certain loans receivables were sold to wholly-owned VIEs to collateralize debt incurred under each facility. See Note 5, "Debt" for additional details on the Non-Recourse U.S. SPV facility, entered into in April 2020, and the Non-Recourse Canada SPV facility, entered into in August 2018.

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

The carrying amounts of consolidated VIEs' assets and liabilities associated with the VIE subsidiaries were as follows (in thousands):
June 30,
2020 		December 31,
2019
Assets
Restricted cash $ 39,248    $ 17,427   
Loans receivable less allowance for loan losses 242,840    220,067   
Prepaid expenses and other 699    —   
      Total Assets $ 282,787    $ 237,494   
Liabilities
Accounts payable and accrued liabilities $ 20,567    $ 13,462   
Deferred revenue 111    46   
Accrued interest 1,030    871   
Intercompany payable 57,836    69,639   
Debt 120,685    112,221   
      Total Liabilities $ 200,229    $ 196,239   

NOTE 3 – LOANS RECEIVABLE AND REVENUE

COVID-19 impacted CURO's customers and overall credit performance. During the second quarter of 2020, federal governments in the U.S. and Canada provided various stimulus and income stability payments, which, among other impacts, resulted in lower demand for the Company's products and lower than expected NCOs. Ongoing impacts from and risks related to COVID-19 have caused continued uncertainty regarding the performance of NCOs over the loss-development period as of June 30, 2020. The Company has maintained its historical allowance approach, but has adjusted future loss estimates for changes in past-due gross loans receivable due to market conditions at June 30, 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 June 30, 2020.

Additionally, as a result of COVID-19, the Company enhanced its Customer Care Program and began modifying loans for borrowers that experienced financial distress, as discussed in more detail in Note 1, "Summary of Significant Accounting Policies and Nature of Operations" and the tables below.
14


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


The following table summarizes revenue by product (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Unsecured Installment $ 70,429    $ 122,112    $ 192,838    $ 257,890   
Secured Installment 19,401    26,076    45,687    53,553   
Open-End 56,736    54,972    127,718    107,841   
Single-Pay 22,732    45,528    67,889    92,289   
Ancillary 13,211    15,612    29,183    30,666   
   Total revenue(1)
$ 182,509    $ 264,300    $ 463,315    $ 542,239   
(1) Includes revenue from CSO programs of $37.8 million and $63.6 million for the three months ended June 30, 2020 and 2019, respectively, and $105.8 million and $127.8 million for the six months ended June 30, 2020 and 2019, respectively.

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
June 30, 2020
Single-Pay(1)
Unsecured Installment Secured Installment Open-End Total
Current loans receivable $ 36,130    $ 63,835    $ 44,675    $ 253,948    $ 398,588   
Delinquent loans receivable —    17,766    8,950    31,208    57,924   
   Total loans receivable 36,130    81,601    53,625    285,156    456,512   
   Less: allowance for losses (2,802)   (18,451)   (7,883)   (47,319)   (76,455)  
Loans receivable, net $ 33,328    $ 63,150    $ 45,742    $ 237,837    $ 380,057   
(1) Of the $36.1 million of Single-Pay receivables, $8.1 million relate to mandated extended payment options for certain Canada Single-Pay loans.

June 30, 2020
Unsecured Installment Secured Installment Open-End Total
Delinquent loans receivable
0-30 days past due $ 5,207    $ 3,500    $ 11,743    $ 20,450   
31-60 days past due 3,825    2,157    7,225    13,207   
61 + days past due 8,734    3,293    12,240    24,267   
Total delinquent loans receivable $ 17,766    $ 8,950    $ 31,208    $ 57,924   

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.

15


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

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):
June 30, 2020
Unsecured Installment Secured Installment Total
Current loans receivable guaranteed by the Company $ 29,063    $ 887    $ 29,950   
Delinquent loans receivable guaranteed by the Company 4,019    123    4,142   
Total loans receivable guaranteed by the Company 33,082    1,010    34,092   
Less: Liability for losses on CSO lender-owned consumer loans (5,128)   (36)   (5,164)  
Loans receivable guaranteed by the Company, net $ 27,954    $ 974    $ 28,928   

June 30, 2020
Unsecured Installment Secured Installment Total
Delinquent loans receivable
0-30 days past due $ 3,411    $ 104    $ 3,515   
31-60 days past due 347    11    358   
61+ days past due 261    8    269   
Total delinquent loans receivable $ 4,019    $ 123    $ 4,142   

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   
16


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


The following tables summarize 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 June 30, 2020
Single-Pay Unsecured Installment Secured Installment Open-End Other Total
Allowance for loan losses:
Balance, beginning of period $ 4,693    $ 28,965    $ 9,726    $ 56,458    $ —    $ 99,842   
Charge-offs (21,168)   (30,129)   (11,747)   (37,784)   (750)   (101,578)  
Recoveries 21,766    7,019    2,961    6,100    398    38,244   
Net charge-offs 598    (23,110)   (8,786)   (31,684)   (352)   (63,334)  
Provision for losses (2,588)   12,584    6,943    21,341    352    38,632   
Effect of foreign currency translation 99    12    —    1,204    —    1,315   
Balance, end of period $ 2,802    $ 18,451    $ 7,883    $ 47,319    $ —    $ 76,455   
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period $ —    $ 9,142    $ 47    $ —    $ —    $ 9,189   
Decrease in liability —    4,014    11    —    —    4,025   
Balance, end of period $ —    $ 5,128    $ 36    $ —    $ —    $ 5,164   

Three Months Ended June 30, 2019
Single-Pay Unsecured Installment Secured Installment Open-End Other Total
Allowance for loan losses:
Balance, beginning of period $ 3,897    $ 33,666    $ 9,796    $ 46,963    $ —    $ 94,322   
Charge-offs (35,759)   (37,336)   (10,295)   (30,688)   (1,342)   (115,420)  
Recoveries 24,301    5,366    2,693    5,537    822    38,719   
Net charge-offs (11,458)   (31,970)   (7,602)   (25,151)   (520)   (76,701)  
Provision for losses 12,446    33,514    7,802    29,373    520    83,655   
Effect of foreign currency translation 56    13    —    532    —    601   
Balance, end of period $ 4,941    $ 35,223    $ 9,996    $ 51,717    $ —    $ 101,877   
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period $ —    $ 8,583    $ 78    $ —    $ —    $ 8,661   
Increase in liability —    (850)   7    —    —    (843)  
Balance, end of period $ —    $ 9,433    $ 71    $ —    $ —    $ 9,504   

17


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

Six Months Ended June 30, 2020
Single-Pay Unsecured Installment Secured Installment Open-End Other Total
Allowance for loan losses:
Balance, beginning of period $ 5,869    $ 35,587    $ 10,305    $ 55,074    $ —    $ 106,835   
Charge-offs (61,689)   (68,687)   (24,857)   (81,293)   (2,028)   (238,554)  
Recoveries 51,770    12,802    5,870    12,511    977    83,930   
Net charge-offs (9,919)   (55,885)   (18,987)   (68,782)   (1,051)   (154,624)  
Provision for losses 7,051    38,766    16,565    62,332    1,051    125,765   
Effect of foreign currency translation (199)   (17)   —    (1,305)   —    (1,521)  
Balance, end of period $ 2,802    $ 18,451    $ 7,883    $ 47,319    $ —    $ 76,455   
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period $ —    $ 10,553    $ 70    $ —    $ —    $ 10,623   
Decrease in liability —    5,425    34    —    —    5,459   
Balance, end of period $ —    $ 5,128    $ 36    $ —    $ —    $ 5,164   


Six Months Ended June 30, 2019
Single-Pay Unsecured Installment Secured Installment Open-End Other Total
Allowance for loan losses:
Balance, beginning of period $ 4,189    $ 37,716    $ 12,191    $ 19,901    $ —    $ 73,997   
Charge-offs (72,280)   (81,573)   (22,966)   (34,326)   (2,693)   (213,838)  
Recoveries 52,212    11,684    5,816    10,696    1,721    82,129   
Net charge-offs (20,068)   (69,889)   (17,150)   (23,630)   (972)   (131,709)  
Provision for losses 20,714    67,359    14,955    54,690    972    158,690   
Effect of foreign currency translation 106    37    —    756    —    899   
Balance, end of period $ 4,941    $ 35,223    $ 9,996    $ 51,717    $ —    $ 101,877   
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period $ —    $ 11,582    $ 425    $ —    $ —    $ 12,007   
Decrease (increase) in liability —    2,149    354    —    —    2,503   
Balance, end of period $ —    $ 9,433    $ 71    $ —    $ —    $ 9,504   


As of June 30, 2020, Installment and Open-End loans classified as nonaccrual were approximately $8.9 million and $5.3 million, respectively. As of December 31, 2019, Installment and Open-End loans classified as nonaccrual were approximately $16.6 million and $7.9 million, respectively. The Company's loans receivable inherently considers nonaccrual loans in its estimate of the allowance for loan losses as delinquencies are a primary input into the Company's roll rate-based model.


18


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

TDR LOANS RECEIVABLE

The table below presents TDRs included in gross loans receivable and the impairment included in the allowance for loan losses (in thousands):

As of
June 30, 2020
Current TDR gross receivables $ 13,803   
Delinquent TDR gross receivables 6,534   
Total TDR gross receivables 20,337   
Less: Impairment included in the allowance for loan losses (9,043)  
Outstanding TDR receivables, net of impairment $ 11,294   

There were no TDR's as of December 31, 2019.
The tables below reflect new loans modified and classified as TDRs during the periods presented (in thousands):

Three and Six Months Ended June 30, 2020
Pre-modification TDR loans receivable $ 24,069   
Post-modification TDR loans receivable 21,390   
Total concessions included in gross charge-offs $ 2,679   

There was $0.9 million of loans classified as TDRs that were charged off and included as a reduction in the allowance for loan losses during the three and six months ended June 30, 2020. The Company had commitments to lend additional funds of approximately $1.8 million to customers with available and unfunded Open-End loans classified as TDRs as of June 30, 2020.

The table below presents the Company's average outstanding TDR loans receivable and interest income recognized on TDR loans for the three and six months ended June 30, 2020 (in thousands):

Three and Six Months Ended June 30, 2020
Average outstanding TDR loans receivable (1)
$ 20,864   
Interest income recognized 4,396   
Number of TDR loans (2)
21,512   
(1) As there were no TDRs prior to April 1, 2020, the average outstanding TDR loans receivable is calculated based on the amount immediately after the loan was classified as a TDR and the ending TDR balance as of June 30, 2020.
(2) Presented in ones

There were no loans classified as TDRs during the three and six month periods ended June 30, 2019.

NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivables under CSO programs were $3.8 million and $14.7 million at June 30, 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 June 30, 2020 and December 31, 2019, the incremental maximum amount payable under all such guarantees was $28.6 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. Liability for losses on CSO loans Guaranteed by the Company was $5.2 million and $10.6 million at June 30, 2020 and December 31, 2019, respectively.
19


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


The Company placed $3.4 million and $6.2 million in collateral accounts for the benefit of lenders at June 30, 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 lender.

Deferred revenue associated with the CSO program was immaterial as of June 30, 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):
June 30, 2020 December 31, 2019
8.25% Senior Secured Notes (due 2025)
$ 679,143    $ 678,323   
Non-Recourse U.S. SPV Facility 31,896    —   
Non-Recourse Canada SPV Facility 88,789    112,221   
     Debt $ 799,828    $ 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 remaining balance of capitalized financing costs of $10.9 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.

Non-Recourse U.S. SPV Facility

In April, 2020, Curo Receivables Finance II, LLC, a bankruptcy-remote special purpose vehicle (the “U.S. SPV Borrower”) and an indirect wholly-owned subsidiary of the Company, entered into the Non-Recourse U.S. SPV Facility with Midtown Madison Management LLC, as administrative agent, and Atalaya Asset Income Fund VI LP, as the initial lender. As of June 30, 2020, the Non-Recourse U.S. SPV Facility provided for $100.0 million of borrowing capacity. On July 31, 2020, the Company obtained additional commitments, which increased its capacity to $200.0 million. See Note 19, "Subsequent Events" for additional information.

The Non-Recourse U.S. SPV Facility is secured by a first lien against all assets of the U.S. SPV Borrower. The lenders will make advances against the principal balance of the eligible Installment, Open-End and bank partner loans sold to the U.S. SPV Borrower. The initial advance rate is 65% and, subject to certain conditions, may increase to up to 90% beginning October 1, 2020. Interest accrues at an annual rate of one-month LIBOR plus (i) prior to the increase in commitments, 9.75% and (ii) from and after the increase in commitments, 5.75%. The U.S. SPV Borrower will pay the lenders additional interest if it does not borrow minimum specified percentages of the available commitments and a monthly 0.50% per annum commitment fee on the unused portion of the commitments. Advances under the Non-Recourse U.S. SPV Facility will be subject to a 1.0% original issue discount against the maximum commitment. The Non-Recourse U.S. SPV Facility may not be prepaid prior to April 8, 2021. Prepayments incur a fee equal to (a) prior to September 8, 2021, 3.0% of the aggregate commitments, (b) thereafter, until March 8, 2022, 2.0% of the aggregate commitments, and (c) thereafter, zero.

As of June 30, 2020, outstanding borrowers under the Non-Recourse U.S. SPV Facility were $31.9 million, net of deferred financing costs of $3.3 million. For further information on the Non-Recourse U.S. SPV Facility, refer to Note 2, "Variable Interest Entities."

20


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

Non-Recourse Canada SPV Facility

On August 2, 2018, CURO Canada Receivables Limited Partnership, a bankruptcy-remote special purpose vehicle (the "Canada SPV Borrower") and a wholly-owned subsidiary, entered into the Non-Recourse Canada SPV 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. 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 June 30, 2020, outstanding borrowings under the Non-Recourse Canada SPV Facility were $88.8 million, net of deferred financing costs of $2.3 million. For further information on the Non-Recourse Canada SPV, refer to Note 2, "Variable Interest Entities."

Senior Revolver

The Company maintains the Senior Revolver that provides $50.0 million of borrowing capacity, 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 Senior Revolver is syndicated with participation by four banks.

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 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. 

The revolver was undrawn at June 30, 2020.

Cash Money Revolving Credit Facility

Cash Money maintains the Cash Money Revolving Credit Facility, a C$10.0 million revolving credit facility with Royal Bank of Canada, 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 the percentage of cash, deposits in transit and accounts receivable, and (ii) C$10.0 million. As of June 30, 2020, the borrowing capacity under the Cash Money Revolving Credit Facility, 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 June 30, 2020.

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 adjustments, 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.

21


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

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. Time-based RSUs 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 RSUs occurs over the service period using the straight-line method.

Unvested shares of RSUs generally are forfeited upon termination of employment, 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 June 30, 2020 and changes during the six months ended June 30, 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 679,413    368,539    10.42   
Vested (307,142)   —    11.34   
Forfeited (24,025)   (4,687)   11.99   
June 30, 2020 1,409,999    758,713    $ 10.97   

Share-based compensation expense for the three months ended June 30, 2020 and 2019, which includes compensation costs from stock options and RSUs, was $3.3 million and $2.6 million, respectively, and during the six months ended June 30, 2020 and 2019 was $6.5 million and $4.8 million, respectively. Share-based compensation expense is included in the unaudited Condensed Consolidated Statements of Operations as a component of "Corporate, district and other expenses."

As of June 30, 2020, there was $17.2 million of total unrecognized compensation cost related to stock options and RSUs, of which $12.0 million related to time-based RSUs and $5.0 million related to market-based RSUs. Total unrecognized compensation costs will be recognized over a weighted-average period of 1.9 years.

NOTE 7 – INCOME TAXES

The Company's effective income tax rate was 5.0% and 27.4% for the six months ended June 30, 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 the 2017 tax reform and generate a refund of previously paid taxes at a 35% statutory rate. Additionally, in the second quarter of 2020, the Company recorded 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.

Losses from the Company's equity method investment in Katapult for the six months ended June 30, 2020 are not tax deductible, thus increasing the above effective income 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 $185.2 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $9.3 million. In the event the earnings were distributed to the U.S. legal entities, 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.

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

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 June 30, 2020 (in thousands):
Estimated Fair Value
Carrying Value June 30,
2020 		Level 1 Level 2 Level 3 Total
Financial assets:
Cash Surrender Value of Life Insurance $ 6,409    $ 6,409    $ —    $ —    $ 6,409   
Financial liabilities:
Non-qualified deferred compensation plan $ 4,292    $ 4,292    $ —    $ —    $ 4,292   

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   
23


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 June 30, 2020 (in thousands):
Estimated Fair Value
Carrying Value June 30,
2020 		Level 1 Level 2 Level 3 Total
Financial assets:
Cash and cash equivalents $ 269,342    $ 269,342    $ —    $ —    $ 269,342   
Restricted cash 63,274    63,274    —    —    63,274   
Loans receivable, net 380,057    —    —    380,057    380,057   
Equity method investment 9,191    —    —    9,191    9,191   
Financial liabilities:
Liability for losses on CSO lender-owned consumer loans
$ 5,164    $ —    $ —    $ 5,164    $ 5,164   
8.25% Senior Secured Notes
679,143    —    543,111    —    543,111   
Non-Recourse U.S. SPV facility 31,896    —    —    35,206    35,206   
Non-Recourse Canada SPV facility 88,789    —    —    91,109    91,109   

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 and cash equivalents $ 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 June 30, 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" and Note 4, Credit Services Organization" for additional information.
24


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 U.S. SPV Facility and Non-Recourse Canada SPV Facility 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 and six months ended June 30, 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   
Net income from continuing operations —    —    —    —    21,080    —    21,080   
Net income from discontinued operations —    —    —    —    993    —    993   
   Foreign currency translation adjustment —    —    —    —    —    10,261    10,261   
Dividends —    —    —    —    (2,244)   —    (2,244)  
   Share based compensation expense —    —    —    3,310    —    —    3,310   
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes 105,098    —    —    (29)   —    —    (29)  
Balances at June 30, 2020 40,884,545    $ 9    $ (77,852)   $ 74,079    $ 147,301    $ (50,595)   $ 92,942   
(1) Accumulated other comprehensive income (loss)
25


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

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   
Net income from continuing operations —    —    —    —    17,667    —    17,667   
Net loss from discontinued operations —    —    —    —    (834)   —    (834)  
Foreign currency translation adjustment —    —    —    —    —    3,635    3,635   
Share based compensation expense —    —    —    2,644    —    —    2,644   
Proceeds from exercise of stock options 4,908    —    —    29    —    —    29   
Repurchase of common stock (244,200)   —    (2,507)   —    —    —    (2,507)  
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes 63,285    —    —    —    —    —    —   
Balances at June 30, 2019 46,255,282    $ 9    $ (2,507)   $ 64,790    $ 35,816    $ (40,730)   $ 57,378   
(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 the Company's first cash dividend of $0.055 per share. A dividend of $2.2 million was paid on March 2, 2020 to stockholders of record on February 18, 2020.

On April 30, 2020, the Company's Board of Directors declared its second dividend under the previously announced dividend program, of $0.055 per share. A dividend of $2.2 million was paid on May 27, 2020 to stockholders of record on May 13, 2020.

On August 3, 2020, the Company's Board of Directors declared its third dividend under the program of $0.055 per share. See Note 19, "Subsequent Events" for additional information.
26


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

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
June 30, 		Six Months Ended
June 30,
2020 2019 2020 2019
Net income from continuing operations $ 21,080    $ 17,667    $ 57,093    $ 46,340   
Net income (loss) from discontinued operations, net of tax 993    (834)   1,285    7,541   
Net income $ 22,073    $ 16,833    $ 58,378    $ 53,881   
Weighted average common shares - basic 40,810    46,451    40,814    46,438   
Dilutive effect of stock options and restricted stock units 735    656    872    897   
Weighted average common shares - diluted 41,545    47,107    41,686    47,335   
Basic earnings (loss) per share:
Continuing operations $ 0.52    $ 0.38    $ 1.40    $ 1.00   
Discontinued operations 0.02    (0.02)   0.03    0.16   
Basic earnings per share $ 0.54    $ 0.36    $ 1.43    $ 1.16   
Diluted earnings (loss) per share:
Continuing operations $ 0.51    $ 0.38    $ 1.37    $ 0.98   
Discontinued operations 0.02    (0.02)   0.03    0.16   
Diluted earnings per share $ 0.53    $ 0.36    $ 1.40    $ 1.14   

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 and six months ended June 30, 2020, there were 2.3 million and 1.7 million, respectively, and for the three and six months ended June 30, 2019, there were 1.3 million and 1.2 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):
Six Months Ended
June 30,
2020 2019
Cash paid for:
Interest
$ 34,125    $ 34,678   
Income taxes, net of refunds
1,133    4,231   
Non-cash investing activities:
Property and equipment accrued in accounts payable and accrued liabilities $ 117    $ 105   

27


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 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 June 30, 2020, the Company operated a total of 211 U.S. retail locations and had 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 January 2020. The results of Ad Astra are included within the U.S. reporting segment.

Canada. As of June 30, 2020, the Company operated a total of 204 stores across seven Canadian provinces and territories and had an online presence in five provinces. The Company provides Single-Pay loans, Installment loans and Open-End loans, insurance products to Open-End and Installment loan customers, 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
June 30, 		Six Months Ended
June 30,
2020 2019 2020 2019
Revenues by segment: (1)
U.S. $ 137,320    $ 210,046    $ 359,088    $ 436,165   
Canada 45,189    54,254    104,227    106,074   
Consolidated revenue $ 182,509    $ 264,300    $ 463,315    $ 542,239   
Net revenues by segment:
U.S. $ 95,790    $ 117,494    $ 231,517    $ 258,633   
Canada 36,026    34,796    $ 67,569    69,211   
Consolidated net revenue $ 131,816    $ 152,290    $ 299,086    $ 327,844   
Gross margin by segment:
U.S. $ 56,860    $ 65,067    $ 144,400    $ 154,870   
Canada 19,639    16,114    31,798    31,808   
Consolidated gross margin $ 76,499    $ 81,181    $ 176,198    $ 186,678   
Segment operating income:
U.S. $ 11,857    $ 17,029    $ 45,283    $ 48,224   
Canada 10,291    8,091    14,815    15,615   
Consolidated operating income $ 22,148    $ 25,120    $ 60,098    $ 63,839   
Expenditures for long-lived assets by segment:
U.S. $ 248    $ 2,568    $ 4,528    $ 4,998   
Canada 144    477    697    1,166   
Consolidated expenditures for long-lived assets $ 392    $ 3,045    $ 5,225    $ 6,164   
(1) For revenue by product, see Note 3, "Loans Receivable and Revenue."

28


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):
June 30,
2020 		December 31,
2019
U.S. $ 199,734    $ 363,453   
Canada 256,778    302,375   
Total gross loans receivable $ 456,512    $ 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):
June 30,
2020 		December 31,
2019
U.S. $ 39,974    $ 43,618   
Canada 24,285    27,193   
Total net long-lived assets $ 64,259    $ 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 CONTINGENCIES
Securities Litigation and Enforcement

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 (the "Yellowdog Action"). On May 31, 2019, plaintiff 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. (collectively, the "FFL Defendants") 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. Plaintiff purports to bring these claims on behalf of a class of investors who purchased Company common stock between April 27, 2018 and October 24, 2018.

Plaintiff generally alleges 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. Plaintiff asserts that the Company and the individual defendants made these misstatements and omissions to keep the stock price high. Plaintiff seeks unspecified damages and other relief.

On May 27, 2020, the parties accepted a mediator’s proposal to settle the action for $9.0 million. On June 1, 2020, the parties informed the Court of the settlement. On August 1, 2020, the parties’ submitted settlement papers to the Court seeking an order preliminarily approving the proposed settlement and providing for notice to the class and a final settlement hearing. The Company's directors' and officers' insurance carriers are expected to pay any amount in excess of the $2.5 million retention under the policy. As of June 30, 2020, the Company recorded a $9.0 million receivable in "Other assets" and an incremental $9.0 million liability in "Accounts Payable and accrued liabilities." In addition, there was $1.3 million in "Accounts payable and accrued liabilities," which represents the liability remaining of the $2.5 million insurance retention less cash payments made toward the retention.

On June 25, 2020, July 2, 2020 and July 16, 2020, three shareholder derivative lawsuits were filed against certain directors and officers of the Company, the Company, and in two of the three lawsuits, the FFL Defendants, in the United States District Court for the District of Delaware. Plaintiffs generally allege the same underlying facts of the Yellowdog Action.

While the Company is vigorously contesting these lawsuits, it cannot determine the final resolution or when they might be resolved. In addition to the expenses incurred in defending these litigations and any damages in excess of insurance coverages that may be awarded in the event of any adverse rulings, management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcomes, these litigations may have a material
29


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

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. During the second quarter of 2020, the SEC requested information from the Company concerning third-party information cited in plaintiff's complaint in the Yellowdog Action, and the mediation process described above.

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.

On May 15, 2020, the City of Austin proposed an ordinance in direct response to a recent Texas Attorney General’s opinion which would arguably allow CSO’s to provide signature loans outside the regulatory authority of the OCCC and the City of Austin. The proposed ordinance was effective June 1, 2020. The City not only implemented restrictions on CSO transactions, but also revised certain definitions found in the ordinance. These revisions potentially affect the foundation upon which the Company's previous arguments in municipal court were based.

On June 8, 2020, another company within CURO's industry filed a Petition for Declaratory Relief, Application for Temporary Restraining Order, and Application for Temporary and Permanent Injunction against the City. The Temporary Restraining Order was granted, and extended to August 24, 2020. During the pendency of the Temporary Restraining Order, the revised ordinance is stayed as to its effectiveness for all impacted companies, including the Company.

The Company does not anticipate having a final determination of the lawfulness of its CAB program under the Austin ordinances (and similar ordinances in other Texas cities) in the near future. A final adverse decision could result in material monetary liability in Austin and elsewhere in Texas, and could 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 June 30, 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 Condensed 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, the Company must 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.

30

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

The following table summarizes the operating lease costs and other information for the three and six months ended June 30, 2020 and June 30, 2019 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Operating lease costs:
Third-Party
$ 7,576    $ 7,608    $ 15,221    $ 15,246   
Related-Party
845    865    1,691    1,741   
Total operating lease costs $ 8,421    $ 8,473    $ 16,912    $ 16,987   
Operating cash flow - Operating leases $ 16,545    $ 17,420   
New ROU assets - Operating leases $ 6,922    $ 9,468   
Weighted average remaining lease term - Operating leases 6.1 years 6.3 years
Weighted average discount rate - Operating leases 10.3  % 10.3  %

The following table summarizes the aggregate operating lease maturities that the Company is contractually obligated to make under operating leases as of June 30, 2020 (in thousands):
Third-Party Related-Party Total
Remainder of 2020 $ 15,334    $ 1,839    $ 17,173   
2021 28,475    3,763    32,238   
2022 25,638    3,663    29,301   
2023 20,836    1,319    22,155   
2024 15,911    964    16,875   
2025 11,492    864    12,356   
Thereafter 30,676    2,661    33,337   
Total 148,362    15,073    163,435   
Less: Imputed interest (40,146)   (3,522)   (43,668)  
Operating lease liabilities $ 108,216    $ 11,551    $ 119,767   

NOTE 15 – DISCONTINUED OPERATIONS

On February 25, 2019, in accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the Boards of Directors of the U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as Administrators for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place their management, affairs, business
31

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
and property of the U.K. Subsidiaries under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries, which comprised the U.K. reportable operating segment, as of February 25, 2019 and classified them as Discontinued Operations for all periods presented.

The following table presents the results of operations of the U.K. Subsidiaries, which meet the criteria of Discontinued Operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):
Three Months Ended 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
Office —    —    —    246   
Other costs of providing services —    —    —    61   
Advertising —    —    —    775   
Total cost of providing services —    —    —    1,082   
Gross margin —    —    —    4,172   
Operating (income) expense
Corporate, district and other expenses —    —    —    3,810   
Interest income —    —    —    (4)  
(Gain) loss on disposition (1,324)   —    (1,714)   39,414   
Total operating (income) expense (1,324)   —    (1,714)   43,220   
Pre-tax income (loss) from operations of discontinued operations 1,324    —    1,714    (39,048)  
Income tax expense (benefit) 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 the Company's interests in the U.K. Subsidiaries recognized a loss on investment. This loss resulted in an estimated U.S. Federal and state income tax benefit of $46.6 million, which will be available to offset future income tax obligations. Subsequently, in 2019, the Company revised the estimated tax basis in the U.K. Subsidiaries, resulting in a $0.8 million reduction in the income tax benefit as of June 30, 2019.

During the six months ended June 30, 2020, the Company received its final distributions from the Administrators related to the wind-down of the U.K. Subsidiaries.
32

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

As of June 30, 2020 and December 31, 2019, the unaudited Condensed Consolidated Balance Sheets were not impacted by the U.K. Subsidiaries as all balances were written off when the U.K. segment entered into administration during the first quarter of 2019.

The following table presents cash flows of the U.K. Subsidiaries (in thousands):
Six Months Ended June 30,
2020
2019(1)
Net cash provided by (used in) discontinued operating activities $ 1,714    $ (504)  
Net cash used in discontinued investing activities —    (14,213)  
Net cash used in discontinued financing activities —    —   
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019.

NOTE 16 – GOODWILL

The change in the carrying amount of goodwill by operating segment for the six months ended June 30, 2020 was as follows (in thousands):
U.S. Canada Total
Goodwill at December 31, 2019 $ 91,131    $ 29,478    $ 120,609   
Acquisition (Note 17) 14,791    —    14,791   
Foreign currency translation —    (1,423)   (1,423)  
Goodwill at June 30, 2020 $ 105,922    $ 28,055    $ 133,977   

The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment of goodwill on October 1) and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2019 Form 10-K for additional information on the Company's policy for assessing goodwill for impairment.

In the second quarter of 2020, the Company performed an interim qualitative assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more-likely-than-not determination that the fair values of the reporting units fell below their respective carrying values. As a result of the interim qualitative assessment, the Company concluded that the fair value of each reporting unit was in excess of its respective carrying value and did not record any impairment losses during the six months ended June 30, 2020.

Ad Astra Acquisition

The Company completed the acquisition of Ad Astra on January 3, 2020. Goodwill of $14.8 million was recorded in the U.S. reporting unit during the six months ended June 30, 2020, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. See Note 17, "Acquisition" for more information related to the business combination.

NOTE 17 – ACQUISITION

On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency.
The Company began consolidating the financial results of this acquisition in the unaudited Condensed Consolidated Financial Statements on January 3, 2020. For the six months ended June 30, 2019, prior to the acquisition, $8.4 million of costs related to Ad Astra were included in "Other costs of providing services." Subsequent to the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. Ad Astra incurred $5.6 million of operating expense during the six months ended June 30, 2020.
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CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available. The Company completed the determination of the fair values of the acquired identifiable assets and liabilities based on the information available during March 2020.
The following table summarizes the allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(in thousands) Amounts acquired on January 3, 2020
Cash consideration transferred: $ 17,811   
Cash and cash equivalents
3,360   
Accounts receivable
465   
Property and equipment
358   
Intangible assets
1,101   
Goodwill
14,791   
Operating lease asset
235   
Accounts payable and accrued liabilities
(2,264)  
Operating lease liabilities
(235)  
Total $ 17,811   


Goodwill of $14.8 million represents the excess over the fair value of the net tangible and intangible assets acquired. Goodwill is not deductible for income tax purposes.

NOTE 18 – SHARE REPURCHASE PROGRAM

In February 2020, the Company's Board of Directors authorized a new share repurchase program for up to $25.0 million of its common stock. Due to uncertainty caused by COVID-19, the Board suspended the program on March 15, 2020. There were no material purchases under the program during the six months ended June 30, 2020.

In April 2019, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, was completed in February 2020. Under this program, the Company repurchased 455,255 shares of its common stock at an average price of $10.45 per share for total consideration of $4.8 million during the six months ended June 30, 2020. Purchases under the program were made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares are available for use in connection with equity plans or other corporate purposes.

Separately, in August 2019, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with FFL, a related party. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. The purchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase program authorized in April 2019.

NOTE 19 – SUBSEQUENT EVENTS

Dividend

On August 3, 2020, the Company's Board of Directors declared a dividend under its previously announced dividend program, of $0.055 per share to be paid on August 24, 2020 to stockholders of record on August 13, 2020.

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CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Non-Recourse U.S. SPV Facility

On July 31, 2020, the Company obtained additional commitments on the Non-Recourse U.S. SPV Facility, which increased its capacity to $200.0 million and reduced the interest rate to one-month LIBOR (with a floor of 1.65%) plus 6.25% on balances up to $145.5 million. Balances above $145.5 million accrue interest at an annual rate of one-month LIBOR (with a floor of 1.65%) plus 9.75%. See Note 5, "Debt" for additional information on the Non-Recourse U.S. SPV Facility.
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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including company-specific, economic and industry-wide factors, should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and accompanying notes included herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, we undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Please see “Risk Factors” in our 2019 Form 10-K and our Current Report on Form 8-K, filed with the SEC on April 8, 2020, for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

We are a growth-oriented, technology-enabled, highly-diversified, multi-channel and multi-product consumer finance company serving a wide range of underbanked consumers in the U.S. and Canada.

History

CURO was founded in 1997 to meet the growing needs of underbanked consumers looking for access to credit. With nearly 25 years of experience, we seek to offer a variety of convenient, easily-accessible financial and loan services in all of our markets.

CURO Financial Technologies Corp., previously known as Speedy Cash Holdings Corp. ("CFTC"), was incorporated in Delaware in July 2008. CURO Group Holdings Corp., previously known as Speedy Group Holdings Corp., was incorporated in Delaware in 2013 as the parent company of CFTC. The terms “CURO," "we,” “our,” “us” and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.

In the U.S., our stores operate under "Speedy Cash" and "Rapid Cash." In the second quarter of 2017, we launched "Avio Credit," an online Installment and Open-End brand. In February 2019, we launched Revolve Finance, a checking account solution, with FDIC-insured deposits, that combines a Visa-branded debit card, a number of technology-enabled tools and optional overdraft protection. In Canada, our stores are branded "Cash Money" and we offer "LendDirect" Installment and Open-End loans online and at certain stores. As of June 30, 2020, our network consisted of 415 locations across 14 U.S. states and seven Canadian provinces and we offered our online services in 27 U.S. states and five Canadian provinces.

Recent Developments

COVID-19. A novel strain of coronavirus, known as COVID-19, surfaced in late 2019 and has spread around the world, including to the U.S. and, to a lesser extent, Canada. In March 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. In response to the COVID-19 pandemic, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. As the pandemic has continued to affect millions of people across the U.S. and Canada, with resurgences in some jurisdictions, guidance regarding reopening procedures, typically referred to as phases, has been provided. CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, we remain focused on protecting the health and wellbeing of our employees, customers, and the communities in which we operate while assuring the continuity of our business operations. In response to the pandemic, we have taken the following steps to ensure our financial stability while maintaining the health and well being of our employees and customers:

•Cancellation of the 2020 Short-Term Incentive Plan.
•Suspension of our $25 million share repurchase program, previously announced in February 2020.
•Suspension of earnings guidance in light of current macroeconomic events driven by the pandemic. We will continue to monitor conditions and provide guidance as appropriate.
•Establishment of an enhanced Customer Care Program, as described further below.
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•Designation of stores across both the U.S. and Canada as an essential service, allowing stores to remain open during local governments' lock down orders.
•Adjustment of our credit underwriting models to tighten approval rates and enhance our employment and income verification practices for both the store and on-line lending platforms.
•Implementation of work-from-home for virtually all 1,100 of the Company’s contact center and corporate support personnel in Wichita, Toronto and Chicago.

For our communities, we committed $500,000 to support local healthcare workers battling COVID-19. To date, in addition to providing financial support to Frontline Foods chapters, our CURO volunteers have personally coordinated more than 20,000 meals to area hospitals in Wichita, KS and Toronto, ON.

The CARES Act also included two provisions that directly impacted the demand for our products as well as our customers’ ability to make payments on their existing loans. The CARES Act included one-time Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 (or $198,000 for tax joint filers) and $500 per child under 17 years old, up to $3,400 for a family of four if certain eligibility criteria were met. The CARES Act also provided Unemployment benefit expansion, including (i) an additional $600 federal stimulus payment automatically added to each week of state benefits received between March 29 and July 25, 2020; (ii) expanded Pandemic Unemployment Assistance coverage to self-employed workers, independent contractors, people with limited employment history and people who have used all of their regular unemployment insurance benefits; and (iii) Pandemic Emergency Unemployment Compensation which extends unemployment insurance benefits from 26 weeks to 39 weeks within a 12-month benefit year.

On March 18, 2020, the Canadian government announced a set of pandemic measures as part of the Government of Canada’s COVID-19 Economic Response Plan. This plan included several provisions that directly impacted the demand for our products as well as our customers’ ability to make payments on their existing loans, including (i) the Canada Emergency Response Benefit with provides a $2,000 benefit every 4 weeks for 24 weeks to eligible workers who become unemployed or under-employed as a result of COVID-19; (ii) a $300 per child Canada Child Benefit paid on May 20, 2020; (iii) a one-time special payment through Canada’s Goods and Services Tax credit for low and modest-income families that averages $400 for individuals and $600 for couples; and iv) temporary wage increases for low-income essential workers funded at the federal level but disbursed at the provincial level.

Customer Care Program. To better serve our customers during the COVID-19 pandemic as they face unprecedented economic challenges and uncertainties, we established an enhanced Customer Care Program. The program enables our team members to provide relief to customers 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. Approximately 25,000 of the loans on which we granted concessions for qualified as a TDR as of June 30, 2020. See Note 3, "Loans Receivable and Revenue" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional information.

Ad Astra Acquisition. On January 3, 2020, we acquired Ad Astra, previously our exclusive provider of third-party collection services for the U.S. business. The acquisition brings all U.S. servicing and recovery in-house, drives operational and financial synergies to ensure all aspects of the recovery portfolio are coordinated, reduces operational redundancy and increases peak volume management, improve compliance synergies, and facilitates integrated and personalized CRM strategies and campaign management across the servicing and recovery lifecycle. See Note 17, "Acquisition" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional information.

Credit Facilities. On April 8, 2020, we entered into the Non-Recourse U.S. SPV Facility to provide financing for U.S. Installment and Open-End receivables, including those generated under our technology, marketing and servicing relationship with Stride Bank. The credit facility provides for an initial borrowing capacity of $100.0 million, dependent upon the borrowing base of eligible collateral and certain other conditions, as described in Note 5, "Debt." For recent developments related to our Senior Secured Notes, Non-Recourse Canada SPV facility and other capital resources, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

California Assembly Bill 539. On September 13, 2019, the California legislature passed Assembly Bill 539, which imposes an interest rate cap of 36%, plus the Federal Funds Rate, on all consumer loans between $2,500 and $10,000. The bill became effective on January 1, 2020. Revenue from California Installment loans amounted to 9.9% and 9.2% of total revenue for the three and six months ended June 30, 2020, respectively, compared to 13.2% and 13.4% for the three and six months ended June 30, 2019, respectively. See "Regulatory Environment and Compliance" in our 2019 10-K for additional details.

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CFPB Rule on Small Dollar Lending. On July 7, 2020, the CFPB issued its decision on the 2019 Proposed Rule and rescinded the mandatory underwriting provisions of the 2017 Final CFPB Rule. However, the CFPB did not rescind or alter the payment provisions of the 2017 Final CFPB Rule. We cannot predict when the payment provisions of the 2017 Final CFPB Rule will come into effect given that the rule is currently stayed as a result of an industry legal challenge. See "Regulatory Environment and Compliance" below for additional details of the CFPB rulemaking initiatives related to small dollar lending.

Revenue by Product and Segment and Related Loan Portfolio Performance

Revenue by Product

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 Note 15, "Discontinued Operations" for additional details.

The following table summarizes revenue by product, including CSO fees, for the period indicated (in thousands, unaudited):
For the Three Months Ended
June 30, 2020 June 30, 2019
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.

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The following table summarizes revenue by product, including CSO fees, for the period indicated (in thousands, unaudited):

For the Six Months Ended
June 30, 2020 June 30, 2019
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 affected 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, stemming from COVID-19 Impacts.

Revenue contribution, including CSO fees, of the products and services that we currently offer for the periods indicated was as follows:

CURO-20200630_G1.JPG CURO-20200630_G2.JPG

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 months ended June 30, 2020 and 2019,
39


revenue generated through our online channel was 47% and 44%, respectively, of consolidated revenue. For the three months ended June 30, 2020 online originations accounted for 49.3% of our total loan originations, compared to 35.3% for the prior-year period.

CURO-20200630_G3.JPG CURO-20200630_G4.JPG

For the six months ended June 30, 2020 and 2019, revenue generated through our online channel was 47% and 45%, respectively, of consolidated revenue. For the six months ended June 30, 2020, online originations accounted for 43.3% of our total loan originations, compared to 35.1% for the prior-year period.

Gross Combined Loans Receivable

The following table reconciles 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 receivables includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender (in millions, unaudited):
As of
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" below for definition and additional information.

40


Gross combined loans receivable by product is presented below:

CURO-20200630_G5.JPG

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.
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Loan Volume and Portfolio Performance Analysis

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 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 Form 10-Q 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 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 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.
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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 (3)
$ 18,451    $ 28,965    $ 35,587    $ 38,127    $ 35,223   
Unsecured Installment CSO liability for losses (3)
$ 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 our unaudited 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 our unaudited Condensed Consolidated Balance Sheets.

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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)(2)
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 our unaudited Condensed Consolidated Financial Statements.
(3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as 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 our unaudited Condensed Consolidated Balance Sheets.
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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 shift 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 (1)
$ 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   
Past-due Open-End gross loans receivable - percentage 10.9  % 15.9  % 14.9  % 14.6  % 12.5  %
(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.

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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.

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Consolidated Results of Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
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 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) %
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

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.

47


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 unaudited Condensed Consolidated Statement of Operations, with a corresponding adjustment to the carrying value of our investment in "Other assets" on the unaudited 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.

48


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 unaudited Condensed Consolidated Statement of Operations with a corresponding adjustment to the carrying value of our investment in "Other assets" on the unaudited 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. Additionally, 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%.

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Segment Analysis

We report financial results for two reportable segments: the U.S. and Canada. Following is a summary of results of operations for the segment and period indicated (in thousands, unaudited):
U.S. Segment Results Three Months Ended June 30, Six Months Ended June 30,
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 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(1)
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   
Other adjustments 305    (143)   448    164    (248)   412   
U.K. related costs —    679    (679)   —    8,496    (8,496)  
Share-based compensation 3,310    2,644    666    6,504    4,816    1,688   
(Gain) loss from equity method investment (741)   3,748    (4,489)   877    3,748    (2,871)  
Adjusted EBITDA(1)
$ 35,091    $ 42,035    $ (6,944)   (16.5) % $ 92,560    $ 103,185    $ (10,625)   (10.3) %
(1) These are non-GAAP metrics. For a description and reconciliation of each Non-GAAP metric, see "Supplemental Non-GAAP Financial Information."
# - 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.

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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, 2020.

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.

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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,
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 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(1)
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(1)
$ 16,038    $ 11,654    $ 4,384    37.6  % $ 24,356    $ 23,358    $ 998    4.3  %
(1) These are non-GAAP metrics. For a description and reconciliation of each Non-GAAP metric, see "Supplemental Non-GAAP Financial Information."

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,
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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.

Supplemental Non-GAAP Financial Information

Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with US 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, certain legal and related costs, gain or loss from equity method investment, goodwill and intangible asset impairments, certain costs related to the disposition of U.K., transaction-related costs, share-based compensation, intangible asset amortization. certain tax adjustments and impacts from tax law changes and cumulative tax effect of applicable adjustments, on a total and per share basis);
•EBITDA (net income from continuing operations 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 our unaudited Condensed Consolidated Financial Statements).
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We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of the Company's operations. We believe that these non-GAAP financial measures offer another way to view aspects of our business that, when viewed with our US GAAP results, provide a more complete understanding of factors and trends affecting our business.

We believe that investors regularly rely on non-GAAP financial measures, such as Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA, to assess operating performance and that such measures may highlight trends in the business that may not otherwise be apparent when relying on financial measures calculated in accordance with US GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items. In addition, we believe that Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present Adjusted Net Income, Adjusted Earnings per Share, EBITDA and/or Adjusted EBITDA when reporting their results.

In addition to reporting loans receivable information in accordance with US GAAP, we provide Gross Combined Loans Receivable consisting of Company-Owned loans receivable plus loans originated by third-party lenders through the CSO programs, which we guarantee but do not include in the unaudited Condensed Consolidated Financial Statements ("Guaranteed by the Company"). Management believes this analysis provides investors with important information needed to evaluate overall lending performance.

We provide non-GAAP financial information for informational purposes and to enhance understanding of our US GAAP unaudited Condensed Consolidated Financial Statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income or any other performance measure derived in accordance with US GAAP, or as an alternative to cash flows from operating activities or any other liquidity measure derived in accordance with US 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 we record a loss from continuing operations under US GAAP, shares outstanding utilized to calculate Diluted Earnings per Share from continuing operations are equivalent to basic shares outstanding. Shares outstanding utilized to calculate Adjusted Earnings per Share from continuing operations reflect the number of diluted shares we would have reported if reporting net income from continuing operations under US GAAP.

As noted above, Gross Combined Loans Receivable includes loans originated by third-party lenders through CSO programs which are not included in the unaudited Condensed Consolidated Financial Statements but from which we earn revenue and for which we provide a guarantee to the lender. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.

We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate our ability to incur and service debt and the capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. The computation of
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Adjusted EBITDA as presented in this Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.

Reconciliation of Net income from continuing operations and Diluted Earnings per Share to Adjusted Net Income and Adjusted Diluted Earnings per Share, non-GAAP measures (in thousands, except per share data, unaudited)
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 related 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 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 Adjusted EBITDA table immediately below.
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Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA, 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   
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 related 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 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 NOLs for certain entities in Canada.
(7) On March 27, 2020, the 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.

Currency Information

We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.

Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.

56


Constant Currency Analysis

We have operations in the U.S. and Canada. In the three months ended June 30, 2020 and 2019, 24.8% and 20.5%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. In the six months ended June 30, 2020 and 2019, 22.5% and 19.6%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.

Income Statement - Three Months Ended June 30, 2020 and 2019
Average Exchange Rates
Three Months Ended June 30, Change
2020 2019 $ %
Canadian Dollar $ 0.7215    $ 0.7477    ($0.0262)   (3.5) %

Income Statement - Six Months Ended June 30, 2020 and 2019

Average Exchange Rates
Six Months Ended June 30, Change
2020 2019 $ %
Canadian Dollar $ 0.7335    $ 0.7501    ($0.0166)   (2.2) %


Balance Sheet - Exchange rate as of June 30, 2020 and December 31, 2019
Exchange Rate as of
June 30, December 31, Change
2020 2019 $ %
Canadian Dollar $ 0.7312    $ 0.7683    ($0.0371)   (4.8) %

The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.

We calculated the revenues and gross margin below during the three months ended June 30, 2020 using the actual average exchange rate during the three months ended June 30, 2019.
Three Months Ended June 30, Change
(in thousands, unaudited) 2020 2019 $ %
Canada – constant currency basis:
Revenues $ 46,858    $ 54,254    $ (7,396)   (13.6) %
Gross Margin $ 20,406    $ 16,114    $ 4,292    26.6  %

57


We calculated the revenues and gross margin below during the six months ended June 30, 2020 using the actual average exchange rate during the three months ended June 30, 2019.
Six Months Ended June 30, Change
(in thousands, unaudited) 2020 2019 $ %
Canada – constant currency basis:
Revenues $ 106,382    $ 106,074    $ 308    0.3  %
Gross Margin $ 32,523    $ 31,808    $ 715    2.2  %

We calculated gross loans receivable below as of June 30, 2020 using the actual exchange rate as of December 31, 2019.
June 30, December 31, Change
(in thousands, unaudited) 2020 2019 $ %
Canada – constant currency basis:
Gross loans receivable $ 269,802    $ 302,376    $ (32,574)   (10.8) %

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, our Senior Revolver, our Cash Money Revolving Credit Facility, funds from third-party lenders under our CSO programs, our Non-Recourse U.S. SPV Facility and Non-Recourse Canada SPV Facility. Additionally, in August 2018, we issued $690.0 million 8.25% Senior Secured Notes due September 2025.

As of June 30, 2020, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures, and meet our debt obligations. As we did for our share repurchase programs announced in April 2019 and February 2020 (which we have suspended, as previously disclosed), we may also use cash to fund a return on capital for our stockholders through share repurchase programs, or as we previously announced in the form of dividends.

Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers to the extent we experience any short-term or long-term funding shortfalls, such as tightening our credit approval practices (as we have done during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments. We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements or reduce our capital spending in order to generate additional liquidity. As a result of 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, and the runoff of California Installment loans, our available cash on hand was $269.3 million and our total liquidity was $363.4 million as of June 30, 2020. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.

58


Borrowings

Our debt consisted of the following as of June 30, 2020, net of deferred financing costs (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 $ 88,789   
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 $200.0 million
1-Mo LIBOR + 6.25(2)
April 8, 2024 Atalaya Capital Management 31,896   
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 $ 679,143   
(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 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%.

Refer to Note 5, "Debt," for details on each of our credit facilities and resources.

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following condensed consolidating financial information is presented separately for:

(i)CURO as the issuer of the 8.25% Senior Secured Notes;
(ii)The Company's subsidiary guarantors, which are comprised of certain of its domestic subsidiaries, including (x) CFTC, as the issuer of the 12.00% Senior Secured Notes that were redeemed in August 2018, (y) CURO Intermediate, but excluding the U.S. SPV and Canada SPV (the “Subsidiary Guarantors”), on a consolidated basis, which are 100% owned by CURO, and which are guarantors of the 8.25% Senior Secured Notes issued in August 2018;
(iii)The Non-Recourse U.S. SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary, created in April 2020;
(iv)The Non-Recourse Canada SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary;
(v)The Company's other subsidiaries on a consolidated basis, which are not guarantors of the 8.25% Senior Secured Notes (the “Subsidiary Non-Guarantors”);
(vi)Consolidating and eliminating entries representing adjustments to:
1.eliminate intercompany transactions between or among us, the Subsidiary Guarantors, the Non-Recourse U.S. SPV facility, the Non-Recourse Canada SPV facility and the Subsidiary Non-Guarantors; and
2.eliminate the investments in subsidiaries; and
(vii)The Company and its subsidiaries on a consolidated basis.

For additional details, see Note 5, "Debt."

59


Condensed Consolidating Balance Sheets
June 30, 2020
(dollars in thousands) CURO Subsidiary
Guarantors 		U.S. SPV Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Assets:
Cash and cash equivalents $ —    $ 193,605    $ —    $ —    $ 75,737    $ —    $ 269,342   
Restricted cash —    21,142    16,455    22,793    2,884    —    63,274   
Loans receivable, net —    105,903    47,925    194,915    31,314    —    380,057   
Income taxes receivable 42,755    (24,444)   —    —    494    —    18,805   
Prepaid expenses and other —    24,616    —    699    7,545    —    32,860   
Property and equipment, net —    39,974    —    —    24,285    —    64,259   
Right of use asset - operating leases —    73,402    —    —    38,458    —    111,860   
Deferred tax assets 14,230    (14,230)   —    —    —    —    —   
Goodwill —    105,922    —    —    28,055    —    133,977   
Other intangibles, net —    14,429    —    —    21,278    —    35,707   
Intercompany receivable —    142,884    —    —    —    (142,884)   —   
Investment in subsidiaries 136,508    —    —    —    —    (136,508)   —   
Other assets —    16,366    —    —    652    —    17,018   
Total assets $ 193,493    $ 699,569    $ 64,380    $ 218,407    $ 230,702    $ (279,392)   $ 1,127,159   
Liabilities and Stockholders' equity (deficit):
Accounts payable and accrued liabilities $ (15)   $ 49,273    $ 240    $ 20,327    $ (5,865)   $ —    $ 63,960   
Deferred revenue —    3,202    77    34    1,661    —    4,974   
Lease liability - operating leases —    81,314    —    —    38,453    —    119,767   
Income taxes payable (6,796)   6,796    —    —    —    —   
Accrued interest 18,975    —    362    668    —    —    20,005   
Liability for losses on CSO lender-owned consumer loans —    5,164    —    —    —    —    5,164   
Debt 679,143    —    31,896    88,789    —    —    799,828   
Intercompany payable —    (16,393)   16,393    41,443    101,441    (142,884)   —   
Payable to CURO Holdings Corp. (600,167)   600,167    —    —    —    —    —   
Other long-term liabilities —    11,402    —    —    59    —    11,461   
Deferred tax liabilities 9,411    —    —    —    (353)   —    9,058   
Total liabilities
100,551    740,925    48,968    151,261    135,396    (142,884)   1,034,217   
Stockholders' equity (deficit) 92,942    (41,356)   15,412    67,146    95,306    (136,508)   92,942   
Total liabilities and stockholders' equity (deficit) $ 193,493    $ 699,569    $ 64,380    $ 218,407    $ 230,702    $ (279,392)   $ 1,127,159   
60


December 31, 2019
(dollars in thousands) CURO Subsidiary
Guarantors 		Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Assets:
Cash and cash equivalents $ —    $ 44,727    $ —    $ 30,515    $ —    $ 75,242   
Restricted cash —    14,958    17,427    2,394    —    34,779   
Loans receivable, net —    286,881    220,067    52,045    —    558,993   
Right of use asset - operating leases —    74,845    —    42,608    —    117,453   
Deferred tax asset 8,561    (3,506)   —    —    —    5,055   
Income taxes receivable 19,690    (8,987)   —    723    —    11,426   
Prepaid expenses and other —    26,623    —    9,267    —    35,890   
Property and equipment, net —    43,618    —    27,193    —    70,811   
Goodwill —    91,131    —    29,478    —    120,609   
Other intangibles, net —    11,569    —    22,358    —    33,927   
Intercompany receivable —    113,599    —    —    (113,599)   —   
Investment in subsidiaries 84,514    —    —    —    (84,514)   —   
Other assets —    17,006    —    704    —    17,710   
Total assets $ 112,765    $ 712,464    $ 237,494    $ 217,285    $ (198,113)   $ 1,081,895   
Liabilities and Stockholder's equity (deficit):
Accounts payable and accrued liabilities $ 465    $ 48,333    $ 13,462    $ (2,177)   $ —    $ 60,083   
Deferred revenue —    6,828    46    3,296    —    10,170   
Lease liability - operating leases —    82,593    —    42,406    —    124,999   
Accrued interest 18,975    1    871    —    —    19,847   
Payable to CURO Holdings Corp. (635,511)   635,511    —    —    —    —   
CSO liability for losses —    10,623    —    —    —    10,623   
Debt 678,323    —    112,221    —    —    790,544   
Intercompany payable —    —    69,639    43,960    (113,599)   —   
Other liabilities —    10,285    —    379    —    10,664   
Liabilities from discontinued operations —    —    —    4,452    —    4,452   
Total liabilities
62,252    794,174    196,239    92,316    (113,599)   1,031,382   
Stockholders' equity (deficit) 50,513    (81,710)   41,255    124,969    (84,514)   50,513   
Total liabilities and stockholders' equity (deficit) $ 112,765    $ 712,464    $ 237,494    $ 217,285    $ (198,113)   $ 1,081,895   

61


Condensed Consolidating Statements of Operations
Three Months Ended June 30, 2020
(dollars in thousands) CURO Subsidiary
Guarantors 		U.S. SPV Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Revenue $ —    $ 97,485    $ 39,835    $ 30,372    $ 14,817    $ —    $ 182,509   
Provision for losses —    18,352    23,178    9,244    (81)   —    50,693   
Net revenue —    79,133    16,657    21,128    14,898    —    131,816   
Cost of providing services:
Salaries and benefits —    16,663    —    —    8,060    —    24,723   
Occupancy —    7,586    —    —    5,457    —    13,043   
Office —    2,777    —    —    1,023    —    3,800   
Other costs of providing services —    6,635    —    —    1,366    —    8,001   
Advertising —    5,269    —    —    481    —    5,750   
Total cost of providing services —    38,930    —    —    16,387    —    55,317   
Gross margin —    40,203    16,657    21,128    (1,489)   —    76,499   
Operating expense (income):
Corporate, district and other expenses 3,398    26,197    37    104    7,045    —    36,781   
Intercompany management fee —    (3,345)   —    645    2,700    —    —   
Interest expense 14,647    258    1,208    2,112    86    —    18,311   
Gain from equity method investment —    (741)   —    —    —    —    (741)  
Intercompany interest (income) expense —    (1,442)   —    533    909    —    —   
Total operating expense 18,045    20,927    1,245    3,394    10,740    —    54,351   
Income (loss) from continuing operations before income taxes (18,045)   19,276    15,412    17,734    (12,229)   —    22,148   
Provision (benefit) for income tax expense (2,872)   7,504    —    —    (3,564)   —    1,068   
Net income (loss) from continuing operations (15,173)   11,772    15,412    17,734    (8,665)   —    21,080   
Net income on discontinued operations —    —    —    —    993    —    993   
Net income (loss) (15,173)   11,772    15,412    17,734    (7,672)   —    22,073   
Equity in net income (loss) of subsidiaries:
CFTC 37,246    —    —    —    —    (37,246)   —   
Guarantor Subsidiaries —    11,772    —    —    —    (11,772)   —   
Non-Guarantor Subsidiaries —    (7,672)   —    —    —    7,672    —   
U.S. SPV —    15,412    —    —    —    (15,412)   —   
Canada SPV —    17,734    —    —    —    (17,734)   —   
Net income (loss) attributable to CURO $ 22,073    $ 49,018    $ 15,412    $ 17,734    $ (7,672)   $ (74,492)   $ 22,073   
62


Three Months Ended June 30, 2019
(dollars in thousands) CURO Subsidiary
Guarantors 		Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Revenue $ —    $ 210,046    $ 26,092    $ 28,162    $ —    $ 264,300   
Provision for losses —    92,552    13,114    6,344    —    112,010   
Net revenue —    117,494    12,978    21,818    —    152,290   
Cost of providing services:
Salaries and benefits —    17,422    —    8,664    —    26,086   
Occupancy —    8,033    —    5,899    —    13,932   
Office —    4,004    —    1,453    —    5,457   
Other costs of providing services —    11,789    —    1,065    —    12,854   
Advertising —    11,179    —    1,601    —    12,780   
Total cost of providing services —    52,427    —    18,682    —    71,109   
Gross margin —    65,067    12,978    3,136    —    81,181   
Operating (income) expense:
Corporate, district and other expenses 2,631    30,766    (781)   6,422    —    39,038   
Intercompany management fee —    (3,237)   8    3,229    —    —   
Interest expense 14,614    27    2,375    7    —    17,023   
Intercompany interest (income) expense —    (1,513)   623    890    —    —   
Total operating expense 17,245    26,043    2,225    10,548    —    56,061   
Income (loss) from continuing operations before income taxes (17,245)   39,024    10,753    (7,412)   —    25,120   
Provision (benefit) for income tax expense (3,232)   9,591    —    1,094    —    7,453   
Net (loss) income from continuing operations (14,013)   29,433    10,753    (8,506)   —    17,667   
Net loss on discontinued operations —    —    —    (834)   —    (834)  
Net (loss) income (14,013)   29,433    10,753    (9,340)   —    16,833   
Equity in net income (loss) of subsidiaries:
CFTC 30,846    —    —    —    (30,846)   —   
Guarantor Subsidiaries —    29,433    —    —    (29,433)   —   
Non-Guarantor Subsidiaries —    (9,340)   —    —    9,340    —   
Canada SPV —    10,753    —    (10,753)   —   
Net income (loss) attributable to CURO $ 16,833    $ 60,279    $ 10,753    $ (9,340)   $ (61,692)   $ 16,833   
63


Six Months Ended June 30, 2020
(dollars in thousands) CURO Subsidiary
Guarantors 		U.S. SPV Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Revenue $ —    $ 319,253    $ 39,835    $ 64,398    $ 39,829    $ —    $ 463,315   
Provision for losses —    104,393    23,178    28,976    7,682    —    164,229   
Net revenue —    214,860    16,657    35,422    32,147    —    299,086   
Cost of providing services:
Salaries and benefits —    33,575    —    —    17,155    —    50,730   
Occupancy —    15,411    —    —    11,648    —    27,059   
Office —    7,077    —    —    2,397    —    9,474   
Other costs of providing services —    14,840    —    —    2,816    —    17,656   
Advertising —    16,214    —    —    1,755    —    17,969   
Total cost of providing services —    87,117    —    —    35,771    —    122,888   
Gross margin —    127,743    16,657    35,422    (3,624)   —    176,198   
Operating expense (income):
Corporate, district and other expenses 6,791    60,453    37    278    12,029    —    79,588   
Intercompany management fee —    (7,144)   —    1,375    5,769    —    —   
Interest expense 29,284    467    1,208    4,733    (57)   —    35,635   
Loss from equity method investment —    877    —    —    —    —    877   
Intercompany interest (income) expense —    (2,883)   —    1,083    1,800    —    —   
Total operating expense 36,075    51,770    1,245    7,469    19,541    —    116,100   
Income (loss) from continuing operations before income taxes (36,075)   75,973    15,412    27,953    (23,165)   —    60,098   
Provision (benefit) for income tax expense (26,119)   32,502    —    —    (3,378)   —    3,005   
Net income (loss) from continuing operations (9,956)   43,471    15,412    27,953    (19,787)   —    57,093   
Net income on discontinued operations —    —    —    —    1,285    —    1,285   
Net income (loss) (9,956)   43,471    15,412    27,953    (18,502)   —    58,378   
Equity in net income (loss) of subsidiaries:
CFTC 68,334    —    —    —    —    (68,334)   —   
Guarantor Subsidiaries —    43,471    —    —    —    (43,471)   —   
Non-Guarantor Subsidiaries —    (18,502)   —    —    —    18,502    —   
U.S. SPV —    15,412    —    —    —    (15,412)   —   
Canada SPV —    27,953    —    —    —    (27,953)   —   
Net income (loss) attributable to CURO $ 58,378    $ 111,805    $ 15,412    $ 27,953    $ (18,502)   $ (136,668)   $ 58,378   
64


Six Months Ended June 30, 2019
(dollars in thousands) CURO Subsidiary
Guarantors 		Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO
Consolidated
Revenue $ —    $ 436,165    $ 51,138    $ 54,936    $ —    $ 542,239   
Provision for losses —    177,532    26,420    10,443    —    214,395   
Net revenue —    258,633    24,718    44,493    —    327,844   
Cost of providing services:
Salaries and benefits —    37,373    —    17,414    —    54,787   
Occupancy —    16,043    —    12,126    —    28,169   
Office —    7,893    —    2,677    —    10,570   
Other costs of providing services —    24,921    —    2,153    —    27,074   
Advertising —    17,533    —    3,033    —    20,566   
Total cost of providing services —    103,763    —    37,403    —    141,166   
Gross margin —    154,870    24,718    7,090    —    186,678   
Operating expense (income):
Corporate, district and other expenses 4,973    72,304    (755)   11,604    —    88,126   
Intercompany management fee —    (6,300)   16    6,284    —    —   
Interest expense 29,052    317    5,265    79    —    34,713   
Intercompany interest (income) expense —    (2,393)   623    1,770    —    —   
Total operating expense 34,025    63,928    5,149    19,737    —    122,839   
Income (loss) from continuing operations before income taxes (34,025)   90,942    19,569    (12,647)   —    63,839   
Provision (benefit) for income tax expense (8,240)   23,610    —    2,129    —    17,499   
Net (loss) income from continuing operations (25,785)   67,332    19,569    (14,776)   —    46,340   
Net income on discontinued operations —    —    —    7,541    —    7,541   
Net (loss) income (25,785)   67,332    19,569    (7,235)   —    53,881   
Equity in net income (loss) of subsidiaries:
CFTC 79,666    —    —    —    (79,666)   —   
Guarantor Subsidiaries —    67,332    —    —    (67,332)   —   
Non-Guarantor Subsidiaries —    (7,235)   —    —    7,235    —   
Canada SPV 19,569    —    —    (19,569)   —   
Net income (loss) attributable to CURO $ 53,881    $ 146,998    $ 19,569    $ (7,235)   $ (159,332)   $ 53,881   
65


Condensed Consolidating Statements of Cash Flows
Six Months Ended June 30, 2020
(dollars in thousands) CURO Subsidiary Guarantors U.S. SPV Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO Consolidated
Cash flows from operating activities:
Net cash provided by continuing operating activities $ 6,546    $ 146,503    $ 41,569    $ 39,603    $ 38,099    $ (1,520)   $ 270,800   
Net cash used in discontinued operating activities —    —    —    —    1,714    —    1,714   
Cash flows from investing activities:
Purchase of property and equipment —    (4,240)   —    —    (484)   —    (4,724)  
Originations of loans, net —    31,591    (56,789)   (14,746)   8,123    —    (31,821)  
Acquisition of Ad Astra, net of acquiree's cash received
—    (14,418)   —    —    —    —    (14,418)  
Net cash provided by (used in) continuing investing activities —    12,933    (56,789)   (14,746)   7,639    —    (50,963)  
Cash flows from financing activities:
Proceeds from Non-Recourse Canada SPV facility —    —    —    23,180    —    —    23,180   
Payments on Non-Recourse Canada SPV facility —    —    —    (41,812)   —    —    (41,812)  
Proceeds from Non-Recourse U.S. SPV facility —    —    35,206    —    —    —    35,206   
Proceeds from credit facilities —    60,000    —    —    9,778    —    69,778   
Payments on credit facilities —    (60,000)   —    —    (9,778)   —    (69,778)  
Payments to net share settle RSUs (638)   —    —    —    —    —    (638)  
Proceeds from exercise of stock options —    126    —    —    —    —    126   
Debt issuance costs paid —    —    (3,531)   —    —    —    (3,531)  
Repurchase of common stock (5,908)   —    —    —    —    —    (5,908)  
Dividends paid to CURO Group Holdings Corp. 4,500    (4,500)   —    —    —    —    —   
Dividends paid to stockholders (4,500)   —    —    —    —    —    (4,500)  
Net cash (used in) provided by financing activities (1)
(6,546)   (4,374)   31,675    (18,632)   —    —    2,123   
Effect of exchange rate changes on cash, cash equivalents and restricted cash —    —    —    (859)   (1,740)   1,520    (1,079)  
Net increase in cash, cash equivalents and restricted cash —    155,062    16,455    5,366    45,712    —    222,595   
Cash, cash equivalents and restricted cash at beginning of period —    59,685    —    17,427    32,909    —    110,021   
Cash, cash equivalents and restricted cash at end of period $ —    $ 214,747    $ 16,455    $ 22,793    $ 78,621    $ —    $ 332,616   

66


Six Months Ended June 30, 2019
(dollars in thousands) CURO Subsidiary Guarantors Canada SPV Subsidiary
Non-Guarantors 		Eliminations CURO Consolidated
Cash flows from operating activities:
Net cash provided by continuing operating activities $ 1,833    $ 204,323    $ 93,690    $ 10,929    $ 1,544    $ 312,319   
Net cash used in discontinued operating activities —    —    —    (504)   —    (504)  
Cash flows from investing activities:
Purchase of property and equipment —    (4,998)   —    (1,166)   —    (6,164)  
Originations of loans, net —    (142,871)   (71,101)   (3,227)   —    (217,199)  
Cash paid for Katapult investment —    (4,368)   —    —    —    (4,368)  
Net cash used in continuing investing activities —    (152,237)   (71,101)   (4,393)   —    (227,731)  
Net cash used in discontinued investing activities —    —    —    (14,213)   —    (14,213)  
Cash flows from financing activities:
Proceeds from Non-Recourse Canada SPV facility —    —    3,750    —    —    3,750   
Payments on Non-Recourse Canada SPV facility —    —    (24,752)   —    —    (24,752)  
Proceeds from credit facilities —    30,000    —    38,002    —    68,002   
Payments on credit facilities —    (50,000)   —    (38,002)   —    (88,002)  
Payments on subordinated stockholder debt —    —    —    (2,245)   —    (2,245)  
Proceeds from exercise of stock options (42)   69    —    —    —    27   
Debt issuance costs paid (29)   —    (169)   —    —    (198)  
Repurchase of common stock (1,762)   —    —    —    —    (1,762)  
Net cash used in provided by financing activities (1)
(1,833)   (19,931)   (21,171)   (2,245)   —    (45,180)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash —    —    561    2,444    (1,544)   1,461   
Net increase (decrease) in cash, cash equivalents and restricted cash —    32,155    1,979    (7,982)   —    26,152   
Cash, cash equivalents and restricted cash at beginning of period —    52,397    12,840    34,620    —    99,857   
Cash, cash equivalents and restricted cash at end of period $ —    $ 84,552    $ 14,819    $ 26,638    $ —    $ 126,009   
(1) Financing activities include continuing operations only and were not impacted by discontinued operations.



67


Cash Flows

The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):
Six Months Ended June 30,
2020 2019
Net cash provided by continuing operating activities $ 270,800    $ 312,319   
Net cash used in continuing investing activities (50,963)   (227,731)  
Net cash provided by (used in) continuing financing activities 2,123    (45,180)  

Continuing Operating Activities

Net cash provided by continuing operating activities for the six months ended June 30, 2020 was $270.8 million, primarily attributable to net income from continuing operations of $57.1 million, the effect of non-cash reconciling items of $192.1 million, which includes provision for loan losses of $164.2 million, and changes in our operating assets and liabilities which provided $21.6 million.

Net cash provided by continuing operating activities for the six months ended June 30, 2019 was $312.3 million, primarily attributable to net income from continuing operations of $46.3 million, the effect of non-cash reconciling items of $227.6 million, which includes provision for loan losses of $214.4 million, and changes in our operating assets and liabilities which provided $38.4 million.

Continuing Investing Activities

Net cash used in continuing investing activities for the six months ended June 30, 2020 was $51.0 million, primarily reflecting the net origination of loans of $31.8 million and the acquisition of Ad Astra for $14.4 million, net of cash received. In addition, we used cash to purchase $4.7 million of property and equipment.

Net cash used in continuing investing activities for the six months ended June 30, 2019 was $227.7 million, primarily reflecting the net origination of loans of $217.2 million. In addition, we used cash to purchase approximately $6.2 million of property and equipment, including software licenses and $4.4 million of additional investment in Katapult.

Origination of loans will fluctuate from period-to-period, depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically occurs during the first quarter of the year and is driven by income tax refunds in the U.S. Typically, customers will use the proceeds from income tax refunds to pay outstanding loan balances, resulting in an increase in our net cash balances and a decrease in our consumer loans receivable balances. Year-over-year comparisons were impacted by factors related to COVID-19, including lower consumer demand, increased or accelerated repayments as customers benefited from government stimulus programs and our decision to tighten credit which resulted in lower originations, as well as the runoff of California Installment loans from regulatory changes effective January 1, 2020.

Continuing Financing Activities

Net cash provided by continuing financing activities for the six months ended June 30, 2020 was $2.1 million, primarily due to $35.2 million of proceeds on our Non-Recourse U.S. SPV Facility, partially offset by a net pay-down on our Non-Recourse Canada SPV Facility of $18.6 million, common stock repurchases of $5.9 million, cash dividends of $4.5 million and debt issuance costs of $3.5 million related to the Non-Recourse U.S. SPV facility.

Net cash used in continuing financing activities for the six months ended June 30, 2019 was $45.2 million. During the quarter, we made a $20.0 million payment on the Senior Revolver to reduce the outstanding balance to zero and made net repayments of $21.0 million on the Non-Recourse Canada SPV Facility.

Contractual Obligations

There have been no significant developments with respect to our contractual obligations since December 31, 2019, as described in our 2019 Form 10-K, except for the new Non-Recourse U.S. SPV Facility, entered into during April 2020. Refer to Note 5, "Debt" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details.

68


Critical Accounting Policies and Estimates

Certain accounting policies that involve a higher degree of judgement and complexity are discussed further in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates, in our 2019 Form 10-K.

Goodwill. We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.

The U.S. and Canada operations are our two reporting units, as defined by FASB’s ASC 280 - Segment Reporting, for which we assess goodwill for impairment. As of the most recent annual goodwill impairment testing date (October 1, 2019), both reporting units' estimated fair valued exceeded its carrying value. As described in our 2019 Form 10-K, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit or economic outlook. These and other macroeconomic factors, in general, were considered when performing the annual test on October 1, 2019.

In the second quarter of 2020, we performed an interim qualitative assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more likely than not reduction in the fair value of the reporting units below their respective carrying values. We did not record any impairment losses during the six months ended June 30, 2020 as a result of our interim qualitative assessment on either reporting unit.

There continues to be uncertainty surrounding the macroeconomic factors for the U.S. and Canada reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment.

The following table summarizes the segment allocation of recorded goodwill on our unaudited Condensed Consolidated Balance Sheets as of June 30, 2020:
(in thousands) June 30, 2020 Percent of Total December 31, 2019 Percent of Total
U.S. $ 105,922    79.1  % $ 91,131    75.6  %
Canada 28,055    20.9  % 29,478    24.4  %
Total Goodwill $ 133,977    $ 120,609   

Regulatory Environment and Compliance

There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2019, as described in our 2019 Form 10-K, except for the following:

CFPB Rulemaking Update

On July 7, 2020, the CFPB issued its decision on the 2019 Proposed Rule. With respect to the 2019 Proposed Rule, the CFBP rescinded the mandatory underwriting provisions of the 2017 Final CFPB Rule. However, the CFPB did not rescind or alter the payment provisions of the 2017 Final CFPB Rule. Furthermore, on July 7, 2020, the CFPB ratified prior regulatory actions which included the payments provisions of the 2017 Final CFPB Rule. The effective date of the payment provisions of the 2017 Final CFPB Rule is currently unknown. The 2017 Final CFPB rule is currently stayed as a result of an industry legal challenge. The next status conference is scheduled for September 11, 2020. In light of the industry challenge to the 2017 Final CFPB Rule, we cannot predict when the 2017 Final CFPB Rule as it relates to payments will ultimately go into effect; nor can we quantify its potential effect on our results of operations or financial condition.

California Consumer Privacy Act:

In 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020, and the California Attorney General has enforcement authority as of July 1, 2020.

A ballot initiative, which would have additional impact, will be voted on in November 2020.

69


Legal Proceedings

Subsequent to the California Supreme Court’s decision in De La Torre v. CashCall, which found that the interest rate on a consumer loan of $2,500 or more can render the loans unconscionable under Cal. Fin. Code § 22303, a class action lawsuit entitled Delisle, et al. v. Speedy Cash was filed against Speedy Cash in the Southern District of California on August 31, 2018. The complaint alleges that Speedy Cash charges unconscionable interest rates, in violation of consumer protection statutes, and seeks restitution and public injunctive relief. A motion to compel arbitration and stay proceedings was filed by Speedy Cash on October 30, 2018. A District Court order denying that motion was entered on June 10, 2019. On June 9, 2020, the Ninth Circuit Court of Appeals entered a memorandum vacating and remanding the District Court’s opinion, and directing the District Court to consider what effect, if any, California Financial Code § 22304.5(a) has on its analysis.

On January 1, 2020, during the course of the Delisle proceedings, Cal. Fin. Code § 22304.5(a) took effect prohibiting finance lenders from issuing loans between $2,500 and $10,000 with charges over 36% calculated as an annual simple interest rate (plus the prior month’s Federal Funds Rate).


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 2019 Form 10-K. There have been no material changes to the amounts presented therein.

LIBOR is used as a reference rate for certain of our financial instruments, such as our revolving credit facilities. LIBOR is set to be phased out at the end of 2021. We are currently reviewing how the LIBOR phase-out will affect the Company, but we do not expect the impact to be material.

ITEM 4.   CONTROLS AND PROCEDURES

Disclosure controls and procedures 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of June 30, 2020.

Limitation on the effectiveness of controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

70


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings
The information required by this item is included in Note 13, "Contingent Liabilities" of the Notes to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q and is incorporated herein by reference.

Item 1A.  Risk Factors
The Company is supplementing the risk factors previously disclosed in the Company's 2019 Form 10-K as follows:

A change in the United States' presidential administration and/or composition of Congress in the upcoming 2020 election could result in new legislation, rules and regulatory and enforcement policies with an adverse impact on our business.

On June 29, 2020, in the Seila Law LLC v. CFPB case, the Supreme Court ruled that the single-director structure of the CFPB is unconstitutional. The Court noted the agency's structure vests too much power in the hands of one person, and that a president has broad constitutional authority to appoint and remove agency heads. This ruling, which gives a sitting president the ability to fire a CFPB director without cause, or “at-will,” could have far-reaching implications to our business in the event a president appoints a director who has a negative view of our business and/or industry.

The CFPB recently finalized a new rule that may affect the consumer lending industry, and this rule could have a material adverse effect on our U.S. consumer lending business.

On July 7, 2020, the CFPB issued its Final Rule on Payday, Vehicle Title, and certain high-cost Installment loans ("2020 Final Rule"), rescinding the mandatory underwriting provisions first proposed in its 2019 Proposed Rule. In the 2019 Proposed Rule, the CFPB sought to rescind the mandatory underwriting provisions of the 2017 Final CFPB Payday Rule. In the 2020 Final Rule, the CFPB did not rescind or alter any other provisions of the 2017 Final CFPB Payday Rule, and the 2020 Final Rule ratified prior regulatory actions, which included the payments provisions of the 2017 Final CFPB Payday Rule. The 2017 Final CFPB Payday Rule is currently stayed as a result of an industry legal challenge and the effective date of the payment provisions is currently unknown. In light of this industry challenge, we cannot predict when it will ultimately go into effect or quantify its potential effect on our results of operations or financial condition. If the payment provisions of the 2017 Final CFPB Payday Rule becomes effective in the current proposed form, we will need to make certain changes to our payment processes and customer notifications in our U.S. consumer lending business. If we are not able to make these changes effectively because of unexpected complexities, costs or otherwise, we cannot guarantee that the payment provisions of the 2017 Final CFPB Payday Rule will not have a material adverse impact on our business, prospects, results of operations, financial condition and cash flows.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

None.

Item 5.   Other Information

(a) Disclosure of Unreported 8-K Information

None

(b) Material Changes to Director Nominee Procedures

None.

71


Item 6.  Exhibits
Exhibit no. Exhibit Description
10.1
31.1  
31.2  
32.1  
101 The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 5, 2020, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019, and (v) Notes to Condensed Consolidated Financial Statements*

* Filed herewith.


72


Signature

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 5, 2020    CURO Group Holdings Corp.
By: /s/ Roger Dean
Roger Dean
Executive Vice President and Chief Financial Officer
73

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