CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the
“Company”), a market leader in providing credit to non-prime
consumers, today announced financial results for its third quarter
ended September 30, 2020.
“Many of the COVID-19 impacts we experienced in the second
quarter continued into the third quarter of 2020 resulting in a
26.5% decline in loan balances year-over-year and an 18.2% decline
excluding California Installment loans,” said Don Gayhardt,
President and Chief Executive Officer. “However, increased loan
demand and volume from the second quarter resulted in 9.5%
sequential loan growth in the third quarter and credit performance
continued to improve and in many areas demonstrated unprecedented
strength, which led to a 41.0% decline in our quarterly net
charge-off rate versus the prior year.”
“In the third quarter, loan growth rebounded stronger in Canada
than the U.S., continuing to demonstrate the value of our Canadian
diversification. Delinquencies and net charge-offs in both
countries improved dramatically year-over-year. Continued low net
charge-offs and tight expense control resulted in Adjusted Diluted
Earnings per Share that exceeded our expectations for the
quarter.”
“While loan demand in our markets is still recovering, our
investment in Katapult is yielding record growth and profitability.
Recognizing Katapult’s market-leading position in the rapidly
growing virtual point-of-sale financing space, we opportunistically
increased our ownership during the third quarter. CURO now owns
46.6% of the total shares of Katapult on a fully diluted
basis.”
Consolidated Summary Results - Unaudited
Three Months Ended September
30,(1)
For the Nine Months Ended
September 30,(1)
(in thousands, except per share data)
2020
2019
Variance
2020
2019
Variance
Revenue
$
182,003
$
297,264
(38.8
)%
$
645,318
$
839,503
(23.1
)%
Gross margin
63,570
96,639
(34.2
)%
239,768
283,317
(15.4
)%
Company Owned gross loans receivable
497,442
657,615
(24.4
)%
497,442
657,615
(24.4
)%
Unrestricted Cash
207,071
62,207
232.9
%
207,071
62,207
232.9
%
Net income
12,881
27,389
(53.0
)%
71,259
81,270
(12.3
)%
Adjusted Net Income (2)
11,326
32,879
(65.6
)%
65,772
95,266
(31.0
)%
Diluted Earnings per Share
$
0.31
$
0.61
(49.2
)%
$
1.68
$
1.59
5.7
%
Adjusted Diluted Earnings per Share
(2)
$
0.27
$
0.71
(62.0
)%
$
1.58
$
2.03
(22.2
)%
EBITDA (2)
34,800
61,199
(43.1
)%
139,487
169,322
(17.6
)%
Adjusted EBITDA (2)
36,115
67,055
(46.1
)%
153,031
193,598
(21.0
)%
Weighted Average Shares — diluted
41,775
46,010
41,660
46,887
(1) Excludes discontinued operations; see
"Results of Discontinued Operations" for additional details.
(2) These are non-GAAP metrics. For a
reconciliation of each non-GAAP metric to the nearest GAAP metric,
see the applicable reconciliations contained under "Results of
Operations." For a description of each non-GAAP metric, see
"Non-GAAP Financial Measures."
Third quarter 2020 developments include:
- Sequential increase (described within this release as the
change from the second quarter of 2020 to the third quarter of
2020) in Company Owned gross loans receivable and Gross combined
loans receivable of $40.9 million and $46.6 million,
respectively.
- Company Owned gross loans receivable and Gross combined loans
receivable decline of 24.4% and 26.5%, respectively, versus the
prior-year period.
- Consolidated net charge-off ("NCO") rate decline of 41.0% or
675 basis points ("bps"), compared to the third quarter of
2019.
- Continued expected reduction in loan balances from regulatory
changes effective January 1, 2020 affecting Unsecured and Secured
Installment loans in California. Excluding affected loan portfolios
in California, Company Owned gross loans receivable declined 14.5%
year-over-year and increased 13.9% sequentially.
- Revenue decrease of $115.3 million, or 38.8%, over the
prior-year period due to the decrease in loan balances and relative
mix between U.S. and Canada.
- Net Revenue decline of $46.1 million, or 26.6%, year-over-year
as the impact of lower NCO rates partially mitigated the negative
effect on revenue of lower loan balances.
- Purchased preferred shares and common share warrants in
September 2020 to increase our ownership of Katapult Holdings, Inc.
("Katapult") to 46.6% from 42.5% on a fully-diluted basis.
Year-to-date through September 30, 2020, Katapult's originations
increased by over 160% compared to the same period in the prior
year. Our share of Katapult's earnings for the three-month period
ended July 31, 2020 totaled $3.5 million. Our equity in the income
or loss from Katapult is not included in our non-GAAP metrics and
is recorded on a two-month lag.
- Continued growth of our technology, marketing and servicing
relationship with Stride Bank, N.A ("Stride Bank") for Verge
Credit. As of September 30, 2020, Verge Credit loans were offered
in 14 states and our participating interest in Unsecured
Installment loans originated by Stride Bank was $7.6 million.
- Diluted Earnings per Share from continuing operations decreased
to $0.31 from $0.61. Adjusted Diluted Earnings per Share decreased
to $0.27 compared to $0.71 for the third quarter of 2019.
- Today, our Board of Directors declared a $0.055 per share
dividend payable on November 19, 2020 to stockholders of record as
of November 9, 2020.
Year-to-date 2020 developments include:
- Revenue decrease of $194.2 million, or 23.1%, over the
prior-year period due to the aforementioned decrease in loan
balances. Revenue from Open-End loans grew $12.5 million, or 7.2%,
year-over-year, but declined for all other products by $206.7
million, or 31.1%. California Installment revenues were $56.6
million for the nine months ended September 30, 2020, compared to
$107.8 million in the comparable prior-year period.
- Net Revenue decline of $74.9 million, or 14.9%, and gross
margin decline of $43.5 million, or 15.4%, year-over-year as the
revenue decline was partially offset by lower provision expense and
controlled costs.
- Diluted Earnings per Share from continuing operations increased
to $1.68 from $1.59 as compared to the prior-year period. Adjusted
Diluted Earnings per Share of $1.58 compared to $2.03 for the
prior-year period.
- On April 8, 2020, we announced the closing of a new
Asset-Backed Revolving Credit Facility to provide financing for
U.S. Unsecured Installment and Open-End receivables, including
those generated under our technology, marketing and servicing
relationship with Stride Bank ("Non-Recourse U.S. SPV Facility").
On July 31, 2020, we closed on additional commitments bringing the
total borrowing capacity on the Non-Recourse U.S. SPV Facility up
to $200.0 million, dependent upon the borrowing base of eligible
collateral.
- Completion of our acquisition of Ad Astra Recovery Services,
Inc. ("Ad Astra"), which had been our exclusive provider of
third-party collection services for the U.S. business, on January
3, 2020.
- Established our COVID-19 Customer Care Program, which enables
our team members to provide relief to customers affected by
COVID-19 in various ways, ranging from due date extensions,
interest or fee forgiveness, payment waivers or extended payment
plans, depending on a customer’s individual circumstances. As of
October 25, 2020, we have granted concessions on more than 60,000
loans, or 11% of our active loans, and waived over $5.2 million in
payments and fees. We also temporarily suspended all returned item
fees.
- Instituted a cash dividend policy in the first quarter of 2020,
with dividend payments made to shareholders of record in February,
May and August 2020.
Throughout this release, we exclude financial results of our
former U.K. operations for all periods presented, as they were
discontinued for accounting and reporting purposes in February
2019. See “Results of Discontinued Operations” below for additional
information.
Year-over-year comparisons for the three and nine months ended
September 30, 2020 were impacted by factors related to COVID-19,
such as lower consumer demand, increased or accelerated repayments
and good payment rates, as customers benefited from government
stimulus programs at the start of the pandemic, our decision to
tighten credit, favorable credit performance as a result of these
factors and our approach to managing expenses (collectively,
"COVID-19 Impacts"). Sequential loan growth, transaction volume and
the related financial results of operations for the three months
ended September 30, 2020 were impacted positively by normal
seasonality, selectively returning credit scoring to pre-COVID
levels and reduced quarantine and stay-at-home orders during the
third quarter, along with historically low delinquencies and NCO
rates.
Consolidated Revenue by Product and Segment
The following table summarizes revenue by product, including
credit services organization ("CSO") fees, for the period
indicated:
Three Months Ended
September 30, 2020
September 30, 2019
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
66,204
$
1,204
$
67,408
$
135,541
$
1,692
$
137,233
Secured Installment
16,692
—
16,692
28,270
—
28,270
Open-End
30,431
28,280
58,711
39,605
26,515
66,120
Single-Pay
16,050
9,034
25,084
29,140
20,172
49,312
Ancillary
3,471
10,637
14,108
4,513
11,816
16,329
Total revenue
$
132,848
$
49,155
$
182,003
$
237,069
$
60,195
$
297,264
During the three months ended September 30, 2020, total revenue
declined $115.3 million, or 38.8%, to $182.0 million, compared to
the prior-year period. Geographically, U.S. and Canada revenues
declined 44.0% and 18.3%, respectively.
From a product perspective, Unsecured Installment and Secured
Installment revenues decreased $69.8 million, or 50.9%, and $11.6
million, or 41.0%, respectively, because of COVID-19 Impacts and
regulatory changes in California that were effective January 1,
2020. Excluding California, Unsecured Installment and Secured
Installment revenues decreased $53.7 million, or 48.1%, and $6.4
million, or 33.9%, respectively.
Single-Pay revenue declined $24.2 million, or 49.1%, for the
three months ended September 30, 2020, compared to the prior-year
period, primarily due to COVID-19 impacts on loan volumes and
balances, which declined $36.8 million, or 47.1%, year over year.
Single-Pay loan volumes were particularly affected by the broad
reduction in storefront usage by customers during the period of
self-quarantine and stay-at-home orders, as well as by increased
payments as a result of government stimulus programs. Demand
remained low in both the U.S. and Canada through the third quarter
of 2020 as compared to historical levels. However, for the three
months ended September 30, 2020, Single-Pay revenues increased
sequentially $2.4 million, or 10.3%, on related loan growth of $5.1
million, or 14.2%, as quarantine and stay-at-home restrictions
eased in certain jurisdictions during the third quarter.
For the three months ended September 30, 2020, Open-End revenues
increased sequentially $2.0 million, or 3.5%, on related loan
growth of $37.1 million, or 13.0%. Open-End loan balances in Canada
grew $28.2 million, or 11.9%, from September 30, 2019, with related
revenue growth of $1.8 million, or 6.7%. Open-End growth in Canada
was partially offset by a decrease in U.S. Open-End loans of $20.9
million, or 27.0%, with a related revenue decrease of $9.2 million,
or 23.2%. Open-End loan balances in both countries were also
affected by COVID-19 Impacts; namely, our decision to initially
tighten credit, continued reduced application volumes and lower
utilization of approved credit lines.
Ancillary revenues, which include the sale of insurance products
to Open-End and Installment loan customers in Canada, decreased
$2.2 million, or 13.6%, versus the prior-year period, stemming
primarily from lower check cashing fees and additional insurance
claims for consumers impacted by COVID-19 during the third quarter
of 2020. Sequentially, ancillary revenues increased $0.9 million,
or 6.8%, for the three months ended September 30, 2020, due to the
aforementioned sequential growth in Canada Open-End loans.
The following table summarizes revenue by product, including CSO
fees, for the period indicated:
Nine Months Ended
September 30, 2020
September 30, 2019
(in thousands, unaudited)
U.S.
Canada
Total
U.S.
Canada
Total
Unsecured Installment
$
256,258
$
4,070
$
260,328
$
390,026
$
5,093
$
395,119
Secured Installment
62,379
—
62,379
81,823
—
81,823
Open-End
103,338
83,091
186,429
104,516
69,445
173,961
Single-Pay
58,521
34,452
92,973
82,733
58,872
141,605
Ancillary
11,440
31,769
43,209
14,136
32,859
46,995
Total revenue
$
491,936
$
153,382
$
645,318
$
673,234
$
166,269
$
839,503
Year-over-year comparisons for the nine-month periods were also
influenced by COVID-19 Impacts. During the nine months ended
September 30, 2020, total revenue declined $194.2 million, or
23.1%, to $645.3 million, compared to the prior-year period.
Geographically, U.S. and Canada revenues declined 26.9% and 7.8%,
respectively.
From a product perspective, Unsecured Installment and Secured
Installment revenues decreased 34.1% and 23.8%, respectively,
because of COVID-19 Impacts, regulatory changes in California that
were effective January 1, 2020 and regulatory changes for CSOs in
Ohio that were effective May 1, 2019.
Single-Pay revenue declined $48.6 million, or 34.3%, for the
nine months ended September 30, 2020, compared to the prior-year
period, primarily due to COVID-19 impacts on loan volume and
balances, which declined $36.8 million, or 47.1%, year over year.
Single-Pay loan volumes were particularly affected by the broad
reduction in storefront usage by customers during the period of
self-quarantine and stay-at-home orders, as well as government
stimulus programs.
Open-End revenues grew $12.5 million, or 7.2%, compared to the
prior-year period, primarily due to $28.2 million, or 11.9%, of
Open-End loan growth in Canada, partially offset by a $20.9
million, or 27.0%, decline in the U.S. Additionally, Open-End loan
balances in both countries were affected by COVID-19 Impacts.
Ancillary revenues, which included the sale of insurance
products to Open-End and Installment loan customers in Canada,
decreased $3.8 million, or 8.1%, versus the prior-year period,
primarily stemming from lower check cashing fees during the nine
months ended September 30, 2020.
The following table presents revenue composition, including CSO
fees, of the products and services that we currently offer:
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Installment
46.2
%
55.7
%
50.0
%
56.8
%
Open-End
32.3
%
22.2
%
28.9
%
20.7
%
Single-Pay
13.8
%
16.6
%
14.4
%
16.9
%
Ancillary
7.7
%
5.5
%
6.7
%
5.6
%
Total
100.0
%
100.0
%
100.0
%
100.0
%
Online revenues as a percentage of
consolidated revenue
48.8
%
45.6
%
47.8
%
45.2
%
Online transactions as a percentage of
consolidated transactions
57.2
%
46.1
%
53.4
%
45.0
%
Online revenue as a percentage of consolidated revenue increased
during the three and nine months ended September 30, 2020 from
COVID-19 Impacts and the resulting transition of customers using
our online channel which provides customers a safe and contactless
option.
Loan Volume and Portfolio Performance Analysis
The following table reconciles Company Owned gross loans
receivable, a GAAP-basis balance sheet measure to Gross combined
loans receivable, a non-GAAP measure(1). Gross combined loans
receivable include loans originated by third-party lenders through
CSO programs, which are not included in the Consolidated Financial
Statements but from which we earn revenue by providing a guarantee
to the unaffiliated lender.
As of
(in millions, unaudited)
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
Company Owned gross loans receivable
$
497.4
$
456.5
$
564.4
$
665.8
$
657.6
Gross loans receivable Guaranteed by the
Company
39.8
34.1
55.9
76.7
73.1
Gross combined loans receivable (1)
$
537.2
$
490.6
$
620.3
$
742.5
$
730.7
(1) See "Non-GAAP Financial Measures" at
the end of this release for definition and more information.
Gross combined loans receivable by product is presented
below:
As of
(in millions, unaudited)
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
Unsecured Installment
$
84.9
$
81.6
$
123.1
$
160.8
$
174.5
Secured Installment
49.0
53.6
72.6
88.1
90.1
Single-Pay
41.3
36.1
54.7
81.4
78.0
Open-End
322.2
285.2
314.0
335.5
315.0
CSO
39.8
34.1
55.9
76.7
73.1
Total
$
537.2
$
490.6
$
620.3
$
742.5
$
730.7
Gross combined loans receivable decreased $193.5 million, or
26.5%, to $537.2 million as of September 30, 2020, from $730.7
million as of September 30, 2019. The decrease was driven by
COVID-19 Impacts and, for Installment loans, the impact of
regulatory changes in California that were effective January 1,
2020. Sequentially, gross combined loans receivable increased $46.6
million, or 9.5%, as demand increased during the third quarter.
Gross combined loans receivable performance by product is
described further in the following sections.
Unsecured Installment Loans - Company
Owned
Company Owned Unsecured Installment revenue for the three months
ended September 30, 2020 and related gross loans receivable
decreased $34.6 million, or 52.6%, and $89.5 million, or 51.3%,
respectively, from the prior-year period, due to COVID-19 Impacts
and regulatory changes in California that were effective January 1,
2020, partially offset by growth in Verge Credit loans.
Unsecured Installment loans in California were $27.4 million, or
32.2%, of total Company Owned Unsecured Installment loans as of
September 30, 2020, a decrease of $59.0 million, or 68.3%, from
September 30, 2019. Sequentially, California Unsecured Installment
loans decreased $9.6 million. Excluding California, Company Owned
Unsecured Installment loans receivable decreased $30.5 million, or
34.6%, from the prior-year period, while revenues for the three
months ended September 30, 2020 decreased $18.5 million, or 46.2%,
compared to the prior-year period, due to COVID-19 Impacts.
Sequentially, excluding California and Verge Credit loans, Company
Owned Unsecured Installment loans receivable increased $5.4
million, or 12.1%, from June 30, 2020, while revenue decreased $0.2
million, or 0.8%. The receivable increase was due to normal
seasonality and reduced quarantine and stay-at-home orders during
the third quarter.
The Unsecured Installment quarterly NCO rate improved
approximately 560 bps year-over-year, as a result of COVID-19
Impacts. Sequentially, the quarterly NCO rate decreased from 22.6%
in the second quarter to 11.5% in the third quarter of 2020.
The Unsecured Installment Allowance for loan losses as a
percentage of Company Owned Unsecured Installment gross loans
receivable ("allowance coverage") increased year-over-year, from
21.9% as of September 30, 2019, to 22.2% as of September 30, 2020,
as a result of certain loan modifications under the Customer Care
Program, which were classified as Troubled Debt Restructurings
(“TDRs”). Loans classified as TDRs are 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 their lifetime losses,
which is greater than estimated incurred losses at a point in time.
TDRs increased our total Unsecured Installment allowance coverage
by nearly 160 bps from the allowance coverage that would have
otherwise been required. Sequentially, the allowance coverage
decreased from 22.6% to 22.2%, as a result of improvement in
past-due balances from 21.8% to 21.1%, as well as the
aforementioned decline in the NCO rate.
Unsecured Installment Loans - Guaranteed
by the Company
Unsecured Installment loans Guaranteed by the Company declined
$31.9 million year-over-year, primarily due to COVID-19
Impacts.
NCO rates for Unsecured Installment loans Guaranteed by the
Company improved year-over-year from 52.9% to 38.6%. Sequentially,
the NCO rate increased from 35.4% to 38.6%, as demand and new
customer volume improved. The CSO liability for losses as a
percentage of loans Guaranteed by the Company increased
year-over-year from 14.4% to 15.8% as of September 30, 2020.
Sequentially, past-due balances as a percent of gross loans
receivable increased from 12.1% to 15.3% and the CSO liability for
losses increased from 15.5% to 15.8% during the three months ended
September 30, 2020.
2020
2019
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Unsecured Installment loans:
Revenue - Company Owned
$
31,168
$
33,405
$
55,569
$
63,428
$
65,809
Provision for losses - Company Owned
9,647
12,932
26,182
33,183
31,891
Net revenue - Company Owned
$
21,521
$
20,473
$
29,387
$
30,245
$
33,918
Net charge-offs - Company Owned
$
9,595
$
23,110
$
32,775
$
35,729
$
28,973
Revenue - Guaranteed by the Company
(1)
$
36,240
$
37,024
$
66,840
$
72,183
$
71,424
Provision for losses - Guaranteed by the
Company (1)
14,884
11,418
26,338
34,858
36,664
Net revenue - Guaranteed by the Company
(1)
$
21,356
$
25,606
$
40,502
$
37,325
$
34,760
Net charge-offs - Guaranteed by the
Company (1)
$
13,882
$
15,432
$
27,749
$
34,486
$
35,916
Unsecured Installment gross combined
loans receivable:
Company Owned
$
84,959
$
81,601
$
123,118
$
160,782
$
174,489
Guaranteed by the Company (1)
38,822
33,082
54,097
74,317
70,704
Unsecured Installment gross combined loans
receivable (1)(2)
$
123,781
$
114,683
$
177,215
$
235,099
$
245,193
Average gross loans receivable:
Average Unsecured Installment gross loans
receivable - Company Owned (3)
$
83,280
$
102,360
$
141,950
$
167,636
$
169,606
Average Unsecured Installment gross loans
receivable - Guaranteed by the Company (1)(3)
$
35,952
$
43,590
$
64,207
$
72,511
$
67,880
Allowance for loan losses and CSO
liability for losses:
Unsecured Installment Allowance for loan
losses (4)
$
18,859
$
18,451
$
28,965
$
35,587
$
38,127
Unsecured Installment CSO liability for
losses (1)(4)
$
6,130
$
5,128
$
9,142
$
10,553
$
10,181
Unsecured Installment Allowance for loan
losses as a percentage of Unsecured Installment gross loans
receivable
22.2
%
22.6
%
23.5
%
22.1
%
21.9
%
Unsecured Installment CSO liability for
losses as a percentage of Unsecured Installment gross loans
Guaranteed by the Company (1)
15.8
%
15.5
%
16.9
%
14.2
%
14.4
%
Unsecured Installment past-due
balances:
Unsecured Installment gross loans
receivable - Company Owned
$
17,942
$
17,766
$
34,966
$
43,100
$
46,537
Unsecured Installment gross loans -
Guaranteed by the Company (1)
$
5,953
$
4,019
$
9,232
$
12,477
$
11,842
Past-due Unsecured Installment Company
Owned gross loans receivable -- percentage
21.1
%
21.8
%
28.4
%
26.8
%
26.7
%
Past-due Unsecured Installment gross loans
Guaranteed by the Company -- percentage (1)
15.3
%
12.1
%
17.1
%
16.8
%
16.7
%
Unsecured Installment other
information:
Originations - Company Owned
$
49,833
$
24,444
$
55,941
$
87,080
$
107,275
Originations - Guaranteed by the Company
(1)
$
51,433
$
33,700
$
64,836
$
91,004
$
89,644
Unsecured Installment ratios:
NCO rate - Company Owned (5)
11.5
%
22.6
%
23.1
%
21.3
%
17.1
%
NCO rate - Guaranteed by the Company
(1)(5)
38.6
%
35.4
%
43.2
%
47.6
%
52.9
%
(1) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(2) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
(4) We report Allowance for loan losses as
a contra-asset reducing gross loans receivable and the CSO
liability for losses as a liability on the Condensed Consolidated
Balance Sheets.
(5) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
Secured Installment Loans
Secured Installment revenue and the related gross combined loans
receivable for the three months ended September 30, 2020 decreased
41.0% and 46.0%, respectively, compared to the prior-year period.
The decreases were due to COVID-19 Impacts and regulatory changes
in California that were effective January 1, 2020. California
accounted for $16.9 million, or 33.8%, of total Secured Installment
gross combined loans receivable as of September 30, 2020, as
compared to $41.4 million, or 44.8%, as of September 30, 2019, a
decrease of $24.5 million year over year. Excluding California,
Secured Installment loans receivable decreased $18.0 million, or
35.3%, from the prior-year period, while revenues decreased $6.4
million, or 33.9%, year over year, due to COVID-19 Impacts.
The Secured Installment NCO rate improved 170 bps compared to
the prior-year period. Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable increased to 14.4% as
of September 30, 2020 from 11.3% in the corresponding period in
2019. The increase was primarily attributable to 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 September 30, 2020. TDRs increased our total Secured
Installment allowance coverage by over 280 bps from the allowance
coverage that would otherwise have been required. Sequentially, the
Secured Installment Allowance for loan losses and CSO liability for
losses as a percentage of Secured Installment gross combined loans
receivable was unchanged.
2020
2019
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Secured Installment loans:
Revenue
$
16,692
$
19,401
$
26,286
$
28,690
$
28,270
Provision for losses
3,291
7,238
9,682
11,492
8,819
Net revenue
$
13,401
$
12,163
$
16,604
$
17,198
$
19,451
Net charge-offs
$
4,033
$
9,092
$
10,284
$
11,548
$
8,455
Secured Installment gross combined loan
balances:
Secured Installment gross combined loans
receivable (1)(2)
$
49,921
$
54,635
$
74,405
$
90,411
$
92,478
Average Secured Installment gross combined
loans receivable (3)
$
52,278
$
64,520
$
82,408
$
91,445
$
90,098
Secured Installment Allowance for loan
losses and CSO liability for losses (4)
$
7,177
$
7,919
$
9,773
$
10,375
$
10,431
Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable (1)
14.4
%
14.5
%
13.1
%
11.5
%
11.3
%
Secured Installment past-due
balances:
Secured Installment past-due gross
combined loans receivable (1)(2)
$
7,703
$
9,072
$
15,612
$
17,902
$
17,645
Past-due Secured Installment gross
combined loans receivable -- percentage (1)
15.4
%
16.6
%
21.0
%
19.8
%
19.1
%
Secured Installment other
information:
Originations (2)
$
19,216
$
11,242
$
20,990
$
40,961
$
45,990
Secured Installment ratios:
NCO Rate (5)
7.7
%
14.1
%
12.5
%
12.6
%
9.4
%
(1) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(2) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(3) We calculate Average gross loans
receivable, which we utilize to calculate product yield and NCO
rates, as average of beginning of quarter and end of quarter gross
loans receivable.
(4) We report Allowance for loan losses as
a contra-asset reducing gross loans receivable and the CSO
liability for losses as a liability on the Condensed Consolidated
Balance Sheets.
(5) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
Open-End Loans
Open-End loan balances as of September 30, 2020 increased $7.3
million, or 2.3% ($10.2 million, or 3.2%, on a constant-currency
basis), compared to September 30, 2019, on 11.9% (13.1% on a
constant-currency basis) growth in Canada, offset by a decline in
the U.S. of $20.9 million, or 27.0%. Open-End loan balances as of
September 30, 2020 increased $37.1 million, or 13.0% ($43.1
million, or 15.1%, on a constant-currency basis), sequentially due
to normal seasonality and faster reopening of our markets in Canada
than in the U.S. Sequentially, U.S. and Canada Open-End loan
receivables increased $3.5 million, or 6.6%, and $33.6 million, or
14.5%, respectively.
The Open-End Allowance for loan losses as a percentage of
Open-End gross loans receivable decreased sequentially from 16.6%
to 16.0% as of September 30, 2020. The decrease was due to a shift
in the geographic mix of receivables from the U.S. to Canada, the
sequential decline in past-due balances as a percentage of gross
loans receivable from 10.9% to 9.9% and a 460 bps sequential
improvement in Open-End NCO rates. Similar to our other products,
Open-End allowance coverage was impacted by TDRs under the Customer
Care Program and increased our total Open-End allowance coverage by
86 bps from the allowance coverage that would otherwise have been
required. Year over year, NCO rates improved 340 bps due to a
decline in past-due balances as a percentage of gross loans
receivable.
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.
This 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)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Open-End loans:
Revenue
$
58,711
$
56,736
$
70,982
$
71,295
$
66,120
Provision for losses
21,655
21,341
40,991
37,816
31,220
Net revenue
$
37,056
$
35,395
$
29,991
$
33,479
$
34,900
Net charge-offs
$
18,163
$
31,684
$
37,098
$
37,426
$
28,202
Open-End gross loan balances:
Open-End gross loans receivable
$
322,234
$
285,156
$
314,006
$
335,524
$
314,971
Average Open-End gross loans receivable
(1)
$
303,695
$
299,581
$
324,765
$
325,248
$
299,141
Open-End allowance for loan
losses:
Allowance for loan losses
$
51,417
$
47,319
$
56,458
$
55,074
$
54,233
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
16.0
%
16.6
%
18.0
%
16.4
%
17.2
%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$
31,807
$
31,208
$
49,987
$
50,072
$
46,053
Past-due Open-End gross loans receivable -
percentage
9.9
%
10.9
%
15.9
%
14.9
%
14.6
%
Open-End ratios:
NCO rate (2)
6.0
%
10.6
%
11.4
%
11.5
%
9.4
%
(1) Average gross loans receivable
calculated as average of beginning of quarter and end of quarter
gross loans receivable.
(2) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
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 NCOs
$
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 NCO rate (2)
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.
(2) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
Single-Pay
Single-Pay revenue declined $24.2 million, or 49.1%, year over
year, while related receivables declined $36.8 million, or 47.1%,
for the three months ended September 30, 2020, primarily due to
COVID-19 Impacts. Single-Pay loan volume was particularly affected
by the reduction in store traffic as customers self-quarantined and
the increased repayments from government stimulus programs.
Sequentially, Single-Pay revenues increased $2.4 million, or 10.3%,
on related loan growth of $5.1 million, or 14.2%, due to normal
seasonality and reduced quarantine and stay-at-home orders during
the third quarter. The Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable remained consistent
sequentially.
2020
2019
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Single-pay loans:
Revenue
$
25,084
$
22,732
$
45,157
$
49,844
$
49,312
Provision for losses
4,799
(2,588)
9,639
12,289
14,736
Net revenue
$
20,285
$
25,320
$
35,518
$
37,555
$
34,576
Net charge-offs
$
4,439
$
(598)
$
10,517
$
12,145
$
13,913
Single-Pay gross loan balances:
Single-Pay gross loans receivable
$
41,274
$
36,130
$
54,728
$
81,447
$
78,039
Average Single-Pay gross loans receivable
(1)
$
38,702
$
45,429
$
68,088
$
78,787
$
77,083
Single-Pay Allowance for loan losses
$
3,197
$
2,802
$
4,693
$
5,869
$
5,662
Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable
7.7
%
7.8
%
8.6
%
7.2
%
7.3
%
NCO rate (2)
11.5
%
(1.3)
%
15.4
%
15.4
%
18.0
%
(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.
(2) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
Results of Consolidated Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
Three Months Ended September
30,
Nine Months Ended September 30,
2019
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
182,003
$
297,264
$
(115,261
)
(38.8
)%
$
645,318
$
839,503
$
(194,185
)
(23.1
)%
Provision for losses
54,750
123,867
(69,117
)
(55.8
)%
218,979
338,262
(119,283
)
(35.3
)%
Net revenue
127,253
173,397
(46,144
)
(26.6
)%
426,339
501,241
(74,902
)
(14.9
)%
Advertising
14,425
16,424
(1,999
)
(12.2
)%
32,394
36,990
(4,596
)
(12.4
)%
Non-advertising costs of providing
services
49,258
60,334
(11,076
)
(18.4
)%
154,177
180,934
(26,757
)
(14.8
)%
Total cost of providing services
63,683
76,758
(13,075
)
(17.0
)%
186,571
217,924
(31,353
)
(14.4
)%
Gross margin
63,570
96,639
(33,069
)
(34.2
)%
239,768
283,317
(43,549
)
(15.4
)%
Operating expense
Corporate, district and other expenses
36,658
38,665
(2,007
)
(5.2
)%
116,246
123,043
(6,797
)
(5.5
)%
Interest expense
18,383
17,364
1,019
5.9
%
54,018
52,077
1,941
3.7
%
(Income) loss from equity method
investment
(3,530
)
1,384
(4,914
)
#
(2,653
)
5,132
(7,785
)
#
Total operating expense
51,511
57,413
(5,902
)
(10.3
)%
167,611
180,252
(12,641
)
(7.0
)%
Income from continuing operations before
income taxes
12,059
39,226
(27,167
)
(69.3
)%
72,157
103,065
(30,908
)
(30.0
)%
(Benefit) provision for income taxes
(822
)
11,239
(12,061
)
#
2,183
28,738
(26,555
)
(92.4
)%
Net income from continuing operations
12,881
27,987
(15,106
)
(54.0
)%
69,974
74,327
(4,353
)
(5.9
)%
Net income (loss) from discontinued
operations, net of tax
—
(598
)
598
#
1,285
6,943
(5,658
)
(81.5
)%
Net income
$
12,881
$
27,389
$
(14,508
)
(53.0
)%
$
71,259
$
81,270
$
(10,011
)
(12.3
)%
# - Variance greater than 100% or not
meaningful
Reconciliation of Net Income from Continuing Operations and
Diluted Earnings per Share to Adjusted Net Income and Adjusted
Diluted Earnings per Share, non-GAAP measures
(in thousands, except per share data,
unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$
12,881
$
27,987
$
(15,106
)
(54.0
)%
$
69,974
$
74,327
$
(4,353
)
(5.9
)%
Adjustments:
Legal and related costs (1)
1,415
870
3,502
2,622
U.K. related costs (2)
—
348
—
8,844
(Income) loss from equity method
investment (3)
(3,530
)
1,384
(2,653
)
5,132
Share-based compensation (4)
3,392
2,771
9,896
7,587
Intangible asset amortization
750
751
2,246
2,308
Canada GST adjustment (5)
—
—
2,160
—
Income tax valuations (6)
—
—
(3,472
)
—
Impact of tax law changes (7)
(2,137
)
—
(11,251
)
—
Cumulative tax effect of adjustments
(8)
(1,445
)
(1,232
)
(4,630
)
(5,554
)
Adjusted Net Income
$
11,326
$
32,879
$
(21,553
)
(65.6
)%
$
65,772
$
95,266
$
(29,494
)
(31.0
)%
Net income from continuing operations
$
12,881
$
27,987
$
69,974
$
74,327
Diluted Weighted Average Shares
Outstanding
41,775
46,010
41,660
46,887
Diluted Earnings per Share from continuing
operations
$
0.31
$
0.61
$
(0.30
)
(49.2
)%
$
1.68
$
1.59
$
0.09
5.7
%
Per Share impact of adjustments to Net
income from continuing operations
(0.04
)
0.10
(0.10
)
0.44
Adjusted Diluted Earnings per Share
$
0.27
$
0.71
$
(0.44
)
(62.0
)%
$
1.58
$
2.03
$
(0.45
)
(22.2
)%
Note: Footnotes follow Reconciliation of
Net income table immediately below
Reconciliation of Net Income from Continuing Operations to
EBITDA and Adjusted EBITDA, Non-GAAP Measures
Three Months Ended September
30,
Nine Months Ended September
30,
(in thousands, except per share data,
unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$
12,881
$
27,987
$
(15,106
)
(54.0
)%
$
69,974
$
74,327
$
(4,353
)
(5.9
)%
(Benefit) provision for income taxes
(822
)
11,239
(12,061
)
#
2,183
28,738
(26,555
)
(92.4
)%
Interest expense
18,383
17,364
1,019
5.9
%
54,018
52,077
1,941
3.7
%
Depreciation and amortization
4,358
4,609
(251
)
(5.4
)%
13,312
14,180
(868
)
(6.1
)%
EBITDA
34,800
61,199
(26,399
)
(43.1
)%
139,487
169,322
(29,835
)
(17.6
)%
Legal and related costs (1)
1,415
870
3,502
2,622
U.K. related costs (2)
—
348
—
8,844
(Income) loss from equity method
investment (3)
(3,530
)
1,384
(2,653
)
5,132
Share-based compensation (4)
3,392
2,771
9,896
7,587
Canada GST adjustment (5)
—
—
2,160
—
Other adjustments (9)
38
483
639
91
Adjusted EBITDA
$
36,115
$
67,055
$
(30,940
)
(46.1
)%
$
153,031
$
193,598
$
(40,567
)
(21.0
)%
Adjusted EBITDA Margin
19.8
%
22.6
%
23.7
%
23.1
%
(1)
Legal and related costs for the nine
months ended September 30, 2020 included (i) settlement costs
related to certain legal matters, (ii) estimated costs for certain
ongoing legal matters, (iii) costs related to certain securities
litigation and related matter, (iv) advisory costs, (v) severance
costs for certain corporate employees and (vi) legal and advisory
costs related to the purchase of Ad Astra. Legal and related costs
for the nine months ended September 30, 2019 included (i) $1.8
million due to eliminating 121 positions in North America in the
first quarter, (ii) costs related to certain securities litigation
and related matters of $0.6 million and (iii) legal and advisory
costs of $0.3 million related to the repurchase of shares from
FFL.
(2)
U.K. related costs of $8.8 million for the
nine months ended September 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
$1.2 million for other costs.
(3)
The income from equity method investment
for the nine months ended September 30, 2020 of $2.7 million
includes our share of the estimated U.S. GAAP net income of
Katapult.
The loss from equity method investment for
the nine months ended September 30, 2019 of $5.1 million includes
(i) our share of the estimated U.S. GAAP net loss of Katapult and
(ii) a $3.7 million market value adjustment recognized during the
second quarter of 2019 as a result of an equity raising round from
April through July of 2019 that implied a value per share less than
the value per share raised in prior raises.
(4)
The estimated fair value of share-based
awards is recognized as non-cash compensation expense on a
straight-line basis over the vesting period.
(5)
We received a Notice of Adjustment from
Canadian tax authority auditors in the second quarter 2020 related
to the treatment of certain expenses in prior years for purposes of
calculating the Goods and Services Tax ("GST") due.
(6)
During the nine months ended September 30,
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 nine months ended
September 30, 2020, we released a $4.6 million valuation allowance
related to Net Operating Losses ("NOLs") for certain entities in
Canada.
(7)
On March 27, 2020, the Coronavirus Aid,
Relief and Economic Security Act ("CARES Act") was enacted by the
U.S. Federal government in response to the COVID-19 pandemic. The
CARES Act, among other things, allows NOLs incurred in 2018, 2019
and 2020 to be carried back to each of the five preceding taxable
years to generate a refund of previously paid income taxes. For the
nine months ended September 30, 2020, we recorded an income tax
benefit of $11.3 million related to the carryback of NOL from tax
years 2018 and 2019.
(8)
Cumulative tax effect of adjustments
included in Reconciliation of Net income from continuing operations
to EBITDA and Adjusted EBITDA table is calculated using the
estimated incremental tax rate by country.
(9)
Other adjustments primarily include the
intercompany foreign-currency exchange impact.
For the Three Months Ended September 30, 2020 and
2019
Revenue and Net Revenue
Revenue decreased $115.3 million, or 38.8%, to $182.0 million
for the three months ended September 30, 2020, from $297.3 million
for the three months ended September 30, 2019, as a result of the
declines in combined gross loan receivables discussed previously.
Year over year, U.S. and Canada revenues decreased 44.0% and 18.3%,
respectively.
Provision for losses decreased by $69.1 million, or 55.8%, for
the three months ended September 30, 2020 compared to the
prior-year period. The decrease in provision for loan losses was
due to lower sequential quarterly loan growth in 2020 compared to
2019 and significantly improved NCO rates year over year as
discussed in more detail in the "Loan Volume and Portfolio
Performance Analysis" and "Segment Analysis" sections.
Cost of Providing Services
Non-advertising costs of providing services decreased $11.1
million, or 18.4%, to $49.3 million in the three months ended
September 30, 2020, compared to $60.3 million in the three months
ended September 30, 2019. Of the $11.1 million decrease, $3.6
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, which became our 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 $2.0 million, or 12.2%, year over
year because of COVID-19 Impacts.
Corporate, District and Other Expenses
Corporate, district and other expenses were $36.7 million for
the three months ended September 30, 2020, a decrease of $2.0
million, or 5.2%, compared to the three months ended September 30,
2019. Corporate, district and other expenses in the three months
ended September 30, 2020 included $1.7 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
September 30, 2020, corporate, district and other expenses also
included (i) $3.4 million of share-based compensation costs and
(ii) $1.4 million of legal and related costs described in our
reconciliation to Adjusted Net Income above. For the three months
ended September 30, 2019, corporate district and other costs
included (i) share-based compensation costs of $2.8 million, (ii)
$0.9 million of legal and related costs described in our
reconciliation to Adjusted Net Income above, and (iii) U.K. related
costs of $0.3 million as described in our reconciliation to
Adjusted Net Income above. Share-based compensation costs increased
primarily as a result of awards granted in the first quarter of
2020.
Excluding Ad Astra costs, share-based compensation expense and
other costs described above, comparable corporate, district and
other expenses decreased $4.6 million year over year, primarily due
to the timing and extent of variable compensation and other cost
reductions, such as work-from-home initiatives to manage COVID-19
Impacts.
Equity Method Investment
Refer to the "Katapult Update for the Three and Nine Months
Ended September 30, 2020 and 2019" below for details.
Interest Expense
Interest expense for the three months ended September 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
September 30, 2020 was 6.8%, compared to the effective income tax
rate of 28.7% for the three months ended September 30, 2019. The
decrease in the effective income tax rate was the result of an
adjustment as a result of changes in IRS guidance to an estimated
tax benefit recorded in the first quarter of 2020 from the CARES
Act, which allows NOLs incurred in 2018, 2019, and 2020 to be
carried back to each of the five preceding taxable years and to
generate a refund of previously-paid taxes at a statutory rate of
35%. In the first quarter of 2020, we recorded an income tax
benefit of $9.1 million related to the carry-back of NOLs from tax
years 2018 and 2019. In the third quarter of 2020, we increased
this benefit by $2.1 million after finalizing the calculation of
the 2019 taxable loss. In addition, we recognized income from our
equity method investment in Katapult, which was entirely offset by
prior accumulated losses. Excluding the impact of the NOL benefit
in the U.S. and our investment in Katapult, our adjusted effective
income tax rate for the three months ended September 30, 2020 was
18.1%.
For the Nine Months Ended September 30, 2020 and 2019
Revenue and Net Revenue
Revenue decreased $194.2 million, or 23.1%, to $645.3 million
for the nine months ended September 30, 2020, from $839.5 million
for the nine months ended September 30, 2019, as a result of the
declines in combined gross loans receivable discussed above. Year
over year, U.S. and Canada revenues decreased 26.9% and 7.8%,
respectively.
Provision for losses decreased by $119.3 million, or 35.3%, for
the nine months ended September 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 Volume and Portfolio
Performance Analysis" and "Segment Analysis" sections.
Cost of Providing Services
Non-advertising costs of providing services decreased $26.8
million, or 14.8%, to $154.2 million in the nine months ended
September 30, 2020, compared to $180.9 million in the nine months
ended September 30, 2019. Of the $26.8 million decrease, $11.9
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 prior to the acquisition. 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 $4.6 million, or 12.4%, year over
year because of COVID-19 Impacts.
Corporate, District and Other Expenses
Corporate, district and other expenses were $116.2 million for
the nine months ended September 30, 2020, a decrease of $6.8
million, or 5.5%, compared to the nine months ended September 30,
2019. Corporate, district and other expenses in the nine months
ended September 30, 2020 included $7.3 million of collection costs
related to Ad Astra, which prior to our acquisition of it in
January 2020 were included in Non-advertising costs of providing
services. For the nine months ended September 30, 2020, corporate,
district and other expenses also included (i) $9.9 million of
share-based compensation costs, (ii) $2.2 million of Canadian GST
described in our reconciliation to Adjusted Net Income above and
(iii) $3.5 million of legal and other costs described in our
reconciliation to Adjusted Net Income above. For the nine months
ended September 30, 2019, corporate district and other costs
included (i) U.K.-related costs of $8.8 million, (ii) $7.6 million
of share-based compensation and (iii) $2.6 million of legal and
other costs as described in our reconciliation to Adjusted Net
Income above. Share-based compensation costs increased primarily as
a result of awards granted in the first quarter of 2020.
Excluding Ad Astra costs, share-based compensation expense and
other costs described above, comparable corporate, district and
other expenses decreased $10.6 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
Refer to the "Katapult Update for the Three and Nine Months
Ended September 30, 2020 and 2019" below for details.
Interest Expense
Interest expense for the nine months ended September 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 nine months ended
September 30, 2020 was 3.0%, compared to the effective income tax
rate of 27.9% for the nine months ended September 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,
given the CARES Act impact treatment of NOLs as described above, we
recorded an income tax benefit of $11.3 million related to the
carry-back of NOLs from tax years 2018 and 2019, which offsets our
tax liability for years prior to tax reform and will generate a
refund of previously-paid taxes at a 35% statutory rate. Second, we
recorded a tax benefit of $4.6 million related to the release of a
valuation allowance previously recorded against NOLs for certain
entities in Canada. In addition, we released a valuation allowance
of $1.0 million against the losses from our investment in Katapult.
These benefits were partially offset by uncertain tax position
reserve adjustments in the U.S. of $1.1 million. 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 nine months ended September 30, 2020 was 24.3%.
Katapult Update for the Three and Nine
Months Ended September 30, 2020 and 2019
We recognize our share of Katapult’s income or loss on a
two-month lag using the equity method of accounting with a
corresponding adjustment to the carrying value of the investment
included in "Investments" on the unaudited Condensed Consolidated
Balance Sheet. Our investment in Katapult through July 31, 2020 was
accounted for using the equity method and, as a result, we
recognized 42.5% of Katapult's income or loss through that date. We
recorded income of $3.5 million for the third quarter of 2020 and
$2.7 million for the first three quarters of 2020, as compared with
losses of $1.4 million and $5.1 million for the three and nine
months ended September 30, 2019, respectively.
Through the nine months ended September 30, 2020, Katapult's
originations increased by over 160% compared to the same period in
the prior year.
In September 2020, we acquired additional shares of Katapult
from certain existing owners. As a result of these acquisitions, a
portion of our Katapult ownership will continue to be recognized
under the equity method of accounting and a portion has been
reclassified and will be measured at cost less impairment. As of
September 30, 2020, our total ownership of Katapult, excluding
unexercised stock options, was 46.6%.
Segment Analysis
We report financial results for two reportable segments: the
U.S. and Canada. Following is a summary of results of operations
for the segment and period indicated:
U.S. Segment Results
Three Months Ended September
30,
Nine Months Ended September
30,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
132,848
$
237,069
$
(104,221
)
(44.0
)%
$
491,936
$
673,234
$
(181,298
)
(26.9
)%
Provision for losses
43,485
102,997
(59,512
)
(57.8
)%
171,056
280,529
(109,473
)
(39.0
)%
Net revenue
89,363
134,072
(44,709
)
(33.3
)%
320,880
392,705
(71,825
)
(18.3
)%
Advertising
13,405
14,186
(781
)
(5.5
)%
29,619
31,719
(2,100
)
(6.6
)%
Non-advertising costs of providing
services
32,574
42,636
(10,062
)
(23.6
)%
103,477
128,866
(25,389
)
(19.7
)%
Total cost of providing services
45,979
56,822
(10,843
)
(19.1
)%
133,096
160,585
(27,489
)
(17.1
)%
Gross margin
43,384
77,250
(33,866
)
(43.8
)%
187,784
232,120
(44,336
)
(19.1
)%
Corporate, district and other expenses
31,503
32,897
(1,394
)
(4.2
)%
98,784
106,426
(7,642
)
(7.2
)%
Interest expense
16,107
14,877
1,230
8.3
%
47,066
44,246
2,820
6.4
%
(Income) loss from equity method
investment
(3,530
)
1,384
(4,914
)
#
(2,653
)
5,132
(7,785
)
#
Total operating expense
44,080
49,158
(5,078
)
(10.3
)%
143,197
155,804
(12,607
)
(8.1
)%
Segment operating (loss) income
(696
)
28,092
(28,788
)
#
44,587
76,316
(31,729
)
(41.6
)%
Interest expense
16,107
14,877
1,230
8.3
%
47,066
44,246
2,820
6.4
%
Depreciation and amortization
3,228
3,390
(162
)
(4.8
)%
9,914
10,553
(639
)
(6.1
)%
EBITDA
18,639
46,359
(27,720
)
(59.8
)%
101,567
131,115
(29,548
)
(22.5
)%
Legal and related costs
1,415
870
545
3,502
2,487
1,015
U.K. related costs
—
348
(348
)
—
8,844
(8,844
)
(Income) loss from equity method
investment
(3,530
)
1,384
(4,914
)
(2,653
)
5,132
(7,785
)
Share-based compensation
3,392
2,771
621
9,896
7,587
2,309
Other adjustments
(105
)
42
(147
)
59
(206
)
265
Adjusted EBITDA
$
19,811
$
51,774
$
(31,963
)
(61.7
)%
$
112,371
$
154,959
$
(42,588
)
(27.5
)%
# - Variance greater than 100% or not
meaningful.
U.S. Segment Results - For the Three
Months Ended September 30, 2020 and 2019
U.S. revenues decreased by $104.2 million, or 44.0%, to $132.8
million, compared to the prior-year period for the three months
ended September 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
that were effective January 1, 2020, U.S. revenues decreased $82.9
million, or 41.1%. Sequentially, U.S. revenues decreased $4.5
million, or 3.3%. Excluding California, U.S. revenues decreased
$1.1 million, or 1.0%, sequentially.
The provision for losses decreased $59.5 million, or 57.8%,
primarily as a result of lower loan volume and lower NCOs, as
previously discussed. U.S. NCOs decreased by $55.1 million, or
57.2% year over year and the U.S. NCO rate improved by 540 bps to
17.2% for the three months ended September 30, 2020 from 22.6% in
the prior-year period.
Non-advertising costs of providing services for the three months
ended September 30, 2020 of $32.6 million, decreased $10.1 million,
or 23.6%, compared to $42.6 million for the three months ended
September 30, 2019. The decrease was primarily driven by Ad Astra
costs of $3.6 million, which prior to its acquisition by us were
included in Non-advertising costs of providing services. 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 $0.8 million, or 5.5%,
year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses of $31.5 million for the
three months ended September 30, 2020, decreased $1.4 million, or
4.2%, compared to the prior-year period. Corporate, district and
other expenses for the three months ended September 30, 2020
included $1.7 million of collection costs related to Ad Astra,
which were historically included in Non-advertising costs of
providing services. For the three months ended September 30, 2020,
corporate, district and other costs included (i) $1.4 million of
legal and other costs described in our reconciliation to Adjusted
Net Income above and (ii) $3.4 million of share-based compensation
costs. For the three months ended September 30, 2019, corporate,
district and other expenses included (i) U.K.-related costs of $0.3
million as described in our reconciliation to Adjusted Net Income
above, (ii) $0.9 million of legal and related costs, also described
in our reconciliation to Adjusted Net Income above and (ii)
share-based compensation costs of $2.8 million. Share-based
compensation costs increased primarily as a result of awards
granted in the first quarter of 2020.
Excluding the aforementioned items, comparable corporate,
district and other expenses decreased $3.9 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.
U.S. interest expense for the three months ended September 30,
2020 increased $1.2 million, or 8.3%, primarily related to the new
Non-Recourse U.S. SPV Facility, on which we drew $35.2 million when
it closed in April 2020.
As described above, we recognize our share of Katapult’s income
on a two-month lag and recorded income of $3.5 million for the
three months ended September 30, 2020.
U.S. Segment Results - For the Nine
Months Ended September 30, 2020 and 2019
U.S. revenues decreased by $181.3 million, or 26.9%, to $491.9
million for the nine months ended September 30, 2020 compared to
the prior-year period as a result of decreases in combined gross
loans receivable. Excluding the aforementioned impact of California
Installment loan runoff, U.S. revenues decreased by $130.1 million,
or 23.0%.
The provision for losses decreased $109.5 million, or 39.0%, for
the nine months ended September 30, 2020, compared to the
prior-year period, primarily as a result of lower loan volume and
lower NCOs. Year-over-year U.S. NCOs decreased $82.4 million, or
28.8%.
Non-advertising costs of providing services for the nine months
ended September 30, 2020 of $103.5 million, decreased $25.4
million, or 19.7%, compared to $128.9 million for the nine months
ended September 30, 2019. The decrease was primarily driven by Ad
Astra costs of $11.9 million, which prior to its acquisition by us
were included in Non-advertising costs of providing services. 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 $2.1 million, or 6.6%, year over
year because of COVID-19 Impacts.
Corporate, district and other expenses were $98.8 million for
the nine months ended September 30, 2020, a decrease of $7.6
million, or 7.2%, compared to the nine months ended September 30,
2019. Corporate, district and other expenses for the nine months
ended September 30, 2020 included $7.3 million of collection costs
related to Ad Astra, which were historically included in
Non-advertising costs of providing services. For the nine months
ended September 30, 2020, corporate, district and other costs
included (i) $3.5 million of legal and related costs described in
our reconciliation to Adjusted Net Income above and (ii) $9.9
million of share-based compensation costs. For the nine months
ended September 30, 2019, corporate, district and other expenses
included (i) U.K. related costs of $8.8 million as described in our
reconciliation to Adjusted Net Income above, (ii) $2.5 million of
legal and related costs also described in our reconciliation to
Adjusted Net Income above and (iii) share-based compensation costs
of $7.6 million. Share-based compensation costs increased primarily
as a result of awards granted in the first quarter of 2020.
Excluding these items, comparable corporate, district and other
expenses decreased $9.4 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 nine months ended September 30, 2020.
As described above, and given the two-month lag, we recorded
equity income from our investment in Katapult of $2.7 million for
the nine months ended September 30, 2020.
U.S. interest expense for the nine months ended September 30,
2020 increased $2.8 million, or 6.4%, 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 September
30,
Nine Months Ended September
30,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$
49,155
$
60,195
$
(11,040
)
(18.3
)%
$
153,382
$
166,269
$
(12,887
)
(7.8
)%
Provision for losses
11,265
20,870
(9,605
)
(46.0
)%
47,923
57,733
(9,810
)
(17.0
)%
Net revenue
37,890
39,325
(1,435
)
(3.6
)%
105,459
108,536
(3,077
)
(2.8
)%
Advertising
1,020
2,238
(1,218
)
(54.4
)%
2,775
5,271
(2,496
)
(47.4
)%
Non-advertising costs of providing
services
16,684
17,698
(1,014
)
(5.7
)%
50,700
52,068
(1,368
)
(2.6
)%
Total cost of providing services
17,704
19,936
(2,232
)
(11.2
)%
53,475
57,339
(3,864
)
(6.7
)%
Gross margin
20,186
19,389
797
4.1
%
51,984
51,197
787
1.5
%
Corporate, district and other expenses
5,155
5,768
(613
)
(10.6
)%
17,462
16,617
845
5.1
%
Interest expense
2,276
2,487
(211
)
(8.5
)%
6,952
7,831
(879
)
(11.2
)%
Total operating expense
7,431
8,255
(824
)
(10.0
)%
24,414
24,448
(34
)
(0.1
)%
Segment operating income
12,755
11,134
1,621
14.6
%
27,570
26,749
821
3.1
%
Interest expense
2,276
2,487
(211
)
(8.5
)%
6,952
7,831
(879
)
(11.2
)%
Depreciation and amortization
1,130
1,219
(89
)
(7.3
)%
3,398
3,627
(229
)
(6.3
)%
EBITDA
16,161
14,840
1,321
8.9
%
37,920
38,207
(287
)
(0.8
)%
Legal and related costs
—
—
—
—
135
(135
)
Canada GST adjustment
—
—
—
2,160
—
2,160
Other adjustments
143
441
(298
)
580
297
283
Adjusted EBITDA
$
16,304
$
15,281
$
1,023
6.7
%
$
40,660
$
38,639
$
2,021
5.2
%
Canada Segment Results - For the Three
Months Ended September 30, 2020 and 2019
Canada revenue decreased $11.0 million, or 18.3% ($10.6 million,
or 17.6%, on a constant-currency basis), to $49.2 million for the
three months ended September 30, 2020, from $60.2 million in the
prior-year period, as a result of the declines in gross loans
receivable discussed previously. Sequentially, Canada revenue
increased $4.0 million, or 8.8%, driven by increases in Open-End,
Single-Pay and ancillary revenue.
Canada non-Single-Pay revenue increased $0.1 million, or 0.2%
($0.5 million, or 1.2%, on a constant-currency basis), to $40.1
million, compared to $40.0 million in the prior-year period, on
growth of $23.9 million, or 9.5% ($26.9 million, or 10.7%, 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 10.0% ($1.1
million, or 9.1% on a constant-currency basis). The decrease was
driven by additional insurance claims from consumers impacted by
COVID-19 during the third quarter of 2020.
Single-Pay revenue decreased $11.1 million, or 55.2% ($11.1
million, or 54.8%, on a constant-currency basis), to $9.0 million
for the three months ended September 30, 2020, and Single-Pay
receivables decreased $18.4 million, or 52.5% ($18.3 million, or
52.0% on a constant-currency basis), to $16.7 million, from $35.1
million, in the prior-year period. The decreases in Single-Pay
revenue and receivables were due to a continued shift to Open-End
loans from Single-Pay, as well as a significant decline in demand
attributable to COVID-19 Impacts.
The provision for losses decreased $9.6 million, or 46.0% ($9.5
million, or 45.5%, on a constant-currency basis), to $11.3 million
for the three months ended September 30, 2020, compared to $20.9
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, loss rates improved approximately 380 bps, or
53.8%, year over year due to government stimulus-related pay-downs
and overall portfolio maturation.
Canada cost of providing services for the three months ended
September 30, 2020 was $17.7 million, a decrease of $2.2 million,
or 11.2% ($2.1 million, or 10.3%, on a constant-currency basis),
compared to $19.9 million for the three months ended September 30,
2019, primarily related to certain cost reductions to manage
COVID-19 Impacts and efficient advertising efforts while managing
growth during the third quarter of 2020.
Canada operating expenses for the three months ended September
30, 2020 were $7.4 million, a decrease of $0.8 million, or 10.0%
($0.8 million, or 9.2%, on a constant-currency basis), compared to
$8.3 million in the prior-year period, primarily as a result of
certain cost reductions to manage COVID-19 Impacts.
Canada Segment Results - For the Nine
Months Ended September 30, 2020 and 2019
Canada revenue decreased $12.9 million, or 7.8% (increased $10.2
million, or 6.2%, on a constant-currency basis), to $153.4 million
for the nine months ended September 30, 2020, from $166.3 million
in the prior year, as a result of the declines in gross loans
receivable.
Canada non-Single-Pay revenue increased $11.5 million, or 10.7%
($13.7 million, or 12.7%, on a constant-currency basis), to $118.9
million, compared to $107.4 million in the prior-year period, on
growth of $23.9 million, or 9.5% ($26.9 million, or 10.7%, 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 nine months ended September 30, 2020.
Single-Pay revenue decreased $24.4 million, or 41.5% ($23.9
million, or 40.6%, on a constant-currency basis), to $34.5 million
for the nine months ended September 30, 2020, and Single-Pay
receivables decreased $18.4 million, or 52.5% ($18.3 million, or
52.0% on a constant-currency basis), to $16.7 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 $9.8 million, or 17.0% ($9.0
million, or 15.5%, on a constant-currency basis), to $47.9 million
for the nine months ended September 30, 2020, compared to $57.7
million in the prior-year period. The decrease in provision for
loan losses was primarily a result of lower NCOs and favorable loan
performance as a result of COVID-19 Impacts as discussed
previously. Year-over-year Canada NCOs decreased $17.2 million, or
28.4%.
Canada cost of providing services for the nine months ended
September 30, 2020 was $53.5 million, a decrease of $3.9 million,
or 6.7% ($2.9 million, or 5.1%, on a constant-currency basis),
compared to $57.3 million for the nine months ended September 30,
2019, primarily related to certain cost reductions to manage
COVID-19 Impacts, as well as efficient and strategic advertising
efforts through the course of 2020 to manage growth in Canada.
Canada operating expenses for the nine months ended September
30, 2020 were $24.4 million, unchanged from the prior-year
period.
Results of Discontinued Operations
On February 25, 2019, in accordance with the provisions of the
U.K. Insolvency Act 1986 and as approved by the Boards of Directors
of the U.K. Subsidiaries, insolvency practitioners from KPMG were
appointed as Administrators for the U.K. Subsidiaries. The effect
of the U.K. Subsidiaries’ entry into administration was to place
their management, affairs, business and property of the U.K.
Subsidiaries under the direct control of the Administrators.
Accordingly, we deconsolidated the U.K. Subsidiaries, which
comprised the U.K. reportable operating segment, as of February 25,
2019 and classified them as Discontinued Operations for all periods
presented.
The following table presents the results of operations of the
U.K. Subsidiaries, which meet the criteria of Discontinued
Operations and, therefore, are excluded from our results of
continuing operations:
(in thousands, unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019(1)
Revenue
$
—
$
—
$
—
$
6,957
Provision for losses
—
—
—
1,703
Net revenue
—
—
—
5,254
Cost of providing services
—
—
—
1,082
Corporate, district and other expenses
—
—
—
3,806
(Gain) loss on disposition
—
—
(1,714
)
39,414
Pre-tax income (loss) from Discontinued
Operations
—
—
1,714
(39,048
)
Income tax expense (benefit) related to
disposition
—
598
429
(45,991
)
Net income (loss) from discontinued
operations
$
—
$
(598
)
$
1,285
$
6,943
(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 nine months ended September
30, 2019, (Gain) Loss on disposition of $39.4 million included the
non-cash effect of eliminating assets and liabilities of the U.K.
Subsidiaries as of the date of deconsolidation, as well as the
effect of cumulative currency exchange rate differences on the U.S.
investment in the U.K.
In connection with the disposition of the U.K. Subsidiaries, the
U.S. entity that owned our interests in the U.K. Subsidiaries
recognized a loss on investment. This loss resulted in an estimated
U.S. Federal and state income tax benefit of $46.0 million, which
will be available to offset our future income tax obligations. In
the third quarter of 2020, we revised the estimate of our tax basis
in the U.K. Subsidiaries, resulting in a $0.6 million reduction in
the income tax benefit recorded in the first quarter of 2019.
During the nine months ended September 30, 2020, we received our
final distribution from the Administrators related to the wind-down
of the U.K. Subsidiaries, in the amount of $1.7 million.
CURO GROUP HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in thousands)
(unaudited)
September 30, 2020
December 31, 2019
ASSETS
Cash and cash equivalents
$
207,071
$
75,242
Restricted cash (includes restricted cash
of consolidated VIEs of $33,696 and $17,427 as of September 30,
2020 and December 31, 2019, respectively)
62,527
34,779
Gross loans receivable (includes loans of
consolidated VIEs of $327,242 and $244,492 as of September 30, 2020
and December 31, 2019, respectively)
497,442
665,828
Less: allowance for loan losses (includes
allowance for losses of consolidated VIEs of $53,183 and $24,425 as
of September 30, 2020 and December 31, 2019, respectively)
(80,582)
(106,835)
Loans receivable, net
416,860
558,993
Income taxes receivable
35,214
11,426
Prepaid expenses and other (includes
prepaid expenses and other of consolidated VIEs of $1,165 as of
September 30, 2020)
28,259
35,890
Property and equipment, net
61,681
70,811
Investments
23,908
10,068
Right of use asset - operating leases
111,055
117,453
Deferred tax assets
—
5,055
Goodwill
134,589
120,609
Other intangibles, net
37,219
33,927
Other assets
8,151
7,642
Total Assets
$
1,126,534
$
1,081,895
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Accounts payable and accrued liabilities
(includes accounts payable and accrued liabilities of consolidated
VIEs of $26,665 and $13,462 as of September 30, 2020 and December
31, 2019, respectively)
$
51,747
$
60,083
Deferred revenue
5,220
10,170
Lease liability - operating leases
118,831
124,999
Accrued interest (includes accrued
interest of consolidated VIEs of $983 and $871 as of September 30,
2020 and December 31, 2019, respectively)
5,728
19,847
Liability for losses on CSO lender-owned
consumer loans
6,198
10,623
Debt (includes debt and issuance costs of
consolidated VIEs of $128,302 and $8,408 as of September 30, 2020
and $115,243 and $3,022 as of December 31, 2019, respectively)
799,460
790,544
Other long-term liabilities
13,376
10,664
Deferred tax liabilities
13,421
4,452
Total Liabilities
$
1,013,981
$
1,031,382
Stockholders' Equity
Total Stockholders' Equity
$
112,553
$
50,513
Total Liabilities and Stockholders'
Equity
$
1,126,534
$
1,081,895
Balance Sheet Changes - September 30, 2020 Compared to
December 31, 2019
Cash - The increase in Cash from
December 31, 2019 was primarily due to lower demand for loan
products due to impacts from COVID-19 and the run-off of the
California Installment loan portfolios stemming from regulatory
changes effective January 1, 2020.
Restricted cash - The increase in
Restricted cash from December 31, 2019 was primarily due to
restricted cash balances related to Revolve Finance, our demand
deposit account, and our new Non-Recourse U.S. SPV Facility.
Gross loans receivable and Allowance for
loan losses - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Gross loans receivable and
related Allowance for loan losses were due to expected lower
customer demand and loan origination volumes as a result of
COVID-19 impacts and regulatory changes in California effective
January 1, 2020.
Income taxes receivable and Deferred tax
liabilities - The change in Income taxes receivable and
Deferred tax liabilities resulted from the NOL carry-backs, as
allowed by the CARES Act, enacted in March 2020, in response to the
COVID-19 pandemic. See "Results of Consolidated Operations" for
additional details.
Investments - Investments include
our equity method investment in Katapult as well as our investment
in Katapult through preferred shares not subject to equity method
accounting. Prior to the third quarter of 2020, our entire
investment in Katapult was accounted for under the equity method
and was presented within Prepaid expenses and other. The entire
balance is now presented separate within Investments in the
Condensed Consolidated Balance Sheets. The increase in Investments
from December 31, 2019 is the result of the acquisition of
additional shares from other investors for $11.2 million in
September 2020 and the recognition of equity method income of $2.7
million as described above.
Goodwill - The increase in Goodwill
from December 31, 2019 was due to our acquisition of Ad Astra on
January 3, 2020, which resulted in $14.8 million of goodwill,
partially offset by foreign currency rate changes.
Liability for losses on CSO lender-owned
consumer loans - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Liability for losses on CSO
lender-owned consumer loans were due to expected lower customer
demand and loan origination volumes as a result of COVID-19.
Debt and Accrued interest - The
increase in Debt and Accrued interest from December 31, 2019 was
due to (i) timing of interest payments on our 8.25% Senior Secured
Notes, which are payable semiannually, in arrears, on March 1 and
September 1 and (ii) $35.2 million draw on our new Non-Recourse
U.S. SPV Facility, partially offset by a net reduction in the
Non-Recourse Canada SPV Facility.
Debt Capitalization Summary
(September 30, 2020 balances in thousands, net of deferred
financing costs)
Capacity
Interest Rate
Maturity
Counter-parties
Balance as of September 30,
2020
Non-Recourse Canada SPV Facility (1)
C$175.0 million
3-Mo CDOR + 6.75%
September 2, 2023
Waterfall Asset Management
$
91,010
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, MetaBank
28,884
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
679,566
(1) Capacity amounts are denominated in
Canadian dollars, while outstanding balances as of September 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%.
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity
with U.S. GAAP, we provide certain “non-GAAP financial measures,”
including:
- Adjusted Net Income and Adjusted Earnings Per Share, or the
Adjusted Earnings Measures (net income from continuing operations
plus or minus restructuring and other costs, certain legal and related costs income
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 (earnings before interest, income taxes, depreciation
and amortization);
- Adjusted EBITDA (EBITDA plus or minus certain non-cash and
other adjusting items);
- Adjusted effective income tax rate (effective tax rate plus or
minus certain non-cash and other adjusting items); and
- Gross Combined Loans Receivable (includes loans originated by
third-party lenders through CSO programs which are not included in
the Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information
is meaningful and useful in understanding the activities and
business metrics of the Company's operations. We believe that these
non-GAAP financial measures reflect an additional way of viewing
aspects of the business that, when viewed with the Company's U.S.
GAAP results, provide a more complete understanding of factors and
trends affecting the business.
We believe that investors regularly rely on non-GAAP financial
measures, such as Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA, to assess operating performance and
that such measures may highlight trends in the business that may
not otherwise be apparent when relying on financial measures
calculated in accordance with U.S. GAAP. In addition, we believe
that the adjustments shown above are useful to investors in order
to allow them to compare our financial results during the periods
shown without the effect of each of these income or expense items.
In addition, we believe that Adjusted Net Income, Adjusted Earnings
per Share, EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of public companies in our industry, many of which
present Adjusted Net Income, Adjusted Earnings per Share, EBITDA
and/or Adjusted EBITDA when reporting their results.
In addition to reporting loans receivable information in
accordance with U.S. GAAP, we provide Gross Combined Loans
Receivable consisting of owned loans receivable plus loans
originated by third-party lenders through the CSO programs, which
we guarantee but do not include in the Consolidated Financial
Statements. Management believes this analysis provides investors
with important information needed to evaluate overall lending
performance.
We provide non-GAAP financial information for informational
purposes and to enhance understanding of the U.S. GAAP Consolidated
Financial Statements. Adjusted Net Income, Adjusted Earnings per
Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable
should not be considered as alternatives to income from continuing
operations, segment operating income, or any other performance
measure derived in accordance with U.S. GAAP, or as an alternative
to cash flows from operating activities or any other liquidity
measure derived in accordance with U.S. GAAP. Readers should
consider the information in addition to, but not instead of or
superior to, the financial statements prepared in accordance with
U.S. GAAP. This non-GAAP financial information may be determined or
calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial
Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA Measures have limitations as analytical tools, and
you should not consider these measures in isolation or as a
substitute for analysis of our income or cash flows as reported
under U.S. GAAP. Some of these limitations are:
- they do not include cash expenditures or future requirements
for capital expenditures or contractual commitments;
- they do not include changes in, or cash requirements for,
working capital needs;
- they do not include the interest expense, or the cash
requirements necessary to service interest or principal payments on
debt;
- depreciation and amortization are non-cash expense items
reported in the statements of cash flows; and
- other companies in our industry may calculate these measures
differently, limiting their usefulness as comparative
measures.
We calculate Adjusted Earnings per Share utilizing diluted
shares outstanding at year-end. If the Company records a loss from
continuing operations under U.S. GAAP, shares outstanding utilized
to calculate Diluted Earnings per Share from continuing operations
are equivalent to basic shares outstanding. Shares outstanding
utilized to calculate Adjusted Earnings per Share from continuing
operations reflect the number of diluted shares the Company would
have reported if reporting net income from continuing operations
under U.S. GAAP.
As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are
not included in the consolidated financial statements but from
which we earn revenue and for which we provide a guarantee to the
lender. Management believes this analysis provides investors with
important information needed to evaluate overall lending
performance.
We believe Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA are used by investors to analyze
operating performance and to evaluate our ability to incur and
service debt and the capacity for making capital expenditures.
Adjusted EBITDA is also useful to investors to help assess our
estimated enterprise value. The computation of Adjusted EBITDA as
presented in this release may differ from the computation of
similarly-titled measures provided by other companies.
Forward-Looking Statements
This press release contains forward-looking statements. These
forward-looking statements include our assumptions about the impact
of COVID-19 on our financial results, expected tax refunds
following effectiveness of the CARES Act, accounting for our
investment in Katapult and our belief in the usefulness of the
various non-GAAP financial measures used in this release. In
addition, words such as “guidance,” “estimate,” “anticipate,”
“believe,” “forecast,” “step,” “plan,” “predict,” “focused,”
“project,” “is likely,” “expect,” “intend,” “should,” “will,”
“confident,” variations of such words and similar expressions are
intended to identify forward-looking statements. Our ability to
achieve these forward-looking statements is based on certain
assumptions and judgments, including the effects on our and
Katapult's business of the COVID-19 pandemic, COVID-19's impact on
our and Katapult's ability to continue to service customers, our
revenue and overall financial performance and the manner in which
we are able to conduct our operations (as well as similar matters
related to Katapult), increases in charge-offs in light of the
impact of the COVID-19 pandemic, our ability to execute on our
business strategy and our ability to accurately predict our future
financial results and those of Katapult. These assumptions and
judgments may prove to be inaccurate in the future. These
forward-looking statements are not guarantees of future performance
and involve known and unknown risks and uncertainties that are
difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. There are important factors both within and
outside of our control that could cause our actual results to
differ materially from those in the forward-looking statements.
These factors include the impact of COVID-19 on the macro-economic
environment and how that may impact our customers and those of
Katapult, our dependence on third-party lenders to provide the cash
we need to fund our loans and our ability to affordably access
third-party financing; errors in our internal forecasts; our level
of indebtedness; our ability to integrate acquired businesses; our
dependence on third-party lenders to provide the cash we need to
fund our loans and our ability to affordably access third-party
financing; actions of regulators and the negative impact of those
actions on our business; our ability to protect our proprietary
technology and analytics and keep up with that of our competitors;
disruption of our information technology systems that adversely
affect our business operations; ineffective pricing of the credit
risk of our prospective or existing customers; inaccurate
information supplied by customers or third parties could lead to
errors in judging customers’ qualifications to receive loans;
improper disclosure of customer personal data; failure of third
parties who provide products, services or support to us; any
failure of third-party lenders upon whom we rely to conduct
business in certain states; disruption to our relationships with
banks and other third-party electronic payment solutions providers;
disruption caused by employee or third-party theft and errors in
our stores as well as other factors discussed in our filings with
the Securities and Exchange Commission. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual future
results. We undertake no obligation to update, amend or clarify any
forward-looking statement for any reason.
About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in two
countries and powered by its fully integrated technology platform,
is a provider of credit to non-prime consumers. In 1997, the
Company was founded in Riverside, California by three Wichita,
Kansas childhood friends to meet the growing consumer need for
short-term loans. Their success led to opening stores across the
United States and expanding to offer online loans and financial
services across two countries. Today, CURO combines its market
expertise with a fully integrated technology platform, omni-channel
approach and advanced credit decisioning to provide an array of
credit products across all mediums. CURO operates under a number of
brands including Speedy Cash®, Rapid Cash®, Cash Money®,
LendDirect®, Avío Credit®, Opt+® and Revolve Finance®. With over 20
years of operating experience, CURO provides financial freedom to
non-prime consumers.
Conference Call
CURO will host a conference call to discuss these results at
8:15 a.m. Eastern Time on Friday, October 30, 2020. The live
webcast of the call can be accessed at the CURO Investor Relations
website at http://ir.curo.com/.
You may access the call at 1-866-807-9684 (1-412-317-5415 for
international callers). Please ask to join the CURO Group Holdings
call. A replay of the conference call will be available until
November 6, 2020, at 11:15 a.m. Eastern Time. An archived version
of the webcast will be available on the CURO Investors website for
90 days. You may access the conference call replay at
1-877-344-7529 (1-412-317-0088 for international callers). The
replay access code is 10148777.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final unaudited data will be
included in the Company’s Quarterly Report on Form 10-Q for the
three and nine months ended September 30, 2020.
(CURO-NWS)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029006241/en/
Investor Relations: Roger Dean Executive Vice President and
Chief Financial Officer Phone: 844-200-0342 Email:
IR@curo.com Or Financial Profiles, Inc.
Curo@finprofiles.com
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