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 fourth quarter
ended December 31, 2020.
“After being tested on many levels in 2020, we ended the year
encouraged by our employees' resiliency and cautiously optimistic
about our opportunities for 2021 and beyond,” said Don Gayhardt,
President and Chief Executive Officer. “In the fourth quarter of
2020, we delivered quarterly sequential loan balance growth of
11.3% compared to 1.6% quarterly sequential growth in the fourth
quarter of 2019. While overall loan balances finished the year
19.5% below prior year levels (11.7% excluding regulatory-impacted
California installment loans), loan balances in Canada increased
9.2% on the year. Despite COVID-19 impacts that lowered loan demand
and balances after the first quarter, historically good credit
performance and strict expense management allowed us to post solid
quarterly earnings for all of 2020 while significantly increasing
cash and liquidity levels.”
“As we announced in December, we also unlocked significant
shareholder value from our $27.5 million investment in Katapult, a
leading e-commerce FinTech platform focused on non-prime consumers.
On December 18, 2020, Katapult announced its merger with FinServ
Acquisition Corp. (Nasdaq: FSRV), a special purpose acquisition
company, as the first step towards becoming a separate, publicly
traded company, expected in a few months. Under the terms of
Katapult's merger with FinServ, at that time we expect to receive
up to $130 million in cash and retain at least 21% ownership of the
new public company. This transaction will increase our balance
sheet flexibility while maintaining a meaningful equity stake and
board representation in Katapult. Based on the market value of FSRV
shares as of February 3rd, the total value of CURO’s stake is over
$500 million, including earn-out shares, before taxes.”
“Then, as we announced earlier this week, we agreed to acquire
Flexiti Financial, one of Canada’s fastest-growing POS/BNPL
providers with a market-leading omni-channel FinTech platform. This
acquisition enhances our value creation opportunities in Canada by
allowing us to serve customers across all channels in which they
access credit and with an expanded product set. It also increases
CURO’s long-term growth profile and provides further product and
geographical diversification.”
Consolidated Summary Results - Unaudited
Three Months Ended December
31,(1)
For the Year Ended December
31,(1)
(in thousands, except per share data)
2020
2019
Variance
2020
2019
Variance
Revenue
$ 202,078
$ 302,294
(33.2)
%
$ 847,396
$ 1,141,797
(25.8)
%
Gross margin
68,591
95,299
(28.0)
%
308,359
378,616
(18.6)
%
Company Owned gross loans receivable
553,722
665,828
(16.8)
%
553,722
665,828
(16.8)
%
Unrestricted Cash
213,343
75,242
183.5
%
213,343
75,242
183.5
%
Net income
4,474
30,218
(85.2)
%
75,733
111,488
(32.1)
%
Adjusted Net Income (2)
8,556
34,793
(75.4)
%
74,328
130,059
(42.9)
%
Diluted Earnings per Share from continuing
operations
$ 0.11
$ 0.68
(83.8)
%
$ 1.77
$ 2.26
(21.7)
%
Adjusted Diluted Earnings per Share
(2)
$ 0.20
$ 0.80
(75.0)
%
$ 1.77
$ 2.83
(37.5)
%
EBITDA (2)
31,063
61,526
(49.5)
%
170,550
230,848
(26.1)
%
Adjusted EBITDA (2)
34,332
67,534
(49.2)
%
187,363
261,132
(28.2)
%
Weighted Average Shares — diluted
42,579
43,243
42,091
45,974
(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."
Fourth quarter 2020 and recent developments include:
- Sequential increase (described within this release as the
change from the third quarter to the fourth quarter) in Company
Owned gross loans receivable and Gross combined loans receivable of
$56.3 million, or 11.3%, and $60.6 million, or 11.3%, respectively,
compared to $8.2 million, or 1.2%, and $11.8 million, or 1.6%, of
sequential growth for the quarter ended December 31, 2019.
- Consolidated Company Owned net charge-off ("NCO") rate decline
of 48.3%, or 760 basis points ("bps"), compared to the fourth
quarter of 2019.
- Year-over-year reduction in loan balances from COVID-19 effects
on customer demand and regulatory changes that became effective
January 1, 2020 for Unsecured and Secured Installment loans in
California. Company Owned gross loans receivable declined 7.4% in
2020 excluding affected loan portfolios in California.
- Revenue decrease of $100.2 million, or 33.2%, versus the
prior-year period, due to the decrease in loan balances, as well as
a mix shift toward Canada, where products average less revenue than
the U.S.
- Net Revenue decrease of $39.8 million, or 23.1%, year over
year, as the impact of lower NCO rates partially mitigated the
negative effect of lower loan balances.
- Definitive merger agreement between Katapult Holdings, Inc.
("Katapult") and Finserv Acquisition Corp., ("FinServ"). On our
total minority investment of $27.5 million, the merger is expected
to provide us a combination of cash and stock consideration between
$520 million and $540 million, based on current market prices and
subject to FinServ shareholder redemptions. We expect our ownership
stake in the resulting publicly traded entity to be no less than
21% of its fully diluted shares.
- Continued growth of our technology, marketing and servicing
relationship for Verge Credit loans, issued and funded by a
bank.
- Entered into an agreement to acquire Flexiti Financial Inc.
("Flexiti"), an emerging growth Canadian Point-of-Sale / Buy Now
Pay Later ("POS/BNPL") provider. Under the terms of the agreement,
CURO will acquire Flexiti for cash at closing of $85 million and
contingent consideration of up to $36 million based on the
achievement of risk-adjusted revenue and origination targets over
the next two years.
- Diluted Earnings per Share from continuing operations decreased
to $0.11 from $0.68. Adjusted Diluted Earnings per Share decreased
to $0.20 compared to $0.80 for the fourth quarter of 2019.
- Our Board of Directors declared a $0.055 per share dividend
payable on March 2, 2021 to stockholders of record as of February
16, 2021.
Full-year 2020 developments include:
- Revenue decrease of $294.4 million, or 25.8%, compared to the
prior year, due to the aforementioned decrease in loan balances.
California Installment revenues, which were impacted by January 1,
2020 regulatory changes, were $67.6 million for the year ended
December 31, 2020, compared to $139.5 million for the year ended
December 31, 2019.
- Net Revenue decline of $114.7 million, or 17.0%, and gross
margin decline of $70.3 million, or 18.6%, year-over-year as the
revenue decline was partially offset by lower provision
expense.
- Diluted Earnings per Share from continuing operations of $1.77
compared to $2.26 in the prior year. Adjusted Diluted Earnings per
Share of $1.77 compared to $2.83 for 2019.
- Ended the fourth quarter of 2020 with $213.3 million in cash
and $310.5 million of liquidity (including undrawn capacity on
revolving credit facilities, which is subject to continued
collateral performance for the asset backed facilities and covenant
compliance) compared to $75.2 million in cash and $187.8 million of
liquidity at the end of 2019.
- 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 loans. 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.
- Implemented 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
January 31, 2021, we have granted concessions on more than 84,000
loans, or 16% of our active loans, and waived over $6.0 million in
payments and fees. We also temporarily suspended certain returned
item fees.
- Instituted a cash dividend policy in the first quarter of 2020,
with dividend payments made to stockholders in February, May,
August and November 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.
The COVID-19 pandemic began to have a pervasive impact in March
2020. Year-over-year comparisons for the three months and year
ended December 31, 2020 were impacted by factors related to
COVID-19, such as lower consumer demand, increased or accelerated
repayments and favorable payment trends 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 December 31, 2020 were impacted
positively by normal seasonality and selectively returning credit
scoring to pre-COVID-19 levels, together with continued
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
December 31, 2020
December 31, 2019
(in thousands, unaudited)
U.S.
Canada
Total
% of Total
U.S.
Canada
Total
% of Total
Open-End
$ 31,111
$ 31,962
$ 63,073
31.2
%
$ 43,278
$ 28,017
$ 71,295
23.6
%
Unsecured Installment
77,733
1,055
78,788
39.0
%
133,953
1,658
135,611
44.9
%
Secured Installment
16,757
—
16,757
8.3
%
28,690
—
28,690
9.5
%
Single-Pay
17,409
10,051
27,460
13.6
%
30,192
19,652
49,844
16.5
%
Ancillary
3,578
12,422
16,000
7.9
%
4,159
12,695
16,854
5.6
%
Total revenue
$ 146,588
$ 55,490
$ 202,078
100.0
%
$ 240,272
$ 62,022
$ 302,294
100.0
%
During the three months ended December 31, 2020, total revenue
declined $100.2 million, or 33.2%, to $202.1 million, compared to
the prior-year period. Geographically, U.S. and Canada revenues
declined 39.0% and 10.5%, respectively. COVID-19 Impacts on
year-over-year results for Canada were less than the U.S. due to
the faster reopening of major markets and the continued popularity
and growth of Open-End loans in Canada. Sequentially, total revenue
increased $20.1 million, or 11.0%, primarily from sequential growth
in Open-End and Unsecured Installment loan balances compared to the
third quarter of 2020.
From a product perspective, Open-End revenues increased
sequentially $4.4 million, or 7.4%, on related loan growth of $36.7
million, or 11.4%, primarily due to normal seasonality and growth
in Open-End loans in Canada. Open-End loan balances in Canada grew
$51.2 million, or 20.3%, from December 31, 2019, with related
revenue growth of $3.9 million, or 14.1%. Open-End growth in Canada
was partially offset by a decrease in U.S. Open-End loans of $27.8
million, or 33.4%, with a related revenue decrease of $12.2
million, or 28.1%. Open-End loan balances in both countries were
also affected by COVID-19 Impacts; namely, our decision to
initially tighten credit, reduced application volumes and lower
utilization of approved credit lines.
For the three months ended December 31, 2020, Unsecured
Installment and Secured Installment revenues decreased $56.8
million, or 41.9%, and $11.9 million, or 41.6%, respectively,
compared to the prior-year period 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 $41.4 million, or 36.8%, and $6.6
million, or 33.1%, respectively. For the three months ended
December 31, 2020, Installment revenues increased sequentially
$11.4 million, or 13.6%, on related loan growth of $21.5 million,
or 12.4%, primarily driven by growth in the Verge Credit brand
Single-Pay revenue declined $22.4 million, or 44.9%, for the
three months ended December 31, 2020, compared to the prior-year
period, primarily due to COVID-19 impacts on loan volumes and
balances, which declined $37.7 million, or 46.2%, year over year.
Single-Pay loan volumes in both the U.S. and Canada were
particularly affected by the broad reduction in storefront usage by
customers during periods of self-quarantine and stay-at-home
orders, periodic store closures for COVID-19 protocols, and
increased pay-downs as a result of government stimulus programs.
For the three months ended December 31, 2020, Single-Pay revenues
increased sequentially $2.4 million, or 9.5%, on related loan
growth of $2.5 million, or 6.1%, as a result of normal seasonality
and reduced quarantine and stay-at-home restrictions.
Ancillary revenues, which include the sale of insurance products
to Open-End and Installment loan customers in Canada, decreased
$0.9 million, or 5.1%, versus the prior-year period, stemming
primarily from lower check cashing fees. Canada insurance revenue
was flat year over year with higher premium revenue offset by
higher customer claims. Sequentially, ancillary revenues increased
$1.9 million, or 13.4%, for the three months ended December 31,
2020, due to the aforementioned growth in Canada Open-End
loans.
The following table summarizes revenue by product, including CSO
fees, for the period indicated:
For the Year Ended
December 31, 2020
December 31, 2019
(in thousands, unaudited)
U.S.
Canada
Total
% of Total
U.S.
Canada
Total
% of Total
Open-End
$ 134,449
$ 115,053
$ 249,502
29.4
%
$ 147,794
$ 97,462
$ 245,256
21.5
%
Unsecured Installment
333,991
5,125
339,116
40.0
%
523,979
6,751
530,730
46.5
%
Secured Installment
79,136
—
79,136
9.3
%
110,513
—
110,513
9.7
%
Single-Pay
75,930
44,503
120,433
14.2
%
112,925
78,524
191,449
16.8
%
Ancillary
15,018
44,191
59,209
7.0
%
18,295
45,554
63,849
5.6
%
Total revenue
$ 638,524
$ 208,872
$ 847,396
100.0
%
$ 913,506
$ 228,291
$ 1,141,797
100.0
%
Full-year comparisons also were influenced by COVID-19 Impacts.
For the year ended December 31, 2020, total revenue declined $294.4
million, or 25.8%, to $847.4 million, compared to the prior year.
Geographically, U.S. and Canada revenues declined 30.1% and 8.5%,
respectively. COVID-19 Impacts on year-over-year results for Canada
were less than the U.S. due to the faster reopening of major
markets and the continued popularity and growth of Open-End loans
in Canada.
From a product perspective, Open-End revenues grew $4.2 million,
or 1.7%, compared to the prior year, primarily due to $51.2
million, or 20.3%, of Open-End loan growth in Canada, partially
offset by a $27.8 million, or 33.4%, loan balance decline in the
U.S.
For the year ended December 31, 2020, Unsecured Installment and
Secured Installment revenues decreased 36.1% and 28.4%,
respectively, because of COVID-19 Impacts, regulatory changes in
California that became effective January 1, 2020 and regulatory
changes for CSOs in Ohio that were effective May 1, 2019. Excluding
California, Unsecured Installment and Secured Installment revenue
decreased 32.0% and 18.9%, respectively.
Single-Pay revenue declined $71.0 million, or 37.1%, for the
year ended December 31, 2020, compared to the prior year, primarily
due to COVID-19 impacts on loan volume and balances, which declined
$37.7 million, or 46.2%. Single-Pay loan volumes were particularly
affected by the broad reduction in storefront usage in both the
U.S. and Canada by customers during periods of self-quarantine and
stay-at-home orders, periodic closures of our stores for cleaning
purposes, and increased pay-downs as a result of government
stimulus programs.
Ancillary revenues, which include the sale of insurance products
to Open-End and Installment loan customers in Canada, decreased
$4.6 million, or 7.3%, versus the prior year, primarily stemming
from lower check cashing fees.
The following table presents online revenue and online
transaction compositions, including CSO fees, of the products and
services that we currently offer:
Three Months Ended December
31,
Year Ended December 31,
2020
2019
2020
2019
Online revenues as a percentage of
consolidated revenue
50.9
%
46.9
%
48.5
%
45.6
%
Online transactions as a percentage of
consolidated transactions
58.5
%
48.1
%
54.7
%
45.8
%
Online revenue as a percentage of consolidated revenue increased
during the three months and year ended December 31, 2020 due to
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 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 by providing a guarantee
to the unaffiliated lender.
As of
(in millions, unaudited)
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
Open-End
$ 358.9
$ 322.2
$ 285.2
$ 314.0
$ 335.5
Unsecured Installment
102.4
84.9
81.6
123.1
160.8
Secured Installment
48.6
49.0
53.6
72.6
88.1
Single-Pay
43.8
41.3
36.1
54.7
81.4
Company Owned gross loans receivable
$ 553.7
$ 497.4
$ 456.5
$ 564.4
$ 665.8
Gross loans receivable Guaranteed by the
Company
44.1
39.8
34.1
55.9
76.7
Gross combined loans receivable (1)
$ 597.8
$ 537.2
$ 490.6
$ 620.3
$ 742.5
(1) See "Non-GAAP Financial Measures" at
the end of this release for definition and more information.
Gross combined loans receivable decreased $144.7 million, or
19.5%, to $597.8 million as of December 31, 2020, from $742.5
million as of December 31, 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 $60.6
million, or 11.3%, as demand increased during the fourth quarter
from normal seasonality, reduced government stimulus benefits,
continued growth in Open-End in Canada and growth in the Verge
Credit brand.
Gross combined loans receivable performance by product is
described further in the following sections.
Open-End Loans
Open-End loan balances as of December 31, 2020 increased $23.4
million, or 7.0% ($16.4 million, or 4.9%, on a constant-currency
basis), compared to December 31, 2019. Open-End balances in Canada
increased $51.2 million, or 20.3% ($44.2 million, or 17.5%, on a
constant-currency basis), year over year and $37.8 million, or
14.2% ($54.1 million, or 22.8%, on a constant currency basis),
sequentially. Open-End loan balances in the U.S. declined $27.8
million, or 33.4% year over year. Sequentially, U.S. Open-End
balances declined $1.2 million, or 2.1%, primarily due to the
conversion of Virginia Open-End loans to Installment loans in
advance of regulatory changes effective January 1, 2021.
The Open-End Allowance for loan losses as a percentage of
Open-End gross loans receivable ("allowance coverage") decreased
sequentially from 16.0% to 14.5% as of December 31, 2020 and
decreased from 16.4% year over year. The decrease was due to (i)
sustained favorable trends in NCOs throughout 2020, (ii) the
sequential decrease in Troubled Debt Restructuring ("TDRs") loans
as a percentage of total gross loans receivable, and (iii)
continued lower past-due gross loans receivable as a percentage of
total gross loans receivable compared to historical trends. Year
over year, NCO rates improved 520 bps and past-due rates improved
440 bps.
2020
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Open-End loans:
Revenue
$ 63,073
$ 58,711
$ 56,736
$ 70,982
$ 71,295
Provision for losses
20,262
21,655
21,341
40,991
37,816
Net revenue
$ 42,811
$ 37,056
$ 35,395
$ 29,991
$ 33,479
Net charge-offs
$ 21,407
$ 18,163
$ 31,684
$ 37,098
$ 37,426
Open-End gross loan balances:
Open-End gross loans receivable
$ 358,884
$ 322,234
$ 285,156
$ 314,006
$ 335,524
Average Open-End gross loans receivable
(1)
$ 340,559
$ 303,695
$ 299,581
$ 324,765
$ 325,248
Open-End allowance for loan
losses:
Allowance for loan losses
$ 51,958
$ 51,417
$ 47,319
$ 56,458
$ 55,074
Open-End Allowance for loan losses as a
percentage of Open-End gross loans receivable
14.5%
16.0%
16.6%
18.0%
16.4%
Open-End past-due balances:
Open-End past-due gross loans
receivable
$ 37,779
$ 31,807
$ 31,208
$ 49,987
$ 50,072
Past-due Open-End gross loans receivable -
percentage
10.5%
9.9%
10.9%
15.9%
14.9%
Open-End ratios:
NCO rate (2)
6.3%
6.0%
10.6%
11.4%
11.5%
(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.
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.
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
$ 262,050.5
$ 245,096
Pro Forma NCO rate (2)
11.9
%
9.9
%
11.3
%
13.0
%
(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.
Unsecured Installment Loans - Company Owned
Company Owned Unsecured Installment revenue for the three months
ended December 31, 2020 and related gross loans receivable
decreased $27.0 million, or 42.6%, and $58.4 million, or 36.3%,
respectively, from the prior-year period. The decrease in
receivables was primarily due to COVID-19 Impacts and regulatory
changes in California that were effective January 1, 2020,
partially offset by growth in the Verge Credit brand. Sequentially,
Company Owned Unsecured Installment revenue and related gross loans
receivable increased $5.2 million, or 16.7%, and $21.8 million, or
17.6%, respectively.
Unsecured Installment loans in California were $23.6 million, or
23.0%, of total Company Owned Unsecured Installment loans as of
December 31, 2020, a decrease of $47.8 million from December 31,
2019. Sequentially, California Unsecured Installment loans
decreased $3.8 million. Excluding California, Company Owned
Unsecured Installment loans receivable decreased $10.6 million, or
11.8%, from the prior-year period, while revenues for the three
months ended December 31, 2020 decreased $11.0 million, or 28.4%,
compared to the prior-year period, due to COVID-19 Impacts.
Sequentially, excluding California, Company Owned Unsecured
Installment revenue and related loans receivable increased $7.2
million, or 33.5% and $21.2 million, or 36.8%, respectively, from
September 30, 2020. The receivable increase was due to normal
seasonality, reduced quarantine and stay-at-home orders and less
government stimulus during the fourth quarter.
The Unsecured Installment quarterly NCO rate improved
approximately 920 bps year-over-year, as a result of COVID-19
Impacts. Sequentially, the quarterly NCO rate increased from 11.5%
in the third quarter to 12.1% in the fourth quarter of 2020 on
higher new customer origination mix and expansion into new
states.
The Unsecured Installment allowance coverage increased
year-over-year, from 22.1% as of December 31, 2019, to 23.5% as of
December 31, 2020, as a result of certain loan modifications under
the Customer Care Program, which were classified as 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 100 bps from the allowance coverage that would have
otherwise been required. Sequentially, the allowance coverage
increased from 22.2% to 23.5%, as a result of moderately higher
past-due balances from 21.1% to 23.6%, due largely to growth in new
geographical markets, as well as the aforementioned increase in the
NCO rate.
Unsecured Installment Loans - Guaranteed by the
Company
Unsecured Installment loans Guaranteed by the Company declined
$31.1 million year over year, primarily due to COVID-19 Impacts.
Sequentially, Unsecured Installment loans Guaranteed by the Company
increased $4.4 million, or 11.2%, due to normal seasonality,
reduced quarantine and stay-at-home orders and less government
stimulus during the fourth quarter.
NCO rates for Unsecured Installment loans Guaranteed by the
Company increased year over year from 47.6% to 52.5%, and
sequentially from 38.6% to 52.5%, as new customer volume improved
and origination mix shifted online. The CSO liability for losses as
a percentage of loans Guaranteed by the Company increased
year-over-year from 14.2% to 16.6% as of December 31, 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 15.3% to 14.1%.
The CSO liability for losses increased from 15.8% to 16.6% during
the three months ended December 31, 2020, as a result of the
aforementioned increase in NCO rate.
2020
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Unsecured Installment loans:
Revenue - Company Owned
$ 36,387
$ 31,168
$ 33,405
$ 55,569
$ 63,428
Provision for losses - Company Owned
16,506
9,647
12,932
26,182
33,183
Net revenue - Company Owned
$ 19,881
$ 21,521
$ 20,473
$ 29,387
$ 30,245
Net charge-offs - Company Owned
$ 11,308
$ 9,595
$ 23,110
$ 32,775
$ 35,729
Revenue - Guaranteed by the Company
(1)
$ 42,401
$ 36,240
$ 37,024
$ 66,840
$ 72,183
Provision for losses - Guaranteed by the
Company (1)
22,535
14,884
11,418
26,338
34,858
Net revenue - Guaranteed by the Company
(1)
$ 19,866
$ 21,356
$ 25,606
$ 40,502
$ 37,325
Net charge-offs - Guaranteed by the
Company (1)
$ 21,505
$ 13,882
$ 15,432
$ 27,749
$ 34,486
Unsecured Installment gross combined
loans receivable:
Company Owned
$ 102,425
$ 84,959
$ 81,601
$ 123,118
$ 160,782
Guaranteed by the Company (1)
43,175
38,822
33,082
54,097
74,317
Unsecured Installment gross combined loans
receivable (1)(2)
$ 145,600
$ 123,781
$ 114,683
$ 177,215
$ 235,099
Average gross loans receivable:
Average Unsecured Installment gross loans
receivable - Company Owned (3)
$ 93,692
$ 83,280
$ 102,360
$ 141,950
$ 167,636
Average Unsecured Installment gross loans
receivable - Guaranteed by the Company (1)(3)
$ 40,999
$ 35,952
$ 43,590
$ 64,207
$ 72,511
Allowance for loan losses and CSO
liability for losses:
Unsecured Installment Allowance for loan
losses (4)
$ 24,073
$ 18,859
$ 18,451
$ 28,965
$ 35,587
Unsecured Installment CSO liability for
losses (1)(4)
$ 7,160
$ 6,130
$ 5,128
$ 9,142
$ 10,553
Unsecured Installment Allowance for loan
losses as a percentage of Unsecured Installment gross loans
receivable
23.5%
22.2%
22.6%
23.5%
22.1%
Unsecured Installment CSO liability for
losses as a percentage of Unsecured Installment gross loans
Guaranteed by the Company (1)
16.6%
15.8%
15.5%
16.9%
14.2%
Unsecured Installment past-due
balances:
Unsecured Installment gross loans
receivable - Company Owned
$ 24,190
$ 17,942
$ 17,766
$ 34,966
$ 43,100
Unsecured Installment gross loans -
Guaranteed by the Company (1)
$ 6,079
$ 5,953
$ 4,019
$ 9,232
$ 12,477
Past-due Unsecured Installment Company
Owned gross loans receivable -- percentage
23.6%
21.1%
21.8%
28.4%
26.8%
Past-due Unsecured Installment gross loans
Guaranteed by the Company -- percentage (1)
14.1%
15.3%
12.1%
17.1%
16.8%
Unsecured Installment other
information:
Originations - Company Owned
$ 66,502
$ 49,833
$ 24,444
$ 55,941
$ 87,080
Originations - Guaranteed by the Company
(1)
$ 57,053
$ 51,433
$ 33,700
$ 64,836
$ 91,004
Unsecured Installment ratios:
NCO rate - Company Owned (5)
12.1%
11.5%
22.6%
23.1%
21.3%
NCO rate - Guaranteed by the Company
(1)(5)
52.5%
38.6%
35.4%
43.2%
47.6%
(1) Includes loans originated by
third-party lenders through CSO programs, which are not included in
the Condensed Consolidated Financial Statements.
(2) Non-GAAP measure. For a description of
each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) Average gross loans receivable
calculated 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 December 31, 2020 decreased
41.6% and 45.2%, 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 $13.7 million, or 27.6%, of total Secured Installment
gross combined loans receivable as of December 31, 2020, as
compared to $36.5 million, or 40.4%, as of December 31, 2019, a
decrease of $22.8 million, year over year. Excluding California,
Secured Installment loans receivable decreased $18.0 million, or
33.5%, from the prior-year period, while revenues decreased $6.6
million, or 33.1%, year over year, due to COVID-19 Impacts.
The Secured Installment NCO rate improved 440 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 from 11.5% as
of December 31, 2019 to 14.4% as of December 31, 2020. 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 December
31, 2020. TDRs increased our total Secured Installment allowance
coverage by 270 bps from the allowance coverage that would
otherwise have been required. Despite the sequential increase in
past-due Secured Installment gross combined loans receivable, the
Secured Installment Allowance for loan losses and CSO liability for
losses as a percentage of Secured Installment gross combined loans
receivable remained flat at 14.4% due to sustained favorable trends
in NCOs throughout 2020.
2020
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Secured Installment loans:
Revenue
$ 16,757
$ 16,692
$ 19,401
$ 26,286
$ 28,690
Provision for losses
4,028
3,291
7,238
9,682
11,492
Net revenue
$ 12,729
$ 13,401
$ 12,163
$ 16,604
$ 17,198
Net charge-offs
$ 4,090
$ 4,033
$ 9,092
$ 10,284
$ 11,548
Secured Installment gross combined loan
balances:
Secured Installment gross combined loans
receivable (1)(2)
$ 49,563
$ 49,921
$ 54,635
$ 74,405
$ 90,411
Average Secured Installment gross combined
loans receivable (3)
$ 49,742
$ 52,278
$ 64,520
$ 82,408
$ 91,445
Secured Installment Allowance for loan
losses and CSO liability for losses (4)
$ 7,115
$ 7,177
$ 7,919
$ 9,773
$ 10,375
Secured Installment Allowance for loan
losses and CSO liability for losses as a percentage of Secured
Installment gross combined loans receivable (1)
14.4%
14.4%
14.5%
13.1%
11.5%
Secured Installment past-due
balances:
Secured Installment past-due gross
combined loans receivable (1)(2)
$ 8,430
$ 7,703
$ 9,072
$ 15,612
$ 17,902
Past-due Secured Installment gross
combined loans receivable -- percentage (1)
17.0%
15.4%
16.6%
21.0%
19.8%
Secured Installment other
information:
Originations (2)
$ 21,884
$ 19,216
$ 11,242
$ 20,990
$ 40,961
Secured Installment ratios:
NCO Rate (5)
8.2%
7.7%
14.1%
12.5%
12.6%
(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 Consolidated Financial Statements.
(3) Average gross loans receivable
calculated 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 Consolidated Balance
Sheets.
(5) We calculate NCO rate as NCOs divided
by Average gross loans receivables.
Single-Pay
Single-Pay revenue declined $22.4 million, or 44.9%, year over
year, while related receivables declined $37.7 million, or 46.2%,
for the three months ended December 31, 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 loan repayments funded by government stimulus
programs. Sequentially, Single-Pay revenues increased $2.4 million,
or 9.5%, on related loan growth of $2.5 million, or 6.1%, due to
normal seasonality and reduced quarantine and stay-at-home orders
during the fourth quarter. The Single-Pay Allowance for loan losses
as a percentage of Single-Pay gross loans receivable, which was
consistent year over year, decreased sequentially from 7.7% to 7.0%
as of December 31, 2020, due to sustained favorable NCO trends
throughout 2020.
2020
2019
(dollars in thousands, unaudited)
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Single-pay loans:
Revenue
$ 27,460
$ 25,084
$ 22,732
$ 45,157
$ 49,844
Provision for losses
6,153
4,799
(2,588)
9,639
12,289
Net revenue
$ 21,307
$ 20,285
$ 25,320
$ 35,518
$ 37,555
Net charge-offs
$ 6,367
$ 4,439
($ 598)
$ 10,517
$ 12,145
Single-Pay gross loan balances:
Single-Pay gross loans receivable
$ 43,780
$ 41,274
$ 36,130
$ 54,728
$ 81,447
Average Single-Pay gross loans receivable
(1)
$ 42,527
$ 38,702
$ 45,429
$ 68,088
$ 78,787
Single-Pay Allowance for loan losses
$ 3,084
$ 3,197
$ 2,802
$ 4,693
$ 5,869
Single-Pay Allowance for loan losses as a
percentage of Single-Pay gross loans receivable
7.0%
7.7%
7.8%
8.6%
7.2%
NCO rate (2)
15.0%
11.5%
(1.3)%
15.4%
15.4%
(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 December
31,
Year Ended December 31,
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$ 202,078
$ 302,294
($ 100,216)
(33.2)
%
$ 847,396
$ 1,141,797
($ 294,401)
(25.8)
%
Provision for losses
69,832
130,289
(60,457)
(46.4)
%
288,811
468,551
(179,740)
(38.4)
%
Net revenue
132,246
172,005
(39,759)
(23.1)
%
558,585
673,246
(114,661)
(17.0)
%
Advertising
12,158
16,408
(4,250)
(25.9)
%
44,552
53,398
(8,846)
(16.6)
%
Non-advertising costs of providing
services
51,497
60,298
(8,801)
(14.6)
%
205,674
241,232
(35,558)
(14.7)
%
Total cost of providing services
63,655
76,706
(13,051)
(17.0)
%
250,226
294,630
(44,404)
(15.1)
%
Gross margin
68,591
95,299
(26,708)
(28.0)
%
308,359
378,616
(70,257)
(18.6)
%
Operating expense
Corporate, district and other expenses
43,607
37,060
6,547
17.7
%
159,853
160,103
(250)
(0.2)
%
Interest expense
18,691
17,686
1,005
5.7
%
72,709
69,763
2,946
4.2
%
(Income) loss from equity method
investment
(1,893)
1,163
(3,056)
#
(4,546)
6,295
(10,841)
#
Total operating expense
60,405
55,909
4,496
8.0
%
228,016
236,161
(8,145)
(3.4)
%
Income from continuing operations before
income taxes
8,186
39,390
(31,204)
(79.2)
%
80,343
142,455
(62,112)
(43.6)
%
Provision for income taxes
3,712
9,819
(6,107)
(62.2)
%
5,895
38,557
(32,662)
(84.7)
%
Net income from continuing operations
4,474
29,571
(25,097)
(84.9)
%
74,448
103,898
(29,450)
(28.3)
%
Net income from discontinued operations,
net of tax
—
647
(647)
#
1,285
7,590
(6,305)
(83.1)
%
Net income
$ 4,474
$ 30,218
($ 25,744)
(85.2)
%
$ 75,733
$ 111,488
($ 35,755)
(32.1)
%
# - 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 December
31,
Year Ended December 31,
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$ 4,474
$ 29,571
($ 25,097)
(84.9)
%
$ 74,448
$ 103,898
($ 29,450)
(28.3)
%
Adjustments:
Legal and other costs (1)
2,160
2,173
5,662
4,795
U.K. related costs (2)
—
—
—
8,844
(Income) loss from equity method
investment (3)
(1,893)
1,163
(4,546)
6,295
Share-based compensation (4)
3,014
2,736
12,910
10,323
Intangible asset amortization
705
576
2,951
2,884
Canada GST adjustment (5)
—
—
2,160
—
Income tax valuations (6)
—
—
(3,472)
—
Impact of tax law changes (7)
—
—
(11,251)
—
Cumulative tax effect of adjustments
(8)
96
(1,426)
(4,534)
(6,980)
Adjusted Net Income
$ 8,556
$ 34,793
($ 26,237)
(75.4)
%
$ 74,328
$ 130,059
($ 55,731)
(42.9)
%
Net income from continuing operations
$ 4,474
$ 29,571
$ 74,448
$ 103,898
Diluted Weighted Average Shares
Outstanding
42,579
43,243
42,091
45,974
Diluted Earnings per Share from continuing
operations
$ 0.11
$ 0.68
($ 0.57)
(83.8)
%
$ 1.77
$ 2.26
($ 0.49)
(21.7)
%
Per Share impact of adjustments to Net
income from continuing operations
0.09
0.12
—
0.57
Adjusted Diluted Earnings per Share
$ 0.20
$ 0.80
($ 0.60)
(75.0)
%
$ 1.77
$ 2.83
($ 1.06)
(37.5)
%
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 December
31,
Year Ended December 31,
(in thousands, except per share data,
unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Net income from continuing operations
$ 4,474
$ 29,571
($ 25,097)
(84.9)
%
$ 74,448
$ 103,898
($ 29,450)
(28.3)
%
Provision for income taxes
3,712
9,819
(6,107)
(62.2)
%
5,895
38,557
(32,662)
(84.7)
%
Interest expense
18,691
17,686
1,005
5.7
%
72,709
69,763
2,946
4.2
%
Depreciation and amortization
4,186
4,450
(264)
(5.9)
%
17,498
18,630
(1,132)
(6.1)
%
EBITDA
31,063
61,526
(30,463)
(49.5)
%
170,550
230,848
(60,298)
(26.1)
%
Legal and other costs (1)
2,160
2,173
5,662
4,795
U.K. related costs (2)
—
—
—
8,844
(Income) loss from equity method
investment (3)
(1,893)
1,163
(4,546)
6,295
Share-based compensation (4)
3,014
2,736
12,910
10,323
Canada GST adjustment (5)
—
—
2,160
—
Other adjustments (9)
(12)
(64)
627
27
Adjusted EBITDA
$ 34,332
$ 67,534
($ 33,202)
(49.2)
%
$ 187,363
$ 261,132
($ 73,769)
(28.2)
%
Adjusted EBITDA Margin
17.0
%
22.3
%
22.1
%
22.9
%
(1)
Legal and other costs for the year ended
December 31, 2020 included (i) costs for certain litigation and
related matters of $2.4 million, (ii) legal and advisory costs
related to the Katapult and Flexiti transactions of $2.7 million,
and (iii) severance costs for certain corporate employees of $0.5
million. Legal and other costs for the year ended December 31, 2019
included (i) costs related to certain securities litigation and
related matters of $2.5 million, (ii) legal and advisory costs of
$0.3 million related to the repurchase of shares from FFL, (iii)
$1.8 million due to eliminating 121 positions in North America in
the first quarter, and (iv) $0.3 million of legal and advisory
costs related to the purchase of Ad Astra.
(2)
U.K. related costs of $8.8 million for the
year ended December 31, 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 year ended December 31, 2020 of $4.5 million includes our
share of the estimated U.S. GAAP net income of Katapult.
The loss from equity method investment for
the year ended December 31, 2019 of $6.3 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 year ended December 31, 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 year ended December
31, 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
year ended December 31, 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. Fourth quarter 2020
cumulative tax effect is impacted by certain non-deductible
transaction costs included within Legal and other costs,
share-based compensation vesting below share value at grant date,
and IRS compensation deductibility limits.
(9)
Other adjustments primarily include the
intercompany foreign-currency exchange impact.
For the Three Months Ended December 31, 2020 and 2019
Revenue and Net Revenue
Revenue decreased 33.2% to $202.1 million for the three months
ended December 31, 2020, from $302.3 million for the three months
ended December 31, 2019, as a result of the declines in combined
gross loan receivables discussed previously. Year over year, U.S.
and Canada revenues decreased 39.0% and 10.5% (11.7% on a
constant-currency basis), respectively. As previously mentioned,
COVID-19 impacts on year over year results for Canada were less
pronounced compared to the U.S. due to the faster reopening of
Canadian markets and the continued growth of our Open-End loans in
Canada.
Provision for losses decreased by $60.5 million, or 46.4%, for
the three months ended December 31, 2020 compared to the prior-year
period. The decrease in provision for loan losses was due to lower
loan balances in 2020, resulting from COVID-19 Impacts, 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 $8.8
million, or 14.6%, to $51.5 million in the three months ended
December 31, 2020, compared to $60.3 million in the three months
ended December 31, 2019. Of the $8.8 million decrease, $3.6 million
related to third-party collection costs incurred in 2019 related to
Ad Astra, which previously 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 lower
underwriting and other variable costs as a result of lower demand
and lower collection costs as a result of stimulus-related
pay-downs.
Advertising costs decreased $4.3 million, or 25.9%, year over
year because of COVID-19 Impacts.
Corporate, District and Other Expenses
Corporate, district and other expenses were $43.6 million for
the three months ended December 31, 2020, an increase of $6.5
million, or 17.7%, compared to the three months ended December 31,
2019. Corporate, district and other expenses in the three months
ended December 31, 2020 included $1.9 million of collection costs
related to Ad Astra. Comparable costs were included in
Non-advertising costs of providing services prior to the
acquisition of Ad Astra. Excluding Ad Astra costs, Corporate,
district and other expenses increased $4.6 million year over year,
primarily due to the timing and extent of variable compensation and
higher professional fees year over year, partially offset by travel
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 Months and Year
Ended December 31, 2020 and 2019" below for details.
Interest Expense
Interest expense for the three months ended December 31, 2020
increased $1.0 million, or 5.7%, on slightly higher year-over-year
borrowings.
Provision for Income Taxes
The effective income tax rate for the three months ended
December 31, 2020 was 45.3%. The effective income tax rate was
higher than the federal and state/provincial statutory rates of
approximately 26%, primarily as the result of several non-taxable
events, which skewed the effective tax rate due to the lower level
of pre-tax income during the quarter.
Refer to the Reconciliation of Net Income from continuing
operations to Adjusted Net Income for additional information. The
effective income tax rate of adjusted tax expense included in the
Adjusted Net Income for the three months ended December 31, 2020
was 29.7%.
For the Year Ended December 31, 2020 and 2019
Revenue and Net Revenue
Revenue decreased $294.4 million, or 25.8%, to $847.4 million
for the year ended December 31, 2020 from $1,141.8 million for the
year ended December 31, 2019 as a result of the declines in
combined gross loans receivable discussed above. Year over year,
U.S. decreased 30.1%, primarily from COVID-19 Impacts, and Canada
decreased 8.5% (7.7% on a constant-currency basis). As previously
mentioned, COVID-19 impacts on year-over-year results for Canada
were less pronounced compared to the U.S. due to the faster
reopening of Canadian markets and the continued growth of our
Open-End loans in Canada.
Provision for losses decreased by $179.7 million, or 38.4%, for
the year ended December 31, 2020 compared to the prior year. 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 $35.6
million, or 14.7%, to $205.7 million in the year ended December 31,
2020, compared to $241.2 million in the year ended December 31,
2019. Of the $35.6 million decrease, $15.5 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 of Ad Astra. Following the January 3, 2020
acquisition, we included Ad Astra operating costs within
"Corporate, district and other expenses," consistent with the
presentation of our other internal collection costs. The remaining
decrease 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 $8.8 million, or 16.6%, year over
year because of COVID-19 Impacts.
Corporate, District and Other Expenses
Corporate, district and other expenses were $159.9 million for
the year ended December 31, 2020, a decrease of $0.3 million, or
0.2%, compared to the year ended December 31, 2019. Corporate,
district and other expenses in the year ended December 31, 2020
included $9.6 million of collection costs related to Ad Astra,
which prior to our acquisition of it, were included in
Non-advertising costs of providing services. For the year ended
December 31, 2020, corporate, district and other expenses also
included (i) $12.9 million of share-based compensation costs, (ii)
$2.2 million of Canadian GST described in our reconciliation to
Adjusted Net Income above and (iii) $5.7 million of legal and other
costs described in our reconciliation to Adjusted Net Income above.
For the year ended December 31, 2019, corporate district and other
costs included (i) U.K.-related costs of $8.8 million, (ii) $10.3
million of share-based compensation and (iii) $4.8 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 $6.6 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 Months and Year
Ended December 31, 2020 and 2019" below for details.
Interest Expense
Interest expense for the year ended December 31, 2020 increased
$2.9 million, or 4.2%, on slightly higher year-over-year
borrowings.
Provision for Income Taxes
The effective income tax rate for the year ended December 31,
2020 was 7.3%. The effective income tax rate was lower compared to
the federal and state/provincial statutory rates of approximately
26%, primarily as the result of discrete, one-time tax benefits
related to usage of NOLs and other valuation allowance releases and
the aforementioned fourth quarter non-taxable events.
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 U.S. federal 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 $1.1 million against the cumulative losses
from our investment in Katapult, as we continued to record equity
method income from this investment during the year.
The tax benefits described above were partially offset by an
increase in the reserve for uncertain tax positions in the U.S. of
$1.1 million and the impact of the fourth quarter non-taxable
events. Refer to the Reconciliation of Net Income from continuing
operations to Adjusted Net Income for additional information.
The effective income tax rate of adjusted tax expense included
in Adjusted Net Income for the year ended December 31, 2020 was
25.3%.
Katapult Update for the Three Months and Year Ended December 31,
2020 and 2019
A portion of our investment in Katapult is accounted for using
the equity method of accounting. We recognize our share of its
income or loss on a two-month lag with a corresponding adjustment
to the carrying value of the investment included in "Investments"
on the unaudited Consolidated Balance Sheet. As of December 31,
2020, our recognized share of Katapult's earnings through October
31, 2020 was $1.9 million for the fourth quarter and $4.5 million
for the full year, as compared with losses of $1.2 million and $6.3
million for the three months and year ended December 31, 2019,
respectively.
During the third quarter of 2020, we acquired additional equity
interests in Katapult from certain existing owners for $11.2
million. 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. During the fourth quarter of
2020, we purchased an additional equity interest in Katapult for
$1.6 million.
In December 2020, we announced that Katapult and FinServ entered
into a definitive merger agreement that, when completed, we expect
will provide consideration to us in a combination of cash and
stock. Based on market prices as of the date of this release, we
expect to receive consideration with a total value between $520
million and $540 million, an increase from $365 million at the time
the transaction was agreed to in December 2020. To date, our total
cash investment in Katapult is $27.5 million. Upon closing of the
transaction, we anticipate receiving cash of up to $130 million
while maintaining at least a 21% ownership, on a fully-diluted
basis, in the newly formed public company. The transaction is
expected to close during the first half of 2021 and remains subject
to approval by FinServ's stockholders and other customary closing
conditions. The transaction will result in both a cash tax
liability and deferred tax liability, with the cash tax liability
dependent upon cash received at closing. Assuming cash proceeds to
us of $130 million, our estimated cash tax liability is
approximately $35 million.
The table below presents select financial information for
Katapult for the periods presented:
For the Nine Months Ended
September 30, (1)
(in thousands)
2020
2019
Revenue
$ 173,842
$ 59,479
Cost of revenue
116,534
46,576
Gross profit
57,308
12,903
Operating expenses
28,195
22,611
Interest and loss on extinguishment of
debt
10,091
6,594
Income before income taxes
19,022
(16,302)
Net income
$ 18,599
($ 16,302)
Originations
$ 142,462
$ 54,094
Cash and restricted cash
$ 39,239
Gross property held for lease
$ 179,302
(1) Source: Katapult's Registration
Statement on Form S-4, pages F-62, F-63, F-69 and 101, filed with
the SEC on January 29, 2021.
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 December
31,
Year Ended December 31,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$ 146,588
$ 240,272
($ 93,684)
(39.0)
%
$ 638,524
$ 913,506
($ 274,982)
(30.1)
%
Provision for losses
59,108
111,576
(52,468)
(47.0)
%
230,164
392,105
(161,941)
(41.3)
%
Net revenue
87,480
128,696
(41,216)
(32.0)
%
408,360
521,401
(113,041)
(21.7)
%
Advertising
11,083
15,016
(3,933)
(26.2)
%
40,702
46,735
(6,033)
(12.9)
%
Non-advertising costs of providing
services
33,990
42,848
(8,858)
(20.7)
%
137,467
171,714
(34,247)
(19.9)
%
Total cost of providing services
45,073
57,864
(12,791)
(22.1)
%
178,169
218,449
(40,280)
(18.4)
%
Gross margin
42,407
70,832
(28,425)
(40.1)
%
230,191
302,952
(72,761)
(24.0)
%
Corporate, district and other expenses
38,368
31,754
6,614
20.8
%
137,152
138,180
(1,028)
(0.7)
%
Interest expense
16,347
15,079
1,268
8.4
%
63,413
59,325
4,088
6.9
%
(Income) loss from equity method
investment
(1,893)
1,163
(3,056)
#
(4,546)
6,295
(10,841)
#
Total operating expense
52,822
47,996
4,826
10.1
%
196,019
203,800
(7,781)
(3.8)
%
Segment operating (loss) income
(10,415)
22,836
(33,251)
#
34,172
99,152
(64,980)
(65.5)
%
Interest expense
16,347
15,079
1,268
8.4
%
63,413
59,325
4,088
6.9
%
Depreciation and amortization
3,078
3,263
(185)
(5.7)
%
12,992
13,816
(824)
(6.0)
%
EBITDA
9,010
41,178
(32,168)
(78.1)
%
110,577
172,293
(61,716)
(35.8)
%
Legal and other costs
2,160
2,173
(13)
5,662
4,660
1,002
U.K. related costs
—
—
—
—
8,844
(8,844)
(Income) loss from equity method
investment
(1,893)
1,163
(3,056)
(4,546)
6,295
(10,841)
Share-based compensation
3,014
2,736
278
12,910
10,323
2,587
Other adjustments
(117)
22
(139)
(58)
(184)
126
Adjusted EBITDA
$ 12,174
$ 47,272
($ 35,098)
(74.2)
%
$ 124,545
$ 202,231
($ 77,686)
(38.4)
%
# - Variance greater than 100% or not
meaningful.
U.S. Segment Results - For the Three Months Ended December
31, 2020 and 2019
U.S. revenues decreased by $93.7 million, or 39.0%, to $146.6
million, compared to the prior-year period for the three months
ended December 31, 2020, as a result of the declines in combined
gross loans receivable described above. Excluding the impact of
California Installment loan runoff stemming from regulatory changes
that were effective January 1, 2020, U.S. revenues decreased $73.0
million, or 35.0%. Sequentially, U.S. revenues increased $13.7
million, or 10.3%. Excluding California portfolios impacted by
regulatory changes, U.S. revenues increased $16.6 million, or
13.9%, sequentially.
The provision for losses decreased $52.5 million, or 47.0%,
primarily as a result of lower loan volume and lower NCOs, as
previously described. U.S. NCOs decreased by $57.7 million, or
51.8%, year over year and the U.S. NCO rate improved by 420 bps to
21.0% for the three months ended December 31, 2020 from 25.2% in
the prior-year period.
Non-advertising costs of providing services for the three months
ended December 31, 2020 were $34.0 million, a decrease of $8.9
million, or 20.7%, compared to $42.8 million for the three months
ended December 31, 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 and (ii) lower
collection costs resulting from government stimulus-related
pay-downs.
Advertising costs decreased $3.9 million, or 26.2%, year over
year because of COVID-19 Impacts.
Corporate, district and other expenses were $38.4 million for
the three months ended December 31, 2020, an increase of $6.6
million, or 20.8%, compared to the prior-year period. Corporate,
district and other expenses for the three months ended December 31,
2020 included $1.9 million of collection costs related to Ad Astra,
which were historically included in Non-advertising costs of
providing services. Excluding Ad Astra costs, Corporate, district
and other expenses increased $4.4 million year over year, primarily
due to the timing and extent of variable compensation and higher
professional fees compared to the prior-year period, partially
offset by certain cost reductions, including work-from-home
initiatives, to manage COVID-19 Impacts.
U.S. interest expense for the three months ended December 31,
2020 increased $1.3 million, or 8.4%, primarily related to the new
Non-Recourse U.S. SPV Facility, which we closed in April 2020.
As described above, we recognize our share of Katapult’s income
on a two-month lag and recorded income of $1.9 million for the
three months ended December 31, 2020.
U.S. Segment Results - For the Year Ended December 31, 2020
and 2019
U.S. revenues decreased by $275.0 million, or 30.1%, to $638.5
million for the year ended December 31, 2020 compared to the prior
year, as a result of decreases in combined gross loans receivable.
Excluding the aforementioned impact of California Installment loan
runoff, U.S. revenues decreased by $203.0 million, or 26.2%.
The provision for losses decreased $161.9 million, or 41.3%, for
the year ended December 31, 2020, compared to the prior year,
primarily as a result of lower loan volume and lower NCOs.
Year-over-year U.S. NCOs decreased $140.1 million, or 35.2%.
Non-advertising costs of providing services for the year ended
December 31, 2020 were $137.5 million, a decrease of $34.2 million,
or 19.9%, compared to $171.7 million for the year ended December
31, 2019. The decrease was primarily driven by Ad Astra costs of
$15.5 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 resulting
from stimulus-related pay-downs and (iii) lower discretionary
variable compensation.
Advertising costs decreased $6.0 million, or 12.9%, year over
year because of COVID-19 Impacts.
Corporate, district and other expenses were $137.2 million for
the year ended December 31, 2020, a decrease of $1.0 million, or
0.7%, compared to the year ended December 31, 2019. Corporate,
district and other expenses for the year ended December 31, 2020
included $9.6 million of collection costs related to Ad Astra,
which were historically included in Non-advertising costs of
providing services. For the year ended December 31, 2020,
corporate, district and other costs included (i) $5.7 million of
legal and other costs described in our reconciliation to Adjusted
Net Income above and (ii) $12.9 million of share-based compensation
costs. For the year ended December 31, 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) $4.7 million of legal and other costs also described in our
reconciliation to Adjusted Net Income above and (iii) share-based
compensation costs of $10.3 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 $5.4 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, partially offset by higher professional fees for
the year ended December 31, 2020.
As described above, and given the two-month lag, we recorded
equity income from our investment in Katapult of $4.5 million for
the year ended December 31, 2020.
U.S. interest expense for the year ended December 31, 2020
increased $4.1 million, or 6.9%, as a result of higher borrowings
year-over-year, including the new Non-Recourse U.S. SPV Facility,
which we closed in April 2020.
Canada Segment Results
Three Months Ended December
31,
Year Ended December 31,
(dollars in thousands, unaudited)
2020
2019
Change $
Change %
2020
2019
Change $
Change %
Revenue
$ 55,490
$ 62,022
($ 6,532)
(10.5)
%
$ 208,872
$ 228,291
($ 19,419)
(8.5)
%
Provision for losses
10,724
18,713
(7,989)
(42.7)
%
58,647
76,446
(17,799)
(23.3)
%
Net revenue
44,766
43,309
1,457
3.4
%
150,225
151,845
(1,620)
(1.1)
%
Advertising
1,075
1,392
(317)
(22.8)
%
3,850
6,663
(2,813)
(42.2)
%
Non-advertising costs of providing
services
17,507
17,450
57
0.3
%
68,207
69,518
(1,311)
(1.9)
%
Total cost of providing services
18,582
18,842
(260)
(1.4)
%
72,057
76,181
(4,124)
(5.4)
%
Gross margin
26,184
24,467
1,717
7.0
%
78,168
75,664
2,504
3.3
%
Corporate, district and other expenses
5,239
5,306
(67)
(1.3)
%
22,701
21,923
778
3.5
%
Interest expense
2,344
2,607
(263)
(10.1)
%
9,296
10,438
(1,142)
(10.9)
%
Total operating expense
7,583
7,913
(330)
(4.2)
%
31,997
32,361
(364)
(1.1)
%
Segment operating income
18,601
16,554
2,047
12.4
%
46,171
43,303
2,868
6.6
%
Interest expense
2,344
2,607
(263)
(10.1)
%
9,296
10,438
(1,142)
(10.9)
%
Depreciation and amortization
1,108
1,187
(79)
(6.7)
%
4,506
4,814
(308)
(6.4)
%
EBITDA
22,053
20,348
1,705
8.4
%
59,973
58,555
1,418
2.4
%
Legal and other costs
—
—
—
—
135
(135)
Canada GST adjustment
—
—
—
2,160
—
2,160
Other adjustments
105
(86)
191
685
211
474
Adjusted EBITDA
$ 22,158
$ 20,262
$ 1,896
9.4
%
$ 62,818
$ 58,901
$ 3,917
6.7
%
Canada Segment Results - For the Three Months Ended December
31, 2020 and 2019
Canada gross loans receivable increased $27.9 million, or 9.2%
($20.3 million, or 6.7%, on a constant-currency basis) from the
prior year. However, Canada revenue decreased $6.5 million, or
10.5% ($7.3 million, or 11.7%, on a constant-currency basis), to
$55.5 million for the three months ended December 31, 2020, from
$62.0 million in the prior-year period, as a result of the declines
in Single-Pay gross loans receivable previously described,
partially offset by increases in Open-End gross loans receivable.
Sequentially, Canada revenue increased $6.3 million, or 12.9%,
driven by increases in Open-End, Single-Pay and ancillary
revenue.
Canada non-Single-Pay revenue increased $3.1 million, or 7.2%
($2.5 million, or 5.9%, on a constant-currency basis), to $45.4
million, compared to $42.4 million in the prior-year period, on
growth of $45.6 million, or 17.1% ($38.5 million, or 14.4%, on a
constant-currency basis), in related loan balances. Ancillary
revenue, which includes sales of insurance to Open-End loan
customers, decreased $0.3 million, or 2.2% ($0.4 million, or 3.4%
on a constant-currency basis). The decrease was driven by
additional insurance claims from consumers impacted by COVID-19
during the fourth quarter of 2020.
Single-Pay revenue decreased $9.6 million, or 48.9% ($9.7
million, or 49.5%, on a constant-currency basis), to $10.1 million
for the three months ended December 31, 2020, and Single-Pay
receivables decreased $17.7 million, or 49.6% ($18.2 million, or
50.7% on a constant-currency basis), to $18.1 million, from $35.8
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. Sequentially, Single-Pay revenue
increased $1.0 million, or 11.3%, on $1.4 million, or 8.3%, growth
in related receivables, driven by normal seasonality.
The provision for losses decreased $8.0 million, or 42.7% ($8.1
million, or 43.2%, on a constant-currency basis), to $10.7 million
for the three months ended December 31, 2020, compared to $18.7
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 previously described. On a
quarterly basis, loss rates improved approximately 326 bps, or
48.0%, year over year due to favorable loan performance as a result
of COVID-19 Impacts and overall portfolio maturation.
Canada cost of providing services for the three months ended
December 31, 2020 was $18.6 million, a decrease of $0.3 million, or
1.4% ($0.5 million, or 2.6%, on a constant-currency basis),
compared to $18.8 million for the three months ended December 31,
2019, primarily related to certain cost reductions to manage
COVID-19 Impacts and closely targeted advertising efforts while
managing growth during the fourth quarter of 2020.
Canada operating expenses for the three months ended December
31, 2020 were $7.6 million, a decrease of $0.3 million, or 4.2%
($0.4 million, or 5.5%, on a constant-currency basis), compared to
$7.9 million in the prior-year period, primarily as a result of
lower interest expense from lower year-over-year borrowings on our
Non-Recourse Canada SPV Facility.
Canada Segment Results - For the Year Ended December 31, 2020
and 2019
Canada revenue decreased $19.4 million, or 8.5% ($17.5 million,
or 7.7%, on a constant-currency basis), to $208.9 million for the
year ended December 31, 2020, from $228.3 million in the prior
year. Sequentially, revenue increased $6.3 million, or 12.9%, on
growth of $38.1 million, or 13.0%, in related loan balances.
Canada non-Single-Pay revenue increased $14.6 million, or 9.7%
($16.1 million, or 10.8%, on a constant-currency basis), to $164.4
million, compared to $149.8 million in the prior year, on growth of
$45.6 million, or 17.1% ($38.5 million, or 14.4%, 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 year ended December 31, 2020.
Single-Pay revenue decreased $34.0 million, or 43.3% ($33.6
million, or 42.8%, on a constant-currency basis), to $44.5 million
for the year ended December 31, 2020, and Single-Pay receivables
decreased $17.7 million, or 49.6% ($18.2 million, or 50.7% on a
constant-currency basis), to $18.1 million from $35.8 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 $17.8 million, or 23.3%
($17.0 million, or 22.3%, on a constant-currency basis), to $58.6
million for the year ended December 31, 2020, compared to $76.4
million in the prior year. 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 $26.2 million, or
32.5%.
Canada cost of providing services for the year ended December
31, 2020 was $72.1 million, a decrease of $4.1 million, or 5.4%
($3.4 million, or 4.5%, on a constant-currency basis), compared to
$76.2 million for the year ended December 31, 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 year ended December 31, 2020
were $32.0 million, a decrease of $0.4 million, or 1.1%, as a
result of certain cost reductions to manage COVID-19 Impacts,
partially offset by costs related to year-over-year growth in
Canada.
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 December
31,
Year Ended December 31,
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 (benefit) expense related to
disposition
—
(647)
429
(46,638)
Net income from discontinued
operations
$ —
$ 647
$ 1,285
$ 7,590
(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 year ended December 31, 2019,
(Gain) Loss on disposition of $39.4 million included the non-cash
effect of eliminating assets and liabilities of the U.K.
Subsidiaries as of the date of deconsolidation, as well as the
effect of cumulative currency exchange rate differences on the U.S.
investment in the U.K.
In connection with the disposition of the U.K. Subsidiaries, the
U.S. entity that owned our interests in the U.K. Subsidiaries
recognized a loss on investment. This loss resulted in an estimated
U.S. Federal and state income tax benefit of $46.6 million, which
will be available to offset our future income tax obligations. In
the fourth quarter of 2019, we revised the estimate of our tax
basis in the U.K. Subsidiaries, resulting in a $0.6 million
addition in the income tax benefit recorded in the first quarter of
2019.
During the year ended December 31, 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)
December 31, 2020 (unaudited)
December 31, 2019
ASSETS
Cash and cash equivalents
$ 213,343
$ 75,242
Restricted cash (includes restricted cash
of consolidated VIEs of $31,994 and $17,427 as of December 31, 2020
and December 31, 2019, respectively)
54,765
34,779
Gross loans receivable (includes loans of
consolidated VIEs of $360,431 and $244,492 as of December 31, 2020
and December 31, 2019, respectively)
553,722
665,828
Less: Allowance for loan losses (includes
allowance for losses of consolidated VIEs of $54,129 and $24,425 as
of December 31, 2020 and December 31, 2019, respectively)
(86,162)
(106,835)
Loans receivable, net
467,560
558,993
Income taxes receivable
32,062
11,426
Prepaid expenses and other (includes
prepaid expenses and other of consolidated VIEs of $388 as of
December 31, 2020)
27,994
35,890
Property and equipment, net
59,749
70,811
Investments
27,370
10,068
Right of use asset - operating leases
115,032
117,453
Deferred tax assets
—
5,055
Goodwill
136,091
120,609
Other intangibles, net
40,425
33,927
Other assets
8,595
7,642
Total Assets
$ 1,182,986
$ 1,081,895
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Accounts payable and accrued liabilities
(includes accounts payable and accrued liabilities of consolidated
VIEs of $34,055 and $13,462 as of December 31, 2020 and December
31, 2019, respectively)
$ 49,624
$ 60,083
Deferred revenue
5,394
10,170
Lease liability - operating leases
122,648
124,999
Accrued interest (includes accrued
interest of consolidated VIEs of $1,147 and $871 as of December 31,
2020 and December 31, 2019, respectively)
20,123
19,847
Liability for losses on CSO lender-owned
consumer loans
7,228
10,623
Debt (includes debt and issuance costs of
consolidated VIEs of $147,427 and $7,766 as of December 31, 2020
and $115,243 and $3,022 as of December 31, 2019, respectively)
819,661
790,544
Other long-term liabilities
15,382
10,664
Deferred tax liabilities
11,021
4,452
Total Liabilities
$ 1,051,081
$ 1,031,382
Stockholders' Equity
Total Stockholders' Equity
$ 131,905
$ 50,513
Total Liabilities and Stockholders'
Equity
$ 1,182,986
$ 1,081,895
Balance Sheet Changes - December 31, 2020 Compared to
December 31, 2019
Cash and cash equivalents - 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 growth
in our Canada receivables in which certain eligible receivables are
pledged as collateral under the Non-Recourse Canada SPV Facility,
growth in Revolve and Opt+ products, and our new Non-Recourse U.S.
SPV Facility, which we closed in April 2020.
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. 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
Consolidated Balance Sheets. The increase in Investments from
December 31, 2019 is the result of the acquisition of additional
interests from other investors for $12.8 million during the third
and fourth quarters of 2020, and the recognition of equity method
income of $4.5 million as previously described.
Goodwill - The increase in Goodwill
from December 31, 2019 was due to our acquisition of Ad Astra on
January 3, 2020, which resulted in $14.8 million of goodwill, as
well as foreign currency rate changes.
Liability for losses on CSO lender-owned
consumer loans - As noted in "Loan Volume and Portfolio
Performance Analysis" above, changes in Liability for losses on CSO
lender-owned consumer loans were due to expected lower customer
demand and loan origination volumes as a result of COVID-19.
Debt - The increase in Debt from
December 31, 2019 was due to $43.6 million of net draws on our new
Non-Recourse U.S. SPV Facility, net of deferred financing costs,
partially offset by a net reduction in the Non-Recourse Canada SPV
Facility.
Debt Capitalization Summary (December 31, 2020 balances
in thousands, net of deferred financing costs)
Capacity
Interest Rate
Maturity
Counter-parties
Balance as of December 31,
2020
Non-Recourse Canada SPV Facility (1)
C$175.0 million
3-Mo CDOR + 6.75%
September 2, 2023
Waterfall Asset Management
$ 96,075
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
43,586
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
680,000
(1) Capacity amounts are denominated in
Canadian dollars, while outstanding balances as of December 31,
2020 are denominated in U.S. dollars.
(2) The Non-Recourse U.S. SPV Facility
initially provided for $100.0 million of borrowing capacity, which
increased to $200.0 million on July 31, 2020 following additional
commitments. 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 the lesser of (i) 6.95% and (ii) the sum of (a) 6.25%
on balances up to $145.5 million and (b) 9.75% on balances greater
than $145.5 million.
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
other 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 projections, estimates and
assumptions about the impact of the Katapult merger on us,
including the potential value we expect to receive, the mix of cash
and stock, potential earn out, and resulting ownership position;
the expected timing of the Katapult merger; the expected financial
and operational benefits of our acquisition of Flexiti Financial;
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,
judgments and other factors, both within and outside of our
control, that could cause actual results to differ materially from
those in the forward-looking statements, including: the inability
of the parties to the Katapult transaction to successfully or
timely consummate the proposed business combination, including the
risk that any required regulatory approvals are not obtained, are
delayed or are subject to unanticipated conditions that could
adversely affect the combined company or the expected benefits of
the proposed transaction or that the approval of FinServ
stockholders is not obtained; failure to realize the anticipated
benefits of the proposed Katapult transaction; risks relating to
the uncertainty of projected financial information with respect to
Katapult; the effects of competition on Katapult’s future business;
Katapult’s ability to attract and retain customers; market,
financial, political and legal conditions; the impact of COVID-19
pandemic on Katapult’s and our business and the global economy;
risks related to the concentration of Katapult’s business among a
relatively small number of merchants; the ability of FinServ or the
combined company to issue equity or equity-linked securities or
obtain debt financing in connection with the proposed business
combination or in the future; 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 that 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. These projections, estimates and assumptions 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 may be additional risks that CURO presently does not know or
that it currently believes are immaterial that could also cause
actual results to differ from those contained in the
forward-looking statements. 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, February 5, 2021. 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
February 12, 2021, at 8:15 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 10151924.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final audited data will be
included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020.
(CURO-NWS)
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version on businesswire.com: https://www.businesswire.com/news/home/20210204006081/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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