UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Securities registered pursuant to Section 12(b) of the Act:

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

Basis of Presentation

The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated. The term "CFTC" refers to CURO Financial Technologies Corp., a wholly-owned subsidiary, and its directly and indirectly owned subsidiaries as a consolidated entity, except where otherwise stated.

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements ("Condensed Consolidated Financial Statements") in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the "SEC") on March 18, 2019 ("2018 Form 10-K"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, in September 2018, and subsequently expanded in June 2019, the SEC changed the definition of a smaller reporting company ("SRC"). The change in definition of an SRC would allow more registrants to qualify to report under scaled disclosure requirements. Under these rules, CURO meets the definition of an SRC as of June 30, 2019.

The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect all adjustments, which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented. On February 25, 2019, the Company's United Kingdom ("U.K. segment was") operations were placed into administration, which resulted in treatment of the segment as discontinued operations for all periods presented. Throughout this Quarterly Report on Form 10-Q ("Form 10-Q"), current and prior period financial information is presented as if the U.K. segment was excluded from continuing operations. For further information about the placement of the segment into administration, refer to "--Nature of Operations" below.

The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the 2018 Form 10-K. Interim results of operations are not necessarily indicative of results that may be expected for future interim periods or for the year ending December 31, 2019.

Principles of Consolidation

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

Use of Estimates

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

Nature of Operations

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

U.K. Segment Placed into Administration

On February 25, 2019, the Company announced that a proposed Scheme of Arrangement ("SOA"), as described in the Company's Current Report on Form 8-K filed January 31, 2019, would not be implemented. In accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the boards of directors of the Company’s U.K. subsidiaries, Curo Transatlantic Limited and SRC Transatlantic Limited (collectively, “the U.K. Subsidiaries”), insolvency practitioners from KPMG were appointed as administrators (“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 under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries as of February 25, 2019 and presented the U.K. Subsidiaries as Discontinued Operations for all periods presented in this Form 10-Q.

Effective January 1, 2019, the Company modified the timeframe for which it charges-off Open-End loans and made related refinements to its loss provisioning methodology. Prior to January 1, 2019, the Company deemed Open-End loans uncollectible and charged-off when a customer missed a scheduled payment at which pointand the loan was considered past-due.past due. Because of the continuing shift to Open-End loans in Canada and analysis of payment patterns on early-stage versus late-stage delinquencies, the Company revised its estimates and now considerconsiders Open-End loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-duepast 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 when received.losses. The Company evaluates the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest.

The aforementioned change was treated as a change in accounting estimate for accounting purposes and applied prospectively effective January 1, 2019.

The change affects comparability to prior periods as follows:

Correction of an Immaterial ErrorErrors in Previously-Issued Financial Statements

During the year ended December 31, 2018, the Company corrected immaterial errors to its prior presentation of cash flows for loan originations and collections on principal. The Company determined that the historical presentation was in error by not conforming to US GAAP because it included outflows for loan originations and receipts on collections in Cash provided by operating activities rather than in Cash used in investing activities. Accordingly the Company corrected previously-filedpreviously filed financial statements by reclassifying cash outflows for loan originations and receipts on collections of principal of $56.4$48.2 million from net Cash provided by operating activities to net Cash used in investing activities for the threesix months ended March 31,June 30, 2018. Total cash flows for each period presented did not change. The Company concluded that the errors were immaterial to the unaudited Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three and six months ended March 31,June 30, 2018. The Company has revised its Condensed Consolidated Financial Statements for the threesix months ended March 31,June 30, 2018 presented in this Form 10-Q. A summary of the correction follows:

Recently Adopted Accounting Pronouncements

 

In August 2018, the Company closed on the Non-Recourse Canada SPV facility, whereby certain loan receivables were sold to wholly-owned, bankruptcy-remote special purposespurpose subsidiaries ("VIEs") to collateralize debt incurred under the facility.

As the Company is the primary beneficiary of the VIEs, the Companyit includes the assets and liabilities related to the VIEs in its Condensed Consolidated Financial Statements. As required, the Company parenthetically discloses on the Consolidated Balance Sheets the

VIEs’ assets that can only be used to settle the VIEs' obligations and liabilities if the VIEs’ creditors have no recourse against the Company's general credit.

The carrying amounts of consolidated VIEs' assets and liabilities associated with the VIE subsidiaries were as follows:

The following tables summarize Loans receivable by product and the related delinquent loans receivable at March 31,June 30, 2019:

The following tables summarize loans guaranteed by the Company under CSO programs and the related delinquent receivables at March 31,June 30, 2019:

The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the three months ended March 31,June 30, 2019:

The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, in total, during the three months ended March 31,June 30, 2019:

The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the three months ended March 31,June 30, 2018:

The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, in total, during the three months ended March 31,June 30, 2018:

NOTE 4 – CREDIT SERVICES ORGANIZATION

The CSO fee receivable amounts under CSO programs were $11.0$12.0 million and $14.3 million at March 31,June 30, 2019 and December 31, 2018, respectively. The Company bears the risk of loss through its guarantee to purchase specific customer loans that are in default fromwith the lenders. The terms of these loans range from six to 18 months. See the 2018 Form 10-K for further details of the Company's accounting policy. As of March 31,June 30, 2019 and December 31, 2018, the maximum amount payable under all such guarantees was $51.6$56.0 million and $66.9 million, respectively. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover some or the entire amount from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated with the guaranty provided

The Company placed $13.5$5.8 million and $17.2 million in collateral accounts for the benefit of lenders at March 31,June 30, 2019 and December 31, 2018, respectively, which is reflected in "Prepaid expenses and other" in the Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each such lender.

NOTE 5 – LONG-TERM DEBT

8.25% Senior Secured Notes

In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes which mature on September 1, 2025 ("8.25% Senior Secured Notes"). Interest on the notes is payable semiannually, in arrears, on March 1 and September 1. In connection with the 8.25% Senior Secured Notes, the balance of capitalized financing costs of approximately $12.8 million, net of amortization, is included in the Condensed Consolidated Balance Sheets as a component of "Long-term debt." These costs are amortized over the term of the 8.25% Senior Secured Notes as a component of interest expense.

The proceeds of this issuance were used (i) to redeem the outstanding 12.00% Senior Secured Notes of CFTC, (ii) to repay a portion of the outstanding indebtedness under the five-year revolving credit facility of CURO Receivables Finance I, LLC, a wholly-owned subsidiary ("CURO Receivables"), which consisted of a term loan and revolving borrowing capacity, (iii) for general corporate purposes and (iv) to pay fees, expenses, premiums and accrued interest in connection therewith.

As of March 31,June 30, 2019 and December 31, 2018, the Company was in full compliance with the covenants and other provisions of the 8.25% Senior Secured Notes.

12.00% Senior Secured Notes

In February and November 2017, CFTC issued $470.0 million and $135.0 million, respectively, of 12.00% Senior Secured Notes due March 1, 2022. In connection with these 12.00% Senior Secured Notes, the Company capitalized financing costs of approximately $18.3 million. These costs were being amortized over the term of the 12.00% Senior Secured Notes as a component of interest expense.

On March 7, 2018, CFTC redeemed $77.5 million of its 12.00% Senior Secured Notes using a portion of the proceeds from the Company's initial public offering, as required by the underlying indenture (the transaction whereby the 12.00% Senior Secured Notes were partially redeemed, the “Redemption”), at a price equal to 112.00% of the principal amount of the 12.00% Senior Secured Notes redeemed, plus accrued and unpaid interest paid thereon, to the date of Redemption. The Redemption price and the amortization of a corresponding portion of the capitalized financing costs resulted in a loss on Redemption of $11.7 million for the three months ended March 31, 2018. Following the Redemption, $527.5 million of the original outstanding principal amount of the 12.00% Senior Secured Notes remained outstanding. The Redemption was conducted pursuant to the Indenture governing the 12.00% Senior Secured Notes (the “Indenture”), dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent.

The remainder of the 12.00% Senior Secured Notes were extinguished effective September 7, 2018 using proceeds from the 8.25% Senior Secured Notes as described above. The early extinguishment of the 12.00% Senior Secured Notes resulted in a pretax loss of $69.2 million during the year ended December 31, 2018.

Non-Recourse Canada SPV Facility

On August 2, 2018, CURO Canada Receivables Limited Partnership, a newly created, bankruptcy-remote special purpose vehicle (the "Canada SPV Borrower") and a wholly-owned subsidiary, entered into a four-year revolving credit facility with Waterfall Asset Management, LLC that providesprovided for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million ("Non-Recourse Canada SPV Facility"). The loans bear interest at an annual rate of 6.75% plus the three-month CDOR. The Canada SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. In April 2019, the facility's maturity date was extended one year, and now matures into 2023. As of March 31,June 30, 2019, the Canada SPV Borrower was in full compliance with the covenants and other provisions of the Non-Recourse Canada SPV Facility.

As of March 31,June 30, 2019, outstanding borrowings under the Non-Recourse Canada SPV Facility were $88.9$91.0 million, net of deferred financing costs of $3.6 million. For further information on the Non-Recourse Canada SPV, refer to Note 2, "Variable Interest Entities."

Non-Recourse U.S. SPV Facility

In November 2016, CURO Receivables and a wholly-owned subsidiary entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that providesprovided for an $80.0 million term loan and $70.0 million revolving borrowing capacity that cancould expand over time (collectively, “Non-Recourse U.S. SPV Facility”). Borrowings under this facility bearbore interest at an annual rate of up to 12.00% plus the greater of (i) 1.0% per annum and (ii) the three-month LIBOR. The SPV Borrower also payspaid a 0.50% per annum commitment fee on the unused portion of the commitments. In connection with this facility, the balance of capitalized financing costs at the time of extinguishment, as discussed below, were approximately $5.3 million, net of amortization, wasamortization. These capitalized financing costs were included in the Condensed Consolidated Balance Sheet as a component of "Long-term debt" and was beingwere amortized over the term of the Non-Recourse U.S. SPV Facility.

On September 30, 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the revolver's balance of $42.4 million. In October 2018, the Company extinguished the remaining term loan balance of $80.0 million and made the final termination payment of $2.7 million, resulting in a loss on the extinguishment of debt of $9.7 million forduring the year ended December 31, 2018.

Senior Revolver

On September 1, 2017, the Company entered into a $25.0 million Senior Secured Revolving Loan Facility (the “Senior Revolver”). The terms of the Senior Revolver generally conform to the related provisions in the Indenture dated February 15, 2017 for the 12.00% Senior Secured Notes and complements the Company's other financing sources, while providing seasonal short-term liquidity. In February 2018, the Senior Revolver capacity was increased to $29.0 million as permitted by the Indenture to the 12.00% Senior Secured Notes, based upon consolidated tangible assets. Additionally, in November 2018, the Senior Revolver capacity was increased to $50.0 million, as permitted by the Indenture to the 8.25% Senior Secured Notes. The Senior Revolver is now syndicated with participation by four banks.

Under the Senior Revolver, there is $50.0 million maximum availability, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires June 30, 2020. The Senior Revolver accrues interest at the one-month LIBOR plus 5.00% (subject to a 5% overall rate minimum) and is repayable on demand.

The terms of the Senior Revolver require that its outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries that guarantee the 8.25% Senior Secured Notes and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 8.25% Senior Secured Notes. Additionally, the negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for the 8.25% Senior Secured Notes. The revolver was undrawn at March 31,June 30, 2019.

The Senior Revolver contains various conditions to borrowing and affirmative, negative and financial maintenance covenants. Certain of the more significant covenants are (i) minimum eligible collateral value, (ii) consolidated interest coverage ratio and (iii) consolidated leverage ratio. The Senior Revolver also contains various events of default, the occurrence of which could result in termination of the lenders’ commitments to lend and the acceleration of all obligations under the Senior Revolver. As of March 31,June 30, 2019, the Company was in full compliance with the covenants and other provisions of the Senior Revolver.

Cash Money Cheque Cashing, Inc., a Canadian subsidiary ("Cash Money"), maintains a C$10.0 million revolving credit facility with Royal Bank of Canada (the "Cash Money Revolving Credit Facility"), which provides short-term liquidity required to meet the working capital needs of the Company's Canadian operations. Aggregate draws under the revolving credit facility are limited to the lesser of: (i) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and

The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Money’s assets and contains various covenants that include,require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum)per annum at the prime rate of a Canadian chartered bank plus 1.95%.

The Cash Money Revolving Credit Facility was undrawn at March 31,June 30, 2019 and December 31, 2018.

Subordinated Stockholder Debt

As part of the acquisition of Cash Money in 2011, the Company was providedreceived indemnification for certain claims through issuance of an escrow note to the seller. This note bears interest at 10.0% per annum, and quarterly interest payments are due until the note matures in May 2019.matures. The balance of this note at March 31, 2019 and December 31, 2018 was $2.2 million.repaid in full as of June 30, 2019.

NOTE 6 – SHARE-BASED COMPENSATION

The Company's stockholder-approved 2017 Incentive Plan provides for the issuance of up to 5.0 million shares, subject to certain adjustment provisions, which may be issued in the form of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights, performance awards and other awards that may be settled in or based upon common stock. Awards may be granted to officers, employees, consultants and directors. The 2017 Incentive Plan provides that shares of common stock subject to awards granted become available for re-issuance if such awards expire, terminate, are canceled for any reason or are forfeited by the recipient.

In March 2019, the Company awarded performance-basedmarket-based RSUs that will vest if certain performance conditions are met by the Company. These RSUs were designed to drive the performance of the management team toward achievement of key corporate objectives and will onlyobjectives. The market-based RSUs vest if the performance targets are met by March 14, 2022. Expense recognition for the performance awards, which was immaterial to the first quarter of 2019, commences if and when it is determined that attainment of the performance goal is probable.

Grants of RSUs do not confer full stockholder rights such as voting rights and cash dividends, but provide for additional dividend equivalent RSU awards in lieu of cash dividends. Unvested shares of RSUs may be forfeited upon termination of employment depending on the circumstances of the termination, or failure to achieve the required performance condition, if applicable.

A summary of the status of time-based and performance-basedmarket-based RSUs as of March 31,June 30, 2019 and changes during the threesix months ended March 31,June 30, 2019 are presented in the following table: