CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
|
| | | | | | | | |
| | March 31, |
| | 2020 | | 2019 |
Cash | | $ | 138,714 |
| | $ | 82,859 |
|
Restricted cash (includes restricted cash of consolidated VIEs of $22,317 and $15,460 as of March 31, 2020 and March 31, 2019, respectively) | | 41,527 |
| | 34,319 |
|
Total cash and restricted cash used in the Statements of Cash Flows | | 180,241 |
| | 117,178 |
|
See accompanying Notes to Unauditedunaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations and Basis of Presentation
The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its 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.
CURO is a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the U.S., Canada and, through February 25, 2019, the U.K.
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements ("Condensed Consolidated Financial Statements") in accordance with accounting principles generally accepted in the United States of America (“US GAAP”),GAAP, and with the accounting policies described in its Annual Report2019 Form 10-K filed with the SEC on Form 10-KMarch 9, 2020. Interim results of operations are not necessarily indicative of the results that might be expected for future interim periods or for the year endedending December 31, 2018 filed with the Securities and Exchange Commission (the "SEC") on March 18, 2019 ("2018 Form 10-K"). 2020.
Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, in September 2018, and subsequently expanded in June 2019,the Company qualifies as an SRC as defined by the SEC, changed the definition of a smaller reporting company ("SRC"). The change in definition of an SRC would allow morewhich allows registrants to qualify to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of the last business day of the most recently completed second fiscal quarter. Under these rules, CURO meetsthe Company met the definition of an SRC as of June 30, 2019.2019, and it will reevaluate as of June 30, 2020.
The Condensed Consolidated Financial Statements and the accompanying notes reflect all adjustments (consisting only of adjustments of a normal and recurring nature) which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented.
COVID-19
A novel strain of coronavirus, COVID-19, surfaced in late 2019 and has subsequently spread worldwide, including to the U.S. and Canada. On February 25, 2019,March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. Macroeconomic conditions, in general, and the Company's United Kingdom ("U.K.") operations were placed into administration,have been significantly affected by the COVID-19 pandemic and there are no reliable estimates of how long the pandemic will last or the scope or magnitude of its near-term or long-term impact. In response, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. However, CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, the Company remains focused on protecting the health and wellbeing of its employees, customers and the communities in which resultedit operates while assuring the continuity of its business operations. While CURO continues serving its customers through both store and online channels, store hours are reduced, enhanced cleaning protocols for all facilities are in treatmentplace, and social distancing guidelines are in effect to aid in combating the spread of the segment as discontinued operationspandemic.
On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company expects to delay payment of employer payroll taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.
Refer to Note 7, "Income Taxes" 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 aboutCARES Act impact to the placementCompany's provision for income taxes.
In light of COVID-19, the Company also considered implications of the segment into administration, referpandemic on its estimates and assumptions as of March 31, 2020. After review of the information available regarding conditions as of March 31, 2020, the Company increased its allowance for loan losses, as disclosed in Note 3, "Loans and Receivable and Revenue." The increase in volatility of foreign currency exchange rates between the U.S. dollar and Canadian dollar, as a result of COVID-19 and other factors such as oil price volatility, had a material impact on the Company's Condensed Consolidated Balance Sheet. Gross loans receivable in Canada decreased $26.5 million, or 8.7%, as a result of fluctuations in the foreign currency exchange rate from December 31, 2019 to "--Nature of Operations" below.March 31, 2020 between the U.S dollar and Canadian dollar.
The Condensed Consolidated Financial Statements shouldeffect of the COVID-19 pandemic will not be read in conjunction with the Consolidated Financial Statements and related Notes includedfully reflected in the 2018 Form 10-K. InterimCompany's results of operations are not necessarily indicativeand overall financial performance until future periods. The extent of results that may be expected for future interim periods or for the year ending December 31, 2019.impact of COVID-19 on the Company's business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the pandemic.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Ad Astra Acquisition
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency. Ad Astra, now a wholly-owned subsidiary, is included in the Condensed Consolidated Financial Statements. Prior to the acquisition, all costs related to Ad Astra were included in "Other costs of providing services." Following the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. See Note 17, "Acquisition" for further information. U.K. Segment Placed into Administration
On February 25, 2019, the Company placed its U.K. segment into administration, which resulted in the treatment of the U.K. segment as discontinued operations for all periods presented. Throughout this Form 10-Q, current and prior period financial information is presented on a continuing operations basis, excluding the results and positions of the U.K. segment. See Note 15, "Discontinued Operations" for additional information.
Equity Investment in Unconsolidated Entity
In April 2019, as partThe Company holds an equity investment in Katapult, a private lease-to-own platform for online, brick and mortar and omni-channel retailers. Katapult provides customers with payment options in store or via the Katapult link on a retailer's website. As of a broader capital structure reorganization by the investee company,March 31, 2020, the Company made an additional $2.8 million cashowned 42.5% of Katapult. The Company records the equity method investment in Cognical Holdings, which operates under"Other assets" on the Zibby brand.Condensed Consolidated Balance Sheets. See Note 8, - "Financial Instruments""Fair Value Measurements" for additional detail on the adjustment toKatapult's fair value for the quarter ended June 30, 2019.considerations.
Use of Estimates
The preparation of Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions, such as those posed by COVID-19, that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported.presented. 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 equity investments, goodwill and intangibles, accruals related to self-insurance, credit services organization ("CSO")CSO liability for losses and estimated tax liabilities. Actual results may differ from those estimates.
Nature of OperationsGoodwill
CUROThe annual impairment review for goodwill, done on October 1, consists of performing a qualitative assessment to determine whether it is more likely than not that a growth-oriented, technology-enabled, highly-diversified consumer finance company servingreporting unit’s fair value is less than its carrying amount as a wide rangebasis for determining whether or not further testing is required. The Company may elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. The Company can resume the qualitative assessment for any reporting unit in any subsequent period. If the Company determines, on the basis of underbanked consumers inqualitative factors, that it is more likely than not that the United States ("U.S."), Canada,fair value of the reporting unit is less than the carrying amount, the Company will then apply a two-step process of (i) determining the fair value of the reporting unit and through February 25,(ii) comparing it to the carrying value of the net assets allocated to the reporting unit. When performing the two-step process, if the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. In the event the estimated fair value of a reporting unit is less than the carrying value, the Company would recognize an impairment loss equal to such excess, which could significantly and adversely impact reported results of operations and stockholders’ equity.
During the fourth quarter of 2019, the U.K.
Company performed a quantitative assessment for the U.S. and Canada reporting units. Management concluded that the estimated fair values of these two reporting units were greater than their respective carrying values. Due to COVID-19, the Company determined that a goodwill impairment evaluation triggering event occurred during the three months ended March 31, 2020. After performing an interim review of impairment as of March 31, 2020, both reporting units continue to have estimated fair values greater than their respective carrying values.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 wasRefer 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.
Open-End Loss Recognition
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 and the loan was considered 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 considers 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. 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:
Gross combined loans receivable: balances as of June 30, 2019 include $35.4 million of Open-End loans that are up to 90 days past-due with related accrued interest, while such balances for periods prior to March 31, 2019 do not include any past due loans.
Revenues:Note 16, "Goodwill" for the three and six months ended June 30, 2019, gross revenues include interest earned on past-due loan balances of approximately $12 million and $21 million, respectively, while revenues in prior-year periods do not include comparable amounts.further information.
Provision for Losses: prospectively, past-due, unpaid balances plus related accrued interest charge-off on day 91. Provision expense is affected by total charge-offs less total recoveries ("NCOs") plus changes to the Allowance for loan losses. Because NCOs prospectively include unpaid principal and up to 90 days of related accrued interest, NCO amounts and rates are higher and the Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable is higher. The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable increased to 18.3% at June 30, 2019, compared to 10.7% in the same prior-year period.
Correction of Immaterial Errors 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 filed financial statements by reclassifying cash outflows for loan originations and receipts on collections of principal of $48.2 million from net Cash provided by operating activities to net Cash used in investing activities for the six months ended 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 June 30, 2018. The Company has revised its Condensed Consolidated Financial Statements for the six months ended June 30, 2018 presented in this Form 10-Q. A summary of the correction follows:
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | |
(dollars in thousands) | | Six Months Ended June 30, 2018 |
As Reported:(1) | | |
Net cash provided by continuing operating activities | | $ | 52,097 |
|
Net cash used in continuing investing activities | | (3,915 | ) |
| | |
As Corrected: | | |
Net cash provided by continuing operating activities | | 246,733 |
|
Net cash used in continuing investing activities | | (198,551 | ) |
(1) "As reported" balances include amounts from continuing operations historically presented within these captions. |
Recently Adopted Accounting Pronouncements
ASU 2016-022018-15
In February 2016, the Financial Accounting Standards Board ("FASB") issued Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The Company adopted ASU 2016-02 as of January 1, 2019, using the modified retrospective approach, which provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach.
Due to the adoption of the new standard, the right of use assets ("ROU assets") and additional operating lease liabilities ("lease liabilities") as of June 30, 2019 were $141.0 million and $148.8 million, respectively. Prepaid rent of $2.7 million and deferred liability of $10.9 million were included in ROU assets and lease liabilities, respectively. The standard did not materially impact the Company's consolidated net earnings. See Note 14 - "Leases" for additional information and disclosures required by Topic 842.
ASU 2018-12
In FebruaryAugust 2018, the FASB issued ASU 2018-02,2018-15, Income Statement - Reporting Comprehensive Income (Topic 220): ReclassificationCustomer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of Certain Tax Effects from Accumulated Other Comprehensive income ("ASU 2018-02"), which permits the reclassificationcloud computing arrangements plus any optional renewal periods (i) that are reasonably certain to retained earnings of disproportionate tax effects in accumulated other comprehensive income (loss) causedbe exercised by the Tax Cuts and Jobs Actcustomer or (ii) for which exercise of 2017 ("2017 Tax Act").the renewal option is controlled by the cloud service provider. The Company adopted ASU 2018-022018-15 on a prospective basis as of January 1, 2019,2020. The adoption of ASU 2018-15 did not have a material impact on the unaudited Condensed Consolidated Financial Statements.
ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The Company adopted ASU 2018-13 as of January 1, 2020, which did not have a material impact on the unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Accounting Pronouncements Related to the Current Expected Credit Loss ("CECL") Standard
ASU 2016-13
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, and ASU 2019-05 in May 2019.2019, ASU 2019-10 and 11 in November 2019, and ASU 2020-02 in February 2020. The standard, as amended, changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they currently do under the other-than-temporary impairment model. The standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2019-04 clarifies that equity instruments without readily determinable fair values for which an entity has elected the measurement alternative should be remeasured to fair value as of the date that an observable transaction occurred. ASU 2019-05 provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. ASU 2019-10 amends the mandatory effective date for ASU 2016-13. The amendments are effective for fiscal years beginning after December 15, 2022 for entities that are eligible to be defined by the SEC as a SRC, for which the Company qualifies. ASU 2019-11 provides clarity and improves the codification to ASU 2016-13. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. As issued, this ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016‑2016 13, including the fair value option. If the fair value option is not utilized, adoption of ASU 2016-13 will increase the allowance for credit losses with a resulting negative adjustment to retained earnings on the date of adoption. Additionally,The Company does not expect to adopt ASU 2016-13 until at least January 1, 2021 as disclosed below, thepermitted under ASU 2019-10. The Company is evaluatingcurrently assessing the impact of the FASB's definition of a SRC to the adoption of ASU 2016-13.2016-13 will have on its Consolidated Financial Statements.
ASU 2020-01
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2020-01 will have on its Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
ASU 2019-052020-04
In MayMarch 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently assessing the impact the adoption of ASU 2020-04 will have on its Consolidated Financial Statements.
ASU 2019-12
In December 2019, the FASB issued ASU 2019-05, which amends2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (Topic 740). The ASU 2016-13intends to allow companiessimplify various aspects related to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (i) were previously recorded at amortized costaccounting for income taxes and (ii) are within the scope of ASC 326-203 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05’s amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustmentremoves certain exceptions to the opening balance of retained earningsgeneral principles in the statementstandard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of financial position asits requirements. The amendments of the date that an entity adopted the amendments in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt the ASU in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date for ASU 2016-13. We are currently evaluating the methods and impact of adopting this new standard on the Condensed Consolidated Financial Statements.
ASU 2019-04
In May 2019, the FASB issued ASU 2019-04, which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. The ASU’s amendments apply to all entities within the scope of the affected guidance. Accrued interest - Amortized cost basis is defined in ASU 2016-13 as "the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange, and fair value hedge accounting adjustments". To address stakeholders’ concerns that the inclusion of accrued interest in the definition of amortized cost basis could make application of the credit loss guidance operationally burdensome, ASU 2019-04 provides certain alternatives for the measurement of the allowance for credit losses (ALL) on accrued interest receivable (AIR). These measurement alternatives include (1) measuring an ALL on AIR separately, (2) electing to provide separate disclosure of the AIR component of amortized cost as a practical expedient, and (3) making accounting policy elections to simplify certain aspects of the presentation and measurement of such AIR. As issued, for entities that have adopted ASU 2016-13, the amendments in ASU 2019-04 related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019,2020, and interim periods therein. ASU 2019-04’s amendments should be applied "on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted the amendments in ASU 2016-13." Certain disclosures are also required. For all other entities, the effective date will be the same as the effective date in ASU 2016-13.
FASB Definition of a Smaller Reporting Company ("SRC") as related to the CECL standard and evaluation of the impact of the CECL standard
On July 17, 2019, the FASB issued for a 30-day comment period a draft proposal that would reconsider its philosophy for establishing effective dates for major projects for certain classes of companies, including SRCs. Under current SEC definitions, CURO meets the definition of an SRC as of June 30, 2019.within those fiscal years. Early adoption is permitted. The proposed standard would defer required adoption of the CECL standard for SRCs until fiscal periods beginning after December 15, 2022. The Company will continue to monitor the standard setting activities of the FASB and evaluate their potential impact on the adoption of accounting standards such as ASU 2016-13 and ASU 2019-04. We are currently evaluating the methods and impact of adopting the CECL standard on the Condensed Consolidated Financial Statements.
SEC Disclosure Update
In August 2018, the SEC adopted final rules under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that had become redundant, duplicative, overlapping, outdated or superseded. Other than the amendment's expanded disclosure requirement for interim financial statements to disclose both current and comparative quarter and year-to-date reconciliations of changes in stockholders' equity, it did2019-12 is not have a material impact on the Company's Condensed Consolidated Financial Statements or Notes thereto for the three and six months ended June 30, 2019, nor is it expected to have a material impact on the Company's annual disclosures or financial statements.Consolidated Financial Statements.
NOTE 2 - VARIABLE INTEREST ENTITIES
In August 2018, the Company closed the Non-Recourse Canada SPV facility, whereby certain loan receivables were sold to the wholly-owned bankruptcy-remote special purpose subsidiaries ("VIEs")VIE to collateralize debt incurred under the facility. See Note 5, "Debt" for additional details on the Non-Recourse Canada SPV facility.
As theThe Company has determined that it is the primary beneficiary of the VIEs, itVIE and is required to consolidate the entity. The Company includes the assets and liabilities related to the VIEsVIE in itsthe unaudited Condensed Consolidated Financial Statements.Balance Sheets. As required, the CompanyCURO parenthetically discloses on the unaudited Condensed Consolidated Balance Sheets the
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
VIEs’ VIE's assets that can only be used to settle the VIEs'VIE's obligations and liabilities if the VIEs’VIE's creditors have no recourse against the Company's general credit.
The carrying amounts of consolidated VIEs'VIE's assets and liabilities associated with the VIE subsidiariessubsidiary were as follows:follows (in thousands):
| | (in thousands) | June 30, 2019 | | December 31, 2018 | |
| | | March 31, 2020 | | December 31, 2019 |
Assets | | | | | | | |
Restricted cash | $ | 14,819 |
| | $ | 12,840 |
| | $ | 22,317 |
| | $ | 17,427 |
|
Gross loans receivable less allowance for loan losses | 190,121 |
| | 136,187 |
| |
Loans receivable less allowance for loan losses | | | 203,837 |
| | 220,067 |
|
Total Assets | $ | 204,940 |
| | $ | 149,027 |
| | $ | 226,154 |
| | $ | 237,494 |
|
Liabilities | | | | | | | |
Accounts payable and accrued liabilities | $ | 15,020 |
| | $ | 4,980 |
| | $ | 13,267 |
| | $ | 13,462 |
|
Deferred revenue | 45 |
| | 40 |
| | 39 |
| | 46 |
|
Accrued interest | 713 |
| | 831 |
| | 627 |
| | 871 |
|
Long-term debt | 90,977 |
| | 107,479 |
| |
Intercompany payable | | | 80,240 |
| | 69,639 |
|
Debt | | | 84,874 |
| | 112,221 |
|
Total Liabilities | $ | 106,755 |
| | $ | 113,330 |
| | $ | 179,047 |
| | $ | 196,239 |
|
On April 8, 2020, the Company entered into the Non-Recourse U.S. SPV Facility to provide financing for U.S. Unsecured Installment and Open-End receivables, including those generated under its technology, marketing and servicing relationship with Stride Bank. Refer to Note 19, "Subsequent Events" for additional details.
NOTE 3 – LOANS RECEIVABLE AND REVENUE
The following table summarizes revenue by product for the periods indicated:
|
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2019 | 2018 | | 2019 | | 2018 |
Unsecured Installment | $ | 122,112 |
| $ | 114,936 |
| | $ | 257,890 |
| | $ | 240,315 |
|
Secured Installment | 26,076 |
| 25,777 |
| | 53,553 |
| | 52,633 |
|
Open-End | 54,972 |
| 27,222 |
| | 107,841 |
| | 54,445 |
|
Single-Pay | 45,528 |
| 58,325 |
| | 92,289 |
| | 118,682 |
|
Ancillary | 15,612 |
| 10,909 |
| | 30,666 |
| | 21,937 |
|
Total revenue | $ | 264,300 |
| $ | 237,169 |
| | $ | 542,239 |
| | $ | 488,012 |
|
The following tables summarize Loans receivable by product and the related delinquentCOVID-19 pandemic has impacted customers, which has resulted in past-due gross loans receivable at June 30, 2019:
|
| | | | | | | | | | | | | | | | |
| | June 30, 2019 |
(in thousands) | | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total |
Current loans receivable | | $ | 76,126 |
| $ | 126,685 |
| $ | 71,218 |
| $ | 247,915 |
| $ | 521,944 |
|
Delinquent loans receivable | | — |
| 38,037 |
| 14,216 |
| 35,396 |
| 87,649 |
|
Total loans receivable | | 76,126 |
| 164,722 |
| 85,434 |
| 283,311 |
| 609,593 |
|
Less: allowance for losses | | (4,941 | ) | (35,223 | ) | (9,996 | ) | (51,717 | ) | (101,877 | ) |
Loans receivable, net | | $ | 71,185 |
| $ | 129,499 |
| $ | 75,438 |
| $ | 231,594 |
| $ | 507,716 |
|
|
| | | | | | | | | | | | | |
| | June 30, 2019 |
(in thousands) | | Unsecured Installment | Secured Installment | Open-End | Total |
Delinquent loans receivable | | | | | |
0-30 days past due | | $ | 14,995 |
| $ | 7,096 |
| $ | 14,997 |
| $ | 37,088 |
|
31-60 days past due | | 11,176 |
| 3,358 |
| 9,455 |
| 23,989 |
|
61-90 days past due | | 11,866 |
| 3,762 |
| 10,944 |
| 26,572 |
|
Total delinquent loans receivable | | $ | 38,037 |
| $ | 14,216 |
| $ | 35,396 |
| $ | 87,649 |
|
and gross combined loans receivables guaranteed by the Company, as a percentage of total gross combined loans receivable, to increase as of March 31, 2020 compared to December 31, 2019. Additionally, it has created uncertainty regarding the performance of net-charge offs
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
over the loss-development period. The Company has maintained its historical allowance approach, but has adjusted future loss estimates for an increase in past-due gross loans receivable due to adverse market conditions at March 31, 2020 caused by COVID-19. The estimates and assumptions used to determine an appropriate allowance for loan losses and liability for losses on CSO lender-owned consumer loans are those that are available through the filing of this Form 10-Q and which are indicative of conditions occurring as of March 31, 2020. As a result of future loss estimates due to uncertainty caused by COVID-19, and the related impact to past due loans receivable as of March 31, 2020, CURO has determined an additional $12.0 million allowance for loan loss was required.
The following table summarizes revenue by product (in thousands):
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Unsecured Installment | | $ | 122,409 |
| | $ | 135,778 |
|
Secured Installment | | 26,286 |
| | 27,477 |
|
Open-End | | 70,982 |
| | 52,869 |
|
Single-Pay | | 45,157 |
| | 46,761 |
|
Ancillary | | 15,972 |
| | 15,054 |
|
Total revenue(1) | | $ | 280,806 |
| | $ | 277,939 |
|
(1) Includes revenue from CSO programs of $68.1 million and $71.7 million for the three months ended March 31, 2020 and 2019, respectively. |
The following tables summarize Loansloans receivable by product and the related delinquent loans receivable at December 31, 2018:(in thousands):
| | | | December 31, 2018 | | March 31, 2020 |
(in thousands) | | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total | |
| | | Single-Pay(1) | Unsecured Installment | Secured Installment | Open-End | Total |
Current loans receivable | | $ | 80,823 |
| $ | 141,316 |
| $ | 75,583 |
| $ | 207,333 |
| $ | 505,055 |
| | $ | 54,728 |
| $ | 88,152 |
| $ | 57,284 |
| $ | 264,019 |
| $ | 464,183 |
|
Delinquent loans receivable | | — |
| 49,087 |
| 17,389 |
| — |
| 66,476 |
| | — |
| 34,966 |
| 15,301 |
| 49,987 |
| 100,254 |
|
Total loans receivable | | 80,823 |
| 190,403 |
| 92,972 |
| 207,333 |
| 571,531 |
| | 54,728 |
| 123,118 |
| 72,585 |
| 314,006 |
| 564,437 |
|
Less: allowance for losses | | (4,189 | ) | (37,716 | ) | (12,191 | ) | (19,901 | ) | (73,997 | ) | | (4,693 | ) | (28,965 | ) | (9,726 | ) | (56,458 | ) | (99,842 | ) |
Loans receivable, net | | $ | 76,634 |
| $ | 152,687 |
| $ | 80,781 |
| $ | 187,432 |
| $ | 497,534 |
| | $ | 50,035 |
| $ | 94,153 |
| $ | 62,859 |
| $ | 257,548 |
| $ | 464,595 |
|
(1) Of the $54.7 million of Single-Pay receivables, $16.4 million relate to mandated extended payment options for certain Canada Single-Pay loans. | | (1) Of the $54.7 million of Single-Pay receivables, $16.4 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
| | | | December 31, 2018 | | March 31, 2020 |
(in thousands) | | Unsecured Installment | Secured Installment | Total | |
| | | Unsecured Installment | Secured Installment | Open-End | Total |
Delinquent loans receivable | | |
|
| | | |
0-30 days past due | | $ | 17,850 |
| $ | 7,870 |
| $ | 25,720 |
| | $ | 12,511 |
| $ | 7,168 |
| $ | 21,381 |
| $ | 41,060 |
|
31-60 days past due | | 14,705 |
| 4,725 |
| 19,430 |
| | 9,566 |
| 3,991 |
| 12,390 |
| 25,947 |
|
61-90 days past due | | 16,532 |
| 4,794 |
| 21,326 |
| |
61 + days past due | | | 12,889 |
| 4,142 |
| 16,216 |
| 33,247 |
|
Total delinquent loans receivable | | $ | 49,087 |
| $ | 17,389 |
| $ | 66,476 |
| | $ | 34,966 |
| $ | 15,301 |
| $ | 49,987 |
| $ | 100,254 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
| | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | Single-Pay(1) | Unsecured Installment | Secured Installment | Open-End | Total |
Current loans receivable | | $ | 81,447 |
| $ | 117,682 |
| $ | 70,565 |
| $ | 285,452 |
| $ | 555,146 |
|
Delinquent loans receivable | | — |
| 43,100 |
| 17,510 |
| 50,072 |
| 110,682 |
|
Total loans receivable | | 81,447 |
| 160,782 |
| 88,075 |
| 335,524 |
| 665,828 |
|
Less: allowance for losses | | (5,869 | ) | (35,587 | ) | (10,305 | ) | (55,074 | ) | (106,835 | ) |
Loans receivable, net | | $ | 75,578 |
| $ | 125,195 |
| $ | 77,770 |
| $ | 280,450 |
| $ | 558,993 |
|
(1) Of the $81.4 million of Single-Pay receivables, $22.4 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
|
| | | | | | | | | | | | | |
| | December 31, 2019 |
| | Unsecured Installment | Secured Installment | Open-End | Total |
Delinquent loans receivable | | | | |
|
|
0-30 days past due | | $ | 15,369 |
| $ | 8,039 |
| $ | 21,823 |
| $ | 45,231 |
|
31-60 days past due | | 12,403 |
| 4,885 |
| 13,191 |
| 30,479 |
|
61 + days past due | | 15,328 |
| 4,586 |
| 15,058 |
| 34,972 |
|
Total delinquent loans receivable | | $ | 43,100 |
| $ | 17,510 |
| $ | 50,072 |
| $ | 110,682 |
|
The following tables summarize loans guaranteed by the Company under CSO programs and the related delinquent receivables at June 30, 2019:(in thousands):
| | | | June 30, 2019 | | March 31, 2020 |
(in thousands) | | Unsecured Installment | Secured Installment | Total | |
| | | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 54,968 |
| $ | 1,930 |
| $ | 56,898 |
| | $ | 44,865 |
| $ | 1,509 |
| $ | 46,374 |
|
Delinquent loans receivable guaranteed by the Company | | 10,087 |
| 354 |
| 10,441 |
| | 9,232 |
| 311 |
| 9,543 |
|
Total loans receivable guaranteed by the Company | | 65,055 |
| 2,284 |
| 67,339 |
| | 54,097 |
| 1,820 |
| 55,917 |
|
Less: Liability for losses on CSO lender-owned consumer loans | | (9,433 | ) | (71 | ) | (9,504 | ) | | (9,142 | ) | (47 | ) | (9,189 | ) |
Loans receivable guaranteed by the Company, net | | $ | 55,622 |
| $ | 2,213 |
| $ | 57,835 |
| | $ | 44,955 |
| $ | 1,773 |
| $ | 46,728 |
|
| | | | June 30, 2019 | | March 31, 2020 |
(in thousands) | | Unsecured Installment | Secured Installment | Total | |
| | | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | |
|
| | |
|
|
0-30 days past due | | $ | 8,511 |
| $ | 299 |
| $ | 8,810 |
| | $ | 7,589 |
| $ | 255 |
| $ | 7,844 |
|
31-60 days past due | | 1,052 |
| 37 |
| 1,089 |
| | 939 |
| 32 |
| 971 |
|
61-90 days past due | | 524 |
| 18 |
| 542 |
| |
61+ days past due | | | 704 |
| 24 |
| 728 |
|
Total delinquent loans receivable | | $ | 10,087 |
| $ | 354 |
| $ | 10,441 |
| | $ | 9,232 |
| $ | 311 |
| $ | 9,543 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following tables summarize loans guaranteed by the Company under CSO programs and the related delinquent receivables at December 31, 2018:
|
| | | | | | | | | | |
| | December 31, 2018 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 65,743 |
| $ | 2,504 |
| $ | 68,247 |
|
Delinquent loans receivable guaranteed by the Company | | 11,708 |
| 446 |
| 12,154 |
|
Total loans receivable guaranteed by the Company | | 77,451 |
| 2,950 |
| 80,401 |
|
Less: Liability for losses on CSO lender-owned consumer loans | | (11,582 | ) | (425 | ) | (12,007 | ) |
Loans receivable guaranteed by the Company, net | | $ | 65,869 |
| $ | 2,525 |
| $ | 68,394 |
|
|
| | | | | | | | | | |
| | December 31, 2018 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | | |
0-30 days past due | | $ | 9,684 |
| $ | 369 |
| $ | 10,053 |
|
31-60 days past due | | 1,255 |
| 48 |
| 1,303 |
|
61-90 days past due | | 769 |
| 29 |
| 798 |
|
Total delinquent loans receivable | | $ | 11,708 |
| $ | 446 |
| $ | 12,154 |
|
|
| | | | | | | | | | |
| | December 31, 2019 |
| | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 61,840 |
| $ | 1,944 |
| $ | 63,784 |
|
Delinquent loans receivable guaranteed by the Company | | 12,477 |
| 392 |
| 12,869 |
|
Total loans receivable guaranteed by the Company | | 74,317 |
| 2,336 |
| 76,653 |
|
Less: Liability for losses on CSO lender-owned consumer loans | | (10,553 | ) | (70 | ) | (10,623 | ) |
Loans receivable guaranteed by the Company, net | | $ | 63,764 |
| $ | 2,266 |
| $ | 66,030 |
|
|
| | | | | | | | | | |
| | December 31, 2019 |
| | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | | |
0-30 days past due | | $ | 10,392 |
| $ | 326 |
| $ | 10,718 |
|
31-60 days past due | | 1,256 |
| 40 |
| 1,296 |
|
61 + days past due | | 829 |
| 26 |
| 855 |
|
Total delinquent loans receivable | | $ | 12,477 |
| $ | 392 |
| $ | 12,869 |
|
The following table summarizes activity in the allowance for loan losses during the three months ended June 30, 2019:(in thousands):
| | | Three Months Ended June 30, 2019 | Three Months Ended March 31, 2020 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 3,897 |
| $ | 33,666 |
| $ | 9,796 |
| $ | 46,963 |
| $ | — |
| $ | 94,322 |
| $ | 5,869 |
| $ | 35,587 |
| $ | 10,305 |
| $ | 55,074 |
| $ | — |
| $ | 106,835 |
|
Charge-offs | (35,759 | ) | (37,336 | ) | (10,295 | ) | (30,688 | ) | (1,342 | ) | (115,420 | ) | (40,521 | ) | (38,558 | ) | (13,110 | ) | (43,509 | ) | (1,279 | ) | (136,977 | ) |
Recoveries | 24,301 |
| 5,366 |
| 2,693 |
| 5,537 |
| 822 |
| 38,719 |
| 30,004 |
| 5,783 |
| 2,909 |
| 6,411 |
| 575 |
| 45,682 |
|
Net charge-offs | (11,458 | ) | (31,970 | ) | (7,602 | ) | (25,151 | ) | (520 | ) | (76,701 | ) | (10,517 | ) | (32,775 | ) | (10,201 | ) | (37,098 | ) | (704 | ) | (91,295 | ) |
Provision for losses | 12,446 |
| 33,514 |
| 7,802 |
| 29,373 |
| 520 |
| 83,655 |
| 9,639 |
| 26,182 |
| 9,622 |
| 40,991 |
| 704 |
| 87,138 |
|
Effect of foreign currency translation | 56 |
| 13 |
| — |
| 532 |
| — |
| 601 |
| (298 | ) | (29 | ) | — |
| (2,509 | ) | — |
| (2,836 | ) |
Balance, end of period | $ | 4,941 |
| $ | 35,223 |
| $ | 9,996 |
| $ | 51,717 |
| $ | — |
| $ | 101,877 |
| $ | 4,693 |
| $ | 28,965 |
| $ | 9,726 |
| $ | 56,458 |
| $ | — |
| $ | 99,842 |
|
Allowance for loan losses as a percentage of gross loan receivables | 6.5 | % | 21.4 | % | 11.7 | % | 18.3 | % | N/A |
| 16.7 | % | 8.6 | % | 23.5 | % | 13.4 | % | 18.0 | % | N/A |
| 17.7 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the three months ended June 30, 2019:(in thousands):
| | | Three Months Ended June 30, 2019 | Three Months Ended March 31, 2020 |
(in thousands) | Unsecured Installment | Secured Installment | Total | |
| | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 8,583 |
| $ | 78 |
| $ | 8,661 |
| $ | 10,553 |
| $ | 70 |
| $ | 10,623 |
|
Charge-offs | (34,564 | ) | (683 | ) | (35,247 | ) | (41,511 | ) | (862 | ) | (42,373 | ) |
Recoveries | 7,078 |
| 657 |
| 7,735 |
| 13,762 |
| 779 |
| 14,541 |
|
Net charge-offs | (27,486 | ) | (26 | ) | (27,512 | ) | (27,749 | ) | (83 | ) | (27,832 | ) |
Provision for losses | 28,336 |
| 19 |
| 28,355 |
| 26,338 |
| 60 |
| 26,398 |
|
Balance, end of period | $ | 9,433 |
| $ | 71 |
| $ | 9,504 |
| $ | 9,142 |
| $ | 47 |
| $ | 9,189 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 June 30, 2019:(in thousands):
| | | Three Months Ended June 30, 2019 | Three Months Ended March 31, 2020 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 3,897 |
| $ | 42,249 |
| $ | 9,874 |
| $ | 46,963 |
| $ | — |
| $ | 102,983 |
| $ | 5,869 |
| $ | 46,140 |
| $ | 10,375 |
| $ | 55,074 |
| $ | — |
| $ | 117,458 |
|
Charge-offs | (35,759 | ) | (71,900 | ) | (10,978 | ) | (30,688 | ) | (1,342 | ) | (150,667 | ) | (40,521 | ) | (80,069 | ) | (13,972 | ) | (43,509 | ) | (1,279 | ) | (179,350 | ) |
Recoveries | 24,301 |
| 12,444 |
| 3,350 |
| 5,537 |
| 822 |
| 46,454 |
| 30,004 |
| 19,545 |
| 3,688 |
| 6,411 |
| 575 |
| 60,223 |
|
Net charge-offs | (11,458 | ) | (59,456 | ) | (7,628 | ) | (25,151 | ) | (520 | ) | (104,213 | ) | (10,517 | ) | (60,524 | ) | (10,284 | ) | (37,098 | ) | (704 | ) | (119,127 | ) |
Provision for losses | 12,446 |
| 61,850 |
| 7,821 |
| 29,373 |
| 520 |
| 112,010 |
| 9,639 |
| 52,520 |
| 9,682 |
| 40,991 |
| 704 |
| 113,536 |
|
Effect of foreign currency translation | 56 |
| 13 |
| — |
| 532 |
| — |
| 601 |
| (298 | ) | (29 | ) | — |
| (2,509 | ) | — |
| (2,836 | ) |
Balance, end of period | $ | 4,941 |
| $ | 44,656 |
| $ | 10,067 |
| $ | 51,717 |
| $ | — |
| $ | 111,381 |
| $ | 4,693 |
| $ | 38,107 |
| $ | 9,773 |
| $ | 56,458 |
| $ | — |
| $ | 109,031 |
|
The following table summarizes activity in the allowance for loan losses during the three months ended June 30, 2018:(in thousands):
| | | Three Months Ended June 30, 2018 | Three Months Ended March 31, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 3,514 |
| $ | 33,638 |
| $ | 11,639 |
| $ | 6,846 |
| $ | — |
| $ | 55,637 |
| $ | 4,189 |
| $ | 37,716 |
| $ | 12,191 |
| $ | 19,901 |
| $ | — |
| $ | 73,997 |
|
Charge-offs | (41,242 | ) | (31,612 | ) | (11,082 | ) | (23,807 | ) | (593 | ) | (108,336 | ) | (36,521 | ) | (44,237 | ) | (12,671 | ) | (3,638 | ) | (1,351 | ) | (98,418 | ) |
Recoveries | 28,266 |
| 5,085 |
| 2,296 |
| 11,883 |
| 38 |
| 47,568 |
| 27,911 |
| 6,318 |
| 3,123 |
| 5,159 |
| 898 |
| 43,409 |
|
Net charge-offs | (12,976 | ) | (26,527 | ) | (8,786 | ) | (11,924 | ) | (555 | ) | (60,768 | ) | (8,610 | ) | (37,919 | ) | (9,548 | ) | 1,521 |
| (453 | ) | (55,009 | ) |
Provision for losses | 13,101 |
| 23,219 |
| 7,533 |
| 14,848 |
| 555 |
| 59,256 |
| 8,268 |
| 33,845 |
| 7,153 |
| 25,317 |
| 453 |
| 75,036 |
|
Effect of foreign currency translation | (35 | ) | (39 | ) | — |
| (53 | ) | — |
| (127 | ) | 50 |
| 24 |
| — |
| 224 |
| — |
| 298 |
|
Balance, end of period | $ | 3,604 |
| $ | 30,291 |
| $ | 10,386 |
| $ | 9,717 |
| $ | — |
| $ | 53,998 |
| $ | 3,897 |
| $ | 33,666 |
| $ | 9,796 |
| $ | 46,963 |
| $ | — |
| $ | 94,322 |
|
Allowance for loan losses as a percentage of gross loan receivables | 4.3 | % | 18.9 | % | 12.3 | % | 10.7 | % | N/A |
| 12.8 | % | 5.6 | % | 20.8 | % | 12.1 | % | 19.5 | % | N/A |
| 17.0 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the three months ended June 30, 2018:(in thousands):
| | | Three Months Ended June 30, 2018 | Three Months Ended March 31, 2019 |
(in thousands) | Unsecured Installment | Secured Installment | Total | |
| | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 9,886 |
| $ | 526 |
| $ | 10,412 |
| $ | 11,582 |
| $ | 425 |
| $ | 12,007 |
|
Charge-offs | (33,017 | ) | (993 | ) | (34,010 | ) | (40,980 | ) | (1,076 | ) | (42,056 | ) |
Recoveries | 7,350 |
| 776 |
| 8,126 |
| 10,560 |
| 802 |
| 11,362 |
|
Net charge-offs | (25,667 | ) | (217 | ) | (25,884 | ) | (30,420 | ) | (274 | ) | (30,694 | ) |
Provision for losses | 26,974 |
| 117 |
| 27,091 |
| 27,422 |
| (73 | ) | 27,349 |
|
Balance, end of period | $ | 11,193 |
| $ | 426 |
| $ | 11,619 |
| $ | 8,584 |
| $ | 78 |
| $ | 8,662 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, a non-GAAP metric, in total during the three months ended June 30, 2018:(in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 3,514 |
| $ | 43,524 |
| $ | 12,165 |
| $ | 6,846 |
| $ | — |
| $ | 66,049 |
|
Charge-offs | (41,242 | ) | (64,629 | ) | (12,075 | ) | (23,807 | ) | (593 | ) | (142,346 | ) |
Recoveries | 28,266 |
| 12,435 |
| 3,072 |
| 11,883 |
| 38 |
| 55,694 |
|
Net charge-offs | (12,976 | ) | (52,194 | ) | (9,003 | ) | (11,924 | ) | (555 | ) | (86,652 | ) |
Provision for losses | 13,101 |
| 50,193 |
| 7,650 |
| 14,848 |
| 555 |
| 86,347 |
|
Effect of foreign currency translation | (35 | ) | (39 | ) | — |
| (53 | ) | — |
| (127 | ) |
Balance, end of period | $ | 3,604 |
| $ | 41,484 |
| $ | 10,812 |
| $ | 9,717 |
| $ | — |
| $ | 65,617 |
|
The following table summarizes activity in the allowance for loan losses during the six months ended June 30, 2019: |
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 4,189 |
| $ | 37,716 |
| $ | 12,191 |
| $ | 19,901 |
| $ | — |
| $ | 73,997 |
|
Charge-offs | (72,280 | ) | (81,573 | ) | (22,966 | ) | (34,326 | ) | (2,693 | ) | (213,838 | ) |
Recoveries | 52,212 |
| 11,684 |
| 5,816 |
| 10,696 |
| 1,721 |
| 82,129 |
|
Net charge-offs | (20,068 | ) | (69,889 | ) | (17,150 | ) | (23,630 | ) | (972 | ) | (131,709 | ) |
Provision for losses | 20,714 |
| 67,359 |
| 14,955 |
| 54,690 |
| 972 |
| 158,690 |
|
Effect of foreign currency translation | 106 |
| 37 |
| — |
| 756 |
| — |
| 899 |
|
Balance, end of period | $ | 4,941 |
| $ | 35,223 |
| $ | 9,996 |
| $ | 51,717 |
| $ | — |
| $ | 101,877 |
|
Allowance for loan losses as a percentage of gross loan receivables | 6.5 | % | 21.4 | % | 11.7 | % | 18.3 | % | N/A |
| 16.7 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the six months ended June 30, 2019:
|
| | | | | | | | | |
| Six Months Ended June 30, 2019 |
(in thousands) | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 11,582 |
| $ | 425 |
| $ | 12,007 |
|
Charge-offs | (75,545 | ) | (1,760 | ) | (77,305 | ) |
Recoveries | 17,638 |
| 1,459 |
| 19,097 |
|
Net charge-offs | (57,907 | ) | (301 | ) | (58,208 | ) |
Provision for losses | 55,758 |
| (53 | ) | 55,705 |
|
Balance, end of period | $ | 9,433 |
| $ | 71 |
| $ | 9,504 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 six months ended June 30, 2019:
|
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 4,189 |
| $ | 49,298 |
| $ | 12,616 |
| $ | 19,901 |
| $ | — |
| $ | 86,004 |
|
Charge-offs | (72,280 | ) | (157,118 | ) | (24,726 | ) | (34,326 | ) | (2,693 | ) | (291,143 | ) |
Recoveries | 52,212 |
| 29,322 |
| 7,275 |
| 10,696 |
| 1,721 |
| 101,226 |
|
Net charge-offs | (20,068 | ) | (127,796 | ) | (17,451 | ) | (23,630 | ) | (972 | ) | (189,917 | ) |
Provision for losses | 20,714 |
| 123,117 |
| 14,902 |
| 54,690 |
| 972 |
| 214,395 |
|
Effect of foreign currency translation | 106 |
| 37 |
| — |
| 756 |
| — |
| 899 |
|
Balance, end of period | $ | 4,941 |
| $ | 44,656 |
| $ | 10,067 |
| $ | 51,717 |
| $ | — |
| $ | 111,381 |
|
The following table summarizes activity in the allowance for loan losses during the six months ended June 30, 2018: |
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,204 |
| $ | 38,977 |
| $ | 13,472 |
| $ | 6,426 |
| $ | — |
| $ | 64,079 |
|
Charge-offs | (85,578 | ) | (66,831 | ) | (22,567 | ) | (44,156 | ) | (1,268 | ) | (220,400 | ) |
Recoveries | 61,084 |
| 10,303 |
| 5,162 |
| 21,260 |
| 85 |
| 97,894 |
|
Net charge-offs | (24,494 | ) | (56,528 | ) | (17,405 | ) | (22,896 | ) | (1,183 | ) | (122,506 | ) |
Provision for losses | 22,993 |
| 47,958 |
| 14,319 |
| 26,276 |
| 1,183 |
| 112,729 |
|
Effect of foreign currency translation | (99 | ) | (116 | ) | — |
| (89 | ) | — |
| (304 | ) |
Balance, end of period | $ | 3,604 |
| $ | 30,291 |
| $ | 10,386 |
| $ | 9,717 |
| $ | — |
| $ | 53,998 |
|
Allowance for loan losses as a percentage of gross loan receivables | 4.3 | % | 18.9 | % | 12.3 | % | 10.7 | % | N/A |
| 12.8 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the six months ended June 30, 2018:
|
| | | | | | | | | |
| Six Months Ended June 30, 2018 |
(in thousands) | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 17,073 |
| $ | 722 |
| $ | 17,795 |
|
Charge-offs | (74,736 | ) | (2,212 | ) | (76,948 | ) |
Recoveries | 18,326 |
| 1,945 |
| 20,271 |
|
Net charge-offs | (56,410 | ) | (267 | ) | (56,677 | ) |
Provision for losses | 50,530 |
| (29 | ) | 50,501 |
|
Balance, end of period | $ | 11,193 |
| $ | 426 |
| $ | 11,619 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 six months ended June 30, 2018:
| | | Six Months Ended June 30, 2018 | Three Months Ended March 31, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,204 |
| $ | 56,050 |
| $ | 14,194 |
| $ | 6,426 |
| $ | — |
| $ | 81,874 |
| $ | 4,189 |
| $ | 49,298 |
| $ | 12,616 |
| $ | 19,901 |
| $ | — |
| $ | 86,004 |
|
Charge-offs | (85,578 | ) | (141,567 | ) | (24,779 | ) | (44,156 | ) | (1,268 | ) | (297,348 | ) | (36,521 | ) | (85,217 | ) | (13,747 | ) | (3,638 | ) | (1,351 | ) | (140,474 | ) |
Recoveries | 61,084 |
| 28,629 |
| 7,107 |
| 21,260 |
| 85 |
| 118,165 |
| 27,911 |
| 16,878 |
| 3,925 |
| 5,159 |
| 898 |
| 54,771 |
|
Net charge-offs | (24,494 | ) | (112,938 | ) | (17,672 | ) | (22,896 | ) | (1,183 | ) | (179,183 | ) | (8,610 | ) | (68,339 | ) | (9,822 | ) | 1,521 |
| (453 | ) | (85,703 | ) |
Provision for losses | 22,993 |
| 98,488 |
| 14,290 |
| 26,276 |
| 1,183 |
| 163,230 |
| 8,268 |
| 61,267 |
| 7,080 |
| 25,317 |
| 453 |
| 102,385 |
|
Effect of foreign currency translation | (99 | ) | (116 | ) | — |
| (89 | ) | — |
| (304 | ) | 50 |
| 24 |
| — |
| 224 |
| — |
| 298 |
|
Balance, end of period | $ | 3,604 |
| $ | 41,484 |
| $ | 10,812 |
| $ | 9,717 |
| $ | — |
| $ | 65,617 |
| $ | 3,897 |
| $ | 42,250 |
| $ | 9,874 |
| $ | 46,963 |
| $ | — |
| $ | 102,984 |
|
NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivable amountsreceivables under CSO programs were $12.0$6.8 million and $14.3$14.7 million at June 30, 2019March 31, 2020 and December 31, 2018, respectively.2019, respectively, and are reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The Company bears the risk of loss through its guarantee to purchase specific customer loans that are in default with the lenders. The terms of these loans range fromup to six to 18 months. See the 20182019 Form 10-K for further details of the Company's accounting policy.
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the incremental maximum amount payable under all such guarantees was $56.0$45.7 million and $66.9$62.7 million, respectively. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover some or the entire amount from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the Allowance for loan losses, which it recognizes for its consumer loans. Liability for incurred losses on CSO loans Guaranteed by the Company was $9.5$9.2 million and $12.0$10.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
The Company placed $5.8$5.7 million and $17.2$6.2 million in collateral accounts for the benefit of lenders at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, which is reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each such lender.
Deferred revenue associated with the CSO program was immaterial as of March 31, 2020 and December 31, 2019 and there were no costs to obtain, or costs to fulfill, capitalized under the program. See Note 3, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.
NOTE 5 – LONG-TERM DEBT
Long-term debtDebt consisted of the following:following (in thousands):
| | (in thousands) | | June 30, 2019 | | December 31, 2018 | |
| | | March 31, 2020 | | December 31, 2019 |
8.25% Senior Secured Notes (due 2025) | | $ | 677,535 |
| | $ | 676,661 |
| | $ | 678,727 |
| | $ | 678,323 |
|
Non-Recourse Canada SPV Facility | | 90,977 |
| | 107,479 |
| | 84,724 |
| | 112,221 |
|
Senior Revolver | | — |
| | 20,000 |
| | 25,000 |
| | — |
|
Long-term debt | | $ | 768,512 |
| | $ | 804,140 |
| |
Debt | | | $ | 788,451 |
| | $ | 790,544 |
|
8.25% Senior Secured Notes
In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes which mature on September 1, 2025 ("8.25% Senior Secured Notes").2025. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1. In connection with the 8.25% Senior Secured Notes, the balance of capitalized financing costs of approximately $12.8$11.3 million, net of amortization, is included in the unaudited Condensed Consolidated Balance Sheets as a component of "Long-term debt."Debt." These costs are amortized over the term of the 8.25% Senior Secured Notes as a component of interest expense.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company used 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.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of 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 provided 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, to September 2, 2023. As of 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 June 30, 2019,March 31, 2020, outstanding borrowings under the Non-Recourse Canada SPV Facility were $91.0$84.7 million, net of deferred financing costs of $3.6$2.6 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 provided for an $80.0 million term loan and $70.0 million revolving borrowing capacity that could expand over time (collectively, “Non-Recourse U.S. SPV Facility”). Borrowings under this facility bore 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 paid a 0.50% per annum fee on the unused portion of the commitments. In connection with this facility, the capitalized financing costs at the time of extinguishment, as discussed below, were approximately $5.3 million, net of amortization. These capitalized financing costs were included in the Condensed Consolidated Balance Sheet as a component of "Long-term debt" and were 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 during the year ended December 31, 2018.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.with $25.0 million of capacity. 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 expireshas been extended to June 30, 2020.2021. The Senior Revolver accrues interest at one-month LIBOR plus 5.00% (subject to a 5% overall minimum) and is repayable on demand..
The terms of the Senior Revolver also require that its outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries that guarantee the 8.25% Senior Secured Notes and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 8.25% Senior Secured Notes. Additionally, the negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for the 8.25% Senior Secured Notes. The revolver was undrawnhad an outstanding balance of $25.0 million at June 30, 2019.March 31, 2020.
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 June 30, 2019, the Company was in full compliance with the covenants and other provisions of the Senior Revolver.
Cash Money Revolving Credit Facility
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 (ii) C$10.0 million. As of June 30, 2019,March 31, 2020, the borrowing capacity under the Cash Money Revolving Credit Facility, which was C$9.79.9 million, was reduced bynet of C$0.30.1 million forin outstanding stand-by-letters of credit.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Money’s assets and contains various covenants that require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest per annum at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at June 30, 2019March 31, 2020 and December 31, 2018.2019.
Subordinated Stockholder DebtNon-Recourse U.S. SPV Facility
As part of the acquisition of Cash Money in 2011, the Company received indemnificationRefer to Note 19, "Subsequent Events" 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. The balance of this note was repaid in full as of June 30, 2019.additional information regarding a new Asset-Backed Revolving Credit Facility entered into on April 8, 2020.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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”),RSUs, stock appreciation rights, performance awards and other awards that may be settled in or based uponon 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.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Restricted Stock Units
Grants of time-based RSUs are valued at the date of grant based on the valueclosing market price of our common stock and are expensed using the straight-line method over the service period. These RSUs are subject to time-based vesting and typically vest over a three-year period.
In March 2019, the Company awardedGrants of market-based RSUs designed to driveare valued using the performance of the management team toward achievement of key corporate objectives.Monte Carlo simulation pricing model. The market-based RSUs vest after three years depending uponif the Company's total stockholder return over the three-year performance period meets a specified target relative to other companies in its selected peer group. These awards are valued using the Monte Carlo simulation pricing model. Expense recognition for the market-based awards occurs over the service period using the straight-line method.
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 statusactivity of time-based and market-based unvested RSUs as of June 30, 2019March 31, 2020 and changes during the sixthree months ended June 30, 2019March 31, 2020 are presented in the following table:
| | | Number of RSUs | | | Number of RSUs | | |
| Time-Based | Market-Based | | Weighted Average Grant Date Fair Value per Share | Time-Based | Market-Based | | Weighted Average Grant Date Fair Value per Share |
December 31, 2018 | 1,060,350 |
| — |
| | $ | 14.29 |
| |
December 31, 2019 | | 1,061,753 |
| 394,861 |
| | $ | 11.47 |
|
Granted | 579,540 |
| 394,755 |
| | 10.07 |
| 571,773 |
| 368,539 |
| | 10.55 |
|
Vested | (83,481 | ) | — |
| | 15.59 |
| (197,859 | ) | — |
| | 11.39 |
|
Forfeited | (68,778 | ) | — |
| | 14.05 |
| (12,756 | ) | (2,613 | ) | | 12.07 |
|
June 30, 2019 | 1,487,631 |
| 394,755 |
| | $ | 12.06 |
| |
March 31, 2020 | | 1,422,911 |
| 760,787 |
| | $ | 11.08 |
|
Share-based compensation expense for the three months ended June 30,March 31, 2020 and 2019, and 2018, which includes compensation costs from stock options and RSUs, was $2.6$3.2 million and $2.2 million, respectively, and during the six months ended June 30, 2019 and 2018 was $4.8 million and $4.0 million, respectively, and is included in the unaudited Condensed Consolidated Statements of Operations as a component of "Corporate, district and other expenses."
As of June 30, 2019,March 31, 2020, there was $18.5$19.6 million of total unrecognized compensation cost related to stock options and RSUs, of which $15.4$13.8 million related to stock options and time-based RSUs and $3.1$5.6 million related to market-based RSUs. Total unrecognized compensation costs will be recognized over a weighted-average period of 2.02.1 years.
NOTE 7 – INCOME TAXES
The Company's effective income tax rate from continuing operations was 27.4%5.1% and 27.6%25.9% for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively.
On December 22, 2017, the 2017 Tax Act became law, which reduced the statutory U.S. Federal corporate The decrease in effective income tax rate was primarily due to a tax benefit from 35%the CARES Act, which was enacted by the U.S. Federal government on March 27, 2020 in response to 21%, enacted a one-time “deemed repatriation” tax on unremitted earnings accumulatedthe COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in non-U.S. jurisdictions2018, 2019 and imposed a new minimum tax on global intangible low-taxed income ("GILTI"). The Company provided an estimate2020 to be carried back to each of the deemed repatriation tax asfive preceding taxable years to generate a refund of December 31, 2017 and pursuant to further IRS guidance,previously-paid Federal income taxes. In the first quarter of 2020, the Company recorded an additional accrualincome tax benefit of $1.2$9.1 million duringrelated to the six months ended June 30, 2018. The Company recorded an estimated GILTIcarry-back NOL from tax years 2018 and 2019, which will offset income earned in years prior to tax reform and generate a refund of $0.5 million and $0.6 million duringpreviously paid taxes at 35%. In addition, losses from the six months ended June 30, 2019 and 2018, respectively.Company's equity method investment in Katapult are not tax deductible, thus increasing the March 31, 2020 effective tax rate.
The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the earnings of $159.3$153.8 million were distributed to the U.S., the Company would be subject to Canadian withholding taxes of an estimated $8.0$7.7 million. In the event the earnings
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
were distributed to the U.S., the Company would adjust the income tax provision for the applicable period and would determine the amount of foreign tax credit that would be available.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 8 – FINANCIAL INSTRUMENTSFAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company is required to use valuation techniques that are consistent with the market approach, income approach and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on observable market data obtained from independent sources, or unobservable, meaning those that reflect the Company's own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are listed below.
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.
Level 2 – Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including its own data.
Financial Assets and Liabilities Carried at Fair Value
The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at March 31, 2020 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value March 31, 2020 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash Surrender Value of Life Insurance | $ | 5,696 |
| $ | 5,696 |
| $ | — |
| $ | — |
| $ | 5,696 |
|
Financial liabilities: | | | | | |
Non-qualified deferred compensation plan | $ | 3,818 |
| $ | 3,818 |
| $ | — |
| $ | — |
| $ | 3,818 |
|
The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2019 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31, 2019 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash Surrender Value of Life Insurance | $ | 6,171 |
| $ | 6,171 |
| $ | — |
| $ | — |
| $ | 6,171 |
|
Financial liabilities: | | | | | |
Non-qualified deferred compensation plan | $ | 4,666 |
| $ | 4,666 |
| $ | — |
| $ | — |
| $ | 4,666 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial Assets and Liabilities Not Carried at Fair Value
The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at June 30, 2019:March 31, 2020 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
(in thousands) | Carrying Value June 30, 2019 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash | $ | 92,297 |
| $ | 92,297 |
| $ | — |
| $ | — |
| $ | 92,297 |
|
Restricted cash | 33,712 |
| 33,712 |
| — |
| — |
| 33,712 |
|
Loans receivable, net | 507,716 |
| — |
| — |
| 507,716 |
| 507,716 |
|
Investment in Cognical | 7,178 |
| — |
| — |
| 7,178 |
| 7,178 |
|
Financial liabilities: | | | | | |
Liability for losses on CSO lender-owned consumer loans | $ | 9,504 |
| $ | — |
| $ | — |
| $ | 9,504 |
| $ | 9,504 |
|
8.25% Senior Secured Notes | 677,535 |
| — |
| — |
| 574,211 |
| 574,211 |
|
Non-Recourse Canada SPV facility | 90,977 |
| — |
| — |
| 94,565 |
| 94,565 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value March 31, 2020 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash | $ | 138,714 |
| $ | 138,714 |
| $ | — |
| $ | — |
| $ | 138,714 |
|
Restricted cash | 41,527 |
| 41,527 |
| — |
| — |
| 41,527 |
|
Loans receivable, net | 464,595 |
| — |
| — |
| 464,595 |
| 464,595 |
|
Equity method investment | 8,450 |
| — |
| — |
| 8,450 |
| 8,450 |
|
Financial liabilities: | | | | | |
Liability for losses on CSO lender-owned consumer loans | $ | 9,189 |
| $ | — |
| $ | — |
| $ | 9,189 |
| $ | 9,189 |
|
8.25% Senior Secured Notes | 678,727 |
| — |
| 478,503 |
| — |
| 478,503 |
|
Non-Recourse Canada SPV facility | 84,724 |
| — |
| — |
| 87,365 |
| 87,365 |
|
Senior Revolver | 25,000 |
| — |
| — |
| 25,000 |
| 25,000 |
|
The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2018:2019 (in thousands):
| | | | Estimated Fair Value | | Estimated Fair Value |
(in thousands) | Carrying Value December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | |
| | Carrying Value December 31, 2019 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | | |
Cash | $ | 61,175 |
| $ | 61,175 |
| $ | — |
| $ | — |
| $ | 61,175 |
| $ | 75,242 |
| $ | 75,242 |
| $ | — |
| $ | — |
| $ | 75,242 |
|
Restricted cash | 25,439 |
| 25,439 |
| — |
| — |
| 25,439 |
| 34,779 |
| 34,779 |
| — |
| — |
| 34,779 |
|
Loans receivable, net | 497,534 |
| — |
| — |
| 497,534 |
| 497,534 |
| 558,993 |
| — |
| — |
| 558,993 |
| 558,993 |
|
Investment in Cognical | 6,558 |
| — |
| — |
| 6,558 |
| 6,558 |
| |
Equity method investment | | 10,068 |
| — |
| — |
| 10,068 |
| 10,068 |
|
Financial liabilities: | | |
Liability for losses on CSO lender-owned consumer loans | $ | 12,007 |
| $ | — |
| $ | — |
| $ | 12,007 |
| $ | 12,007 |
| $ | 10,623 |
| $ | — |
| $ | — |
| $ | 10,623 |
| $ | 10,623 |
|
8.25% Senior Secured notes | 676,661 |
| — |
| — |
| 531,179 |
| 531,179 |
| |
8.25% Senior Secured Notes | | 678,323 |
| — |
| 596,924 |
| — |
| 596,924 |
|
Non-Recourse Canada SPV facility | 107,479 |
| — |
| — |
| 111,335 |
| 111,335 |
| 112,221 |
| — |
| — |
| 115,243 |
| 115,243 |
|
Senior Revolver | 20,000 |
| — |
| — |
| 20,000 |
| 20,000 |
| |
Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the Allowance for estimated loan losses. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. The carrying value of loans receivable approximates their fair value. Refer to Note 3, "Loans Receivable and Revenue" for additional information.
During 2019, Katapult completed an incremental equity round at a value per share less than the value per share raised in prior raises. This round included additional investments from existing shareholders and investments by new investors, and was considered indicative of the fair value of shares in Katapult. Accordingly, the Company recognized a $3.7 million loss on its investment to adjust it to market value. As of March 31, 2020, the Company owned approximately 42.5% of the outstanding shares of Katapult.
In connection with CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company is required to purchase from the lender defaulted loans that it has guaranteed.
During the second quarter of 2019, Zibby completed an equity raising round at a value per share less than the value per share raised in prior raises. This round included additional investments from existing shareholders and investments by new investors and is considered indicative of the fair value of shares in Zibby. Accordingly, we recognized a $3.7 million impairment in our investment in Zibby Refer to adjust it to market value. As of June 30, 2019, we owned approximately 30% of the outstanding shares of Zibby on a fully diluted basis. See Note 18 - "Subsequent Events"3, "Loans Receivable and Revenue" for information regarding additional investments in Zibby in July 2019.information.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of the 8.25% Senior Secured Notes fair value disclosure was based on broker quotations. The fair values of the Non-Recourse Canada SPV facility and the Senior Revolver were based on the cash needed for their respective final settlements.
NOTE 9 – STOCKHOLDERS' EQUITY
In connection with the Company's initial public offering in December 2017, the underwriters had a 30-day option to purchase up to an additional 1.0 million shares of the Company's common stock at the initial public offering price, less the underwriting discount for over-allotments, if any. The underwriters exercised this option and purchased 1.0 million shares on January 5, 2018. The exercise of this option provided additional proceeds of $13.1 million.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the changes in stockholders' equity for the three and six months ended June 30, 2018March 31, 2020 and 2019:2019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in capital | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
(dollars in thousands) | Shares Outstanding | | Par Value | | | | |
Balances at December 31, 2017 | 44,561,419 |
| | $ | 8 |
| | $ | 46,079 |
| | $ | 3,988 |
| | $ | (42,939 | ) | | $ | 7,136 |
|
Net income from continuing operations | — |
| | — |
| | — |
| | 24,913 |
| | — |
| | 24,913 |
|
Net loss from discontinued operations | — |
| | — |
| | — |
| | (1,621 | ) | | — |
| | (1,621 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | (2,910 | ) | | (2,910 | ) |
Cash flow hedge expiration | — |
| | — |
| | — |
| | — |
| | 54 |
| | 54 |
|
Share based compensation expense | — |
| | — |
| | 1,842 |
| | — |
| | — |
| | 1,842 |
|
Initial Public Offering, Net Proceeds (underwriter shares) | 1,000,000 |
| | 1 |
| | 13,135 |
| | — |
| | — |
| | 13,136 |
|
Balances at March 31, 2018 | 45,561,419 |
| | $ | 9 |
| | $ | 61,056 |
| | $ | 27,280 |
| | $ | (45,795 | ) | | $ | 42,550 |
|
Net income from continuing operations | — |
| | — |
| | — |
| | 18,718 |
| | — |
| | 18,718 |
|
Net loss from discontinued operations | — |
| | — |
| | — |
| | (2,743 | ) | | — |
| | (2,743 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | (6,754 | ) | | (6,754 | ) |
Cash flow hedge expiration
| — |
| | — |
| | — |
| | — |
| | (439 | ) | | (439 | ) |
Share based compensation expense | — |
| | — |
| | 1,478 |
| | — |
| | — |
| | 1,478 |
|
Proceeds from exercise of stock options | 209,132 |
| | — |
| | 39 |
| | — |
| | — |
| | 39 |
|
Common stock issued for RSU's vesting | 49,994 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balances at June 30, 2018 | 45,820,545 |
| | $ | 9 |
| | $ | 62,573 |
| | $ | 43,255 |
| | $ | (52,988 | ) | | $ | 52,849 |
|
(1) Accumulated other comprehensive income (loss)
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Paid-in capital | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
| Shares Outstanding | | Par Value | | | | | |
Balances at December 31, 2019 | 41,156,224 |
| | $ | 9 |
| | $ | (72,343 | ) | | $ | 68,087 |
| | $ | 93,423 |
| | $ | (38,663 | ) | | $ | 50,513 |
|
Net income from continuing operations | — |
| | — |
| | — |
| | — |
| | 36,013 |
| | — |
| | 36,013 |
|
Net income from discontinued operations | — |
| | — |
| | — |
| | — |
| | 292 |
| | — |
| | 292 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (22,193 | ) | | (22,193 | ) |
Dividends | — |
| | — |
| | — |
| | — |
| | (2,256 | ) | — |
| — |
| | (2,256 | ) |
Share based compensation expense | — |
| | — |
| | — |
| | 3,194 |
| | — |
| | — |
| | 3,194 |
|
Proceeds from exercise of stock options | 42,094 |
| | — |
| | — |
| | 126 |
| | — |
| | — |
| | 126 |
|
Repurchase of common stock | (540,762 | ) | | — |
| | (5,509 | ) | | — |
| | — |
| | — |
| | (5,509 | ) |
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes
| 121,891 |
| | — |
| | — |
| | (609 | ) | | — |
| | — |
| | (609 | ) |
Balances at March 31, 2020 | 40,779,447 |
| | $ | 9 |
| | $ | (77,852 | ) | | $ | 70,798 |
|
| $ | 127,472 |
| | $ | (60,856 | ) | | $ | 59,571 |
|
(1) Accumulated other comprehensive income (loss)
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Paid-in capital | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity (Deficit) |
| Shares Outstanding | | Par Value | | | | | |
Balances at December 31, 2018 | 46,412,231 |
| | $ | 9 |
| | $ | — |
| | $ | 60,015 |
| | $ | (18,065 | ) | | $ | (61,060 | ) | | $ | (19,101 | ) |
Net income from continuing operations | — |
| | — |
| | — |
| | — |
| | 28,673 |
| | — |
| | 28,673 |
|
Net income from discontinued operations | — |
| | — |
| | — |
| | — |
| | 8,375 |
| | — |
| | 8,375 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 16,695 |
| | 16,695 |
|
Share based compensation expense | — |
| | — |
| | — |
| | 2,172 |
| | — |
| | — |
| | 2,172 |
|
Proceeds from exercise of stock options | 7,888 |
| | — |
| | — |
| | 40 |
| | — |
| | — |
| | 40 |
|
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 11,170 |
| | — |
| | — |
| | (110 | ) | | — |
| | — |
| | (110 | ) |
Balances at March 31, 2019 | 46,431,289 |
| | $ | 9 |
| | $ | — |
| | $ | 62,117 |
| | $ | 18,983 |
| | $ | (44,365 | ) | | $ | 36,744 |
|
(1) Accumulated other comprehensive income (loss) |
Dividend
On February 5, 2020, the Company's Board of Directors announced the initiation of a dividend program and declared its first cash dividend of $0.055 per share. A dividend of $2.2 million was paid on March 2, 2020 to stockholders of record as of the close of
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in capital | | Treasury Stock | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
(dollars in thousands) | Shares Outstanding | | Par Value | | | | | |
Balances at December 31, 2018 | 46,412,231 |
| | $ | 9 |
| | $ | 60,015 |
| | $ | — |
| | $ | (18,065 | ) | | $ | (61,060 | ) | | $ | (19,101 | ) |
Net income from continuing operations | — |
| | — |
| | — |
| | — |
| | 28,673 |
| | — |
| | 28,673 |
|
Net income from discontinued operations | — |
| | — |
| | — |
| | — |
| | 8,375 |
| | — |
| | 8,375 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 16,695 |
| | 16,695 |
|
Share based compensation expense | — |
| | — |
| | 2,172 |
| | — |
| | — |
| | — |
| | 2,172 |
|
Proceeds from exercise of stock options | 7,888 |
| | — |
| | 40 |
| | — |
| | — |
| | — |
| | 40 |
|
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 11,170 |
| | — |
| | (110 | ) | | — |
| | — |
| | — |
| | (110 | ) |
Balances at March 31, 2019 | 46,431,289 |
| | $ | 9 |
| | $ | 62,117 |
| | $ | — |
| | $ | 18,983 |
| | $ | (44,365 | ) | | $ | 36,744 |
|
Net income from continuing operations | — |
| | — |
| | — |
| | — |
| | 17,667 |
| | — |
| | 17,667 |
|
Net income from discontinued operations | — |
| | — |
| | — |
| | — |
| | (834 | ) | | — |
| | (834 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 3,635 |
| | 3,635 |
|
Share based compensation expense | — |
| | — |
| | 2,644 |
| | — |
| | — |
| | — |
| | 2,644 |
|
Proceeds from exercise of stock options | 4,908 |
| | — |
| | 29 |
| | — |
| | — |
| | — |
| | 29 |
|
Purchase of shares under the stock repurchase program | (244,200 | ) | | — |
| | — |
| | (2,507 | ) | | — |
| | — |
| | (2,507 | ) |
Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 63,285 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balances at June 30, 2019 | 46,255,282 |
| | $ | 9 |
| | $ | 64,790 |
| | $ | (2,507 | ) | | $ | 35,816 |
| | $ | (40,730 | ) | | $ | 57,378 |
|
(1) Accumulated other comprehensive income (loss)
|
business on February 18, 2020. Subsequently, on April 30, 2020, the Company's Board of Directors declared a dividend. See Note 19, "Subsequent Events" for more information.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 10 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net income from continuing operations
| $ | 17,667 |
| | $ | 18,718 |
| | $ | 46,340 |
| | $ | 43,631 |
| $ | 36,013 |
| | $ | 28,673 |
|
Net income (loss) from discontinued operations, net of tax
| (834 | ) | | (2,743 | ) | | $ | 7,541 |
| | $ | (4,364 | ) | |
Net income from discontinued operations, net of tax | | 292 |
| | 8,375 |
|
Net income | $ | 16,833 |
| | $ | 15,975 |
| | $ | 53,881 |
| | $ | 39,267 |
| $ | 36,305 |
| | $ | 37,048 |
|
| | | | | | | | | | |
Weighted average common shares - basic | 46,451 |
| | 45,650 |
| | 46,438 |
| | 45,578 |
| 40,817 |
| | 46,424 |
|
Dilutive effect of stock options and restricted stock units | 656 |
| | 2,346 |
| | 897 |
| | 2,179 |
| 1,075 |
| | 895 |
|
Weighted average common shares - diluted | 47,107 |
| | 47,996 |
| | 47,335 |
| | 47,757 |
| 41,892 |
| | 47,319 |
|
| | | | | | | | | | |
Basic income (loss) per share: | | | | | | | | |
Basic earnings per share: | | | | |
Continuing operations | $ | 0.38 |
| | $ | 0.41 |
| | $ | 1.00 |
| | $ | 0.96 |
| $ | 0.88 |
| | $ | 0.62 |
|
Discontinued operations | (0.02 | ) | | (0.06 | ) | | 0.16 |
| | (0.10 | ) | 0.01 |
| | 0.18 |
|
Basic income per share | $ | 0.36 |
|
| $ | 0.35 |
|
| $ | 1.16 |
| | $ | 0.86 |
| |
Basic earnings per share | | $ | 0.89 |
|
| $ | 0.80 |
|
| | | | | | | | | | |
Diluted income (loss) per share: | | | | | | | | |
Diluted earnings per share: | | | | |
Continuing operations | $ | 0.38 |
| | $ | 0.39 |
| | $ | 0.98 |
| | $ | 0.92 |
| $ | 0.86 |
| | $ | 0.61 |
|
Discontinued operations | (0.02 | ) | | (0.06 | ) | | 0.16 |
| | (0.10 | ) | 0.01 |
| | 0.18 |
|
Diluted income per share | $ | 0.36 |
| | $ | 0.33 |
| | $ | 1.14 |
| | $ | 0.82 |
| |
Diluted earnings per share | | $ | 0.87 |
| | $ | 0.79 |
|
Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating "Diluted earnings per share." For the three and six months ended June 30,March 31, 2020 and March 31, 2019, there were 1.3 million and 1.21.4 million, respectively, of potential shares of common stock excluded from the calculation of dilutedDiluted earnings per share because their effect was anti-dilutive. There was no effect for the three and six months ended June 30, 2018.
The Company utilizes the "control number" concept in the computation of Diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing dilutedDiluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow information:information (in thousands):
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(dollars in thousands) | 2019 | | 2018 | |
| | 2020 | | 2019 |
Cash paid for: | | | | | | |
Interest | $ | 34,678 |
| | $ | 44,250 |
| $ | 31,184 |
| | $ | 32,195 |
|
Income taxes | 4,231 |
| | 11,621 |
| |
Income taxes, net of refunds | | 1,065 |
| | 1,456 |
|
Non-cash investing activities: | | | | | | |
Property and equipment accrued in accounts payable | $ | 105 |
| | $ | 595 |
| $ | 869 |
| | $ | 349 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 12 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's Chief Operating Decision Maker ("CODM") reviews financial information for operational decision making purposes. Duringpurposes, including revenues, net revenue, gross margin, segment operating income and other items.
U.S. As of March 31, 2020, the first quarterCompany operated a total of 2019, the U.K. Subsidiaries met discontinued operations criteria, resulting214 U.S. retail locations and has an online presence in two reportable operating segments:27 states. The Company provides Single-Pay loans, Installment loans and Open-End loans, vehicle title loans, check cashing, money transfer services, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in the U.S. and Canada.As disclosed in Note 17, "Acquisition," the acquisition of Ad Astra closed during the three months ended March 31, 2020. The results of Ad Astra are included within the U.S. reporting segment. Management’s evaluation of performance utilizes gross margin and operating profit before the allocation of interest expense and professional services. The following reporting segment results reflect this basis for evaluation and were determined in accordance with the same accounting principles used in the Condensed Consolidated Financial Statements.
Canada. As of March 31, 2020, the Company operated a total of 202 stores across seven Canadian provinces and territories and has an online presence in five provinces. The Company provides Single-Pay loans, Installment loans and Open-End loans, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.
The following table illustrates summarized financial information concerning reportable
segments. |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Revenues by segment: | | | | | | | |
U.S. | $ | 210,046 |
| | $ | 190,126 |
| | $ | 436,165 |
| | $ | 394,719 |
|
Canada | 54,254 |
| | 47,043 |
| | 106,074 |
| | 93,293 |
|
Consolidated revenue | $ | 264,300 |
| | $ | 237,169 |
| | $ | 542,239 |
| | $ | 488,012 |
|
Gross margin by segment: | | | | | | | |
U.S. | $ | 65,067 |
| | $ | 64,048 |
| | $ | 154,870 |
| | $ | 155,392 |
|
Canada | 16,114 |
| | 13,300 |
| | 31,808 |
| | 27,802 |
|
Consolidated gross margin | $ | 81,181 |
| | $ | 77,348 |
| | $ | 186,678 |
| | $ | 183,194 |
|
Segment operating income: | | | | | | | |
U.S. | $ | 17,029 |
| | $ | 15,362 |
| | $ | 48,224 |
| | $ | 42,194 |
|
Canada | 8,091 |
| | 8,534 |
| | 15,615 |
| | 18,082 |
|
Consolidated operating profit | $ | 25,120 |
| | $ | 23,896 |
| | $ | 63,839 |
| | $ | 60,276 |
|
Expenditures for long-lived assets by segment: | | | | | | | |
U.S. | $ | 2,568 |
| | $ | 1,195 |
| | $ | 4,998 |
| | $ | 1,983 |
|
Canada | 477 |
| | 220 |
| | 1,166 |
| | 974 |
|
Consolidated expenditures for long-lived assets | $ | 3,045 |
| | $ | 1,415 |
| | $ | 6,164 |
| | $ | 2,957 |
|
The following table provides gross loans receivable by segment:segments (in thousands):
| | (dollars in thousands) | June 30, 2019 | | December 31, 2018 | |
| | | Three Months Ended March 31, |
| | | 2020 | | 2019 |
Revenues by segment: (1) | | | | | |
U.S. | $ | 340,968 |
| | $ | 361,473 |
| | $ | 221,768 |
| | $ | 226,119 |
|
Canada | 268,625 |
| | 210,058 |
| | 59,038 |
| | 51,820 |
|
Total gross loans receivable | $ | 609,593 |
| | $ | 571,531 |
| |
Consolidated revenue | | | $ | 280,806 |
| | $ | 277,939 |
|
Net revenues by segment: | | | | | |
U.S. | | | $ | 135,727 |
| | $ | 141,139 |
|
Canada | | | 31,543 |
| | 34,415 |
|
Consolidated net revenue | | | $ | 167,270 |
| | $ | 175,554 |
|
Gross margin by segment: | | | | | |
U.S. | | | $ | 87,540 |
| | $ | 89,803 |
|
Canada | | | 12,159 |
| | 15,694 |
|
Consolidated gross margin | | | $ | 99,699 |
| | $ | 105,497 |
|
Segment operating income (loss): | | | | | |
U.S. | | | $ | 33,426 |
| | $ | 31,195 |
|
Canada | | | 4,524 |
| | 7,524 |
|
Consolidated operating profit | | | $ | 37,950 |
| | $ | 38,719 |
|
Expenditures for long-lived assets by segment: | | | | | |
U.S. | | | $ | 4,280 |
| | $ | 2,430 |
|
Canada | | | 553 |
| | 689 |
|
Consolidated expenditures for long-lived assets | | | $ | 4,833 |
| | $ | 3,119 |
|
| | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table provides the proportion of gross loans receivable by segment (in thousands):
|
| | | | | | | | |
| | March 31, 2020 | | December 31, 2019 |
U.S. | | $ | 288,127 |
| | $ | 363,453 |
|
Canada | | 276,310 |
| | 302,375 |
|
Total gross loans receivable | | $ | 564,437 |
| | $ | 665,828 |
|
The following table represents the Company's net long-lived assets, comprised of property and equipment, by segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located:located (in thousands):
| | (dollars in thousands) | June 30, 2019 | | December 31, 2018 | |
| | | March 31, 2020 | | December 31, 2019 |
U.S. | $ | 44,209 |
| | $ | 47,918 |
| | $ | 42,536 |
| | $ | 43,618 |
|
Canada | 28,784 |
| | 28,832 |
| | 24,251 |
| | 27,193 |
|
Total net long-lived assets | $ | 72,993 |
| | $ | 76,750 |
| | $ | 66,787 |
| | $ | 70,811 |
|
The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 13 – CONTINGENT LIABILITIESCOMMITMENTS AND CONTENGENCIES
Securities Litigation
On December 5, 2018, a putative securities fraud class action lawsuit was filed against the Company and its chief executive officer, chief financial officer and chief operating officer in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662. On May 31, 2019, plaintiffs filed a consolidated complaint naming Doug Rippel, Chad Faulkner, Mike McKnight, Friedman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P., and FFL Parallel Fund II, L.P. as additional defendants. The complaint alleges that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and that certain defendants also violated Section 20(a) of the Exchange Act as "control persons" of CURO. Plaintiffs purport to bring these claims on behalf of a class of investors who purchased Company common stock between April 27, 2018 and October 24, 2018.
Plaintiffs allege generally that, during the putative class period, the Company made misleading statements and omitted material information regarding its efforts to transition the Canadian inventory of products from Single-Pay loans to Open-End loans. Plaintiffs assert that the Company and the individual defendants made these misstatements and omissions to keep the stock price high. Plaintiffs seek unspecified damages and other relief.
While the Company is vigorously contesting this lawsuit, it cannot determine the final resolution or when it might be resolved. In addition to the expenses incurred in defending this litigation and any damages that may be awarded in the event of an adverse ruling, management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcome, this litigation may have a material adverse impact on results because of defense costs, including costs related to indemnification obligations, diversion of resources and other factors.
TheDuring the first quarter of 2019, the Company has also received an inquiry from the SEC regarding the Company's public disclosures surrounding its efforts to transition the Canadian inventory of products from Single-Pay loans to Open-End loans.
City of Austin
The Company was cited in July 2016 by the City of Austin, Texas for alleged violations of the Austin ordinance addressing products offered by CSOs. The Austin ordinance regulates aspects of products offered under the Company's credit access bureau ("CAB")CAB program, including loan sizes and repayment terms. The Company believes that: (i) the Austin ordinance (similar to its counterparts elsewhere in Texas) conflicts with Texas state law and (ii) in any event, the Company's product complies with the ordinance, when the ordinance is properly construed. The Austin Municipal Court agreed with the Company's position that the ordinance conflicts with Texas law and, accordingly, did not address the second argument. In September 2017, the Travis County Court reversed the Municipal Court’s decision and remanded the case for further proceedings. To date, a hearing and trial on the merits have not been scheduled. The Company does not anticipate having a final determination of the lawfulness of its CAB program under the Austin ordinance (and similar ordinances in other Texas cities) in the near future. A final adverse decision could potentially result in material monetary liability
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
in Austin and elsewhere in Texas, and would force the Company to restructure the loans it originates in Austin and elsewhere in Texas.
Other Legal Matters
The Company is a defendant in certain litigation matters encountered from time-to-time in the ordinary course of business. Certain of these matters may be covered to an extent by insurance. InWhile it is difficult to predict the opinionoutcome of management, based uponany particular proceeding, the advice of legal counsel,Company does not believe the likelihood is remote that the impactresult of any of these pending litigation matters either individually or in the aggregate, wouldwill have a material adverse effect on the Company's consolidated financial condition,business, results of operations or cash flows.financial condition.
NOTE 14 – LEASES
The CompanyOperating leases entered into operatingby the Company are primarily for retail stores in certain U.S. states and Canadian provinces. Leases classified as finance are immaterial to the Company as of March 31, 2020. Operating leases for the buildings in which it operates that expire at various times through 2040.2032. The Company determines if an arrangement is a lease at inception. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" inon the Condensed Consolidated Balance Sheets. The Company currently has finance leases which in the aggregate are immaterial and not presented in the Condensed Consolidated Balance Sheets.
Typically, a contract is or contains a lease if it conveys the right to control the use of an identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the customer has both (i) the right to obtain substantially all of the economic benefits from use of the identified asset and (ii) the right to direct the use of the identified asset. If the customer has the right to control the use of an identified asset for only a portion of the term of the contract, the contract contains a lease for that portion of the term.
The Company recognizes ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. The rate implicit in the Company's leases typically are not readily determinable. As most of the Company’s leases do not provide an implicit rate of return,a result, the Company uses its estimated incremental borrowing rate, based on the information available at commencement dateas allowed by ASC 842, in determining the present value of lease payments. The incremental borrowing rate is based on internal and external information available at the lease commencement date and is determined using a portfolio approach (i.e. using the weighted average terms of all leases in the Company's portfolio). This rate is the theoretical rate the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as that of the portfolio.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company uses quoted interest rates obtained from financial institutions as an input, adjusted for Company specific factors, to derive the incremental borrowing rate as the discount rate for the leases. As new leases are added each period, the Company evaluates whether the incremental borrowing rate has changed. If the incremental borrowing rate has changed, the Company will apply the rate to new leases if not doing so would result in a material difference to the ROU asset and lease liability presented on the balance sheet.
The majority of the leases have an original term of five years with two five-year renewal options. ForThe consumer price index is used in determining future lease payments and for purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Most of the leases have escalation clauses and severalcertain leases also require payment of certain period costs, including maintenance, insurance and property taxes. Some of the leases are with related parties and have terms similar to the non-related party leases. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company had operating lease costs of approximately $17.0 million for the period ended June 30, 2019. Some of the leases are with related parties and have terms similar to the non-related party leases previously described. Operating lease costs for unrelated third-party leases were $15.3 million and for related party leases were $1.7 million for the three months ended June 30, 2019.
During the six months ended June 30, 2019, cash paid for amounts included in the measurement of the liabilities and the operating cash flows were $17.4 million.
The following table summarizes the future minimum lease payments that the Company is contractually obligated to make under operating leases as of June 30, 2019:
|
| | | | | | | | | | | |
(in thousands) | Third-Party | | Related-Party | | Total |
2019 | $ | 15,517 |
| | $ | 1,840 |
| | $ | 17,357 |
|
2020 | 30,735 |
| | 3,752 |
| | 34,487 |
|
2021 | 30,344 |
| | 3,852 |
| | 34,196 |
|
2022 | 29,353 |
| | 3,909 |
| | 33,262 |
|
2023 | 25,280 |
| | 3,616 |
| | 28,896 |
|
Thereafter | 44,277 |
| | 10,883 |
| | 55,160 |
|
Total | 175,506 |
| | 27,852 |
| | 203,358 |
|
Less: Imputed interest | (45,852 | ) | | (8,663 | ) | | (54,515 | ) |
Operating lease liabilities | $ | 129,654 |
| | $ | 19,189 |
| | $ | 148,843 |
|
As of June 30, 2019, the weighted average remaining lease term was 6.3 years, and the weighted average operating discount rate used to determine the operating lease liability was 10.3%.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the operating lease costs and other information for the three months ended March 31, 2020 and March 31,2019 (in thousands):
|
| | | | | | |
| Three Months Ended March 31, |
| 2020 | 2019 |
Operating lease costs: | | |
Third-Party | $ | 7,626 |
| $ | 7,621 |
|
Related-Party | 864 |
| 847 |
|
Total operating lease costs | $ | 8,490 |
| $ | 8,468 |
|
| | |
Operating cash flow - Operating leases | $ | 8,433 |
| $ | 8,615 |
|
New ROU assets - Operating leases | $ | 5,647 |
| $ | — |
|
Weighted average remaining lease term - Operating leases | 6.3 years |
| 6.1 years |
|
Weighted average discount rate - Operating leases | 10.3 | % | 10.3 | % |
The following table summarizes the aggregate operating lease maturities that the Company is contractually obligated to make under operating leases as of March 31, 2020 (in thousands):
|
| | | | | | | | | | | | |
| | Third-Party | | Related-Party | | Total |
Remainder of 2020 | | $ | 22,437 |
| | $ | 2,809 |
| | $ | 25,246 |
|
2021 | | 27,464 |
| | 3,767 |
| | 31,231 |
|
2022 | | 24,640 |
| | 3,661 |
| | 28,301 |
|
2023 | | 19,995 |
| | 1,316 |
| | 21,311 |
|
2024 | | 15,343 |
| | 962 |
| | 16,305 |
|
2025 | | 11,178 |
| | 861 |
| | 12,039 |
|
Thereafter | | 30,416 |
| | 2,655 |
| | 33,071 |
|
Total | | 151,473 |
| | 16,031 |
| | 167,504 |
|
Less: Imputed interest | | (41,963 | ) | | (3,826 | ) | | (45,789 | ) |
Operating lease liabilities | | $ | 109,510 |
| | $ | 12,205 |
| | $ | 121,715 |
|
As a result of the COVID-19 pandemic that began during the three months ended March 31, 2020, CURO reviewed ROU assets for indicators of impairment. Under US GAAP, the model used to review ROU assets for impairment is consistent to that used for other long-lived assets, such as fixed assets. In applying the appropriate guidance, the Company noted there was no indicators of impairment as of March 31, 2020 related to its ROU assets.
NOTE 15 – DISCONTINUED OPERATIONS
On February 25, 2019, in accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the boardsBoards of directorsDirectors 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, the Company deconsolidated the U.K. Subsidiaries, which comprised the U.K. reportable operating segment, as of February 25, 2019 and classified them as Discontinued Operations for all periods presented.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents the results of operations of the U.K. Subsidiaries, which meet the criteria of Discontinued Operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019(1) |
Revenue | | $ | — |
| | $ | 6,957 |
|
Provision for losses | | �� |
| | 1,703 |
|
Net revenue | | — |
| | 5,254 |
|
| | | | |
Cost of providing services | | | | |
Office | | — |
| | 246 |
|
Other costs of providing services | | — |
| | 61 |
|
Advertising | | — |
| | 775 |
|
Total cost of providing services | | — |
| | 1,082 |
|
Gross margin | | — |
| | 4,172 |
|
Operating (income) expense | | | | |
Corporate, district and other expenses | | — |
| | 3,810 |
|
Interest income | | — |
| | (4 | ) |
(Gain) loss on disposition | | (390 | ) | | 39,414 |
|
Total operating (income) expense | | (390 | ) | | 43,220 |
|
Pre-tax income (loss) from operations of discontinued operations | | 390 |
| | (39,048 | ) |
Income tax expense (benefit) related to disposition | | 98 |
| | (47,423 | ) |
Net income from discontinued operations | | $ | 292 |
| | $ | 8,375 |
|
(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. Subsidiariessubsidiaries effective February 25, 2019. For the sixthree months ended June 30,March 31, 2019, "Loss"(Gain) loss on disposition" of $39.4 million included the non-cash effect of eliminating assets and liabilities of the U.K. Subsidiaries as of the date of deconsolidation, as well as the effect of cumulative currency exchange rate differences on the U.S. investment in the U.K.
In connection with the disposition of the U.K. Subsidiaries, the U.S. entity that owned the Company's interests in the U.K. Subsidiaries recognized a loss on investment. This loss resulted in an estimated U.S. federalFederal and state income tax benefit of $46.6$47.4 million which willas of March 31, 2019, to be available to offset the Company'sapplied against future U.S. federal and state income tax obligations. In the second quarter ofSubsequently, in 2019, the Company revised the estimateestimated U.S. Federal and state income tax benefit to $46.6 million. During the three months ended March 31, 2020, the Company received $0.4 million of disbursements from the Administrator related to the wind-down of the tax basis inU.K. Subsidiaries.
As of March 31, 2020 and December 31, 2019, the unaudited Condensed Consolidated Balance Sheets were not impacted by the U.K. Subsidiaries resulting in a $0.8 million reduction inas all balances were written off when the income tax benefit recorded inU.K. segment entered into administration during the first quarter of 2019.
The following table presents financial resultscash flows of the U.K. Subsidiaries (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019(1) |
Net cash provided by (used in) discontinued operating activities | $ | 390 |
| | $ | (504 | ) |
Net cash used in discontinued investing activities | — |
| | (14,213 | ) |
Net cash used in discontinued financing activities | — |
| | — |
|
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 – GOODWILL
The change in the carrying amount of Goodwill by operating segment for the three months ended March 31, 2020 was as follows (in thousands):
|
| | | | | | | | | | | |
| U.S. | | Canada | | Total |
Goodwill at December 31, 2019 | $ | 91,131 |
| | $ | 29,478 |
| | $ | 120,609 |
|
Acquisition (Note 17) | 14,791 |
| | — |
| | 14,791 |
|
Foreign currency translation | — |
| | (2,575 | ) | | (2,575 | ) |
Goodwill at March 31, 2020 | 105,922 |
| | 26,903 |
| | 132,825 |
|
The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment of goodwill on October 1) and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which meetis defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the criteria of Discontinued Operations and, therefore, are excluded from2019 Form 10-K filed with the SEC on March 9, 2020, for additional information on the Company's policy for assessing goodwill for impairment.
U.S. and Canada Reporting Units
During the three months ended March 31, 2020, the Company determined a triggering event had occurred for the U.S. and Canada reporting units as a result of COVID-19. The global crisis caused by the pandemic drove significant declines in macroeconomic market conditions and altered the assumptions used in the Company's forecast for both reporting units. After performing an interim review, the Company concluded that the fair value of each reporting unit was in excess of its respective carrying value.
Ad Astra Acquisition
The Company completed the acquisition of Ad Astra on January 3, 2020. Goodwill of $14.8 million was recorded on the U.S. reporting unit during the three months ended March 31, 2020, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. See Note 17, "Acquisition" for more information related to the business combination.
NOTE 17 – ACQUISITION
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency.
The Company began consolidating the financial results of
continuing operations:this acquisition in the unaudited Condensed Consolidated Financial Statements on January 3, 2020. For the three months ended March 31, 2019, prior to the acquisition, $4.7 million of costs related to Ad Astra were included in "Other costs of providing services." Subsequent to the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. Ad Astra incurred $3.5 million of operating expense during the three months ended March 31, 2020. |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 | | 2019(1) | | 2018 |
Revenue | $ | — |
| | $ | 11,814 |
| | $ | 6,957 |
| | $ | 22,729 |
|
Provision for losses | — |
| | 5,639 |
| | 1,703 |
| | 9,787 |
|
Net revenue | — |
| | 6,175 |
| | 5,254 |
| | 12,942 |
|
| | | | | | | |
Cost of providing services | | | | | | | |
Office | — |
| | 545 |
| | 246 |
| | 1,073 |
|
Other costs of providing services | — |
| | 125 |
| | 61 |
| | 1,094 |
|
Advertising | — |
| | 2,441 |
| | 775 |
| | 4,312 |
|
Total cost of providing services | — |
| | 3,111 |
| | 1,082 |
| | 6,479 |
|
Gross margin | — |
| | 3,064 |
| | 4,172 |
| | 6,463 |
|
Operating expense (income) | | | | | | | |
Corporate, district and other expenses | — |
| | 5,675 |
| | 3,810 |
| | 10,700 |
|
Interest income | — |
| | (7 | ) | | (4 | ) | | (12 | ) |
Loss on disposition | — |
| | — |
| | 39,414 |
| | — |
|
Total operating expense | — |
| | 5,668 |
| | 43,220 |
| | 10,688 |
|
Pre-tax (loss) income from operations of discontinued operations | — |
| | (2,604 | ) | | (39,048 | ) | | (4,225 | ) |
Income tax expense (benefit) related to disposition | 834 |
| | 139 |
| | (46,589 | ) | | 139 |
|
Net income (loss) from discontinued operations | $ | (834 | ) | | $ | (2,743 | ) | | $ | 7,541 |
| | $ | (4,364 | ) |
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | | | | | | | |
The transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of March 31, 2020. As of March 31, 2020, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities based on the information available.CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presentssummarizes the aggregate carrying amountsallocation of the estimated fair values of the assets acquired and liabilities assumed at the date of the U.K. Subsidiaries:acquisition:
|
| | | | | | |
(in thousands) | June 30, 2019 | December 31, 2018 |
ASSETS |
Cash | $ | — |
| $ | 9,859 |
|
Restricted cash | — |
| 3,384 |
|
Gross loans receivable | — |
| 25,256 |
|
Less: allowance for loan losses | — |
| (5,387 | ) |
Loans receivable, net | — |
| 19,869 |
|
Prepaid expenses and other | — |
| 1,482 |
|
Other | — |
| 267 |
|
Total assets classified as discontinued operations in the Condensed Consolidated Balance Sheets | $ | — |
| $ | 34,861 |
|
LIABILITIES |
Accounts payable and accrued liabilities | $ | — |
| $ | 8,136 |
|
Deferred revenue | — |
| 180 |
|
Accrued interest | — |
| (5 | ) |
Deferred rent | — |
| 149 |
|
Other long-term liabilities | — |
| 422 |
|
Total liabilities classified as discontinued operations in the Condensed Consolidated Balance Sheets | $ | — |
| $ | 8,882 |
|
|
| | | |
(in thousands) | Amounts acquired on January 3, 2020 |
Cash consideration transferred: | $ | 17,811 |
|
| |
Cash and cash equivalents | 3,360 |
|
Accounts receivable | 465 |
|
Property and equipment | 358 |
|
Intangible assets | 1,101 |
|
Goodwill | 14,791 |
|
Operating lease asset | 235 |
|
Accounts payable and accrued liabilities | (2,264 | ) |
Operating lease liabilities | (235 | ) |
Total | $ | 17,811 |
|
The following table presents cash flows
Goodwill of $14.8 million represents the excess over the fair value of the U.K. Subsidiaries:
|
| | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2019(1) | | 2018 |
Net cash (used in) / provided by discontinued operating activities | $ | (504 | ) | | $ | 5,458 |
|
Net cash used in discontinued investing activities | (14,213 | ) | | (14,349 | ) |
Net cash used in discontinued financing activities | — |
| | — |
|
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | | | |
net tangible and intangible assets acquired. Goodwill is not deductible for income tax purposes.
NOTE 16 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In August 2018, CGHC issued $690.0 million of 8.25% Senior Secured Notes due September 1, 2025. The proceeds from issuance of the 8.25% Senior Secured Notes were used to extinguish the February and November 2017 12.00% Senior Secured Notes due March 1, 2022. The redemption was conducted pursuant to the indenture governing the 8.25% Senior Secured Notes. See Note 5, "Long-Term Debt," for additional details.
In August 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 provided 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"). See Note 5. "Long-Term Debt" for additional details.
In March 2018, CFTC redeemed $77.5 million of the 12.00% Senior Secured Notes at a price equal to 112.00% of the principal amount plus accrued and unpaid interest to the date of redemption. The redemption was conducted pursuant to the indenture governing the 12.00% Senior Secured Notes, dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent. Consistent with the terms of the Indenture, CFTC used a portion of the cash proceeds from the Company's initial public offering, to redeem the 12.00% Senior Secured Notes.
In November 2017, CFTC issued $135.0 million aggregate principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act (the "Additional Notes Offering"). CFTC used the proceeds from the Additional Notes Offering, together with available cash, to (i) pay a cash dividend, in an amount of $140.0 million to the Company, CFTC’s sole stockholder, and ultimately the Company's stockholders and (ii) pay fees, expenses, premiums and accrued interest in connection with the Additional Notes Offering. CFTC received the consent of the holders of a majority of
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
the outstanding principal amount of the current Senior Secured Notes to a one-time waiver with respect to the restrictions contained in Section 5.07(a) of the indenture governing the 12.00% Senior Secured Notes to permit the dividend.
In February 2017, CFTC issued $470.0 million aggregate principal amount 12.00% Senior Secured Notes, the proceeds of which were used together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of CURO Intermediate, (ii) redeem the outstanding 12.00% Senior Cash Pay Notes due 2017 and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. CFTC sold the Senior Secured Notes to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”) or outside the U.S. to non-U.S. persons in compliance with Regulation S of the Securities Act.
The following condensed consolidating financing information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:
| |
(i) | CURO as the issuer of the 8.25% Senior Secured Notes; |
| |
(ii) | The Company's subsidiary guarantors, which are comprised of its domestic subsidiaries, including CFTC as the issuer of the 12.00% Senior Secured Notes that were redeemed in August 2018, CURO Intermediate, and U.S. SPV as the issuer of the Non-Recourse U.S. SPV Facility that was extinguished in October 2018, and excluding Canada SPV (the “Subsidiary Guarantors”), on a consolidated basis, which are 100% owned by CURO, and which are guarantors of the 8.25% Senior Secured Notes issued in August 2018; |
| |
(iii) | The Company's other subsidiaries on a consolidated basis, which are not guarantors of the 8.25% Senior Secured Notes (the “Subsidiary Non-Guarantors”) |
| |
(iv) | Consolidating and eliminating entries representing adjustments to: |
| |
a. | eliminate intercompany transactions between or among us, the Subsidiary Guarantors and the Subsidiary Non-Guarantors; and |
| |
b. | eliminate the investments in subsidiaries; |
| |
(v) | The Company and its subsidiaries on a consolidated basis. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
(dollars in thousands) | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Assets: | | | | | | |
Cash | $ | 68,354 |
| $ | 23,943 |
| $ | — |
| $ | — |
| $ | — |
| $ | 92,297 |
|
Restricted cash | 16,198 |
| 2,695 |
| 14,819 |
| — |
| — |
| 33,712 |
|
Loans receivable, net | 269,298 |
| 48,297 |
| 190,121 |
| — |
| — |
| 507,716 |
|
Right of use asset - operating leases | 79,000 |
| 61,982 |
| — |
| — |
| — |
| 140,982 |
|
Deferred income taxes | (7,848 | ) | — |
| — |
| 10,485 |
| — |
| 2,637 |
|
Income taxes receivable | (470 | ) | 6,395 |
| — |
| 31,654 |
| — |
| 37,579 |
|
Prepaid expenses and other | 23,038 |
| 7,203 |
| — |
| — |
| — |
| 30,241 |
|
Property and equipment, net | 44,209 |
| 28,784 |
| — |
| — |
| — |
| 72,993 |
|
Goodwill | 91,131 |
| 29,319 |
| — |
| — |
| — |
| 120,450 |
|
Other intangibles, net | 8,420 |
| 22,237 |
| — |
| — |
| — |
| 30,657 |
|
Intercompany receivable | 107,251 |
| — |
| — |
| — |
| (107,251 | ) | — |
|
Investment in subsidiaries | — |
| — |
| — |
| (1,515 | ) | 1,515 |
| — |
|
Other | 15,401 |
| 690 |
| — |
| — |
| — |
| 16,091 |
|
Total assets | $ | 713,982 |
| $ | 231,545 |
| $ | 204,940 |
| $ | 40,624 |
| $ | (105,736 | ) | $ | 1,085,355 |
|
Liabilities and Stockholders' equity: | | | | | | |
Accounts payable and accrued liabilities | $ | 44,667 |
| $ | (1,166 | ) | $ | 15,020 |
| $ | 753 |
| $ | — |
| $ | 59,274 |
|
Deferred revenue | 5,237 |
| 3,430 |
| 45 |
| — |
| — |
| 8,712 |
|
Lease liability - operating leases | 86,685 |
| 62,158 |
| — |
| — |
| — |
| 148,843 |
|
Income taxes payable | (18,731 | ) | — |
| — |
| 18,731 |
| — |
| — |
|
Accrued interest | 2 |
| — |
| 713 |
| 18,975 |
| — |
| 19,690 |
|
Payable to CURO Holdings Corp. | 736,920 |
| — |
| — |
| (736,920 | ) | — |
| — |
|
CSO liability for losses | 9,504 |
| — |
| — |
| — |
| — |
| 9,504 |
|
Long-term debt | — |
| — |
| 90,976 |
| 677,536 |
| — |
| 768,512 |
|
Intercompany payable | — |
| 20,002 |
| 87,249 |
| — |
| (107,251 | ) | — |
|
Other liabilities | 7,999 |
| 595 |
| — |
| — |
| — |
| 8,594 |
|
Deferred tax liabilities | (4,171 | ) | 4,848 |
| — |
| 4,171 |
| — |
| 4,848 |
|
Total liabilities | 868,112 |
| 89,867 |
| 194,003 |
| (16,754 | ) | (107,251 | ) | 1,027,977 |
|
Stockholder’s equity | (154,130 | ) | 141,678 |
| 10,937 |
| 57,378 |
| 1,515 |
| 57,378 |
|
Total liabilities and stockholder’s equity | $ | 713,982 |
| $ | 231,545 |
| $ | 204,940 |
| $ | 40,624 |
| $ | (105,736 | ) | $ | 1,085,355 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
(dollars in thousands) | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Assets: | | | | | | |
Cash | $ | 42,403 |
| $ | 18,772 |
| $ | — |
| $ | — |
| $ | — |
| $ | 61,175 |
|
Restricted cash | 9,993 |
| 2,606 |
| 12,840 |
| — |
| — |
| 25,439 |
|
Loans receivable, net | 304,542 |
| 56,805 |
| 136,187 |
| — |
| — |
| 497,534 |
|
Deferred income taxes | — |
| 1,534 |
| — |
| — |
| — |
| 1,534 |
|
Income taxes receivable | 7,190 |
| — |
| — |
| 9,551 |
| — |
| 16,741 |
|
Prepaid expenses and other | 37,866 |
| 5,722 |
| — |
| — |
| — |
| 43,588 |
|
Property and equipment, net | 47,918 |
| 28,832 |
| — |
| — |
| — |
| 76,750 |
|
Goodwill | 91,131 |
| 28,150 |
| — |
| — |
| — |
| 119,281 |
|
Other intangibles, net | 8,418 |
| 21,366 |
| — |
| — |
| — |
| 29,784 |
|
Intercompany receivable | 77,009 |
| — |
| — |
| — |
| (77,009 | ) | — |
|
Investment in subsidiaries | — |
| — |
| — |
| (101,665 | ) | 101,665 |
| — |
|
Other | 12,253 |
| 677 |
| — |
| — |
| — |
| 12,930 |
|
Assets from discontinued operations | — |
| 2,406 |
| — |
| — |
| 32,455 |
| 34,861 |
|
Total assets | $ | 638,723 |
| $ | 166,870 |
| $ | 149,027 |
| $ | (92,114 | ) | $ | 57,111 |
| $ | 919,617 |
|
Liabilities and Stockholder's equity: | | | | | | |
Accounts payable and accrued liabilities | $ | 38,240 |
| $ | 5,734 |
| $ | 4,980 |
| $ | 192 |
| $ | — |
| $ | 49,146 |
|
Deferred revenue | 5,981 |
| 3,462 |
| 40 |
| — |
| — |
| 9,483 |
|
Income taxes payable | — |
| 1,579 |
| — |
| — |
| — |
| 1,579 |
|
Accrued interest | 149 |
| — |
| 831 |
| 19,924 |
| — |
| 20,904 |
|
Payable to CURO Holdings Corp. | 768,345 |
| — |
| — |
| (768,345 | ) | — |
| — |
|
CSO liability for losses | 12,007 |
| — |
| — |
| — |
| — |
| 12,007 |
|
Deferred rent | 9,559 |
| 1,292 |
| — |
| — |
| — |
| 10,851 |
|
Long-term debt | 20,000 |
| — |
| 107,479 |
| 676,661 |
| — |
| 804,140 |
|
Subordinated shareholder debt | — |
| 2,196 |
| — |
| — |
| — |
| 2,196 |
|
Intercompany payable | — |
| 224 |
| 44,330 |
| — |
| (44,554 | ) | — |
|
Other liabilities | 4,967 |
| 833 |
| — |
| — |
| — |
| 5,800 |
|
Deferred tax liabilities | 15,175 |
| — |
| — |
| (1,445 | ) | — |
| 13,730 |
|
Liabilities from discontinued operations | — |
| 8,882 |
| — |
| — |
| — |
| 8,882 |
|
Total liabilities | 874,423 |
| 24,202 |
| 157,660 |
| (73,013 | ) | (44,554 | ) | 938,718 |
|
Stockholder’s equity | (235,700 | ) | 142,668 |
| (8,633 | ) | (19,101 | ) | 101,665 |
| (19,101 | ) |
Total liabilities and stockholder’s equity | $ | 638,723 |
| $ | 166,870 |
| $ | 149,027 |
| $ | (92,114 | ) | $ | 57,111 |
| $ | 919,617 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Statements of Operations |
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
(dollars in thousands) | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Revenue | $ | 210,046 |
| $ | 28,162 |
| $ | 26,092 |
| $ | — |
| $ | — |
| $ | 264,300 |
|
Provision for losses | 92,552 |
| 6,344 |
| 13,114 |
| — |
| — |
| 112,010 |
|
Net revenue | 117,494 |
| 21,818 |
| 12,978 |
| — |
| — |
| 152,290 |
|
Cost of providing services: | | | | | |
|
|
Salaries and benefits | 17,422 |
| 8,664 |
| — |
| — |
| — |
| 26,086 |
|
Occupancy | 8,033 |
| 5,899 |
| — |
| — |
| — |
| 13,932 |
|
Office | 4,004 |
| 1,453 |
| — |
| — |
| — |
| 5,457 |
|
Other costs of providing services | 11,789 |
| 1,065 |
| — |
| — |
| — |
| 12,854 |
|
Advertising | 11,179 |
| 1,601 |
| — |
| — |
| — |
| 12,780 |
|
Total cost of providing services | 52,427 |
| 18,682 |
| — |
| — |
| — |
| 71,109 |
|
Gross margin | 65,067 |
| 3,136 |
| 12,978 |
| — |
| — |
| 81,181 |
|
Operating (income) expense: | | | | | |
|
|
Corporate, district and other expenses | 30,766 |
| 6,422 |
| (781 | ) | 2,631 |
| — |
| 39,038 |
|
Intercompany management fee | (3,237 | ) | 3,229 |
| 8 |
| — |
| — |
| — |
|
Interest expense | 27 |
| 7 |
| 2,375 |
| 14,614 |
| — |
| 17,023 |
|
Intercompany interest (income) expense | (1,513 | ) | 890 |
| 623 |
| — |
| — |
| — |
|
Total operating expense | 26,043 |
| 10,548 |
| 2,225 |
| 17,245 |
| — |
| 56,061 |
|
Income (loss) from continuing operations before income taxes | 39,024 |
| (7,412 | ) | 10,753 |
| (17,245 | ) | — |
| 25,120 |
|
Provision (benefit) for income tax expense | 9,591 |
| 1,094 |
| — |
| (3,232 | ) | — |
| 7,453 |
|
Net income (loss) from continuing operations | 29,433 |
| (8,506 | ) | 10,753 |
| (14,013 | ) | — |
| 17,667 |
|
Net loss on discontinued operations | — |
| (834 | ) | — |
| — |
| — |
| (834 | ) |
Net (loss) income | 29,433 |
| (9,340 | ) | 10,753 |
| (14,013 | ) | — |
| 16,833 |
|
Equity in net income (loss) of subsidiaries: | | | | | | |
CFTC | — |
| — |
| — |
| 30,846 |
| (30,846 | ) | — |
|
Guarantor Subsidiaries | 29,433 |
| — |
| — |
| — |
| (29,433 | ) | — |
|
Non-Guarantor Subsidiaries | (9,340 | ) | — |
| — |
| — |
| 9,340 |
| — |
|
SPV Subs | 10,753 |
| — |
| — |
| — |
| (10,753 | ) | — |
|
Net income (loss) attributable to CURO | $ | 60,279 |
| $ | (9,340 | ) | $ | 10,753 |
| $ | 16,833 |
| $ | (61,692 | ) | $ | 16,833 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 118,034 |
| $ | 47,043 |
| $ | 72,092 |
| $ | — |
| $ | 237,169 |
| $ | — |
| $ | — |
| $ | 237,169 |
|
Provision for losses | — |
| — |
| 46,320 |
| 14,360 |
| 25,667 |
| — |
| 86,347 |
| — |
| — |
| 86,347 |
|
Net revenue | — |
| — |
| 71,714 |
| 32,683 |
| 46,425 |
| — |
| 150,822 |
| — |
| — |
| 150,822 |
|
Cost of providing services: | | | | | | | | | |
|
|
Salaries and benefits | — |
| — |
| 18,070 |
| 8,838 |
| — |
| — |
| 26,908 |
| — |
| — |
| 26,908 |
|
Occupancy | — |
| — |
| 7,643 |
| 5,677 |
| — |
| — |
| 13,320 |
| — |
| — |
| 13,320 |
|
Office | — |
| — |
| 4,247 |
| 1,285 |
| — |
| — |
| 5,532 |
| — |
| — |
| 5,532 |
|
Other store operating expenses | — |
| — |
| 11,254 |
| 881 |
| 466 |
| — |
| 12,601 |
| — |
| — |
| 12,601 |
|
Advertising | — |
| — |
| 12,409 |
| 2,704 |
| — |
| — |
| 15,113 |
| — |
| — |
| 15,113 |
|
Total cost of providing services | — |
| — |
| 53,623 |
| 19,385 |
| 466 |
| — |
| 73,474 |
| — |
| — |
| 73,474 |
|
Gross Margin | — |
| — |
| 18,091 |
| 13,298 |
| 45,959 |
| — |
| 77,348 |
| — |
| — |
| 77,348 |
|
Operating (income) expense: | | | | | | | | | |
|
|
Corporate, district and other expenses | 458 |
| 18 |
| 25,383 |
| 4,759 |
| 46 |
| — |
| 30,664 |
| 2,316 |
| — |
| 32,980 |
|
Intercompany management fee | — |
| — |
| (6,920 | ) | 3,281 |
| 3,639 |
| — |
| — |
| — |
| — |
| — |
|
Interest expense | 16,585 |
| — |
| (60 | ) | 7 |
| 3,940 |
| — |
| 20,472 |
| — |
| — |
| 20,472 |
|
Intercompany interest (income) expense | — |
| (904 | ) | (180 | ) | 1,084 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Loss on extinguishment of debt | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Total operating expense | 17,043 |
| (886 | ) | 18,223 |
| 9,131 |
| 7,625 |
| — |
| 51,136 |
| 2,316 |
| — |
| 53,452 |
|
(Loss) income from continuing operations before income taxes | (17,043 | ) | 886 |
| (132 | ) | 4,167 |
| 38,334 |
| — |
| 26,212 |
| (2,316 | ) | — |
| 23,896 |
|
(Benefit) provision for income tax expense | (5,418 | ) | 13,668 |
| (4,458 | ) | 1,962 |
| — |
| — |
| 5,754 |
| (576 | ) | — |
| 5,178 |
|
Net (loss) income from continuing operations | (11,625 | ) | (12,782 | ) | 4,326 |
| 2,205 |
| 38,334 |
| — |
| 20,458 |
| (1,740 | ) | — |
| 18,718 |
|
Net loss from discontinued operations | — |
| — |
| — |
| (2,743 | ) | — |
| — |
| (2,743 | ) | — |
| — |
| (2,743 | ) |
Net (loss) income | (11,625 | ) | (12,782 | ) | 4,326 |
| (538 | ) | 38,334 |
| — |
| 17,715 |
| (1,740 | ) | — |
| 15,975 |
|
Equity in net income (loss) of subsidiaries: | | | | | | | | | |
|
|
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 20,458 |
| (20,458 | ) | — |
|
CURO Intermediate | (12,782 | ) | — |
| — |
| — |
| — |
| 12,782 |
| — |
| — |
| — |
| — |
|
Guarantor Subsidiaries | 4,326 |
| — |
| — |
| — |
| — |
| (4,326 | ) | — |
| — |
| — |
| — |
|
Non-Guarantor Subsidiaries | 2,205 |
| — |
| — |
| — |
| — |
| (2,205 | ) | — |
| — |
| — |
| — |
|
SPV Subs | 38,334 |
| — |
| — |
| — |
| — |
| (38,334 | ) | — |
| — |
| — |
| — |
|
Net income (loss) attributable to CURO | $ | 20,458 |
| $ | (12,782 | ) | $ | 4,326 |
| $ | (538 | ) | $ | 38,334 |
| $ | (32,083 | ) | $ | 17,715 |
| $ | 18,718 |
| $ | (20,458 | ) | $ | 15,975 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(dollars in thousands) | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Revenue | $ | 436,165 |
| $ | 54,936 |
| $ | 51,138 |
| $ | — |
| $ | — |
| $ | 542,239 |
|
Provision for losses | 177,532 |
| 10,443 |
| 26,420 |
| — |
| — |
| 214,395 |
|
Net revenue | 258,633 |
| 44,493 |
| 24,718 |
| — |
| — |
| 327,844 |
|
Cost of providing services: | | | | | | |
Salaries and benefits | 37,373 |
| 17,414 |
| — |
| — |
| — |
| 54,787 |
|
Occupancy | 16,043 |
| 12,126 |
| — |
| — |
| — |
| 28,169 |
|
Office | 7,893 |
| 2,677 |
| — |
| — |
| — |
| 10,570 |
|
Other costs of providing services | 24,921 |
| 2,153 |
| — |
| — |
| — |
| 27,074 |
|
Advertising | 17,533 |
| 3,033 |
| — |
| — |
| — |
| 20,566 |
|
Total cost of providing services | 103,763 |
| 37,403 |
| — |
| — |
| — |
| 141,166 |
|
Gross margin | 154,870 |
| 7,090 |
| 24,718 |
| — |
| — |
| 186,678 |
|
Operating (income) expense: | | | | | | |
Corporate, district and other expenses | 72,304 |
| 11,604 |
| (755 | ) | 4,973 |
| — |
| 88,126 |
|
Intercompany management fee | (6,300 | ) | 6,284 |
| 16 |
| — |
| — |
| — |
|
Interest expense | 317 |
| 79 |
| 5,265 |
| 29,052 |
| — |
| 34,713 |
|
Intercompany interest (income) expense | (2,393 | ) | 1,770 |
| 623 |
| — |
| — |
| — |
|
Total operating expense | 63,928 |
| 19,737 |
| 5,149 |
| 34,025 |
| — |
| 122,839 |
|
Income (loss) from continuing operations before income taxes | 90,942 |
| (12,647 | ) | 19,569 |
| (34,025 | ) | — |
| 63,839 |
|
Provision (benefit) for income tax expense | 23,610 |
| 2,129 |
| — |
| (8,240 | ) | — |
| 17,499 |
|
Net income (loss) from continuing operations | 67,332 |
| (14,776 | ) | 19,569 |
| (25,785 | ) | — |
| 46,340 |
|
Net loss on discontinued operations | — |
| 7,541 |
| — |
| — |
| — |
| 7,541 |
|
Net (loss) income | 67,332 |
| (7,235 | ) | 19,569 |
| (25,785 | ) | — |
| 53,881 |
|
Equity in net income (loss) of subsidiaries: | | | | | | |
CFTC | — |
| — |
| — |
| 79,666 |
| (79,666 | ) | — |
|
Guarantor Subsidiaries | 67,332 |
| — |
| — |
| — |
| (67,332 | ) | — |
|
Non-Guarantor Subsidiaries | (7,235 | ) | — |
| — |
| — |
| 7,235 |
| — |
|
SPV Subs | 19,569 |
| — |
| — |
| — |
| (19,569 | ) | — |
|
Net income (loss) attributable to CURO | $ | 146,998 |
| $ | (7,235 | ) | $ | 19,569 |
| $ | 53,881 |
| $ | (159,332 | ) | $ | 53,881 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 246,442 |
| $ | 93,293 |
| $ | 148,277 |
| $ | — |
| $ | 488,012 |
| $ | — |
| $ | — |
| $ | 488,012 |
|
Provision for losses | — |
| — |
| 82,089 |
| 26,910 |
| 54,231 |
| — |
| 163,230 |
| — |
| — |
| 163,230 |
|
Net revenue | — |
| — |
| 164,353 |
| 66,383 |
| 94,046 |
| — |
| 324,782 |
| — |
| — |
| 324,782 |
|
Cost of providing services: | | | | | | | | | | |
Salaries and benefits | — |
| — |
| 36,089 |
| 17,737 |
| — |
| — |
| 53,826 |
| — |
| — |
| 53,826 |
|
Occupancy | — |
| — |
| 15,289 |
| 11,458 |
| — |
| — |
| 26,747 |
| — |
| — |
| 26,747 |
|
Office | — |
| — |
| 9,830 |
| 2,155 |
| — |
| — |
| 11,985 |
| — |
| — |
| 11,985 |
|
Other store operating expenses | — |
| — |
| 23,284 |
| 1,801 |
| 947 |
| — |
| 26,032 |
| — |
| — |
| 26,032 |
|
Advertising | — |
| — |
| 17,568 |
| 5,430 |
| — |
| — |
| 22,998 |
| — |
| — |
| 22,998 |
|
Total cost of providing services | — |
| — |
| 102,060 |
| 38,581 |
| 947 |
| — |
| 141,588 |
| — |
| — |
| 141,588 |
|
Gross Margin | — |
| — |
| 62,293 |
| 27,802 |
| 93,099 |
| — |
| 183,194 |
| — |
| — |
| 183,194 |
|
Operating (income) expense: | | | | | | | | | | |
Corporate, district and other expenses | 906 |
| 25 |
| 53,375 |
| 9,656 |
| 76 |
| — |
| 64,038 |
| 4,371 |
| — |
| 68,409 |
|
Intercompany management fee | — |
| — |
| (13,822 | ) | 6,775 |
| 7,047 |
| — |
| — |
| — |
| — |
| — |
|
Interest expense | 34,907 |
| — |
| (172 | ) | 64 |
| 8,027 |
| — |
| 42,826 |
| — |
| — |
| 42,826 |
|
Intercompany interest (income) expense | — |
| (1,784 | ) | (259 | ) | 2,043 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Loss on extinguishment of debt | 11,683 |
| — |
| — |
| — |
| — |
| — |
| 11,683 |
| — |
| — |
| 11,683 |
|
Total operating expense | 47,496 |
| (1,759 | ) | 39,122 |
| 18,538 |
| 15,150 |
| — |
| 118,547 |
| 4,371 |
| — |
| 122,918 |
|
(Loss) income from continuing operations before income taxes | (47,496 | ) | 1,759 |
| 23,171 |
| 9,264 |
| 77,949 |
| — |
| 64,647 |
| (4,371 | ) | — |
| 60,276 |
|
(Benefit) provision for income tax expense | (12,259 | ) | 32,165 |
| (6,043 | ) | 3,891 |
| — |
| — |
| 17,754 |
| (1,109 | ) | — |
| 16,645 |
|
Net (loss) income from continuing operations | (35,237 | ) | (30,406 | ) | 29,214 |
| 5,373 |
| 77,949 |
| — |
| 46,893 |
| (3,262 | ) | — |
| 43,631 |
|
Net loss from discontinued operations | — |
| — |
| — |
| (4,364 | ) | — |
| — |
| (4,364 | ) | — |
| — |
| (4,364 | ) |
Net (loss) income | (35,237 | ) | (30,406 | ) | 29,214 |
| 1,009 |
| 77,949 |
| — |
| 42,529 |
| (3,262 | ) | — |
| 39,267 |
|
Equity in net income (loss) of subsidiaries: | | | | | | | | | | |
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 42,529 |
| (42,529 | ) | — |
|
CURO Intermediate | (30,406 | ) | — |
| — |
| — |
| — |
| 30,406 |
| — |
| — |
| — |
| — |
|
Guarantor Subsidiaries | 29,214 |
| — |
| — |
| — |
| — |
| (29,214 | ) | — |
| — |
| — |
| — |
|
Non-Guarantor Subsidiaries | 1,009 |
| — |
| — |
| — |
| — |
| (1,009 | ) | — |
| — |
| — |
| — |
|
SPV Subs | 77,949 |
| — |
| — |
| — |
| — |
| (77,949 | ) | — |
| — |
| — |
| — |
|
Net income (loss) attributable to CURO | $ | 42,529 |
| $ | (30,406 | ) | $ | 29,214 |
| $ | 1,009 |
| $ | 77,949 |
| $ | (77,766 | ) | $ | 42,529 |
| $ | 39,267 |
| $ | (42,529 | ) | $ | 39,267 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Statements of Cash Flows
|
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(dollars in thousands) | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Cash flows from operating activities |
|
|
|
|
|
| | | |
Net cash provided by (used in) continuing operating activities | $ | 204,323 |
| $ | 10,929 |
| $ | 93,690 |
| $ | 1,833 |
| $ | 1,544 |
| $ | 312,319 |
|
Net cash used in discontinued operating activities | — |
| (504 | ) | — |
| — |
| — |
| (504 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| | |
|
|
Purchase of property, equipment and software | (4,998 | ) | (1,166 | ) | — |
| — |
| — |
| (6,164 | ) |
Investment in Cognical Holdings | (4,368 | ) | — |
| — |
| — |
| — |
| (4,368 | ) |
Originations of loans, net | (142,871 | ) | (3,227 | ) | (71,101 | ) | — |
| — |
| (217,199 | ) |
Net cash (used in) provided by continuing investing activities | (152,237 | ) | (4,393 | ) | (71,101 | ) | — |
| — |
| (227,731 | ) |
Net cash used in discontinued investing activities | — |
| (14,213 | ) | — |
| — |
| — |
| (14,213 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| | |
|
|
Proceeds from Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| — |
| — |
|
Payments on Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| — |
| — |
|
Proceeds from Non-Recourse Canada SPV facility | — |
| — |
| 3,750 |
| — |
| — |
| 3,750 |
|
Payments on Non-Recourse Canada SPV facility | — |
| — |
| (24,752 | ) | — |
| — |
| (24,752 | ) |
Proceeds from revolving credit facilities | 30,000 |
| 38,002 |
| — |
| — |
| — |
| 68,002 |
|
Payments on revolving credit facilities | (50,000 | ) | (38,002 | ) | — |
| — |
| — |
| (88,002 | ) |
Payments on subordinated stockholder debt | — |
| (2,245 | ) | — |
| — |
| — |
| (2,245 | ) |
Proceeds from exercise of stock options | 69 |
| — |
| — |
| (42 | ) | — |
| 27 |
|
Debt issuance costs paid | — |
| — |
| (169 | ) | (29 | ) | — |
| (198 | ) |
Repurchase of common stock | — |
| — |
| — |
| (1,762 | ) | — |
| (1,762 | ) |
Net cash used in provided by financing activities (1) | (19,931 | ) | (2,245 | ) | (21,171 | ) | (1,833 | ) | — |
| (45,180 | ) |
| | | | | | |
Effect of exchange rate changes on cash and restricted cash | — |
| 2,444 |
| 561 |
| — |
| (1,544 | ) | 1,461 |
|
Net increase (decrease) in cash and restricted cash | 32,155 |
| (7,982 | ) | 1,979 |
| — |
| — |
| 26,152 |
|
Cash and restricted cash at beginning of period | 52,397 |
| 34,620 |
| 12,840 |
| — |
| — |
| 99,857 |
|
Cash at end of period | $ | 84,552 |
| $ | 26,638 |
| $ | 14,819 |
| $ | — |
| $ | — |
| $ | 126,009 |
|
(1) Financing activities include continuing operations only and were not impacted by discontinued operations |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 | | | |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | CURO Consolidated |
Cash flows from operating activities: | | | | | | | | | |
Net cash provided (used) in continuing operating activities | $ | 87,848 |
| $ | — |
| $ | 38,259 |
| $ | 53,104 |
| $ | 67,767 |
| $ | 12,305 |
| $ | 259,283 |
| $ | (12,550 | ) | $ | 246,733 |
|
Net cash provided by (used in) discontinued operating activities | — |
| — |
| — |
| 14,225 |
| — |
| (8,767 | ) | 5,458 |
| — |
| 5,458 |
|
Net cash provided by (used in) operating activities | 87,848 |
| — |
| 38,259 |
| 67,329 |
| 67,767 |
| 3,538 |
| 264,741 |
| (12,550 | ) | 252,191 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchase of property, equipment and software | — |
| — |
| (1,983 | ) | (974 | ) | — |
| — |
| (2,957 | ) | — |
| (2,957 | ) |
Originations of loans, net | — |
| — |
| (84,640 | ) | (48,795 | ) | (61,201 | ) | — |
| (194,636 | ) | — |
| (194,636 | ) |
Investment in Cognical Holdings | (958 | ) | — |
| — |
| — |
| — |
| — |
| (958 | ) | — |
| (958 | ) |
Net cash (used in) provided by continuing investing activities | (958 | ) | — |
| (86,623 | ) | (49,769 | ) | (61,201 | ) | — |
| (198,551 | ) | — |
| (198,551 | ) |
Net cash provided by (used in) discontinued investing activities | — |
| — |
| — |
| (14,349 | ) | — |
| — |
| (14,349 | ) | — |
| (14,349 | ) |
Net cash provided by (used in) investing activities | (958 | ) | — |
| (86,623 | ) | (64,118 | ) | (61,201 | ) | — |
| (212,900 | ) | — |
| (212,900 | ) |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| 13,000 |
| — |
| 13,000 |
| — |
| 13,000 |
|
Payments on Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| (19,163 | ) | — |
| (19,163 | ) | — |
| (19,163 | ) |
Proceeds from revolving credit facilities | 10,000 |
| — |
| — |
| 8,798 |
| — |
| — |
| 18,798 |
| — |
| 18,798 |
|
Payments on revolving credit facilities | (10,000 | ) | — |
| — |
| (8,798 | ) | — |
| — |
| (18,798 | ) | — |
| (18,798 | ) |
Net proceeds from issuance of common stock | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 12,431 |
| 12,431 |
|
Proceeds from exercise of stock options | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 39 |
| 39 |
|
Payments on 12.00% Senior Secured Notes | (77,500 | ) | — |
| — |
| — |
| — |
| — |
| (77,500 | ) | — |
| (77,500 | ) |
Payments of call premiums from early debt extinguishments | (9,300 | ) | — |
| — |
| — |
| — |
| — |
| (9,300 | ) | — |
| (9,300 | ) |
Debt issuance costs paid | (90 | ) | — |
| — |
| (78 | ) | — |
| — |
| (168 | ) | — |
| (168 | ) |
Net cash (used in) provided by financing activities (1) | (86,890 | ) | — |
| — |
| (78 | ) | (6,163 | ) | — |
| (93,131 | ) | 12,470 |
| (80,661 | ) |
| | | | | | | | | |
Effect of exchange rate changes on cash | — |
| — |
| — |
| (651 | ) | — |
| (3,538 | ) | (4,189 | ) | — |
| (4,189 | ) |
Net (decrease) increase in cash and restricted cash | — |
| — |
| (48,364 | ) | 2,482 |
| 403 |
| — |
| (45,479 | ) | (80 | ) | (45,559 | ) |
Cash and restricted cash at beginning of period | — |
| — |
| 119,056 |
| 48,484 |
| 6,871 |
| — |
| 174,411 |
| 80 |
| 174,491 |
|
Cash and restricted cash at end of period | — |
| — |
| 70,692 |
| 50,966 |
| 7,274 |
| — |
| 128,932 |
| — |
| 128,932 |
|
Less: Cash and restricted cash at end of period of Discontinued Operations | — |
| — |
| — |
| 12,460 |
| — |
| — |
| 12,460 |
| — |
| 12,460 |
|
Cash and restricted cash at end of period of Continuing Operations | $ | — |
| $ | — |
| $ | 70,692 |
| $ | 38,506 |
| $ | 7,274 |
| $ | — |
| $ | 116,472 |
| $ | — |
| $ | 116,472 |
|
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 1718 – SHARE REPURCHASE PROGRAM
In February 2020, the Company's Board of Directors authorized a new share repurchase program for up to $25.0 million of its common stock. Under the program, shares were repurchased in the open market or in privately negotiated transactions at times and amounts considered appropriate by CURO. Due to uncertainty caused by COVID-19, the Board suspended the program on March 15, 2020. There were no material purchases in the program during the three months ended March 31, 2020.
In April 2019, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, will continue untilwas completed or terminated. CURO expectsin February 2020. Under this program, the purchases to beCompany repurchased 455,255 shares of its common stock at an average price of $10.45 per share for total consideration of $4.8 million during the three months ended March 31, 2020. Purchases under the program were made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares will beare available for use in connection with equity plans or other corporate purposes.
Under this program,Separately, in August 2019, the Company hasentered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with FFL, a related party. Pursuant to the Share Repurchase Agreement, the Company repurchased 244,2002,000,000 shares of its common stock, through June 30, 2019.par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. The table below summarizespurchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase activity during the three and six months ended June 30, 2019:
|
| | | | |
| | Six Months Ended June 30, |
(in thousands, except per share amounts and number of share amounts) | | 2019 |
Total number of shares repurchased | | 244,200 |
|
Average price paid per share | | $ | 10.26 |
|
Total value of shares repurchased | | $ | 2,507 |
|
| | |
Total authorized repurchase amount | | $ | 50,000 |
|
Total value of shares repurchased | | 2,507 |
|
Total remaining authorized repurchase amount | | $ | 47,493 |
|
program authorized in April 2019.
NOTE 1819 – SUBSEQUENT EVENTS
Cognical InvestmentNew Non-Recourse U.S. SPV Facility
During July 2019,On April 8, 2020, the Company entered into a Non-Recourse U.S. SPV Facility to provide financing for U.S. Unsecured Installment and Open-End receivables, including those generated under its technology, marketing and servicing relationship with Stride Bank. The Non-Recourse U.S. SPV Facility provides for $100.0 million of borrowing capacity, subject to the borrowing base of eligible collateral and certain other conditions. Concurrent with the closing, the Company drew $35.2 million on the facility.
Dividend
On April 30, 2020, the Company's Board of Directors declared a dividend under its previously announced dividend program, of $0.055 per share to be paid on May 27, 2020 to stockholders of record as
part of the
broader capital structure reorganization by the investee company described in Note 1 - "Summaryclose of Significant Accounting Policies and Nature of Operations" and Note 8 - "Financial Instruments", the Company purchased 10,695,187 additional preferred shares of Zibby for $4.0 million. As a result of this transaction, the Company's fully-diluted ownership in Zibby increased to 42.3%.business on May 13, 2020.
Share Repurchase Program
The Company repurchased 989,500 shares from July 1, 2019 through August 2, 2019:
|
| | | | |
| | July 1 - August 2 |
(in thousands, except per share amounts and number of share amounts)
| | 2019 |
Total number of shares repurchased | | 989,500 |
|
Average price paid per share | | $ | 10.85 |
|
Total value of shares repurchased | | $ | 10,731 |
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion of financial condition, results of operations, liquidity and capital resources and certain factors that may affect future results, including company-specific, economic and industry-wide factors, should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and accompanying notes included herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, we undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Please see “Risk Factors” in our Annual Report on2019 Form 10-K for
the year ended December 31, 20182019 filed with the Securities and Exchange Commissions (the "SEC")SEC on March 18, 2019 ("9, 2020 and our Current Report on Form 8-K, filed with the "2018 Form 10-K")SEC on April 8, 2020, for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
We are a growth-oriented, technology-enabled, highly-diversified, multi-channel and multi-product consumer finance company serving a wide range of underbanked consumers in the United States ("U.S."), Canada and through February 25, 2019, the United Kingdom ("U.K.").Canada.
History
CURO was founded in 1997 to meet the growing needs of underbanked consumers looking for access to credit. With more than 20 years of experience, we seek to offer a variety of convenient, easily-accessible financial and loan services in all of our markets.
CURO Financial Technologies Corp., previously known as Speedy Cash Holdings Corp. ("CFTC"), was incorporated in Delaware in July 2008. CURO Group Holdings Corp., previously known as Speedy Group Holdings Corp., was incorporated in Delaware in 2013 as the parent company of CFTC. The terms “CURO," "we,” “our,” “us” and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated. The term "CFTC" refers to CURO Financial Technologies Corp., our wholly-owned subsidiary, and its directly and indirectly owned subsidiaries as a consolidated entity, except where otherwise stated.
Our growth has been fueled by acquisitions inIn the U.S., our stores operate under "Speedy Cash" and Canada, as well as organically, including"Rapid Cash." In the launchsecond quarter of new brands. Recent brand launches include the March 2016 launch of LendDirect, a primarily online Installment and Open-End brand in Alberta, Canada, the June 2017, launch of Aviowe launched "Avio Credit," an online Installment and Open-End Loan brand in the U.S. market that is currently available in 11 states, and the February 2019 launch of Revolve Finance, discussed immediately below.
Recent Developments
Revolve Finance. brand. In February 2019, we launched Revolve Finance, sponsored by Republic Bank of Chicago, which is being introduced across the Company's U.S. stores. This product provides customers a checking account solution, with FDIC-insured deposits, that combines a Visa-branded debit card, a number of technology-enabled tools and optional overdraft protection. In Canada, our stores are branded "Cash Money" and we offer "LendDirect" Installment and Open-End loans online and at certain stores. As of March 31, 2020, our network consisted of 416 locations across 14 U.S. states and seven Canadian provinces and we offered our online services in 27 U.S. states and five Canadian provinces.
Recent Developments
COVID-19. A novel strain of coronavirus, known as COVID-19, surfaced in late 2019 and has spread around the world, including to the U.S. and Canada. In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. In response to the COVID-19 pandemic, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. However, CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, we remain focused on protecting the health and wellbeing of our employees, customers, and the communities in which we operate while assuring the continuity of our business operations. In response to the pandemic, we have taken the following steps to ensure our financial stability while maintaining the health and wellbeing of our employees and customers:
Share Repurchase Program. Our BoardFull-year 2020 earnings guidance was withdrawn.
Cancellation of Directors authorized athe 2020 Short-Term Incentive Plan.
Suspension of our $25 million share repurchase program, previously announced in April 2019 providingFebruary 2020.
Establishment of an enhanced Customer Care Program to better serve our customers as they face unprecedented economic challenges and uncertainties. The program enables our team members to provide relief to customers in various ways, ranging from due date extensions, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. We also temporarily suspended all returned item fees.
Designation of most stores across both the U.S. and Canada as an essential service, allowing stores to remain open during local governments' lock down orders.
Adjustment of our credit underwriting models to tighten approval rates and enhance our employment and income verification practices for both the store and on-line lending platforms.
Implementation of work-from-home for virtually all 1,100 of the Company’s contact center and corporate support personnel in Wichita, Toronto and Chicago.
Ad Astra Acquisition. On January 3, 2020, we acquired Ad Astra, previously our exclusive provider of third-party collection services for the repurchaseU.S. business. The acquisition allows us to bring all U.S. servicing and recovery in-house, drive operational and financial synergies to ensure all aspects of upthe recovery portfolio are coordinated, reduce operational redundancy and increase peak volume management, improve compliance synergies, and facilitate integrated and personalized CRM strategies and campaign management across the servicing and recovery lifecycle. See Note 17, "Acquisition" of the Notes to $50.0 million of our common stock. The repurchase program, which commenced June 2019, will continue until completed or terminated. We expect the purchases to be made from time-to-time in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Any repurchased shares will be availableunaudited Condensed Consolidated Financial Statements for use in connection with equity plans and for other corporate purposes. Under this program, the Company has repurchased 244,200 shares of common stock through June 30, 2019.additional information.
Credit facilitiesFacilities. On April 8, 2020, we entered into incremental asset-backed revolving credit facility to provide financing for U.S. Installment and Open-End receivables, including those generated under our technology, marketing and servicing relationship with Stride Bank. The credit facility provides for an initial borrowing capacity of $100.0 million, dependent upon the borrowing base of eligible collateral and certain other conditions, as described in Note 19, "Subsequent Events."For recent developments related to our Senior Secured Notes, Non-Recourse Canada SPV facilitiesfacility and other capital resources, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
U.K. DevelopmentsCalifornia Assembly Bill 539. .On February 25,September 13, 2019, we announced that a proposed Schemethe California legislature passed Assembly Bill 539, which imposes an interest rate cap on all consumer loans between $2,500 and $10,000 of Arrangement ("SOA")36%, as describedplus the Federal Funds Rate. The bill became effective on January 1, 2020. Revenue from California Unsecured and Secured Installment loans amounted to 8.8% of total revenue for the three months ended March 31, 2020. See "Regulatory Environment and Compliance" in our Current Report on Form 8-K filed with the SEC on January 31, 2019 related to Curo Transatlantic Limited and SRC Transatlantic Limited (collectively the "U.K. Subsidiaries"), would not be implemented. We also announced that effective February 25, 2019, in accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the boards of directors of our U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as administrators ("Administrators")10-K for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place the management, affairs, business and property of the U.K. Subsidiaries under the direct control of the Administrators. As a result, we deconsolidated the U.K. Subsidiaries as of February 25, 2019 and presented the U.K. Subsidiaries as Discontinued Operations in this Quarterly Report on Form 10-Q ("Form 10-Q").additional details.
In our Current Report on Form 8-K filed with the SEC on January 31, 2019, our results of operations included a $30.3 million expense comprised of (i) a proposed $23.6 million fund to settle historical redress claims and (ii) $6.7 million in advisory and other costs that would be required to execute the SOA. We subsequently concluded that pursuant to ASC 450, Contingencies, the SOA did not represent an estimate of loss for the redress loss contingency but instead was offered in ongoing negotiation of a potential compromised settlement with creditors. Therefore, the settlement offered through the SOA did not meet the recognition threshold pursuant to ASC 450 and should not have been accrued as a contingent liability for customer redress claims as of December 31, 2018. Our Current Report on Form 8-K filed with the SEC on March 1, 2019 appropriately included $4.6 million of fourth quarter 2018 redress costs and related charges which represented known claims as of December 31, 2018. See "Controls and Procedures" in our 2018 Form 10-K for further discussion.
Refer to the “Regulatory Environment and Compliance” below for additional information regarding recent regulatory developments that may impact our business.
Discussion of Revenue by Product and Segment and Related Loan Portfolio Performance
Revenue by Product
Year-over-year comparisonsWe exclude financial results of our former U.K. operations for Open-End were affected by the Q1 2019 Open-End Loss Recognition Change. Throughout this Form 10-Q, we do not include information for our U.K. Subsidiariesall periods presented, as they were discontinued for accounting and reporting purposes in February 2019. See Note 15, "Discontinued Operations" for additional details.
The following tables summarize revenue by product, including CSO fees, for credit services organization ("CSO"), for the periods indicated.indicated (in thousands, unaudited):
| | | | For the Three Months Ended | | For the Three Months Ended |
| | June 30, 2019 | | June 30, 2018 | | March 31, 2020 | | March 31, 2019 |
(in thousands, unaudited) | | U.S. | Canada | Total | | U.S. | Canada | Total | |
| | | U.S. | Canada | Total | | U.S. | Canada | Total |
Unsecured Installment | | $ | 120,482 |
| $ | 1,630 |
| $ | 122,112 |
| | $ | 111,244 |
| $ | 3,692 |
| $ | 114,936 |
| | $ | 120,829 |
| $ | 1,580 |
| $ | 122,409 |
| | $ | 134,003 |
| $ | 1,775 |
| $ | 135,778 |
|
Secured Installment | | 26,076 |
| — |
| 26,076 |
| | 25,777 |
| — |
| 25,777 |
| | 26,286 |
| — |
| 26,286 |
| | 27,477 |
| — |
| 27,477 |
|
Open-End | | 32,318 |
| 22,654 |
| 54,972 |
| | 23,261 |
| 3,961 |
| 27,222 |
| | 41,990 |
| 28,992 |
| 70,982 |
| | 32,593 |
| 20,276 |
| 52,869 |
|
Single-Pay | | 26,425 |
| 19,103 |
| 45,528 |
| | 24,978 |
| 33,347 |
| 58,325 |
| | 28,154 |
| 17,003 |
| 45,157 |
| | 27,168 |
| 19,593 |
| 46,761 |
|
Ancillary | | 4,745 |
| 10,867 |
| 15,612 |
| | 4,866 |
| 6,043 |
| 10,909 |
| | 4,509 |
| 11,463 |
| 15,972 |
| | 4,878 |
| 10,176 |
| 15,054 |
|
Total revenue | | $ | 210,046 |
| $ | 54,254 |
| $ | 264,300 |
| | $ | 190,126 |
| $ | 47,043 |
| $ | 237,169 |
| | $ | 221,768 |
| $ | 59,038 |
| $ | 280,806 |
| | $ | 226,119 |
| $ | 51,820 |
| $ | 277,939 |
|
During the three months ended June 30, 2019,March 31, 2020, total revenue grew $27.1$2.9 million, or 11.4%1.0%, to $264.3$280.8 million, compared to the prior-year period, predominantly drivenperiod. Geographically, the 1.9% decline in U.S. revenues was offset by growtha 13.9% increase in Unsecured Installment loans in the U.S. and Open-End loans in both countries. Geographically, total revenue in the U.S. and Canada grew 10.5% and 15.3%, respectively.revenues. From a product perspective, Unsecured Installment revenues rose 6.2%, driven by related loan growth whileand Secured Installment revenues decreased 9.8% and related receivables were consistent year-over-year. Year-over-year Canadian Single-Pay usage and product profitability were negatively impacted by4.3%, respectively, due to regulatory changes in OntarioCalifornia, effective JulyJanuary 1, 20182020, and regulatory changes for CSOs in Ohio, effective May 1, 2019. Single-Pay revenue declined $1.6 million, or 3.4%, for the strategic transition of qualifying customersthree months ended March 31, 2020 compared to Open-End loans. Open-End revenues rose 101.9% on organic growth in legacy states and the newer Virginia market in the U.S. Open-End loan growth in Canada was drivenprior-year period, primarily by the introduction of Open-End loans in Ontariodue to lower volume during the thirdlast two weeks of the first quarter of 2018.2020 attributable primarily to the impact of COVID-19. Open-End loans in Canada grew $35.1$56.2 million, or 19.1%30.5%, sequentially (defined within this Form 10-Q as the change from the first quarterMarch 31, 2019, with related revenue growth of 2019 to the second quarter$8.7 million, or 43.0%. U.S. Open-End revenue rose 28.8% on related loan growth of 2019,$17.0 million, or comparable periods for 2018 sequential metrics)30.0%. Single-Pay loan balances stabilized in Canada sequentially.
Ancillary revenues increased 43.1%6.1% versus the same quarter a year ago,prior-year period, primarily due to the sale of insurance products to InstallmentOpen-End and Open-EndInstallment loan customers in Canada.
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended |
| | June 30, 2019 | | June 30, 2018 |
(in thousands, unaudited) | | U.S. | Canada | Total | | U.S. | Canada | Total |
Unsecured Installment | | $ | 254,485 |
| $ | 3,405 |
| $ | 257,890 |
| | $ | 231,720 |
| $ | 8,595 |
| $ | 240,315 |
|
Secured Installment | | 53,553 |
| — |
| 53,553 |
| | 52,633 |
| — |
| 52,633 |
|
Open-End | | 64,911 |
| 42,930 |
| 107,841 |
| | 49,095 |
| 5,350 |
| 54,445 |
|
Single-Pay | | 53,593 |
| 38,696 |
| 92,289 |
| | 51,043 |
| 67,639 |
| 118,682 |
|
Ancillary | | 9,623 |
| 21,043 |
| 30,666 |
| | 10,228 |
| 11,709 |
| 21,937 |
|
Total revenue | | $ | 436,165 |
| $ | 106,074 |
| $ | 542,239 |
| | $ | 394,719 |
| $ | 93,293 |
| $ | 488,012 |
|
For the six months ended June 30, 2019, total revenue grew $54.2 million, or 11.1%, to $542.2 million, compared to the prior-year period, predominantly driven by growth in Unsecured Installment loans in the U.S. and Open-End loans in both countries. Geographically, total Ancillary revenue in Canada for the U.S. and Canada grew 10.5% and 13.7%, respectively. From a product perspective, Unsecured Installment revenues rose 7.3%, driven by related loan growth while Secured Installment revenues and related receivables were consistent year-over-year. Year-over-year Canadian Single-Pay usage and product profitability were negatively impacted by regulatory changes in Ontario effective July 1, 2018 and the strategic transition of qualifying customers to Open-End loans. Open-End revenues rose 98.1% on organic growth in legacy states and the newer Virginia market in the U.S. Open-End loan growth in Canada was driven primarily by the introduction of Open-End loans in Ontario during the thirdfirst quarter of 2018. Ancillary revenues
increased 39.8% versus the same quarter a year ago, primarily due2020 included $9.1 million of revenue related to the sale of insurance products. The $9.1 million of revenue is comprised of $5.8 million of commissions earned from the sale of third-party insurance premiums at the time of sale and $3.3 million from a profit-sharing arrangement with this third-party. The amount we earn under the profit-sharing arrangement is dependent upon the level of claims adjudicated, which are related to Installmentour customers. We maintain no guarantees as to the level of profit earned by the third party and Open-End loan customers in Canada.do not have any
obligations under the terms of the agreement with the third-party. Recoveries under the insurance program are recognized as they are approved by the insurance provider.
The following charts presentdepict the revenue composition,contribution, including CSO fees, of the products and services that we currently offer for the periods indicated:
For the three months ended June 30,March 31, 2020 and 2019, and 2018, revenue generated through our online channel was 44%47% and 40%46%, respectively, of consolidated revenue.
Gross Combined Loans Receivable
ForThe following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, with reconciliation to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivables includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the six months ended June 30, 2019 and 2018, revenue generated through our online channel was 45% and 41%, respectively, of consolidated revenue.unaffiliated lender (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| As of |
| March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 |
Company Owned gross loans receivable | $ | 564.4 |
| $ | 665.8 |
| $ | 657.6 |
| $ | 609.6 |
| $ | 553.2 |
|
Gross loans receivable Guaranteed by the Company | 55.9 |
| 76.7 |
| 73.1 |
| 67.3 |
| 61.9 |
|
Gross combined loans receivable (1) | $ | 620.3 |
| $ | 742.5 |
| $ | 730.7 |
| $ | 676.9 |
| $ | 615.1 |
|
(1) See "Non-GAAP Financial Measures" below for definition and additional information. |
Gross combined loans receivable by product is presented below:
Gross combined loans receivable increased $5.3 million, or 0.9%, to $620.4 million as of March 31, 2020 from $615.1 million as of March 31, 2019, as growth in Open-End loans of 30.0% and 30.5% in the U.S. and Canada, respectively, offset the decline in Installment CSO and Single-Pay loans and any decrease in volume in the last two weeks of March 2020 as a result of COVID-19. Gross combined loans receivable performance by product is explained further in the following sections.
Loan Volume and Portfolio Performance Analysis
Unsecured Installment Loans
Unsecured Installment revenue and related gross combined loans receivable increaseddecreased $13.4 million, or 9.8%, and $44.2 million, or 20.0%, respectively, from the prior-year quarterperiod, primarily due to growth in the U.S., primarilyregulatory changes in California, and Texas. effective January 1, 2020.
Unsecured Installment gross combinedloans in California represented $51.5 million, or 41.8%, of total Company Owned Unsecured Installment loans as of March 31, 2020, a decrease of $38.1 million from $89.6 million, or 55.4%, as of March 31, 2019. Excluding California, Company Owned Unsecured Installment loans receivable grew $3.1decreased $0.5 million, or 1.4%0.7%, compared to June 30, 2018, despite a decline in Canada of $9.1from the prior-year period, while revenues increased $0.1 million, due to mix shift to Open-End loans. In the U.S.or 0.3%, Unsecured Installment gross combined loans receivable increased 6.0% year-over-year.
Unsecured Installment loans Guaranteed by the Company declined $1.3$5.6 million year-over-year due to a regulatory changechanges in Ohio, andeffective May 1, 2019. As a result, we no longer operate as a CSO in Ohio, which accounted for $5.1 million of Unsecured Installment loans Guaranteed by the subsequent conversionCompany as of Ohio CSO volumeMarch 31, 2019. Unsecured Installment loan balances Guaranteed by the Company declined in the last two weeks of the first quarter of 2020 due primarily to Company-Owned loans, partially offset by growth in Texas.the impacts of COVID-19.
The net charge-off ("NCO")NCO rate for Company Owned Unsecured Installment gross loans receivablesreceivable in the secondfirst quarter of 20192020 increased approximately 281 bps from the second quarter of 2018,155 basis points ("bps") year-over-year, primarily due to geographica mix shift away from Canada to the U.S. and increases in U.S.California as a result of regulatory changes. California NCO rates due to product and credit policy decisions. Canadafor Unsecured Installment balances declined
$9.1 million compared to the prior year due to shifting customer preferences from Unsecured Installment to Open-End, while U.S. balances grew $13.5 million due to customer demand. As a result, the U.S. percentage mixloans are historically lower than our other major states. California comprised 46.4% of total U.S. Company Owned Unsecured Installment gross loans receivable rose from 85.4% last yearas of March 31, 2020 compared to 91.3% this year. NCO rates in the U.S. are higher than Canada, so the relative growth in the U.S. balances resulted in an overall increase in the consolidated NCO rate for Company Owned Unsecured Installment loans. In addition, the NCO rate in the U.S. rose from 18.6% in the second quarter60.7% as of 2018 to 21.3% in the second quarter of 2019 due primarily to credit-line increases and expansion of the Avio brand. As an immature portfolio, Avio has higher relative NCO rates.March 31, 2019.
The Unsecured Installment Allowance for loan losses as a percentage of Company Owned Unsecured Installment gross loans receivable ("allowance coverage")coverage increased sequentiallyyear-over-year, from 20.8% as of March 31, 2019 to 21.4%23.5% as of June 30, 2019,March 31, 2020, primarily as a result of related higherthe previously mentioned increase in U.S. NCO rates and Allowance Build. Sequentially (described within this release as the past due rate rose only 60 bps versuschange from the samefourth quarter a year ago.of 2019 to the first quarter of 2020), allowance coverage and past-due balances increased from 22.1% to 23.5% and from 26.8% to 28.4%, respectively, as of March 31, 2020.
NCO rates for Unsecured Installment loans Guaranteed by the Company increased 150improved 115 bps compared to the same quarter in 2018 because of credit-line increases and wind down of the Ohio portfolio.prior-year period. The CSO liability for losses remained consistent sequentiallyincreased year-over-year, from 14.4% last quarter to 14.5% duringfor the secondfirst quarter of 2019 asto 16.9% for the past-due rate was flat versus the secondfirst quarter of last year.
2020, due primarily to Allowance Build. Sequentially, allowance coverage and past-due balances increased from 14.2% to 16.9% and from 16.8% to 17.1%, respectively, for the three months ended March 31, 2020.
| | | 2019 | | 2018 | 2020 | | 2019 |
(dollars in thousands, unaudited) | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter |
Unsecured Installment loans: | | | | | | |
Revenue - Company Owned | $ | 59,814 |
| $ | 65,542 |
| | $ | 69,748 |
| $ | 64,146 |
| $ | 54,868 |
| $ | 55,569 |
| | $ | 63,428 |
| $ | 65,809 |
| $ | 59,814 |
| $ | 65,542 |
|
Provision for losses - Company Owned | 33,514 |
| 33,845 |
| | 39,565 |
| 32,946 |
| 23,219 |
| 26,182 |
| | 33,183 |
| 31,891 |
| 33,514 |
| 33,845 |
|
Net revenue - Company Owned | $ | 26,300 |
| $ | 31,697 |
| | $ | 30,183 |
| $ | 31,200 |
| $ | 31,649 |
| $ | 29,387 |
| | $ | 30,245 |
| $ | 33,918 |
| $ | 26,300 |
| $ | 31,697 |
|
Net charge-offs - Company Owned | $ | 31,970 |
| $ | 37,919 |
| | $ | 37,951 |
| $ | 27,308 |
| $ | 26,527 |
| $ | 32,775 |
| | $ | 35,729 |
| $ | 28,973 |
| $ | 31,970 |
| $ | 37,919 |
|
Revenue - Guaranteed by the Company | $ | 62,298 |
| $ | 70,236 |
| | $ | 75,559 |
| $ | 73,514 |
| $ | 60,069 |
| $ | 66,840 |
| | $ | 72,183 |
| $ | 71,424 |
| $ | 62,298 |
| $ | 70,236 |
|
Provision for losses - Guaranteed by the Company | 28,336 |
| 27,422 |
| | 37,352 |
| 39,552 |
| 26,974 |
| 26,338 |
| | 34,858 |
| 36,664 |
| 28,336 |
| 27,422 |
|
Net revenue - Guaranteed by the Company | $ | 33,962 |
| $ | 42,814 |
| | $ | 38,207 |
| $ | 33,962 |
| $ | 33,095 |
| $ | 40,502 |
| | $ | 37,325 |
| $ | 34,760 |
| $ | 33,962 |
| $ | 42,814 |
|
Net charge-offs - Guaranteed by the Company | $ | 27,486 |
| $ | 30,421 |
| | $ | 38,522 |
| $ | 37,995 |
| $ | 25,667 |
| $ | 27,749 |
| | $ | 34,486 |
| $ | 35,916 |
| $ | 27,486 |
| $ | 30,421 |
|
Unsecured Installment gross combined loans receivable: | | | | | | |
Company Owned | $ | 164,722 |
| $ | 161,716 |
| | $ | 190,403 |
| $ | 185,130 |
| $ | 160,285 |
| $ | 123,118 |
| | $ | 160,782 |
| $ | 174,489 |
| $ | 164,722 |
| $ | 161,716 |
|
Guaranteed by the Company (1)(2) | 65,055 |
| 59,740 |
| | 77,451 |
| 75,807 |
| 66,351 |
| 54,097 |
| | 74,317 |
| 70,704 |
| 65,055 |
| 59,740 |
|
Unsecured Installment gross combined loans receivable (1)(2) | $ | 229,777 |
| $ | 221,456 |
| | $ | 267,854 |
| $ | 260,937 |
| $ | 226,636 |
| $ | 177,215 |
| | $ | 235,099 |
| $ | 245,193 |
| $ | 229,777 |
| $ | 221,456 |
|
Average gross loans receivable: | | | | | | |
Average Unsecured Installment gross loans receivable - Company Owned(3) | $ | 163,219 |
| $ | 176,060 |
| | $ | 187,767 |
| $ | 172,708 |
| $ | 158,121 |
| $ | 141,950 |
| | $ | 167,636 |
| $ | 169,606 |
| $ | 163,219 |
| $ | 176,060 |
|
Average Unsecured Installment gross loans receivable - Guaranteed by the Company(3) | $ | 62,398 |
| $ | 68,596 |
| | $ | 76,629 |
| $ | 71,079 |
| $ | 60,342 |
| $ | 64,207 |
| | $ | 72,511 |
| $ | 67,880 |
| $ | 62,398 |
| $ | 68,596 |
|
Allowance for loan losses and CSO liability for losses: | | | | | | |
Unsecured Installment Allowance for loan losses (3) | $ | 35,223 |
| $ | 33,666 |
| | $ | 37,716 |
| $ | 36,160 |
| $ | 30,291 |
| $ | 28,965 |
| | $ | 35,587 |
| $ | 38,127 |
| $ | 35,223 |
| $ | 33,666 |
|
Unsecured Installment CSO liability for losses (3) | $ | 9,433 |
| $ | 8,584 |
| | $ | 11,582 |
| $ | 12,750 |
| $ | 11,193 |
| $ | 9,142 |
| | $ | 10,553 |
| $ | 10,181 |
| $ | 9,433 |
| $ | 8,583 |
|
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable | 21.4 | % | 20.8 | % | | 19.8 | % | 19.5 | % | 18.9 | % | 23.5 | % | | 22.1 | % | 21.9 | % | 21.4 | % | 20.8 | % |
Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans guaranteed by the Company | 14.5 | % | 14.4 | % | | 15.0 | % | 16.8 | % | 16.9 | % | 16.9 | % | | 14.2 | % | 14.4 | % | 14.5 | % | 14.4 | % |
Unsecured Installment past-due balances: | | | | | | |
Unsecured Installment gross loans receivable | $ | 38,037 |
| $ | 40,801 |
| | $ | 49,087 |
| $ | 49,637 |
| $ | 36,125 |
| $ | 34,966 |
| | $ | 43,100 |
| $ | 46,537 |
| $ | 38,037 |
| $ | 40,801 |
|
Unsecured Installment gross loans guaranteed by the Company | $ | 10,087 |
| $ | 7,967 |
| | $ | 11,708 |
| $ | 12,120 |
| $ | 10,319 |
| $ | 9,232 |
| | $ | 12,477 |
| $ | 11,842 |
| $ | 10,087 |
| $ | 7,967 |
|
Past-due Unsecured Installment gross loans receivable -- percentage (2) | 23.1 | % | 25.2 | % | | 25.8 | % | 26.8 | % | 22.5 | % | 28.4 | % | | 26.8 | % | 26.7 | % | 23.1 | % | 25.2 | % |
Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (2) | 15.5 | % | 13.3 | % | | 15.1 | % | 16.0 | % | 15.6 | % | 17.1 | % | | 16.8 | % | 16.7 | % | 15.5 | % | 13.3 | % |
Unsecured Installment other information: | | | | | | |
Originations - Company Owned | $ | 102,792 |
| $ | 78,515 |
| | $ | 114,182 |
| $ | 121,415 |
| $ | 114,038 |
| $ | 55,941 |
| | $ | 87,080 |
| $ | 107,275 |
| $ | 102,792 |
| $ | 78,515 |
|
Originations - Guaranteed by the Company (1) | $ | 80,445 |
| $ | 68,899 |
| | $ | 89,319 |
| $ | 91,828 |
| $ | 84,082 |
| $ | 64,836 |
| | $ | 91,004 |
| $ | 89,644 |
| $ | 80,445 |
| $ | 68,899 |
|
Unsecured Installment ratios: | | | | | | |
Provision as a percentage of gross loans receivable - Company Owned | 20.3 | % | 20.9 | % | | 20.8 | % | 17.8 | % | 14.5 | % | 21.3 | % | | 20.6 | % | 18.3 | % | 20.3 | % | 20.9 | % |
Provision as a percentage of gross loans receivable - Guaranteed by the Company | 43.6 | % | 45.9 | % | | 48.2 | % | 52.2 | % | 40.7 | % | 48.7 | % | | 46.9 | % | 51.9 | % | 43.6 | % | 45.9 | % |
(1) Includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements. | |
(2) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details. | |
(3) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO liability for losses is reported as a liability on the Condensed Consolidated Balance Sheets. | |
(1) Includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements. | | (1) Includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements. |
(2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." | | (2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." |
(3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as average of beginning of quarter and end of quarter gross loans receivable. | | (3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as average of beginning of quarter and end of quarter gross loans receivable. |
(4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our unaudited Condensed Consolidated Balance Sheets. | | (4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our unaudited Condensed Consolidated Balance Sheets. |
Secured Installment Loans
Secured Installment revenue and the related gross combined loans receivable balancesfor the three months ended March 31, 2020 decreased 4.3% and 10.4%, respectively, compared to the prior-year period, primarily as a result of regulatory changes in California, effective January 1, 2020. California accounted for $28.6 million, or 38.5%, of total Secured Installment gross combined loans receivable as of June 30, 2019 remained consistent year-over-year. Both the NCO and past-due rates decreased modestly year-over-year.March 31, 2020, a decrease of $14.8 million from $43.5 million, or 52.3%, as of March 31, 2019. Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable decreasedincreased year-over-year from 11.9%, and sequentially from 11.9% last quarter11.5% to 11.5% during13.1% for the second quarter of 2019, based primarily on NCO rate improvement.three months ended March 31, 2020, due to Allowance Build.
| | | 2019 | | 2018 | 2020 | | 2019 |
(dollars in thousands, unaudited) | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter |
Secured Installment loans: | | | | | | | |
Revenue | $ | 26,076 |
| $ | 27,477 |
| | $ | 29,482 |
| $ | 28,562 |
| $ | 25,777 |
| $ | 26,286 |
| | $ | 28,690 |
| $ | 28,270 |
| $ | 26,076 |
| $ | 27,477 |
|
Provision for losses | 7,821 |
| 7,080 |
| | 12,035 |
| 10,188 |
| 7,650 |
| 9,682 |
| | 11,492 |
| 8,819 |
| 7,821 |
| 7,080 |
|
Net revenue | $ | 18,255 |
| $ | 20,397 |
| | $ | 17,447 |
| $ | 18,374 |
| $ | 18,127 |
| $ | 16,604 |
| | $ | 17,198 |
| $ | 19,451 |
| $ | 18,255 |
| $ | 20,397 |
|
Net charge-offs | $ | 7,630 |
| $ | 9,822 |
| | $ | 11,132 |
| $ | 9,285 |
| $ | 9,003 |
| $ | 10,284 |
| | $ | 11,548 |
| $ | 8,455 |
| $ | 7,630 |
| $ | 9,822 |
|
Secured Installment gross combined loan balances: | | | | | | |
Secured Installment gross combined loans receivable (1)(2) | $ | 87,718 |
| $ | 83,087 |
| | $ | 95,922 |
| $ | 94,194 |
| $ | 87,434 |
| $ | 74,405 |
| | $ | 90,411 |
| $ | 92,478 |
| $ | 87,718 |
| $ | 83,087 |
|
Average Secured Installment gross combined loans receivable(3) | $ | 85,403 |
| $ | 89,505 |
| | $ | 95,058 |
| $ | 90,814 |
| $ | 84,984 |
| $ | 82,408 |
| | $ | 91,445 |
| $ | 90,098 |
| $ | 85,403 |
| $ | 89,505 |
|
Secured Installment Allowance for loan losses and CSO liability for losses (2)(4) | $ | 10,067 |
| $ | 9,874 |
| | $ | 12,616 |
| $ | 11,714 |
| $ | 10,812 |
| $ | 9,773 |
| | $ | 10,375 |
| $ | 10,431 |
| $ | 10,067 |
| $ | 9,874 |
|
Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable | 11.5 | % | 11.9 | % | | 13.2 | % | 12.4 | % | 12.4 | % | 13.1 | % | | 11.5 | % | 11.3 | % | 11.5 | % | 11.9 | % |
Secured Installment past-due balances: | | | | | | |
Secured Installment past-due gross loans receivable and gross loans guaranteed by the Company | $ | 14,570 |
| $ | 13,866 |
| | $ | 17,835 |
| $ | 17,754 |
| $ | 15,246 |
| $ | 15,612 |
| | $ | 17,902 |
| $ | 17,645 |
| $ | 14,570 |
| $ | 13,866 |
|
Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (1)(2) | 16.6 | % | 16.7 | % | | 18.6 | % | 18.8 | % | 17.4 | % | 21.0 | % | | 19.8 | % | 19.1 | % | 16.6 | % | 16.7 | % |
Secured Installment other information: | | | | | | |
Originations (3)(2) | $ | 49,051 |
| $ | 33,490 |
| | $ | 49,217 |
| $ | 51,742 |
| $ | 53,597 |
| $ | 20,990 |
| | $ | 40,961 |
| $ | 45,990 |
| $ | 49,051 |
| $ | 33,490 |
|
Secured Installment ratios: | | | | | | |
Provision as a percentage of gross combined loans receivable | 8.9 | % | 8.5 | % | | 12.5 | % | 10.8 | % | 8.7 | % | 13.0 | % | | 12.7 | % | 9.5 | % | 8.9 | % | 8.5 | % |
(1) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details. | |
(2) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO liability for losses is reported as a liability on the Condensed Consolidated Balance Sheets. | |
(3) Includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements. | |
(1) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." | | (1) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." |
(2) Includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements. | | (2) Includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements. |
(3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as beginning of quarter and end of quarter gross loans receivable. | | (3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as beginning of quarter and end of quarter gross loans receivable. |
(4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our unaudited Condensed Consolidated Balance Sheets. | | (4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our unaudited Condensed Consolidated Balance Sheets. |
Open-End Loans
Open-End loan balances as of June 30, 2019March 31, 2020 increased by $192.3$73.2 million, or 30.4% ($89.7 million, or 37.2%, on a constant-currency basis), compared to June 30, 2018, primarily due to the launch of Open-End loansMarch 31, 2019, on 30.5% (39.5% on a constant-currency basis) growth in Canada in late 2017, which accounted for $167.9 million of the year-over-year growth. Also, the Q1 2019 Open-End Loss Recognition Change affected comparability with the inclusion of $35.4 million of past-due Open-End loans as of June 30, 2019. Open-End balances in Canada grew $35.1 million sequentially from the first quarter of 2019 ($30.8 million on a constant currency basis) due to organic growth of the product. Remaining year-over-year loan growth was driven by the organicand 30.0% growth in seasoned markets, such as Tennessee and Kansas, and the relatively new Virginia market.U.S.
TheConsolidated Open-End NCO rate during the second quarter of 2019 was 9.6% compared to 16.7% inthree months ended March 31, 2020 improved 160 bps versus the same quarter in the prior year,prior-year period, primarily as a result of a modest improvement inseasoning of the U.S. and overall mix shift to Canada. NCO rates are lower in Canada and Open-End loans in Canada comprised 77.4% of total Open-End loans as of June 30, 2019, compared to 56.4% as of June 30, 2018. Sequentially,portfolio, which improved 165 bps year-over-year on a non-GAAP pro forma basis as described below, NCO rates improved 170 bps, primarily on portfolio improvements in Canada.below. The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable increased sequentially from 16.4% to 18.0% for the three months ended March 31, 2020 because of Allowance Build.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe inover 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.past-due. Because of our continuing shift to Open-End loans in Canada and our analysis of payment patterns on early-stage versus late-stage delinquencies, we revised our estimates and now consider Open-End loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-due Open-End loans and related accrued interest now remain in loans receivable for 90 days before being charged off against the allowance for loan losses. All recoveries on charged-off loans are credited to the allowance for loan losses. We evaluate the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest.
Prospectively from January 1, 2019, past-due, unpaid balances plus related accrued interest charge-off on day 91.
The aforementioned change was treated as a change in accounting estimate for accounting purposes and applied prospectively beginning January 1, 2019.
The change affects comparability to prior periods as follows:
Gross combined loans receivable: balances as of June 30, 2019 include $35.4 million of Open-End loans that are up to 90 days past-due with related accrued interest, while such balances for periods prior to March 31, 2019 do not include any past-due loans.
Revenues: for the quarter ended June 30, 2019, gross revenues include interest earned on past-due loan balances of approximately $12 million, while revenues in prior-year periods do not include comparable amounts. Gross revenue for the six-month ended June 30, 2019 included interest earned on past-due loan balances of approximately $21 million.
Provision for Losses: prospectively, past-due, unpaid balances plus related accrued interest charge-off on day 91. Provision expense is affected by NCOs (total charge-offs less total recoveries) plus changes to the Allowance for loan losses. Because NCOs prospectively include unpaid principal and up to 90 days of related accrued interest, NCO amounts and rates are higher and the Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable is higher. The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable increased to 18.3% at June 30, 2019 compared to 10.7% in the same prior-year period.
The following table reports 2019 Open-End loan performance including the effect of the Q1 2019 Open-End Loss Recognition Change:
| | | 2019 | | 2018 | 2020 | | 2019 |
(dollars in thousands, unaudited) | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter |
Open-End loans: | | | | | | |
Revenue | $ | 54,972 |
| $ | 52,869 |
| | $ | 47,228 |
| $ | 40,290 |
| $ | 27,222 |
| $ | 70,982 |
| | $ | 71,295 |
| $ | 66,120 |
| $ | 54,972 |
| $ | 52,869 |
|
Provision for losses | 29,373 |
| 25,317 |
| | 28,337 |
| 31,686 |
| 14,848 |
| 40,991 |
| | 37,816 |
| 31,220 |
| 29,373 |
| 25,317 |
|
Net revenue | $ | 25,599 |
| $ | 27,552 |
| | $ | 18,891 |
| $ | 8,604 |
| $ | 12,374 |
| $ | 29,991 |
| | $ | 33,479 |
| $ | 34,900 |
| $ | 25,599 |
| $ | 27,552 |
|
Net charge-offs (1) | $ | 25,151 |
| $ | (1,521 | ) | | $ | 25,218 |
| $ | 23,579 |
| $ | 11,924 |
| $ | 37,098 |
| | $ | 37,426 |
| $ | 28,202 |
| $ | 25,151 |
| $ | (1,521 | ) |
Open-End gross loan balances: | | | | | | |
Open-End gross loans receivable | $ | 283,311 |
| $ | 240,790 |
| | $ | 207,333 |
| $ | 184,067 |
| $ | 91,033 |
| $ | 314,006 |
| | $ | 335,524 |
| $ | 314,971 |
| $ | 283,311 |
| $ | 240,790 |
|
Average Open-End gross loans receivable(1) | $ | 262,051 |
| $ | 224,062 |
| | $ | 195,700 |
| $ | 137,550 |
| $ | 71,299 |
| $ | 324,765 |
| | $ | 325,248 |
| $ | 299,141 |
| $ | 262,051 |
| $ | 224,062 |
|
Open-End allowance for loan losses: | | | | | | |
Allowance for loan losses | $ | 51,717 |
| $ | 46,963 |
| | $ | 19,901 |
| $ | 18,013 |
| $ | 9,717 |
| $ | 56,458 |
| | $ | 55,074 |
| $ | 54,233 |
| $ | 51,717 |
| $ | 46,963 |
|
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable | 18.3 | % | 19.5 | % | | 9.6 | % | 9.8 | % | 10.7 | % | 18.0 | % | | 16.4 | % | 17.2 | % | 18.3 | % | 19.5 | % |
Open-End past-due balances: | | | | | | |
Open-End past-due gross loans receivable | $ | 35,395 |
| $ | 32,444 |
| | $ | — |
| $ | — |
| $ | — |
| $ | 49,987 |
| | $ | 50,072 |
| $ | 46,053 |
| $ | 35,395 |
| $ | 32,444 |
|
Past-due Open-End gross loans receivable - percentage | 12.5 | % | 13.5 | % | | — | % | — | % | — | % | 15.9 | % | | 14.9 | % | 14.6 | % | 12.5 | % | 13.5 | % |
(1) Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, NCOs for the first quarter 2019 were $31,788. | |
(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. | | (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. |
In addition, theThe following table illustrates, on a non-GAAP pro forma basis, the first and second quarter of 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 the first and second quarterseach 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 | 2019 |
(dollars in thousands, unaudited) | | Second Quarter | First Quarter |
Open-End loans: | | | |
Revenue | | $ | 54,972 |
| $ | 52,869 |
|
Provision for losses | | 29,373 |
| 25,317 |
|
Net revenue | | $ | 25,599 |
| $ | 27,552 |
|
Net charge-offs | | $ | 29,648 |
| $ | 31,788 |
|
Open-End gross loan balances: | | | |
Open-End gross loans receivable | | $ | 283,311 |
| $ | 240,790 |
|
Average Open-End gross loans receivable | | $ | 262,051 |
| $ | 245,096 |
|
Net-charge offs as a percentage of average gross loans receivable | | 11.3 | % | 13.0 | % |
Open-End allowance for loan losses: | | | |
Allowance for loan losses | | $ | 51,717 |
| $ | 46,963 |
|
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable | | 18.3 | % | 19.5 | % |
Open-End past-due balances: | | | |
Open-End past-due gross loans receivable | | $ | 35,395 |
| $ | 32,444 |
|
Past-due Open-End gross loans receivable - percentage | | 12.5 | % | 13.5 | % |
|
| | | | | | | | | | | | | |
Pro Forma | | 2019 |
(dollars in thousands, unaudited) | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter |
Open-End loans: | | | | | |
Pro Forma Net charge-offs | | $ | 38,748 |
| $ | 29,762 |
| $ | 29,648 |
| $ | 31,788 |
|
Open-End gross loan balances: | | | | | |
Open-End gross loans receivable | | $ | 335,524 |
| $ | 314,971 |
| $ | 283,311 |
| $ | 240,790 |
|
Pro Forma Average Open-End gross loans receivable (1) | | $ | 325,248 |
| $ | 299,141 |
| $ | 262,051 |
| $ | 245,096 |
|
Pro Forma Net-charge offs as a percentage of average gross loans receivable | | 11.9 | % | 9.9 | % | 11.3 | % | 13.0 | % |
(1) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as average of beginning of quarter and end of quarter gross loans receivable. |
Single-Pay
Single-Pay revenue and related loans receivable duringdeclined $1.6 million, or 3.4%, for the three months ended June 30, 2019 declined year-over-yearMarch 31, 2020 compared to the three months ended June 30, 2018,prior-year period, primarily due to regulatory changes in Canada (rate and product changes in Ontario and British Columbia) that acceleratedlower volume during the shift to Open-End loans. The aforementioned Open-End growth in Canada ($167.9
million year-over-year), in part, contributedlast two weeks of the first quarter of 2020, attributable primarily to the decrease in Single-Pay loan balances, which shrank year-over-year by $12.2 million.impact of COVID-19. The Single-Pay NCO rate remained consistent year-over-year.Allowance for loan losses as a percentage of Single-Pay gross loans receivable increased sequentially from 7.2% to 8.6% because of Allowance Build.
| | | 2019 | | 2018 | 2020 | | 2019 |
(dollars in thousands, unaudited) | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Second Quarter | First Quarter |
Single-pay loans: | | | | | | |
Revenue | $ | 45,528 |
| $ | 46,761 |
| | $ | 49,696 |
| $ | 50,614 |
| $ | 58,325 |
| $ | 45,157 |
| | $ | 49,844 |
| $ | 49,312 |
| $ | 45,528 |
| $ | 46,761 |
|
Provision for losses | 12,446 |
| 8,268 |
| | 12,825 |
| 12,757 |
| 13,101 |
| 9,639 |
| | 12,289 |
| 14,736 |
| 12,446 |
| 8,268 |
|
Net revenue | $ | 33,082 |
| $ | 38,493 |
| | $ | 36,871 |
| $ | 37,857 |
| $ | 45,224 |
| $ | 35,518 |
| | $ | 37,555 |
| $ | 34,576 |
| $ | 33,082 |
| $ | 38,493 |
|
Net charge-offs | $ | 11,458 |
| $ | 8,610 |
| | $ | 11,838 |
| $ | 12,892 |
| $ | 12,976 |
| $ | 10,517 |
| | $ | 12,145 |
| $ | 13,913 |
| $ | 11,458 |
| $ | 8,610 |
|
Single-Pay gross loan balances: | | | | | | |
Single-Pay gross loans receivable | $ | 76,126 |
| $ | 69,753 |
| | $ | 80,823 |
| $ | 77,390 |
| $ | 84,665 |
| $ | 54,728 |
| | $ | 81,447 |
| $ | 78,039 |
| $ | 76,126 |
| $ | 69,753 |
|
Average Single-Pay gross loans receivable(1) | $ | 72,940 |
| $ | 75,288 |
| | $ | 79,107 |
| $ | 81,028 |
| $ | 83,353 |
| $ | 68,088 |
| | $ | 78,787 |
| $ | 77,083 |
| $ | 72,940 |
| $ | 75,288 |
|
Single-Pay Allowance for loan losses | $ | 4,941 |
| $ | 3,897 |
| | $ | 4,189 |
| $ | 3,293 |
| $ | 3,604 |
| $ | 4,693 |
| | $ | 5,869 |
| $ | 5,662 |
| $ | 4,941 |
| $ | 3,897 |
|
Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable | 6.5 | % | 5.6 | % | | 5.2 | % | 4.3 | % | 4.3 | % | 8.6 | % | | 7.2 | % | 7.3 | % | 6.5 | % | 5.6 | % |
(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. | | (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. |
Gross Combined Loans Receivable
The following table summarizes Company Owned gross loans receivable, a GAAP-basis balance sheet measure, and reconciles it to gross combined loans receivable, a non-GAAP measure(1), including loans originated by third-party lenders through CSO programs, which are not included in our Condensed Consolidated Financial Statements but from which we earn revenue and for which we provide a guarantee to the unaffiliated lender:
|
| | | | | | | | | | | | | | | |
| As of |
(in millions, unaudited) | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 |
Company Owned gross loans receivable | $ | 609.6 |
| $ | 553.2 |
| $ | 571.5 |
| $ | 537.8 |
| $ | 420.6 |
|
Gross loans receivable Guaranteed by the Company | 67.3 |
| 61.9 |
| 80.4 |
| 78.8 |
| 69.2 |
|
Gross combined loans receivable (1) | $ | 676.9 |
| $ | 615.1 |
| $ | 651.9 |
| $ | 616.6 |
| $ | 489.8 |
|
(1) See "Non-GAAP Financial Measures" below for definition and additional information. |
Gross combined loans receivable by product are presented below (year-over-year sequential comparisons for Open-End are affected by the Q1 2019 Open-End Loss Recognition Change):
Gross combined loans receivable increased $187.1 million, or 38.1%, to $676.9 million as of June 30, 2019 from $489.8 million as of June 30, 2018. Geographically, gross combined loans receivable grew 11.0% and 120.1%, respectively, in the U.S. and Canada, explained further by product in the following sections.
Consolidated Results of Operations - CURO Group Consolidated Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
| | (in thousands, unaudited) | Three Months Ended June 30, | | Six Months Ended June 30, | |
2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % | |
| | Three Months Ended March 31, |
| 2020 | 2019 | Change $ | Change % |
Revenue | $ | 264,300 |
| $ | 237,169 |
| $ | 27,131 |
| 11.4 | % | | $ | 542,239 |
| $ | 488,012 |
| $ | 54,227 |
| 11.1 | % | $ | 280,806 |
| $ | 277,939 |
| $ | 2,867 |
| 1.0 | % |
Provision for losses | 112,010 |
| 86,347 |
| 25,663 |
| 29.7 | % | | 214,395 |
| 163,230 |
| 51,165 |
| 31.3 | % | 113,536 |
| 102,385 |
| 11,151 |
| 10.9 | % |
Net revenue | 152,290 |
| 150,822 |
| 1,468 |
| 1.0 | % | | 327,844 |
| 324,782 |
| 3,062 |
| 0.9 | % | 167,270 |
| 175,554 |
| (8,284 | ) | (4.7 | )% |
Advertising costs | 12,780 |
| 15,113 |
| (2,333 | ) | (15.4 | )% | | 20,566 |
| 22,998 |
| (2,432 | ) | (10.6 | )% | 12,219 |
| 7,786 |
| 4,433 |
| 56.9 | % |
Non-advertising costs of providing services | 58,329 |
| 58,361 |
| (32 | ) | (0.1 | )% | | 120,600 |
| 118,590 |
| 2,010 |
| 1.7 | % | 55,352 |
| 62,271 |
| (6,919 | ) | (11.1 | )% |
Total cost of providing services | 71,109 |
| 73,474 |
| (2,365 | ) | (3.2 | )% | | 141,166 |
| 141,588 |
| (422 | ) | (0.3 | )% | 67,571 |
| 70,057 |
| (2,486 | ) | (3.5 | )% |
Gross margin | 81,181 |
| 77,348 |
| 3,833 |
| 5.0 | % | | 186,678 |
| 183,194 |
| 3,484 |
| 1.9 | % | 99,699 |
| 105,497 |
| (5,798 | ) | (5.5 | )% |
| | | | | | | |
Operating expense | | | | | | | |
Corporate, district and other expenses | 39,038 |
| 32,980 |
| 6,058 |
| 18.4 | % | | 88,126 |
| 68,409 |
| 19,717 |
| 28.8 | % | 42,807 |
| 49,088 |
| (6,281 | ) | (12.8 | )% |
Interest expense | 17,023 |
| 20,472 |
| (3,449 | ) | (16.8 | )% | | 34,713 |
| 42,826 |
| (8,113 | ) | (18.9 | )% | 17,324 |
| 17,690 |
| (366 | ) | (2.1 | )% |
Loss on extinguishment of debt | — |
| — |
| — |
| # |
| | — |
| 11,683 |
| (11,683 | ) | # |
| |
Loss from equity method investment | | 1,618 |
| — |
| 1,618 |
| # |
|
Total operating expense | 56,061 |
| 53,452 |
| 2,609 |
| 4.9 | % | | 122,839 |
| 122,918 |
| (79 | ) | (0.1 | )% | 61,749 |
| 66,778 |
| (5,029 | ) | (7.5 | )% |
Income from continuing operations before income taxes | 25,120 |
| 23,896 |
| 1,224 |
| 5.1 | % | | 63,839 |
| 60,276 |
| 3,563 |
| 5.9 | % | 37,950 |
| 38,719 |
| (769 | ) | (2.0 | )% |
Provision for income taxes | 7,453 |
| 5,178 |
| 2,275 |
| 43.9 | % | | 17,499 |
| 16,645 |
| 854 |
| 5.1 | % | 1,937 |
| 10,046 |
| (8,109 | ) | (80.7 | )% |
Net income from continuing operations | 17,667 |
| 18,718 |
| (1,051 | ) | (5.6 | )% | | 46,340 |
| 43,631 |
| 2,709 |
| 6.2 | % | 36,013 |
| 28,673 |
| 7,340 |
| 25.6 | % |
Net income (loss) from discontinued operations, net of tax | (834 | ) | (2,743 | ) | 1,909 |
| (69.6 | )% | | 7,541 |
| (4,364 | ) | 11,905 |
| # |
| |
Net income from discontinued operations, net of tax | | 292 |
| 8,375 |
| (8,083 | ) | (96.5 | )% |
Net income | $ | 16,833 |
| $ | 15,975 |
| $ | 858 |
| 5.4 | % | | $ | 53,881 |
| $ | 39,267 |
| $ | 14,614 |
| 37.2 | % | $ | 36,305 |
| $ | 37,048 |
| $ | (743 | ) | (2.0 | )% |
# - Variance greater than 100% or not meaningful | | # - Variance greater than 100% or not meaningful |
For the three months ended June 30,March 31, 2020 and 2019 and 2018
Revenue and Net Revenue
Revenue increased $27.1$2.9 million, or 11.4%1.0%, to $264.3$280.8 million for the three months ended June 30, 2019March 31, 2020, from $237.2$277.9 million for the three months ended June 30, 2018. Revenue for the three months ended June 30, 2019 included interest earned on past-due Open-End loan balances of approximately $12 million from the Q1 2019 Open-End Loss Recognition Change, offset by a higher provision rate and the higher allowance discussed further below.March 31, 2019. U.S. revenue decreased 1.9% primarily due to regulatory changes in California. Excluding California, U.S. revenue increased 10.5%4.6%, primarily driven by volumeOpen-End growth. Canadian revenue increased 15.3% (19.5% on a constant currency basis), as volume13.9% primarily due to growth offset yield compression from negative regulatory impacts on Single-Pay loan ratesin Open-End loans and the significant product mix-shiftsale of payment protection insurance to Canadian Installment and Open-End loans.customers.
Provision for losses increased $25.7by $11.2 million, or 29.7%10.9%, to $112.0 million for the three months ended June 30, 2019,March 31, 2020 compared to the prior-year period. The increase in provision for loan losses was primarily from $86.3$12.0 million for the three months ended June 30, 2018, primarily due to changesof Allowance Build, as discussed in more detail in the allowance coverage in the second quarter of 2018. The second quarter of 2018 included $11.0 million of provision benefit from changes in allowance coverage rates whereas the second quarter of 2019 included $1.6 million of benefit. Excluding the impact of the allowance coverage change, provision for losses increased $16.3 million, or 16.7%, because of the Q1 2019 Open-End Loss Recognition Change"—Loan Volume and increased earning asset volume year-over-year as further described in "SegmentPortfolio Performance Analysis" above and "—Segment Analysis" below.
Cost of Providing Services
The total costNon-advertising costs of providing services decreased $2.4$6.9 million, or 3.2%11.1%, to $71.1$55.4 million in the three months ended June 30, 2019,March 31, 2020, compared to $73.5$62.3 million in the three months ended June 30, 2018, primarilyMarch 31, 2019. Of the $6.9 million decrease, $4.7 million is related to third-party collection costs, incurred in 2019 related to Ad Astra, which were included in Non-advertising costs of providing services. Following our acquisition of Ad Astra on 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 is from headcount reductions in the three months ended March 31, 2019 and discretionary variable compensation comparisons.
Advertising costs increased $4.4 million, or 56.9%, year-over-year. We historically reduced advertising and customer acquisition costs seasonally in the first quarter of the year (concentrated in February) because of lowerthe impact on customers of U.S. federal income tax refunds. In the three months ended March 31, 2020, based on improved underwriting and evaluation of the seasonal opportunity, we increased advertising costs analyzed furtherthrough the traditional tax refund season. We subsequently reduced advertising costs in "Segment Analysis" below.the last three weeks of March 2020 because of COVID-19-related considerations.
Operating Expenses
Corporate, district and other expenses increased $6.1were $42.8 million for the three months ended March 31, 2020, a decrease of $6.3 million, or 18.4%12.8%, primarily as a resultcompared to the three months ended March 31, 2019. Corporate, district and other expenses in the three months ended March 31, 2020 include $3.5 million of a $3.7 million non-cash impairment chargecollection costs related to Ad Astra, which were included in Non-advertising costs of providing services prior to its acquisition. For the three months ended March 31, 2020, corporate, district and other expenses include (i) $1.1 million of legal and other costs described in our reconciliation to Adjusted Net Income in "—Supplemental Non-GAAP Financial Information" below, and (ii) $3.2 million of share-based compensation costs. For the three months ended March 31, 2019, corporate district and other expenses include (i) U.K. related costs of $7.8 million and severance costs of $1.8 million as described in our reconciliation to Adjusted Net Income in "—Supplemental Non-GAAP Financial Information" below, and (ii) share-based compensation costs of $2.2 million.
Excluding Ad Astra costs, share-based compensation expense and other costs described above, comparable corporate, district and other expenses decreased $2.4 million year-over-year, primarily due to the timing and extent of variable compensation in the three months ended March 31, 2019 and market-based changes in deferred compensation plan assets and liabilities.
We account for our investment in Cognical Holdings, Inc. ("Zibby") and higher performance-based variable compensation. DuringKatapult under the second quarterequity method. We record our pro rata share of 2019, Zibby conducted an equity capital raise that closed on July 11, 2019, primarily with existing equity holders. We invested cash of $2.8 millionKatapult's income or losses in the second quarterunaudited Condensed Consolidated Statement of 2019 and an additional $4.0 millionOperations with a corresponding adjustment to the carrying value of cashour investment in July 2019, which in aggregate, increased"Other assets" on the unaudited Condensed Consolidated Balance Sheet. For the three months ended March 31, 2020, our fully-diluted ownership to 42.3%. Because the offeringshare of Katapult's loss was at a valuation below previous rounds, the non-cash impairment charge was required. Excluding the Zibby impairment charge, share-based compensation costs in both periods presented and U.K. related costs, operating expenses increased by $1.2$1.6 million.
Interest Expense
Interest expense for the three months ended March 31, 2020 remained consistent with the prior-year period on flat year-over-year average borrowing.
Provision for Income Taxes
The effective income tax rate from continuing operations for the three months ended June 30, 2019March 31, 2020 was 29.7%5.1%, compared to 21.7.0%a tax rate of 25.9% for the three months ended June 30, 2018. Excluding the non-tax-deductible impairment of our investmentMarch 31, 2019. The decrease in Zibby, our effective income tax rate was primarily due to a tax benefit from continuing operationsthe CARES Act, which was enacted on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid Federal income taxes. In the first quarter of 2020, we recorded an income tax benefit of $9.1 million related to the carry-back of NOL from tax years 2018 and 2019, which will offset pre-tax reform years and generate a refund of previously paid taxes at 35%. In addition, losses from our equity method investment in Katapult are not tax deductible. Excluding the impact of the CARES Act and Katapult, our adjusted effective income tax rate for the three months ended June 30, 2019March 31, 2020 was 25.8%27.9%.
For the six months ended June 30, 2019 and 2018
Revenue and Net Revenue
Revenue increased $54.2 million, or 11.1%, to $542.2 million for the six months ended June 30, 2019 from $488.0 million for the six months ended June 30, 2018. Revenue for the six months ended June 30, 2019 included interest earned on past-due Open-End loan balances of approximately $21 million from the Q1 2019 Open-End Loss Recognition Change, offset by a higher provision rate and the higher allowance discussed further below. U.S. revenue increased 10.5%, driven by volume growth. Canadian revenue increased 13.7% (18.7% on a constant currency basis), as volume growth offset yield compression from negative regulatory impacts on Single-Pay loan rates and the significant product mix-shift to Open-End loans.
Provision for losses increased $51.2 million, or 31.3%, to $214.4 million for the six months ended June 30, 2019, from $163.2 million for the six months ended June 30, 2018, primarily due to changes in the allowance coverage in the second quarter of 2018. The first half of 2018 included $14.7 million of provision benefit from changes which included allowance coverage rates whereas the first half of 2019 included $1.0 million of benefit. Excluding the impact of the allowance coverage change, provision for losses increased $37.5 million, or 21.1%, because of the Q1 2019 Open-End Loss Recognition Change and increased earning asset volume year-over-year as further described in "Segment Analysis" below.
Cost of Providing Services
The total cost of providing services decreased $0.4 million, or 0.3%, to $141.2 million in the six months ended June 30, 2019, compared to $141.6 million in the six months ended June 30, 2018, primarily because of lower advertising costs, offset by increased loan servicing costs on higher volume.
Operating Expenses
Corporate, district and other expenses increased $19.7 million, or 28.8%, primarily as a result of $8.5 million for obtaining the consent of our holders of the 8.25% Senior Secured Notes and our bondholders associated with discontinuing our U.K. operations and other related U.K. separation costs, $1.8 million of restructuring costs from our reduction-in-force implemented in January 2019, higher professional fees associated with our first year-end for full compliance with Sarbanes-Oxley, and a $3.7 million impairment charge related to our investment in Zibby. Excluding the Zibby impairment charge, share-based compensation costs in both periods presented and U.K. related costs, operating expenses increased by $6.7 million.
Provision for Income Taxes
The effective income tax rate from continuing operations for the six months ended June 30, 2019 was 27.4%, compared to 29.9% for the six months ended June 30, 2018. Excluding the non-tax-deductible impairment of our investment in Zibby, our effective income tax rate from continuing operations for the six months ended June 30, 2019 was 25.9%
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:indicated (in thousands, unaudited):
| | U.S. Segment Results | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(dollars in thousands, unaudited) | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % | |
| | 2020 | 2019 | Change $ | Change % |
Revenue | $ | 210,046 |
| $ | 190,126 |
| $ | 19,920 |
| 10.5 | % | | $ | 436,165 |
| $ | 394,719 |
| $ | 41,446 |
| 10.5 | % | $ | 221,768 |
| $ | 226,119 |
| $ | (4,351 | ) | (1.9 | )% |
Provision for losses | 92,552 |
| 71,987 |
| 20,565 |
| 28.6 | % | | 177,532 |
| 136,320 |
| 41,212 |
| 30.2 | % | 86,041 |
| 84,980 |
| 1,061 |
| 1.2 | % |
Net revenue | 117,494 |
| 118,139 |
| (645 | ) | (0.5 | )% | | 258,633 |
| 258,399 |
| 234 |
| 0.1 | % | 135,727 |
| 141,139 |
| (5,412 | ) | (3.8 | )% |
Advertising costs | 11,179 |
| 12,409 |
| (1,230 | ) | (9.9 | )% | | 17,533 |
| 17,568 |
| (35 | ) | (0.2 | )% | 10,945 |
| 6,354 |
| 4,591 |
| 72.3 | % |
Non-advertising costs of providing services | 41,248 |
| 41,682 |
| (434 | ) | (1.0 | )% | | 86,230 |
| 85,439 |
| 791 |
| 0.9 | % | 37,242 |
| 44,982 |
| (7,740 | ) | (17.2 | )% |
Total cost of providing services | 52,427 |
| 54,091 |
| (1,664 | ) | (3.1 | )% | | 103,763 |
| 103,007 |
| 756 |
| 0.7 | % | 48,187 |
| 51,336 |
| (3,149 | ) | (6.1 | )% |
Gross margin | 65,067 |
| 64,048 |
| 1,019 |
| 1.6 | % | | 154,870 |
| 155,392 |
| (522 | ) | (0.3 | )% | 87,540 |
| 89,803 |
| (2,263 | ) | (2.5 | )% |
Corporate, district and other expenses | 33,397 |
| 28,221 |
| 5,176 |
| 18.3 | % | | 77,277 |
| 58,753 |
| 18,524 |
| 31.5 | % | 37,650 |
| 43,880 |
| (6,230 | ) | (14.2 | )% |
Interest expense | 14,641 |
| 20,465 |
| (5,824 | ) | (28.5 | )% | | 29,369 |
| 42,762 |
| (13,393 | ) | (31.3 | )% | 14,846 |
| 14,728 |
| 118 |
| 0.8 | % |
Loss on extinguishment of debt | — |
| — |
| — |
| # |
| | — |
| 11,683 |
| (11,683 | ) | # |
| |
Loss from equity method investment | | 1,618 |
| — |
| 1,618 |
| # |
|
Total operating expense | 48,038 |
| 48,686 |
| (648 | ) | (1.3 | )% | | 106,646 |
| 113,198 |
| (6,552 | ) | (5.8 | )% | 54,114 |
| 58,608 |
| (4,494 | ) | (7.7 | )% |
Segment operating income | 17,029 |
| 15,362 |
| 1,667 |
| 10.9 | % | | 48,224 |
| 42,194 |
| 6,030 |
| 14.3 | % | 33,426 |
| 31,195 |
| 2,231 |
| 7.2 | % |
Interest expense | 14,641 |
| 20,465 |
| (5,824 | ) | (28.5 | )% | | 29,369 |
| 42,762 |
| (13,393 | ) | (31.3 | )% | 14,846 |
| 14,728 |
| 118 |
| 0.8 | % |
Depreciation and amortization | 3,437 |
| 3,379 |
| 58 |
| 1.7 | % | | 7,163 |
| 6,786 |
| 377 |
| 5.6 | % | 3,377 |
| 3,726 |
| (349 | ) | (9.4 | )% |
EBITDA | 35,107 |
| 39,206 |
| (4,099 | ) | (10.5 | )% | | 84,756 |
| 91,742 |
| (6,986 | ) | (7.6 | )% | 51,649 |
| 49,649 |
| 2,000 |
| 4.0 | % |
Loss on extinguishment of debt | — |
| — |
| — |
| | | — |
| 11,683 |
| (11,683 | ) | | |
Restructuring costs | — |
| — |
| — |
| | | 1,617 |
| — |
| 1,617 |
| | |
Legal and other costs | | 1,149 |
| 1,617 |
| (468 | ) | |
Other adjustments | (143 | ) | (66 | ) | (77 | ) | | | (248 | ) | (125 | ) | (123 | ) | | (141 | ) | (105 | ) | (36 | ) | |
U.K. related costs | 679 |
| — |
| 679 |
| | | 8,496 |
| — |
| 8,496 |
| | — |
| 7,817 |
| (7,817 | ) | |
Share-based cash and non-cash compensation | 2,644 |
| 2,181 |
| 463 |
| | | 4,816 |
| 4,023 |
| 793 |
| | |
Impairment of equity method | 3,748 |
| — |
| 3,748 |
| | | 3,748 |
| | 3,748 |
| | |
Share-based compensation | | 3,194 |
| 2,172 |
| 1,022 |
| |
Loss from equity method investment | | 1,618 |
| — |
| 1,618 |
| |
Adjusted EBITDA | $ | 42,035 |
| $ | 41,321 |
| $ | 714 |
| 1.7 | % | | $ | 103,185 |
| $ | 107,323 |
| $ | (4,138 | ) | (3.9 | )% | $ | 57,469 |
| $ | 61,150 |
| $ | (3,681 | ) | (6.0 | )% |
# - Change greater than 100% or not meaningful. | | | | |
# - Variance greater than 100% or not meaningful. | | # - Variance greater than 100% or not meaningful. |
U.S. Segment Results - For the three months ended June 30,March 31, 2020 and 2019 and 2018
Second quarter 2019
U.S. revenues increaseddecreased by $19.9$4.4 million, or 10.5%1.9%, to $210.0$221.8 million, compared to the comparable prior-year period. U.S. revenue growth was driven by a $40.6 million, or 11.0%, increase in gross combined loans receivable to $408.3 million at June 30, 2019, compared to $367.7 million at June 30, 2018. Additionally, U.S. revenueperiod for the three months ended June 30, 2019 included interest earned on past-dueMarch 31, 2020, primarily due to regulatory changes in California. Excluding California, U.S. revenues increased by $7.8 million, or 4.6%, driven by a $17.0 million, or 30.0%, increase in Open-End loan balances of approximately $10 million from the Q1 2019 Open-End Loss Recognition Change, offset by a related highergrowth.
The provision for losses. Unsecured Installment combined receivables increased year-over-year by $12.2losses decreased $1.1 million, or 6.0%. Open-End receivables increased $24.4 million, or 61.4%1.2%, year-over-year led by growth in Virginia, Tennessee and Kansas and inclusion of past-due receivables as a result of the Q1 2019 Open-End Loss Recognition Change. Secured Installmentdecline in total gross combined receivables remained flatloans receivable, because of California regulatory changes, offset by changes in NCO rates and $5.3 million Allowance Build. For the three months ended March 31, 2020, quarterly NCO rates increased approximately 140 bps compared to the pro-forma prior-year period while Single-Pay receivables grew $3.7 million, or 9.9%.due to the Installment portfolio mix shift to higher loss states, as well as loan balance declines late in March 2020 from COVID-19 impacts, which affected simple-average NCO rate calculations.
The provision for losses' increase of $20.6 million, or 28.6%, was primarily due to changes in allowance coverage in the second quarter of 2018. The second quarter of 2018 included $9.9 million of provision benefit from changes in the allowance coverage rates, whereas the second quarter of 2019 included $0.3 million of incremental expense. Excluding the impact of the allowance coverage change, provision for losses increased $10.3 million, or 12.6%, because of the Q1 2019 Open-End Loss Recognition Change and increased earning asset volume year-over-year.
U.S. costNon-advertising costs of providing services for the three months ended June 30, 2019 was $52.4March 31, 2020 of $37.2 million, a decreasedecreased of $1.7$7.7 million, or 3.1%17.2%, compared to $54.1$45.0 million for the three months ended June 30, 2018,March 31, 2019. The decrease was primarily duedriven by the aforementioned $4.7 million of Ad Astra costs subsequent to lowerour acquisition of it. The remaining decrease year-over-year in Non-advertising costs of providing services was from headcount reductions in the three months ended March 31, 2019 and discretionary variable compensation comparisons.
Advertising costs increased $4.6 million, or 72.3%, year-over-year. We historically reduced advertising costs.costs and customer acquisition costs seasonally in the first quarter of the year (concentrated in February) because of the impact on customers of U.S. Federal income tax refunds. In the three months ended March 31, 2020, based on improved underwriting and evaluation of the seasonal opportunity, we increased advertising costs through the traditional tax refund season. We subsequently reduced advertising costs in the last three weeks of March 2020 because of COVID-19-related considerations.
Corporate, district and other operating expenses increased $5.2were $37.7 million for the three months ended March 31, 2020, a decrease of $6.2 million, or 18.3%14.2%, compared to the same periodthree months ended March 31, 2019. Corporate, district and other expenses for the three months ended March 31, 2020 include $3.5 million of collection costs related to Ad Astra, which were historically included in Non-advertising costs of providing services. For the prior year,three months ended March 31, 2020, corporate, district and other expenses include (i) $1.1 million of legal and other costs described in our reconciliation to Adjusted Net Income in "—Supplemental Non-GAAP Financial Information" below and (ii) $3.2 million of share-based compensation costs. For the three months ended March 31, 2019, corporate, district and other expenses include (i) U.K. related costs of $7.8 million and severance costs of $1.4 million as described in our reconciliation to Adjusted Net Income in "—Supplemental Non-GAAP Financial Information" below, and (ii) share-based compensation costs of $2.2 million.
Excluding these aforementioned items, comparable corporate district and other expenses decreased $2.6 million year-over-year, primarily due to a $3.7 million impairment charge related to our investment in Zibby, $0.7 millionthe timing and extent of U.K. disposition-related costs and $1.0 million higher performance-based variable compensation costs. Excludingfor the Zibby impairment charge, share-basedthree months ended March 31, 2019 and market-based changes in deferred compensation costs in both periods presentedplan assets and U.K. related costs, operating expenses increased by $0.3 million.liabilities.
U.S. interest expense for the second quarter of 2019 decreased by $5.8 million compared tothree months ended March 31, 2020 remained consistent with the prior-year period, primarily due to our refinancing activities in 2018. During the third quarter of 2018, we issued $690.0 million of 8.25% Senior Secured Notes and used the proceeds from the issuance to extinguish our $527.5 million 12.00% Senior Secured Notes. In addition, we entered
into a Non-Recourse Canada SPV Facility in the third quarter of 2018 with a lower interest rate than our previous U.S. SPV facility, which we fully repaid with the proceeds from the 8.25% Senior Secured Notes.
U.S. Segment Results - For the six months ended June 30, 2019 and 2018
For the six months ended June 30, 2019, U.S. revenues increased by $41.4 million, or 10.5%, to $436.2 million. U.S. revenue growth was driven by a $40.6 million, or 11.0%, increase in gross combined loans receivable, to $408.3 million at June 30, 2019, compared to $367.7 million at June 30, 2018. Additionally, U.S. revenue for the six months ended June 30, 2019 included interest earned on past-due Open-End loan balances of approximately $18 million from the Q1 2019 Open-End Loss Recognition Change, offset by related higher provision rate and higher provision for losses. Unsecured Installment receivables increased year-over-year $12.2 million, or 6.0%. Open-End receivables increased $24.4 million, or 61.4%, year-over-year, led by growth in Virginia, Tennessee and Kansas. Secured Installment gross combined receivables increased from the prior-year period by $0.3 million, or 0.3%, while Single-Pay receivables grew $3.7 million, or 9.9%.
The provision for losses' increase of $41.2 million, or 30.2%, was primarily due to changes in allowance coverage in the first half of 2018. The first half of 2018 included $12.6 million of provision benefit from changes in allowance coverage rates, whereas the first half of 2019 included $0.8 million of incremental expense. Excluding the impact of the allowance coverage change, provision for losses increased $27.7 million, or 18.6%, because of the Q1 2019 Open-End Loss Recognition Change and increased earning asset volume year-over-year.
U.S. cost of providing services for the six months ended June 30, 2019 was $103.8 million, an increase of $0.8 million, or 0.7%, compared to $103.0 million for the six months ended June 30, 2018.
Corporate, district and other operating expenses increased $18.5 million, or 31.5%, compared to the same period in the prior year, primarily due to $8.5 million of U.K. disposition-related costs, a $3.7 million impairment charge related to our investment in Zibby, $3.2 million higher performance-based variable compensation costs, $1.6 million of restructuring costs and $0.5 million higher professional fees. Excluding the Zibby impairment charge, share-based compensation costs in both periods presented and U.K. related costs, operating expenses increased by $5.5 million.
U.S. interest expense for the first six months of 2019 decreased by $13.4 million compared to the prior-year period, primarily due to our refinancing activities in 2018. During the third quarter of 2018, we issued $690.0 million of 8.25% Senior Secured Notes and used the proceeds from the issuance to extinguish our $527.5 million 12.00% Senior Secured Notes. In addition, we entered into a Non-Recourse Canada SPV Facility in the third quarter of 2018 with a lower interest rate than our previous U.S. SPV facility, which we fully repaid with the proceeds from the 8.25% Senior Secured Notes.period.
| | Canada Segment Results | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(dollars in thousands, unaudited) | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % | |
| | 2020 | 2019 | Change $ | Change % |
Revenue | $ | 54,254 |
| $ | 47,043 |
| $ | 7,211 |
| 15.3 | % | | $ | 106,074 |
| $ | 93,293 |
| $ | 12,781 |
| 13.7 | % | $ | 59,038 |
| $ | 51,820 |
| $ | 7,218 |
| 13.9 | % |
Provision for losses | 19,458 |
| 14,360 |
| 5,098 |
| 35.5 | % | | 36,863 |
| 26,910 |
| 9,953 |
| 37.0 | % | 27,495 |
| 17,405 |
| 10,090 |
| 58.0 | % |
Net revenue | 34,796 |
| 32,683 |
| 2,113 |
| 6.5 | % | | 69,211 |
| 66,383 |
| 2,828 |
| 4.3 | % | 31,543 |
| 34,415 |
| (2,872 | ) | (8.3 | )% |
Advertising costs | 1,601 |
| 2,704 |
| (1,103 | ) | (40.8 | )% | | 3,033 |
| 5,430 |
| (2,397 | ) | (44.1 | )% | 1,274 |
| 1,432 |
| (158 | ) | (11.0 | )% |
Non-advertising costs of providing services | 17,081 |
| 16,679 |
| 402 |
| 2.4 | % | | 34,370 |
| 33,151 |
| 1,219 |
| 3.7 | % | 18,110 |
| 17,289 |
| 821 |
| 4.7 | % |
Total cost of providing services | 18,682 |
| 19,383 |
| (701 | ) | (3.6 | )% | | 37,403 |
| 38,581 |
| (1,178 | ) | (3.1 | )% | 19,384 |
| 18,721 |
| 663 |
| 3.5 | % |
Gross margin | 16,114 |
| 13,300 |
| 2,814 |
| 21.2 | % | | 31,808 |
| 27,802 |
| 4,006 |
| 14.4 | % | 12,159 |
| 15,694 |
| (3,535 | ) | (22.5 | )% |
Corporate, district and other expenses | 5,641 |
| 4,759 |
| 882 |
| 18.5 | % | | 10,849 |
| 9,656 |
| 1,193 |
| 12.4 | % | 5,157 |
| 5,208 |
| (51 | ) | (1.0 | )% |
Interest expense | 2,382 |
| 7 |
| 2,375 |
| # |
| | 5,344 |
| 64 |
| 5,280 |
| # |
| 2,478 |
| 2,962 |
| (484 | ) | (16.3 | )% |
Total operating expense | 8,023 |
| 4,766 |
| 3,257 |
| 68.3 | % | | 16,193 |
| 9,720 |
| 6,473 |
| 66.6 | % | 7,635 |
| 8,170 |
| (535 | ) | (6.5 | )% |
Segment operating income | 8,091 |
| 8,534 |
| (443 | ) | (5.2 | )% | | 15,615 |
| 18,082 |
| (2,467 | ) | (13.6 | )% | |
Segment operating income (loss) | | 4,524 |
| 7,524 |
| (3,000 | ) | (39.9 | )% |
Interest expense | 2,382 |
| 7 |
| 2,375 |
| # |
| | 5,344 |
| 64 |
| 5,280 |
| # |
| 2,478 |
| 2,962 |
| (484 | ) | (16.3 | )% |
Depreciation and amortization | 1,214 |
| 1,091 |
| 123 |
| 11.3 | % | | 2,408 |
| 2,219 |
| 189 |
| 8.5 | % | 1,160 |
| 1,194 |
| (34 | ) | (2.8 | )% |
EBITDA | 11,687 |
| 9,632 |
| 2,055 |
| 21.3 | % | | 23,367 |
| 20,365 |
| 3,002 |
| 14.7 | % | 8,162 |
| 11,680 |
| (3,518 | ) | (30.1 | )% |
Restructuring costs | — |
| — |
| — |
|
|
| | 135 |
| — |
| 135 |
| | |
Legal and other costs | | — |
| 135 |
| (135 | ) |
|
|
Other adjustments | (33 | ) | 157 |
| (190 | ) | | | (144 | ) | 173 |
| (317 | ) | | 156 |
| (111 | ) | 267 |
| |
Adjusted EBITDA | $ | 11,654 |
| $ | 9,789 |
| $ | 1,865 |
| 19.1 | % | | $ | 23,358 |
| $ | 20,538 |
| $ | 2,820 |
| 13.7 | % | $ | 8,318 |
| $ | 11,704 |
| $ | (3,386 | ) | (28.9 | )% |
# - Change greater than 100% or not meaningful. | # - Change greater than 100% or not meaningful. | | | | | | # - Change greater than 100% or not meaningful. | | |
Canada Segment Results - For the three months ended June 30,March 31, 2020 and 2019 and 2018
Canada revenue increased $7.2 million, or 15.3%13.9% ($7.7 million, or 14.9%, on a constant-currency basis), to $54.3$59.0 million for the three months ended June 30, 2019,March 31, 2020, from $47.0$51.8 million in the prior year due to loan growth.
Canada non-Single-Pay revenue increased $9.8 million, or 30.4% ($10.2 million, or 31.7%, on a constant-currency basis), to $42.0 million, compared to $32.2 million in the prior-year period. On a constant currency basis, revenue increased $9.2period, on growth of $54.2 million, or 27.3% ($71.5 million, or 19.5%. Revenue36.1%, on a constant-currency basis), in related loan balances. The increase was driven by continued significant growth in Canada was impacted favorably by the significant asset growth and the product transition from Single-Pay and Unsecured Installment loans toof Open-End loans. Additionally, Canada revenue for the three months ended June 30, 2019 included interest earned on past-duewith increased Open-End loan balancesvolume and customer acquisition, ancillary revenue increased $1.3 million versus the prior-year period, primarily driven by an increase in sales of approximately $2 million from the Q1 2019insurance to Open-End Loss Recognition Change, offset by a higher provision rate and higher provision for losses. Single-Pay yields were negatively affected by regulatory rate changes in Ontario and British Columbia.loan customers.
Single-Pay revenue decreased $14.2$2.6 million, or 42.7%13.2% ($2.5 million, or 12.6%, on a constant-currency basis), to $19.1$17.0 million for the three months ended June 30, 2019,March 31, 2020, and Single-Pay receivables decreased $12.2$9.6 million, or 25.8%28.7% ($8.0 million, or 23.8% on a constant-currency basis), to $35.1$23.8 million from $47.3$33.4 million, in the prior year. The decreases in Single-Pay revenue and receivables were due to the continued product mix shift in Canada from Single-Pay loans to Open-End loans, a significant decline in demand over the last two weeks of March attributable to COVID-19, and by regulatory changes effective January and July 2018 that lowered Single Pay pricing year-over-year.in Canada's currency exchange rate.
Canada non-Single-Pay revenue increased $21.5 million, or 156.7%, to $35.2 million compared to $13.7 million the same quarter a year ago, on $158.8 million, or 212.5%, growth in related loan balances. The increase was primarily related to the launches of Open-End products in Alberta and Ontario in the fourth quarter of 2017, and significant expansion of the Open-End product in Ontario in late 2018. Additionally, as a result of the increase in Open-End loans, ancillary revenue increased $4.8 million versus the same quarter a year ago, primarily driven by an increase in sales of insurance to Open-End loan customers.
The provision for losses increased $5.1$10.1 million, or 35.5%58.0% ($10.5 million, or 60.4%, on a constant-currency basis), to $19.5$27.5 million for the three months ended June 30, 2019,March 31, 2020, compared to $14.4$17.4 million in the prior-year period. The increase in provision for loan losses was primarily a result of $6.7 million of Allowance Build. On a quarterly basis, despite the impact of lower demand over the last two weeks of March 2020 and unfavorable currency exchange rates on ending receivable balances, loss rates improved approximately 100 bps year over year. Excluding the aforementioned incremental provision expense as a result of changes in the Allowance for Loan Losses, due to lower loss rates, provision expense increased $3.3 million compared to the $7.2 million increase in revenue.
Canada cost of providing services for the three months ended March 31, 2020 were $19.4 million, an increase of $0.7 million, or 3.5% ($0.8 million, or 4.4%, on a constant-currency basis), compared to $18.7 million for the three months ended March 31, 2019.
Canada operating expenses for the three months ended March 31, 2020 were $7.6 million, a decrease of $0.5 million, or 6.5%, compared to $8.2 million in the prior-year period, because of mix shift from Single-Pay loansprimarily related to Unsecured Installment and Open-End loans and corresponding higher allowance and therefore provision expense level. Total Open-End and Installment loans grew by $35.2 million sequentially during the second quarter of 2019, compared to sequential growth of $20.9 million in the second quarter of 2018. On a constant currency basis, provision for losses increased by $5.8 million, or 40.5% compared to the prior-year period.
The total cost of providing services in Canada declined modestly for the three months ended June 30, 2019 compared to the prior-year period. Advertising costs were lower by $1.1 million, or 40.8%, partially offset by an increase in non-advertising cost of providing services of $0.4 million.interest expense. There was no material impact on the cost of providing services from exchange rate changes.a constant-currency basis.
Canada operating expenses increased $3.3 million, or 68.3%, to $8.0 million in the three months ended June 30, 2019 from $4.8 million in the prior-year period, primarily due to interest expense on the Non-Recourse Canada SPV Facility that began in August 2018.
Canada Segment Results - For the six months ended June 30, 2019 and 2018
Canada revenue increased $12.8 million, or 13.7%, to $106.1 million for the six months ended June 30, 2019 from $93.3 million in the prior-year period. On a constant currency basis, revenue increased $17.5 million, or 18.7%. Revenue growth in Canada was impacted favorably by the significant asset growth and product transition from Single-Pay and Unsecured Installment loans to Open-End loans that have a lower yield. Additionally, Canada revenues for the six months ended June 30, 2019 included interest earned on past-due Open-End loan balances of approximately $3 million from the Q1 2019 Open-End Loss Recognition Change, offset by higher provision rate and higher provision for losses. Single-Pay yields were negatively affected by regulatory rate changes in Ontario and British Columbia.
Single-Pay revenue decreased $28.9 million, or 42.8%, to $38.7 million for the six months ended June 30, 2019, and Single-Pay receivables decreased $12.2 million, or 25.8%, to $35.1 million from $47.3 million in the prior year. The decreases in Single-Pay revenue and receivables were due to the continued product mix shift in Canada from Single-Pay loans to Open-End loans and by regulatory changes effective January and July 2018 that lowered Single Pay pricing year-over-year.
Canadian non-Single-Pay revenue increased $41.7 million, or 162.6%, to $67.4 million compared to $25.7 million the same period a year ago, on $158.8 million, or 212.5%, growth in related loan balances. The increase was primarily related to the launch of Open-End products in Alberta and Ontario in the fourth quarter of 2017, and significant expansion of the Open-End product in Ontario in late 2018. As a result of the increase in Open-End loans, ancillary revenue increased $9.3 million versus the same period a year ago, primarily driven by an increase in sales of insurance to Open-End loan customers.
The provision for losses increased $10.0 million, or 37.0%, to $36.9 million for the six months ended June 30, 2019 compared to $26.9 million in the prior-year period primarily due to provisioning on Open-End loans and mix shift from Single-Pay loans and Unsecured Installment to Open-End loans. Total Open-End and Installment loans grew by $35.2 million sequentially during the second quarter of 2019, compared to sequential growth of $20.9 million in the second quarter of 2018. On a constant currency basis, provision for losses increased by $11.6 million, or 43.0% compared to the prior-year period.
The total cost of providing services in Canada declined modestly for the six months ended June 30, 2019 compared to the prior-year period. Advertising costs decreased by $2.4 million, or 44.1%, partially offset by an increase in non-advertising cost of providing services of $1.2 million. There was no material impact on the cost of providing services from exchange rate changes.
Canada operating expenses increased $6.5 million, or 66.6%, to $16.2 million in the six months ended June 30, 2019 from $9.7 million in the prior year period primarily due to interest expense on the Non-Recourse Canada SPV Facility that began in August 2018.
Supplemental Non-GAAP Financial Information
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity with U.S.US GAAP, we provide certain “non-GAAP financial measures,” including:
Adjusted Net Income and Adjusted Earnings Per Share, or the Adjusted Earnings Measures (net income from continuing operations plus or minus gain (loss) on extinguishment of debt, restructuring and other costs, impairment ofcertain legal and related costs, 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 and cumulative tax effect of applicable adjustments, on a total and per share basis);
EBITDA (earnings(net income from continuing operations before interest, income taxes, depreciation and amortization);
Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items);
Adjusted effective income tax rate (effective tax rate plus or minus certain non-cash and other adjusting items); and
Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in our unaudited Condensed Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of the Company's operations. We believe that these non-GAAP financial measures offer another way to view aspects of our business that, when viewed with our US GAAP results, provide a more complete understanding of factors and trends affecting our business.
We believe that investors regularly rely on non-GAAP financial measures, such as Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA, to assess operating performance and that such measures may highlight trends in the business that may not otherwise be apparent when relying on financial measures calculated in accordance with U.S.US GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items. In addition, we believe that Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present Adjusted Net Income, Adjusted Earnings per Share, EBITDA and/or Adjusted EBITDA when reporting their results.
In addition to reporting loans receivable information in accordance with U.S.US GAAP, we provide Gross Combined Loans Receivable consisting of ownedCompany-Owned loans receivable plus loans originated by third-party lenders through the CSO programs, which we guarantee but do not include in the unaudited Condensed Consolidated Financial Statements.Statements ("Guaranteed by the Company"). Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
We provide non-GAAP financial information for informational purposes and to enhance understanding of our U.S.US GAAP Condensed Consolidated Financial Statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income or any other performance measure derived in accordance with U.S.US GAAP, or as an alternative to cash flows from operating activities or any other liquidity measure derived in accordance with U.S.US 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.US GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our income or cash flows as reported under U.S.US GAAP. Some of these limitations are:
they do not include cash expenditures or future requirements for capital expenditures or contractual commitments;
they do not include changes in, or cash requirements for, working capital needs;
they do not include the interest expense, or the cash requirements necessary to service interest or principal payments on debt;
depreciation and amortization are non-cash expense items reported in the statements of cash flows; and
other companies in our industry may calculate these measures differently, limiting their usefulness as comparative measures.
We calculate Adjusted Earnings per Share utilizing diluted shares outstanding at year-end. If we record a loss from continuing operations under U.S.US GAAP, shares outstanding utilized to calculate Diluted Earnings per Share from continuing operations are equivalent to basic shares outstanding. Shares outstanding utilized to calculate Adjusted Earnings per Share from continuing operations reflect the number of diluted shares we would have reported if reporting net income from continuing operations under U.S.US GAAP.
As noted above, Gross Combined Loans Receivable includes loans originated by third-party lenders through CSO programs which are not included in the unaudited Condensed Consolidated Financial Statements but from which we earn revenue and for which we provide a guarantee to the lender. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
We evaluate our stores based on revenue per store, provision for losses at each store and store-level EBITDA, with consideration given to the length of time a store has been open and its geographic location. We monitor newer stores for their progress to profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and 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 Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.
Reconciliation of Net income from continuing operations and Diluted Earnings per Share to Adjusted Net income and Adjusted Diluted Earnings per Share, non-GAAP measures
(in thousands, except per share data, unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands except per share data, unaudited) | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Net income from continuing operations | $ | 17,667 |
| $ | 18,718 |
| $ | (1,051 | ) | (5.6 | )% | | $ | 46,340 |
| $ | 43,631 |
| $ | 2,709 |
| 6.2 | % |
Adjustments: | | | | | | | | | |
Loss on extinguishment of debt (1) | — |
| — |
| | | | — |
| 11,683 |
| | |
Restructuring costs (2) | — |
| — |
| | | | 1,752 |
| — |
| | |
U.K. related costs (3) | 679 |
| — |
| | | | 8,496 |
| — |
| | |
Impairment of equity method investment (4) | 3,748 |
| — |
| | | | 3,748 |
| — |
| | |
Share-based cash and non-cash compensation (5) | 2,644 |
| 2,181 |
| | | | 4,816 |
| 4,023 |
| | |
Intangible asset amortization | 761 |
| 640 |
| | | | 1,557 |
| 1,303 |
| | |
Impact of tax law changes (6) | — |
| — |
| | | | — |
| 1,800 |
| | |
Cumulative tax effect of adjustments | (1,062 | ) | (705 | ) | | | | (4,322 | ) | (4,394 | ) | | |
Adjusted Net Income | $ | 24,437 |
| $ | 20,834 |
| $ | 3,603 |
| 17.3 | % | | $ | 62,387 |
| $ | 58,046 |
| $ | 4,341 |
| 7.5 | % |
| | | | | | | | | |
Net income from continuing operations | $ | 17,667 |
| $ | 18,718 |
| | | | $ | 46,340 |
| $ | 43,631 |
| | |
Diluted Weighted Average Shares Outstanding | 47,107 |
| 47,996 |
| | | | 47,335 |
| 47,757 |
| | |
Diluted Earnings per Share from continuing operations | $ | 0.38 |
| $ | 0.39 |
| $ | (0.01 | ) | (2.6 | )% | | $ | 0.98 |
| $ | 0.92 |
| $ | 0.06 |
| 6.5 | % |
Per Share impact of adjustments to Net Income | 0.14 |
| 0.04 |
| | | | 0.34 |
| 0.29 |
| | |
Adjusted Diluted Earnings per Share | $ | 0.52 |
| $ | 0.43 |
| $ | 0.09 |
| 20.9 | % | | $ | 1.32 |
| $ | 1.21 |
| $ | 0.11 |
| 9.1 | % |
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | 2019 | Change $ | Change % |
Net income from continuing operations | $ | 36,013 |
| $ | 28,673 |
| $ | 7,340 |
| 25.6 | % |
Adjustments: | | | |
|
|
Legal and related costs (1) | 1,149 |
| 1,752 |
| |
|
|
U.K. related costs (2) | — |
| 7,817 |
| |
|
|
Loss from equity method investment (3) | 1,618 |
| — |
| |
|
|
Share-based compensation (4) | 3,194 |
| 2,172 |
| |
|
|
Intangible asset amortization | 737 |
| 796 |
| |
|
|
Impact of tax law changes (5) | (9,114 | ) | — |
| |
|
|
Cumulative tax effect of adjustments (6) | (1,321 | ) | (3,260 | ) | |
|
|
Adjusted Net Income | $ | 32,276 |
| $ | 37,950 |
| $ | (5,674 | ) | (15.0 | )% |
| | | |
|
|
Net income from continuing operations | $ | 36,013 |
| $ | 28,673 |
| |
|
|
Diluted Weighted Average Shares Outstanding | 41,892 |
| 47,319 |
| |
|
|
Diluted Earnings per Share from continuing operations | $ | 0.86 |
| $ | 0.61 |
| $ | 0.25 |
| 41.0 | % |
Per Share impact of adjustments to Net income | (0.09 | ) | 0.19 |
| |
|
|
Adjusted Diluted Earnings per Share | $ | 0.77 |
| $ | 0.80 |
| $ | (0.03 | ) | (3.8 | )% |
Note: Footnotes follow Reconciliation of Adjusted EBITDA table immediately below. |
Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
| |
| Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in thousands, except per share data, unaudited) | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % | |
| | 2020 | 2019 | Change $ | Change % |
Net income from continuing operations | $ | 17,667 |
| $ | 18,718 |
| $ | (1,051 | ) | (5.6 | )% | | $ | 46,340 |
| $ | 43,631 |
| $ | 2,709 |
| # |
| $ | 36,013 |
| $ | 28,673 |
| $ | 7,340 |
| 25.6 | % |
Provision for income taxes | 7,453 |
| 5,178 |
| 2,275 |
| 43.9 | % | | 17,499 |
| 16,645 |
| 854 |
| 5.1 | % | 1,937 |
| 10,046 |
| (8,109 | ) | (80.7 | )% |
Interest expense | 17,023 |
| 20,472 |
| (3,449 | ) | (16.8 | )% | | 34,713 |
| 42,826 |
| (8,113 | ) | (18.9 | )% | 17,324 |
| 17,690 |
| (366 | ) | (2.1 | )% |
Depreciation and amortization | 4,651 |
| 4,470 |
| 181 |
| 4.0 | % | | 9,571 |
| 9,005 |
| 566 |
| 6.3 | % | 4,537 |
| 4,920 |
| (383 | ) | (7.8 | )% |
EBITDA | 46,794 |
| 48,838 |
| (2,044 | ) | (4.2 | )% | | 108,123 |
| 112,107 |
| (3,984 | ) | (3.6 | )% | 59,811 |
| 61,329 |
| (1,518 | ) | (2.5 | )% |
Loss on extinguishment of debt (1) | — |
| — |
| | | | — |
| 11,683 |
| | | |
Restructuring costs (2) | — |
| — |
| | | | 1,752 |
| — |
| | | |
U.K. related costs (3) | 679 |
| — |
| | | | 8,496 |
| — |
| | | |
Impairment of equity method investment (4) | 3,748 |
| — |
| | | | 3,748 |
| — |
| | | |
Share-based cash and non-cash compensation (5) | 2,644 |
| 2,181 |
| | | | 4,816 |
| 4,023 |
| | | |
Legal and related costs (1) | | 1,149 |
| 1,752 |
| |
|
|
U.K. related costs (2) | | — |
| 7,817 |
| |
|
|
Loss from equity method investment (3) | | 1,618 |
| — |
| |
|
|
Share-based compensation (4) | | 3,194 |
| 2,172 |
| |
|
|
Other adjustments (7) | (176 | ) | 91 |
| | | | (392 | ) | 48 |
| | | 15 |
| (216 | ) | |
|
|
Adjusted EBITDA | $ | 53,689 |
| $ | 51,110 |
| $ | 2,579 |
| 5.0 | % | | $ | 126,543 |
| $ | 127,861 |
| $ | (1,318 | ) | (1.0 | )% | $ | 65,787 |
| $ | 72,854 |
| $ | (7,067 | ) | (9.7 | )% |
Adjusted EBITDA Margin | 20.3 | % | 21.6 | % | | | | 23.3 | % | 26.2 | % | | | 23.4 | % | 26.2 | % | | |
|
| |
(1) | ForLegal and other costs for the sixthree months ended June 30, 2018,March 31, 2020 include (i) costs related to certain securities litigation and related matter, (ii) severance costs for certain corporate employees and (iii) legal and advisory costs related to the $11.7 millionpurchase of loss on extinguishment of debt was for the redemption of $77.5 million of the CURO Financial Technologies Corp.'s ("CFTC") 12.00% Senior Secured Notes due 2022. |
(2) | RestructuringAd Astra.
Legal and other costs of $1.8 million for the sixthree months ended June 30,March 31, 2019 were due to eliminating 121 positions in North America. The store employee reductions helphelped better align store staffing with in-store customer traffic and volume patterns, as more of our growth comes from online channels and as store customers require less time in stores as they conduct more of the follow-up activities online. The elimination of certain corporate positions relaterelated to efficiency initiatives and has allowed the Company to reallocate investment to strategic growth activities. |
(3)(2) | U.K. related costs of $8.5$7.8 million for the sixthree months ended June 30,March 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 $0.9$0.2 million for other costs.
|
(4)(3) | During April through JulyThe Loss from equity method investment for the three months ended March 31, 2020 of 2019, Cognical Holdings (“Zibby”) completed an equity raising round at a value per$1.6 million includes our share less than the value per share raised in prior raises. This round included additional investments from existing shareholders and investments by new investors and is considered indicative of the fair valueestimated GAAP net loss of shares in Zibby. Accordingly, we recognized a $3.7 million impairment in our investment in Zibby to adjust it to market value.Katapult. As of June 30, 2019,March 31, 2020, we owned approximately 30%42.5% of the outstanding shares of Zibby on a fully diluted basis.
Katapult. |
(5)(4) | We approved the adoption of share-based compensation plans during 2010 and 2017 for key members of senior management. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period.
|
(5) | On March 27, 2020, the CARES Act was enacted by the U.S. Federal government in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We recorded an income tax benefit of $9.1 million related to the carryback of NOL from tax years 2018 and 2019. |
(6) | As a resultCumulative tax effect of adjustments included in Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA table is calculated using the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), which became law on December 22, 2017, we provided an estimate of the new repatriationestimated incremental tax as of December 31, 2017. Subsequent to further guidance published in the first quarter of 2018, we booked additional tax expense of $1.2 million for the 2017 repatriation tax. Additionally, the 2017 Tax Act provided for a new GILTI ("Global Intangible Low-Taxed Income") tax starting in 2018 and we estimated and provided tax expense of $0.6 million as of June 30, 2018.
rate by country. |
(7) | Other adjustments primarily include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense. |
Currency Information
We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.
Constant Currency Analysis
We have operations in the U.S. and Canada. In the three months ended June 30,March 31, 2020 and 2019, 21.0% and 2018, approximately 20.5% and 19.8%18.6%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.
Income Statement - Three Months Ended June 30,March 31, 2020 and 2019 and 2018
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Three Months Ended June 30, | | Change |
| 2019 | 2018 | | $ | % |
Canadian Dollar | $ | 0.7477 |
| $ | 0.7749 |
| |
| ($0.0272 | ) | (3.5 | )% |
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Three Months Ended March 31, | | Change |
| 2020 | 2019 | | $ | % |
Canadian Dollar | $ | 0.7456 |
| $ | 0.7525 |
| |
| ($0.0069 | ) | (0.9 | )% |
Six Months Ended June 30,Balance Sheet - Exchange rate as of March 31, 2020 and December 31, 2019 and 2018
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Six Months Ended June 30, | | Change |
| 2019 | 2018 | | $ | % |
Canadian Dollar | $ | 0.7501 |
| $ | 0.7831 |
| |
| ($0.0330 | ) | (4.2 | )% |
|
| | | | | | | | | | | | |
| Exchange Rate as of | | |
| March 31, | December 31, | | Change |
| 2020 | 2019 | | $ | % |
Canadian Dollar | $ | 0.7012 |
| $ | 0.7683 |
| |
| ($0.0671 | ) | (8.7 | )% |
The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
TheWe calculated the revenues and gross margin below during the three months ended June 30, 2019 were calculatedMarch 31, 2020 using the actual average exchange rate during the three months ended June 30, 2018.March 31, 2019.
| | | | Three Months Ended June 30, | | Change | | Three Months Ended March 31, | | Change |
(dollars in thousands, unaudited) | | 2019 | | 2018 | | $ | | % | | |
(in thousands, unaudited) | | | 2020 | | 2019 | | $ | | % |
Canada – constant currency basis: | | | | | | | | | | | | | | | | | |
Revenues | | $ | 56,224 |
| | $ | 47,043 |
| | $ | 9,181 |
| | 19.5 | % | | | $ | 59,563 |
| | $ | 51,820 |
| | $ | 7,743 |
| | 14.9 | % |
Gross Margin | | 16,691 |
| | 13,300 |
| | 3,391 |
| | 25.5 | % | | | 12,090 |
| | 15,694 |
| | (3,604 | ) | | (23.0 | )% |
The revenues and
We calculated gross marginloans receivable below during the six months ended June 30, 2019 were calculatedas of March 31, 2020 using the actual average exchange rate during the six months ended June 30, 2018.as of December 31, 2019.
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Change |
(dollars in thousands, unaudited) | | 2019 | | 2018 | | $ | | % | |
Canada – constant currency basis: | | | | | | | | | |
Revenues | | $ | 110,754 |
| | $ | 93,293 |
| | $ | 17,461 |
| | 18.7 | % | |
Gross Margin | | 33,211 |
| | 27,802 |
| | 5,409 |
| | 19.5 | % | |
|
| | | | | | | | | | | | | | |
| | March 31, | December 31, | | Change |
(in thousands, unaudited) | | 2020 | 2019 | | $ | | % |
Canada – constant currency basis: | | | | | | | |
Gross loans receivable | | $ | 302,762 |
| $ | 302,376 |
| | $ | 386 |
| | 0.1 | % |
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, our Senior Revolver, our Cash Money Revolving Credit Facility, funds from third-party lenders under our CSO programs, and our Non-Recourse Canada SPV Facility (defined below).Facility. During August 2018, we issued $690.0 million 8.25% Senior Secured Notes due September 2025 ("8.25% Senior Secured Notes")(i) to (i) redeem the outstanding 12.00% Senior Secured Notes due 2022 of CFTC, (ii) to repay a portion of the outstanding indebtedness under the five-year revolving credit facility of CURO Receivables Finance I, LLC, our wholly-owned subsidiary, which consists 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 with the foregoing.
As of June 30, 2019,March 31, 2020, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures, and meet our debt obligations, and fundobligations. As we did for our share repurchase program. programs announced in April 2019 and February 2020 (which we have suspended as previously disclosed), we may also use cash to fund a return on capital for our stockholders through share repurchase programs, or as we announced in February 2020, in the form of dividends.
Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable.
Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers which would reduce cash outflow requirements while increasing cash inflows through loan repayments to the extent we experience any short-term or long-term funding shortfalls. We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements and reduce our capital spending in order to generate additional liquidity. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.
Borrowings
Our long-term debt consisted of the following as of June 30, 2019 and DecemberMarch 31, 20182020 (net of deferred financing costs) (in thousands): |
| | | | | | |
| June 30, | December 31, |
(dollars in thousands) | 2019 | 2018 |
8.25% Senior Secured Notes (due 2025) | $ | 677,535 |
| $ | 676,661 |
|
Non-Recourse Canada SPV Facility | 90,977 |
| 107,479 |
|
Senior Revolver | — |
| 20,000 |
|
Long-term debt | $ | 768,512 |
| $ | 804,140 |
|
Available Credit Facilities and Other Resources
8.25% Senior Secured Notes |
| | | | | | | | |
| | Capacity | Interest Rate | Maturity | Counter-parties | Balance as of March 31, 2020 |
Non-Recourse Canada SPV Facility (1) | | C$175.0 million | 3-Mo CDOR + 6.75% | September 2, 2023 | Waterfall Asset Management | $ | 84,724 |
|
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 | 25,000 |
|
Non-Recourse U.S. SPV Facility (2) | | $100.0 million | 1-Mo LIBOR + 5.75% or 9.75%(3) | April 8, 2024 | Atalaya Capital Management | — |
|
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 | | $ | 678,727 |
|
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of March 31, 2020 are denominated in U.S. dollars. |
(2) We entered into the Non-Recourse U.S. SPV Facility on April 8, 2020, and drew $35.2 million on the facility at such time. |
(3) The Non-Recourse U.S. SPV Facility provides for $100.0 million of borrowing capacity and, subject to obtaining additional commitments thereunder, the ability to expand such capacity up to $200.0 million. Prior to the increase in commitments, interest accrues at an annual rate of one-month LIBOR plus 9.75% and after the increase in commitments, one-month LIBOR plus 5.75%.
|
As noted above, we issuedRefer to Note 5, "Debt," for details on each of our 8.25% Senior Secured Notes in August 2018. Interestcredit facilities and resources. Refer to Note 19, "Subsequent Events" for additional details on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year. In connection with the 8.25% Senior Secured Notes, we capitalized financing costs of approximately $12.9 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Long-Term Debt, and is being amortized over the term of the 8.25% Senior Secured Notes and included as a component of interest expense.
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 ("12.00% Senior Secured Notes"). Interest on the 12.00% Senior Secured Notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The February 2017 issuance refinanced similar notes that were nearing maturity. The extinguishment of the existing notes resulted in a pretax loss of $11.7 million during September 2018. In connection with these 2017 debt issuances we capitalized financing costs of approximately $18.3 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Long-Term Debt, and is 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 our initial public offering as required by the underlying indentures (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. Following the Redemption, $527.5 million of the original outstanding principal amount of the 12.00% Senior Secured Notes remain 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 as a result of the issuance of the 8.25% Senior Secured Notes as described above.
Non-Recourse U.S. SPV Facility
In November 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the “SPV Borrower”) and a wholly-owned subsidiary, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that provided for an $80.0 million term loan and $70.0 million of revolving borrowing capacity that could expand over time (“Non-Recourse U.S. SPV Facility”). The loans bore interest at an annual rate of up to 12.00% plus the greater of (i) 1.0% per annum and (ii) three-month LIBOR. The SPV Borrower also pays a 0.50% per annum fee on the unused portion of the commitments. In connection with this facility, the capitalized financing costs at the time of extinguishment, as discussed below, were approximately $5.3 million, net of amortization. These capitalized financing costs were included in the Condensed Consolidated Balance Sheet as a component of "Long-term debt" and were amortized over the term of the Non-Recourse U.S. SPV Facility. During September 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.Facility that we closed on April 8, 2020.
On October 11, 2018, we extinguished the remaining term loan balanceCONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following condensed consolidating financial information is presented separately for:
| |
(i) | CURO as the issuer of the 8.25% Senior Secured Notes; |
| |
(ii) | The Company's subsidiary guarantors, which are comprised of certain of its domestic subsidiaries, including (x) CFTC, as the issuer of the 12.00% Senior Secured Notes that were redeemed in August 2018, (y) CURO Intermediate and (z) U.S. SPV as the issuer of the Non-Recourse U.S. SPV Facility that was extinguished in October 2018, but excluding Canada SPV (the “Subsidiary Guarantors”), on a consolidated basis, which are 100% owned by CURO, and which are guarantors of the 8.25% Senior Secured Notes issued in August 2018; |
| |
(iii) | The Non-Recourse Canada SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary; |
| |
(iv) | The Company's other subsidiaries on a consolidated basis, which are not guarantors of the 8.25% Senior Secured Notes (the “Subsidiary Non-Guarantors”); |
| |
(v) | Consolidating and eliminating entries representing adjustments to: |
| |
a. | eliminate intercompany transactions between or among us, the Subsidiary Guarantors, the Non-Recourse Canada SPV facility and the Subsidiary Non-Guarantors; and |
| |
b. | eliminate the investments in subsidiaries; and |
| |
(vi) | The Company and its subsidiaries on a consolidated basis. |
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Assets: | | | | | | |
Cash | $ | — |
| $ | 107,208 |
| $ | — |
| $ | 31,506 |
| $ | — |
| $ | 138,714 |
|
Restricted cash | — |
| 17,069 |
| 22,317 |
| 2,141 |
| — |
| 41,527 |
|
Loans receivable, net | — |
| 221,408 |
| 203,837 |
| 39,350 |
| — |
| 464,595 |
|
Right of use asset - operating leases | — |
| 76,528 |
| — |
| 37,744 |
| — |
| 114,272 |
|
Deferred income taxes | 13,190 |
| (13,190 | ) | — |
| — |
| — |
| — |
|
Income taxes receivable | 47,236 |
| (24,444 | ) | — |
| 1,643 |
| — |
| 24,435 |
|
Prepaid expenses and other | — |
| 26,008 |
| — |
| 8,112 |
| — |
| 34,120 |
|
Property and equipment, net | — |
| 42,536 |
| — |
| 24,251 |
| — |
| 66,787 |
|
Goodwill | — |
| 105,922 |
| — |
| 26,903 |
| — |
| 132,825 |
|
Other intangibles, net | — |
| 13,540 |
| — |
| 20,404 |
| — |
| 33,944 |
|
Intercompany receivable | — |
| 135,608 |
| — |
| — |
| (135,608 | ) | — |
|
Investment in subsidiaries | 91,206 |
| — |
| — |
| — |
| (91,206 | ) | — |
|
Other assets | — |
| 14,910 |
| — |
| 637 |
| — |
| 15,547 |
|
Total assets | $ | 151,632 |
| $ | 723,103 |
| $ | 226,154 |
| $ | 192,691 |
| $ | (226,814 | ) | $ | 1,066,766 |
|
Liabilities and Stockholders' equity (deficit): | | | | | | |
Accounts payable and accrued liabilities | $ | (2 | ) | $ | 43,133 |
| $ | 13,267 |
| $ | (2,795 | ) | $ | — |
| $ | 53,603 |
|
Deferred revenue | — |
| 4,427 |
| 39 |
| 2,189 |
| — |
| 6,655 |
|
Lease liability - operating leases | — |
| 84,135 |
| — |
| 37,580 |
| — |
| 121,715 |
|
Accrued interest | 4,744 |
| 21 |
| 627 |
| — |
| — |
| 5,392 |
|
Payable to CURO Holdings Corp. | (600,336 | ) | 600,336 |
| — |
| — |
| — |
| — |
|
CSO liability for losses | — |
| 9,189 |
| — |
| — |
| — |
| 9,189 |
|
Debt | 678,727 |
| 24,850 |
| 84,874 |
| — |
| — |
| 788,451 |
|
Intercompany payable | — |
| — |
| 80,240 |
| 55,368 |
| (135,608 | ) | — |
|
Other liabilities | — |
| 8,932 |
| — |
| 163 |
| — |
| 9,095 |
|
Deferred tax liabilities | 8,928 |
| — |
| — |
| 4,167 |
| — |
| 13,095 |
|
Total liabilities | 92,061 |
| 775,023 |
| 179,047 |
| 96,672 |
| (135,608 | ) | 1,007,195 |
|
Stockholders' equity (deficit) | 59,571 |
| (51,920 | ) | 47,107 |
| 96,019 |
| (91,206 | ) | 59,571 |
|
Total liabilities and stockholders' equity | $ | 151,632 |
| $ | 723,103 |
| $ | 226,154 |
| $ | 192,691 |
| $ | (226,814 | ) | $ | 1,066,766 |
|
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Assets: | | | | | | |
Cash | $ | — |
| $ | 44,727 |
| $ | — |
| $ | 30,515 |
| $ | — |
| $ | 75,242 |
|
Restricted cash | — |
| 14,958 |
| 17,427 |
| 2,394 |
| — |
| 34,779 |
|
Loans receivable, net | — |
| 286,881 |
| 220,067 |
| 52,045 |
| — |
| 558,993 |
|
Right of use asset - operating leases | — |
| 74,845 |
| — |
| 42,608 |
| — |
| 117,453 |
|
Deferred tax asset | 8,561 |
| (3,506 | ) | — |
| — |
| — |
| 5,055 |
|
Income taxes receivable | 19,690 |
| (8,987 | ) | — |
| 723 |
| — |
| 11,426 |
|
Prepaid expenses and other | — |
| 26,623 |
| — |
| 9,267 |
| — |
| 35,890 |
|
Property and equipment, net | — |
| 43,618 |
| — |
| 27,193 |
| — |
| 70,811 |
|
Goodwill | — |
| 91,131 |
| — |
| 29,478 |
| — |
| 120,609 |
|
Other intangibles, net | — |
| 11,569 |
| — |
| 22,358 |
| — |
| 33,927 |
|
Intercompany receivable | — |
| 113,599 |
| — |
| — |
| (113,599 | ) | — |
|
Investment in subsidiaries | 84,514 |
| — |
| — |
| — |
| (84,514 | ) | — |
|
Other assets | — |
| 17,006 |
| — |
| 704 |
| — |
| 17,710 |
|
Total assets | $ | 112,765 |
| $ | 712,464 |
| $ | 237,494 |
| $ | 217,285 |
| $ | (198,113 | ) | $ | 1,081,895 |
|
Liabilities and Stockholder's equity: | | | | | | |
Accounts payable and accrued liabilities | $ | 465 |
| $ | 48,333 |
| $ | 13,462 |
| $ | (2,177 | ) | $ | — |
| $ | 60,083 |
|
Deferred revenue | — |
| 6,828 |
| 46 |
| 3,296 |
| — |
| 10,170 |
|
Lease liability - operating leases | — |
| 82,593 |
| — |
| 42,406 |
| — |
| 124,999 |
|
Accrued interest | 18,975 |
| 1 |
| 871 |
| — |
| — |
| 19,847 |
|
Payable to CURO Holdings Corp. | (635,511 | ) | 635,511 |
| — |
| — |
| — |
| — |
|
CSO liability for losses | — |
| 10,623 |
| — |
| — |
| — |
| 10,623 |
|
Debt | 678,323 |
| — |
| 112,221 |
| — |
| — |
| 790,544 |
|
Intercompany payable | — |
| — |
| 69,639 |
| 43,960 |
| (113,599 | ) | — |
|
Other liabilities | — |
| 10,285 |
| — |
| 379 |
| — |
| 10,664 |
|
Liabilities from discontinued operations | — |
| — |
| — |
| 4,452 |
| — |
| 4,452 |
|
Total liabilities | (73,013 | ) | 794,174 |
| 196,239 |
| 142,668 |
| (113,599 | ) | 1,031,382 |
|
Stockholders' equity | 50,513 |
| (81,710 | ) | 41,255 |
| $ | 124,969 |
| (84,514 | ) | 50,513 |
|
Total liabilities and stockholders' equity | $ | (92,114 | ) | $ | 712,464 |
| $ | 237,494 |
| $ | 267,637 |
| $ | (198,113 | ) | $ | 1,081,895 |
|
Condensed Consolidating Statements of $80.0 million. We made the final termination paymentOperations |
| | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | 221,768 |
| $ | 34,026 |
| $ | 25,012 |
| $ | — |
| $ | 280,806 |
|
Provision for losses | — |
| 86,041 |
| 19,732 |
| 7,763 |
| — |
| 113,536 |
|
Net revenue | — |
| 135,727 |
| 14,294 |
| 17,249 |
| — |
| 167,270 |
|
Cost of providing services: | | | | | |
|
|
Salaries and benefits | — |
| 16,912 |
| — |
| 9,095 |
| — |
| 26,007 |
|
Occupancy | — |
| 7,825 |
| — |
| 6,191 |
| — |
| 14,016 |
|
Office | — |
| 4,301 |
| — |
| 1,373 |
| — |
| 5,674 |
|
Other costs of providing services | — |
| 8,204 |
| — |
| 1,451 |
| — |
| 9,655 |
|
Advertising | — |
| 10,945 |
| — |
| 1,274 |
| — |
| 12,219 |
|
Total cost of providing services | — |
| 48,187 |
| — |
| 19,384 |
| — |
| 67,571 |
|
Gross margin | — |
| 87,540 |
| 14,294 |
| (2,135 | ) | — |
| 99,699 |
|
Operating expense (income): | | | | | |
|
|
Corporate, district and other expenses | 3,395 |
| 34,255 |
| 174 |
| 4,983 |
| — |
| 42,807 |
|
Intercompany management fee | — |
| (3,800 | ) | 730 |
| 3,070 |
| — |
| — |
|
Interest expense | 14,636 |
| 210 |
| 2,620 |
| (142 | ) | — |
| 17,324 |
|
Loss from equity method investment | — |
| 1,618 |
| — |
| — |
| — |
| 1,618 |
|
Intercompany interest (income) expense | — |
| (1,441 | ) | 550 |
| 891 |
| — |
| — |
|
Total operating expense | 18,031 |
| 30,842 |
| 4,074 |
| 8,802 |
| — |
| 61,749 |
|
Income (loss) from continuing operations before income taxes | (18,031 | ) | 56,698 |
| 10,220 |
| (10,937 | ) | — |
| 37,950 |
|
Provision (benefit) for income tax expense | (23,247 | ) | 24,998 |
| — |
| 186 |
| — |
| 1,937 |
|
Net income (loss) from continuing operations | 5,216 |
| 31,700 |
| 10,220 |
| (11,123 | ) | — |
| 36,013 |
|
Discontinued operations: | | | | | | |
Net income on discontinued operations | — |
| — |
| — |
| 292 |
| — |
| 292 |
|
Net income (loss) | 5,216 |
| 31,700 |
| 10,220 |
| (10,831 | ) | — |
| 36,305 |
|
Equity in net income (loss) of subsidiaries: | | | | | | |
CFTC | 31,089 |
| — |
| — |
| — |
| (31,089 | ) | — |
|
Guarantor Subsidiaries | — |
| 31,700 |
| — |
| — |
| (31,700 | ) | — |
|
Non-Guarantor Subsidiaries | — |
| (10,831 | ) | — |
| — |
| 10,831 |
| — |
|
SPV Subs | | 10,220 |
| — |
| — |
| (10,220 | ) | — |
|
Net income (loss) attributable to CURO | $ | 36,305 |
| $ | 62,789 |
| $ | 10,220 |
| $ | (10,831 | ) | $ | (62,178 | ) | $ | 36,305 |
|
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | 226,119 |
| $ | 25,046 |
| $ | 26,774 |
| $ | — |
| $ | 277,939 |
|
Provision for losses | — |
| 84,980 |
| 13,306 |
| 4,099 |
| — |
| 102,385 |
|
Net revenue | — |
| 141,139 |
| 11,740 |
| 22,675 |
| — |
| 175,554 |
|
Cost of providing services: | | | | | | |
Salaries and benefits | — |
| 19,951 |
| — |
| 8,750 |
| — |
| 28,701 |
|
Occupancy | — |
| 8,010 |
| — |
| 6,227 |
| — |
| 14,237 |
|
Office | — |
| 3,889 |
| — |
| 1,224 |
| — |
| 5,113 |
|
Other costs of providing services | — |
| 13,132 |
| — |
| 1,088 |
| — |
| 14,220 |
|
Advertising | — |
| 6,354 |
| — |
| 1,432 |
| — |
| 7,786 |
|
Total cost of providing services | — |
| 51,336 |
| — |
| 18,721 |
| — |
| 70,057 |
|
Gross margin | — |
| 89,803 |
| 11,740 |
| 3,954 |
| — |
| 105,497 |
|
Operating expense (income): | | | | | | |
Corporate, district and other expenses | 2,342 |
| 41,538 |
| 25 |
| 5,183 |
| — |
| 49,088 |
|
Intercompany management fee | — |
| (3,403 | ) | 8 |
| 3,395 |
| — |
| — |
|
Interest expense | 14,438 |
| 290 |
| 2,891 |
| 71 |
| — |
| 17,690 |
|
Intercompany interest (income) expense | — |
| (1,071 | ) | — |
| 1,071 |
| — |
| — |
|
Total operating expense | 16,780 |
| 37,354 |
| 2,924 |
| 9,720 |
| — |
| 66,778 |
|
Income (loss) from continuing operations before income taxes | (16,780 | ) | 52,449 |
| 8,816 |
| (5,766 | ) | — |
| 38,719 |
|
Provision (benefit) for income tax expense | (5,008 | ) | 14,020 |
| — |
| 1,034 |
| — |
| 10,046 |
|
Net (loss) income from continuing operations | (11,772 | ) | 38,429 |
| 8,816 |
| (6,800 | ) | — |
| 28,673 |
|
Discontinued operations: | | | | | |
|
|
Net loss on discontinued operations | — |
| — |
| — |
| 8,375 |
| — |
| 8,375 |
|
Net (loss) income | (11,772 | ) | 38,429 |
| 8,816 |
| 1,575 |
| — |
| 37,048 |
|
Equity in net income (loss) of subsidiaries: | | | | | | |
CFTC | 48,820 |
| — |
| — |
| — |
| (48,820 | ) | — |
|
Guarantor Subsidiaries | — |
| 38,429 |
| — |
| — |
| (38,429 | ) | — |
|
Non-Guarantor Subsidiaries | — |
| 1,575 |
| — |
| — |
| (1,575 | ) | — |
|
SPV Subs | — |
| 8,816 |
| — |
| | (8,816 | ) | — |
|
Net income (loss) attributable to CURO | $ | 37,048 |
| $ | 87,249 |
| $ | 8,816 |
| $ | 1,575 |
| $ | (97,640 | ) | $ | 37,048 |
|
Condensed Consolidating Statements of $2.7 million on October 26, 2018, resulting in a loss on the extinguishment of debt of $9.7 million for the quarter ended December 31, 2018.Cash Flows
|
| | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2020 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Cash flows from operating activities: | | | | | | |
Net cash provided by continuing operating activities | $ | 6,517 |
| $ | 89,412 |
| $ | 48,035 |
| $ | 12,102 |
| $ | (4,197 | ) | $ | 151,869 |
|
Net cash used in discontinued operating activities | — |
| — |
| — |
| 390 |
| — |
| 390 |
|
Cash flows from investing activities: | | | | | |
|
|
Purchase of property, equipment and software | — |
| (3,237 | ) | — |
| (421 | ) | — |
| (3,658 | ) |
Originations of loans, net | — |
| (29,894 | ) | (22,280 | ) | (8,227 | ) | — |
| (60,401 | ) |
Acquisition of Ad Astra, net of acquiree's cash received | — |
| (14,418 | ) | — |
| — |
| — |
| (14,418 | ) |
Net cash used in continuing investing activities | — |
| (47,549 | ) | (22,280 | ) | (8,648 | ) | — |
| (78,477 | ) |
Cash flows from financing activities: | | | | | |
|
|
Proceeds from Non-Recourse Canada SPV facility | — |
| — |
| 23,560 |
| — |
| — |
| 23,560 |
|
Payments on Non-Recourse Canada SPV facility | — |
| — |
| (42,497 | ) | — |
| — |
| (42,497 | ) |
Proceeds from credit facilities | — |
| 60,000 |
| — |
| 9,938 |
| — |
| 69,938 |
|
Payments on credit facilities | — |
| (35,000 | ) | — |
| (9,938 | ) | — |
| (44,938 | ) |
Payments to net share settle RSUs | (609 | ) | — |
| — |
| — |
| — |
| (609 | ) |
Proceeds from exercise of stock options | — |
| 126 |
| — |
| — |
| — |
| 126 |
|
Debt issuance costs paid | — |
| (150 | ) | — |
| — |
| — |
| (150 | ) |
Repurchase of common stock | (5,908 | ) | — |
| — |
| — |
| — |
| (5,908 | ) |
Dividends paid to CURO Group Holdings Corp. | 2,247 |
| (2,247 | ) | — |
| — |
| — |
| — |
|
Dividends paid to stockholders | (2,247 | ) | — |
| — |
| — |
| — |
| (2,247 | ) |
Net cash (used in) provided by financing activities (1) | (6,517 | ) | 22,729 |
| (18,937 | ) | — |
| — |
| (2,725 | ) |
| | | | | |
|
|
Effect of exchange rate changes on cash and restricted cash | — |
| — |
| (1,928 | ) | (3,106 | ) | 4,197 |
| (837 | ) |
Net increase in cash and restricted cash | — |
| 64,592 |
| 4,890 |
| 738 |
| — |
| 70,220 |
|
Cash and restricted cash at beginning of period | — |
| 59,685 |
| 17,427 |
| 32,909 |
| — |
| 110,021 |
|
Cash at end of period | $ | — |
| $ | 124,277 |
| $ | 22,317 |
| $ | 33,647 |
| $ | — |
| $ | 180,241 |
|
|
| | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2019 |
(dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated |
Cash flows from operating activities: | | | | | | |
Net cash provided by continuing operating activities | $ | 67 |
| $ | 88,291 |
| $ | 53,969 |
| $ | (1,574 | ) | $ | 246 |
| $ | 140,999 |
|
Net cash used in discontinued operating activities | — |
| — |
| — |
| (504 | ) | — |
| (504 | ) |
Cash flows from investing activities: | | | | | | |
Purchase of property, equipment and software | — |
| (2,430 | ) | — |
| (689 | ) | — |
| (3,119 | ) |
Originations of loans, net | — |
| (38,226 | ) | (30,373 | ) | 3,652 |
| — |
| (64,947 | ) |
Cash paid for Katapult investment | — |
| (1,568 | ) | — |
| — |
| — |
| (1,568 | ) |
Net cash used in continuing investing activities | — |
| (42,224 | ) | (30,373 | ) | 2,963 |
| — |
| (69,634 | ) |
Net cash used in discontinued investing activities | — |
| — |
| — |
| (14,213 | ) | — |
| (14,213 | ) |
Cash flows from financing activities: | | | | | | |
Proceeds from Non-Recourse Canada SPV facility | — |
| — |
| 3,762 |
| — |
| — |
| 3,762 |
|
Payments on Non-Recourse Canada SPV facility | — |
| — |
| (24,831 | ) | — |
| — |
| (24,831 | ) |
Proceeds from credit facilities | — |
| 15,000 |
| — |
| 15,478 |
| — |
| 30,478 |
|
Payments on credit facilities | — |
| (35,000 | ) | — |
| (15,478 | ) | — |
| (50,478 | ) |
Payments to net share settle RSUs | (37 | ) | — |
| — |
| — |
| — |
| (37 | ) |
Proceeds from exercise of stock options | — |
| 40 |
| — |
| — |
| — |
| 40 |
|
Debt issuance costs paid | (30 | ) | — |
| (169 | ) | — |
| — |
| (199 | ) |
Net cash used in provided by financing activities (1) | (67 | ) | (19,960 | ) | (21,238 | ) | — |
| — |
| (41,265 | ) |
| | | | | | |
Effect of exchange rate changes on cash and restricted cash | — |
| — |
| 262 |
| 1,922 |
| (246 | ) | 1,938 |
|
Net increase (decrease) in cash and restricted cash | — |
| 26,107 |
| 2,620 |
| (11,406 | ) | — |
| 17,321 |
|
Cash and restricted cash at beginning of period | — |
| 52,397 |
| 12,840 |
| 34,620 |
| — |
| 99,857 |
|
Cash at end of period | $ | — |
| $ | 78,504 |
| $ | 15,460 |
| $ | 23,214 |
| $ | — |
| $ | 117,178 |
|
(1) Financing activities include continuing operations only and were not impacted by discontinued operations. |
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 provides 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. As of June 30, 2019, outstanding borrowings under the Non-Recourse Canada SPV Facility were $91.0 million, net of deferred financing costs of $3.6 million, and after a reduction of net balances drawn of $20.9 million during the quarter.
Senior Revolver
On September 1, 2017, we closed on a $25.0 million Senior Secured Revolving Loan Facility (the "Senior Revolver"). In February 2018, the Senior Revolver capacity was increased to $29.0 million. In November 2018, the Senior Revolver capacity was increased to $50.0 million as permitted by the Indenture to the Senior Secured Notes. The Senior Revolver is now syndicated with participation by four banks. The negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for our 8.25% Senior Secured Notes. We believe this facility complements our other financing sources, while providing seasonal short-term liquidity. 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 Senior Revolver accrues interest at the one-month LIBOR (which may not be negative) plus 5% per annum and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all of our subsidiaries that guarantee our 8.25% Senior Secured Notes and is secured by a lien on substantially all of our assets and the guarantor subsidiaries that is senior to the lien securing our 8.25% Senior Secured Notes. The Senior Revolver was undrawn at June 30, 2019.
In connection with this facility we capitalized financing costs of approximately $0.1 million, the balance of which we included in the Condensed Consolidated Balance Sheets as a component of “Other assets,” and are being amortized over the term of the facility and included as a component of interest expense.
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., one of our Canadian subsidiaries, maintains a C$10 million revolving credit facility with Royal Bank of Canada. The Cash Money Revolving Credit Facility provides short-term liquidity required to meet the working capital needs of our 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 (ii) C$10 million. As of June 30, 2019 and December 31, 2018, the borrowing capacity under our revolving credit facility was reduced by C$0.3 million in stand-by-letters of credit.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Money’s assets and contains various covenants that include, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at June 30, 2019 and December 31, 2018.
Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated:indicated (in thousands):
| | | | Six Months Ended June 30, | | Three Months Ended March 31, |
(dollars in thousands) | | 2019 | | 2018 | |
| | | 2020 | | 2019 |
Net cash provided by continuing operating activities | | $ | 312,319 |
| | $ | 246,733 |
| | $ | 151,869 |
| | $ | 140,999 |
|
Net cash used in continuing investing activities | | (227,731 | ) | | (198,551 | ) | | (78,477 | ) | | (69,634 | ) |
Net cash used in continuing financing activities | | (45,180 | ) | | (80,661 | ) | | (2,725 | ) | | (41,265 | ) |
Continuing Operating Activities
Net cash provided by continuing operating activities for the sixthree months ended June 30, 2019March 31, 2020 was $312.3$151.9 million, primarily attributable to net income from continuing operations of $46.3 million, the effect of non-cash reconciling items of $227.6$137.7 million, which includes provision for loan losses of $214.4$113.5 million, andoffset by changes in our operating assets and liabilities which provided $38.4$21.9 million.
Net cash provided by continuing operating activities for the sixthree months ended June 30, 2018March 31, 2019 was $246.7$141.0 million, primarily attributable to net income from continuing operations of $43.6$28.7 million, the effect of non-cash reconciling items, such as depreciation and amortization and the provision for loan losses for a total of $191.6$102.4 million and changes in our operating assets and liabilities
of $11.6$12.1 million, partially offset by other non-cash expenses of $2.1 million. FeesMajor components of non-cash expenses include depreciation and service charges on our loans receivable change represented $2.9 million of the total change in operating assetsamortization, provision for loan losses and liabilities.share-based compensation expense.
Continuing Investing Activities
Net cash used in continuing investing activities for the sixthree months ended June 30, 2019March 31, 2020 was $227.7$78.5 million, primarily reflecting the net origination of loans of $217.2 million. In addition, we used$60.4 million and the acquisition of Ad Astra for $14.4 million, net of cash to purchase approximately $6.2received. Net origination of loans includes $30.1 million of propertycash inflows for California Unsecured and equipment, including software licenses and $4.4 million of additional investment in Zibby.Secured Installment loans from December 31, 2019 to March 31, 2020 due to regulatory changes, effective January 1, 2020.
Net cash used in continuing investing activities for the sixthree months ended June 30, 2018March 31, 2019 was $198.6$69.6 million, primarily reflecting the net origination of loans of $194.6$64.9 million. In addition, we used cash to purchase approximately $3.0$3.1 million of property and equipment, including software licenses, and to purchase $1.0 million of Zibby preferred shares.licenses.
Origination of loans will fluctuate from period-to-period, depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically occurs during the first quarter of the year and is driven by income tax refunds in the U.S. Typically, customers will use the proceeds from income tax refunds to pay outstanding loan balances, resulting in an increase in our net cash balances and a decrease in our consumer loans receivable balances. Consumer loans receivable balances typically reflect growth during the remainder of the year.
Continuing Financing Activities
Net cash used in continuing financing activities for the sixthree months ended June 30,March 31, 2020 was $2.7 million, primarily due to $6.1 million of net proceeds on our debt facilities, offset by common stock repurchases of $5.9 million and cash dividends of $2.2 million.
Net cash provided by continuing financing activities for the three months ended March 31, 2019 was $45.2$41.3 million. During the quarter, we made a $20.0 million payment on the Senior Revolver to reduce the outstanding balance to zero and made net repayments of $21.0$20.9 million on the Non-Recourse Canada SPV Facility.
Net cash used in continuing financing activities for the six months ended June 30, 2018 was $80.7 million. We redeemed $77.5 million of our 12.00% Senior Secured Notes for $86.8 million (which included $9.3 million of call premium). The underwriters of our 2017 initial public offering exercised their over-allotment option on January 5, 2018 and acquired one million shares of our common stock, providing net proceeds to us of $12.4 million. We also had net borrowings of $6.2 million from our U.S. SPV Facility and our ABL Facility during the six months June 30, 2018.
Contractual Obligations
There have been no significant developments with respect to our contractual obligations since December 31, 2018,2019, as described in our 20182019 Form 10-K.
Critical Accounting Policies and Estimates
Goodwill. We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.
The U.S. and Canada operations are our two reporting units, as defined by FASB’s ASC 280 - Segment Reporting, for which we assess goodwill for impairment. As of the most recent annual goodwill impairment testing date (October 1, 2019), both reporting units' estimated fair valued exceeded its carrying value. As described in our 2019 Form 10-K, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance
indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit or economic outlook. These and other macroeconomic factors, in general, were considered when performing the annual test on October 1, 2019.
In the first quarter of 2020, we performed an interim assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more likely than not reduction in the fair value of the reporting units below their respective carrying values.
Canada Reporting Unit
As part of our quantitative testing process for goodwill of the Canada reporting unit, we estimated fair values using a discounted cash flow approach from the perspective of a market participant. Significant assumptions used in the discounted cash flow approach are revenue growth rates, gross margin, EBITDA margins, discount rate and long-term revenue growth rate. The cash flow forecasts of the reporting unit, which we updated to reflect the uncertainty caused by COVID-19, are based on management’s long-term view of our markets and are the forecasts that senior management and the Board of Directors use to evaluate the Company's overall and individual reporting unit operating performance. The discount rate utilized is management’s estimate of what the market’s weighted average cost of capital is for a company with a similar debt rating and stock volatility, as measured by beta. The terminal business value is determined by applying the long-term growth rate to the latest year for which a forecast exists. As part of our goodwill quantitative testing process, we evaluate whether there are reasonably likely changes to management’s estimates that would have a material impact on the results of the goodwill impairment testing.
As of March 31, 2020, no impairment of goodwill existed for the Canada reporting unit. Testing did indicate that the fair value of the Canada reporting unit exceeded its carrying value by less than 5%. This reduction in fair value of the Canada reporting unit, which was previously greater than 10% at the time of the October 1, 2019 annual impairment test, was primarily driven by significant uncertainty surrounding the effect that the COVID-19 pandemic will have on the reporting unit’s near-term cash flows, triggering a decrease in the reporting unit's forecasted near-term cash flows. The length of time and extent to which the pandemic will impact our customers remains unclear, and assumptions used in the discounted cash flow approach reflect management's estimates as of the date of this filing.
U.S. Reporting Unit
After performing a similar interim impairment test for the U.S. reporting unit as that for the Canada reporting unit utilizing a discounted cash flow method, which was adjusted for considerations related to COVID-19, we concluded that the fair value continues to be significantly in excess of the carrying value.
The following table summarizes the segment allocation of recorded goodwill on our unaudited Condensed Consolidated Balance Sheets as of March 31, 2020:
|
| | | | | | | | | | | |
(in thousands) | March 31, 2020 | Percent of Total | | December 31, 2019 | Percent of Total |
U.S. | $ | 105,922 |
| 79.7 | % | | $ | 91,131 |
| 75.6 | % |
Canada | 26,903 |
| 20.3 | % | | 29,478 |
| 24.4 | % |
Total Goodwill | $ | 132,825 |
| | | $ | 120,609 |
| |
There continues to be uncertainty surrounding the macroeconomic factors for the Canada reporting unit. Changes in the expected length of the current downturn, timing of recovery, or long-term revenue growth or profitability for this reporting unit could increase the likelihood of a future impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment.
Regulatory Environment and Compliance
There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2018,2019, as described in our 20182019 Form 10-K except for the following:10-K.
California Assembly Bill 539
On June 26, 2019, the California Senate Banking and Financial Institutions Committees passed Assembly Bill 539, which imposes an interest rate cap on all consumer loans between $2,500 and $10,000 of 36% plus the Federal Funds Rate. On July 9, 2019, the California Senate Judiciary Committee also passed Assembly Bill 539 and the bill was referred to the Senate Appropriations Committee. The deadline for Assembly Bill 539 to pass both houses is September 13, 2019, and the deadline to be signed by the Governor and passed into law is October 13th, 2019. Revenue from California Unsecured and Secured Installment loans amounted to 13.3% of total revenue from continuing operations for the trailing 12 months ended June 30, 2019. As of June 30, 2019, California Unsecured and Secured Installment gross loans receivable were $86.5 million and $42.3 million, respectively. We continue to evaluate the effect on our results of operations and financial condition as a result of this bill and alternatives available to service customers in the California market.
California Consumer Privacy Act
In 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020. CCPA broadens consumer rights with respect to their personal information, imposing expanded obligations to disclose the categories and uses of personal information a business collects, providing consumers a right to access that information, a right to opt out of the sale of personal information and the right to request that a business delete personal information about the consumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the costs of data breach litigation. CCPA contains a number of ambiguities, was previously amended and we anticipate further amendments before its effective date. Other states and possibly the federal government may adopt laws similar to the CCPA. While it is too early to know its full impact, these developments could ultimately result in the imposition of requirements on CURO and other consumer financial service providers that could increases costs or otherwise adversely affect our business.
British Columbia Business Practices and Consumer Amendment Act
Effective January 1, 2017, the British Columbia Ministry of Public Safety and Solicitor General (the "Ministry") reduced the total cost of borrowing from C$23 per C$100 lent to C$17 per C$100 lent. A further reduction to C$15 per C$100 lent came into effect on September 1, 2018. On February 26, 2019, the Minister of Public Safety and Solicitor General introduced in Parliament Bill 7 titled “Business Practices and Consumer Amendment Act." This bill received Royal Assent on May 16, 2019 and became law. There are no material changes to our current operations as a result of this legislation. The bill primarily allows the Ministry to i) define a high cost credit product and ii) require licensing and consumer protection oversight. It also authorizes the Ministry to prescribe regulations regarding high cost credit products including a cooling off period between loans, cost/optional services disclosure requirements, and prohibition of concurrent loan products. It is too early to predict the outcome of the regulations setting process and its impact on our operations.
CFPB Rulemaking Update
In February 2019, the CFPB issued two notices of proposed rulemaking proposing (i) to delay the August 19, 2019 compliance date for the so-called "Mandatory Underwriting Provisions" of the 2017 Final Payday, Vehicle Title, and Certain High-Cost Installment Loans (the "2017 Final Rule") Rule to November 19, 2020 and (ii) to rescind such Mandatory Underwriting Provisions (the “2019 Proposed Rule”). The CFPB issued a final rule on June 6, 2019 delaying the compliance date for the Mandatory Underwriting Provisions of the 2017 Final Rule to November 19, 2020. The Mandatory Underwriting Provisions which the 2019 Proposed Rule would rescind which are still under consideration include: (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including our payday and vehicle title loans with a term of 45 days or less, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making this ability-to-repay determination; (iii) exempt certain loans from the mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements.
The compliance date for the "Payment Provision" of the 2017 Final Rule remains August 19, 2019, but is currently stayed pursuant to the Western District of Texas, Austin Division's Ruling ("Court Order") on May 30, 2019. Under these provisions:
If two consecutive attempts to collect money from a particular account of the borrower, made through any channel (e.g., paper check, ACH, prepaid card) are returned for insufficient funds, the lender cannot make any further attempts to collect from such account unless the borrower has provided a new and specific authorization for additional payment transfers. The 2017 Final CFPB Rule contains specific requirements and conditions for the authorization. While the CFPB has explained that these provisions are designed to limit bank penalty fees to which consumers may be subject, and while banks do not charge penalty fees on debit card authorization requests, the 2017 Final CFPB Rule nevertheless treats card authorization requests as payment attempts subject to these limitations.
A lender generally must give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumer’s checking, savings, or prepaid account. The notice must include information such as the date of the payment request, payment channel and payment amount (broken down by principal, interest, fees, and other charges), as well as additional information for “unusual attempts,” such as when the payment is for a different amount than the regular payment, initiated on a date other than the date of a regularly scheduled payment or initiated in a different channel that the immediately preceding payment attempt. A lender must also provide the borrower with a "consumer rights notice" in a prescribed form after two consecutive failed payment attempts.
The CFPB has indicated it has received a formal request to revisit the treatment of debt cards under the Payment Provisions and intends to examine the Payment Provisions further. If the CFPB determines that further action is warranted, it may commence a separate rulemaking initiative.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 20182019 Form 10-K for the year ended December 31, 2018.2019. There have been no material changes to the amounts presented therein.
LIBOR is used as a reference rate for certain of our financial instruments, such as our revolving credit facilities. LIBOR is set to be phased out at the end of 2021. We are currently reviewing how the LIBOR phase-out will affect the Company, but we do not expect the impact to be material.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as disclosed in Item 9A of our 2018 Form 10-K for the year ended December 31, 2018,end of the period covered by this report conducted by our management, concluded that our internal control over financial reporting was not effective at December 31, 2018 becausewith the participation of the identification of a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement ofChief Executive Officer and Chief Financial Officer, the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
RemediationChief Executive Officer and changes in internal control over financial reporting
We are taking actions to improve our internal control over financial reporting, including implementing plans as identified in Item 9A of our 2018 Form 10-K, filed with the SEC on March 18, 2019, to address our material weakness. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management hasChief Financial Officer concluded through testing, that these controls are operating effectively. We expect that the remediationand procedures were effective as of this material weakness will be completed in 2019.
Except as noted above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.March 31, 2020.
Limitation on the effectiveness of controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART 2.II. OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
The information required by this item is included in Note 13, - "Contingent Liabilities" of the Notes to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q and is incorporated herein by reference.
ITEMItem 1A. RISK FACTORSRisk Factors
There were no material changes to our risk factors as described in our 20182019 Form 10-K for the year ended December 31, 2018,2019 or in our Current Report on Form 8-K filed on April 8, 2020, except for the following:
Our industry is strictly regulated everywhereWe have covenants in our debt agreements which may restrict our flexibility to operate our business. If we operate, anddo not comply with these regulationscovenants, our failure could have a material adverse effect on our business and results of operations.
We are subject to substantial regulation everywhere we operate. In the U.S. and Canada, our business is subject to a variety of statutes and regulations enacted by government entities at the federal, state or provincial, and municipal levels. These regulations affect our business in many ways, and include regulations relating to:
the amount we may charge in interest rates and fees;
the terms of our loans (such as maximum and minimum durations), repayment requirements and limitations, number and frequency of loans, maximum loan amounts, renewals and extensions, required repayment plans and reporting and use of state-wide databases;
underwriting requirements;
collection and servicing activity, including initiation of payments from consumer accounts;
the establishment and operation of CSOs or CABs;
licensing, reporting and document retention;
unfair, deceptive and abusive acts and practices;
discrimination;
disclosures, notices, advertising and marketing;
loans to members of the military and their dependents;
requirements governing electronic payments, transactions, signatures and disclosures;
check cashing;
money transmission;
currency and suspicious activity recording and reporting;
privacy and use of personally identifiable information and consumer data, including credit reports;
anti-money laundering and counter-terrorist financing requirements, including currency and suspicious transaction recording and reporting;
posting of fees and charges; and
repossession practices in certain jurisdictions where we operate as a title lender, including requirements regarding notices and prompt remittance of excess proceeds for the sale of repossessed automobiles.
For a more detailed description of the regulations to which we are subject and the regulatory environment in the jurisdictions in which we operate see “Regulatory Environment and Compliance” in our 2018 Form 10-K and in this Form 10-Q.
These regulations, outside of our control, affect our business in many ways, including affecting the loans and other products we can offer, the prices we can charge, the other terms of our loans and other products, the customers to whom we are allowed to lend, how we obtain our customers, how we communicate with our customers, how we pursue repayment of our loans and many others. Consequently, these restrictions adversely affect our loan volume, revenues, delinquencies and other aspects of our business, including our results of operations.
For example, in June 2018, we discontinued the use of secondary payment cards for affected borrowers who do not explicitly reauthorize the use of secondary payment cards. For these borrowers, in the event we cannot obtain payment through the bank account or payment card listed on the borrower’s application and as authorized by the borrower, we must rely exclusively on other collection methods, such as delinquency notices and/or collection calls. The discontinuation for affected borrowers of our current use of secondary cards which have not been reauthorized by the borrower will increase collections costs and reduce collections effectiveness. Even in advance of the effective date of the 2017 Final CFPB Rule (and even if the 2017 Final CFPB Rule does not become effective), it is possible that we will make further changes to our payment practices in a manner that will increase costs and/or reduce revenues.
In addition, on June 26, 2019, the California Senate Banking and Financial Institutions Committees passed Assembly Bill 539, which imposes an interest rate cap on all consumer loans between $2,500 and $10,000 of 36% plus the Federal Funds Rate. On July 9, 2019, the California Senate Judiciary Committee also passed Assembly Bill 539 and the bill was referred to the Senate Appropriations Committee. The deadline for Assembly Bill 539 to pass both houses is September 13, 2019, and the deadline to be signed by the Governor and passed into law is October 13th, 2019. Revenue from California Unsecured and Secured Installment loans amounted to 13.3% of total revenue from continuing operations for the trailing twelve months ended June 30, 2019. As of June 30, 2019, California Unsecured and Secured Installment gross loans receivable were $86.5 million and $42.3 million, respectively. We continue to evaluate the effect on our results of operations or financial condition.
Our debt agreements contain customary restrictive covenants, including limitations on consolidated indebtedness, liens, investments, subsidiary investments and financial condition as aasset dispositions, and require us to maintain certain leverage and interest coverage ratios. Failure to comply with these covenants could result in an event of this billdefault that, if not cured or waived, could result in reduced liquidity and alternatives available to service customers in the California market. If we are unsuccessful in managing the transition of our California business and operations from affected installment loans to existing and alternative products, Assembly Bill 539 could have a material adverse effect on our businessoperating results and financial condition. In addition, an event of default under one of our debt agreements may result in our then-outstanding debt to become immediately due and payable.
In addition, Our Non-Recourse Canada SPV Facility and Non-Recourse U.S. SPV Facility contain default, delinquency and net spread ratio limits and our Non-Recourse U.S. SPV Facility also contains a cash collection percentage limit on the receivables pledged to each facility. If these limits were exceeded, it would potentially impact our ability to draw under the terms of these agreements. Further, in certain instances, if ratios are exceeded, we may be required to redirect all excess cash to the credit providers. These limits are calculated based on the portfolio collateralizing the respective credit line.
Failure to comply with our debt covenants could have a material adverse effect on our liquidity, results of operations.
Further, during 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020. CCPA broadens consumer rights with respect to their personal information, imposing expanded obligations to disclose the categories and uses of personal information a business collects, providing consumers a rightoperation or financial condition if we are either unable to access capital at such time that information, a right to opt out of the sale of personal information and the right to request that a business delete personal information about the consumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the costs of data breach litigation. CCPA contains a number of ambiguities, was previously amended and we anticipate further amendments before its effective date. Other states and possibly the federal government may adopt laws similar to the CCPA. While it is too earlycritical to know its full impact, these developments could ultimately result in the imposition of requirements on CURO and other consumer financial service providers that could increases costsour business or otherwise adversely affectif we are required to reduce our business.outstanding indebtedness.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The 2017 Incentive Plan permits the netting of common stock upon vesting of restricted stock units to satisfy individual tax withholding requirements. See Note 6, "Share-Based Compensation" for additional information regarding the 2017 Incentive Plan. During the quarter ended June 30, 2019,March 31, 2020, we reacquired 2,79075,968 shares of common stock with a weighted average fair market value of $12.14 as a result ofrelated to such tax withholdings.
In April 2019, See Note 18, "Share Repurchase Program" for additional information regarding share repurchases during the Company's Boardfirst quarter of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, will continue until completed or terminated. CURO expects the purchases to be made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans or other corporate purposes.2020.
The following table provides information with respect to purchases we made of our common stock during the quarter ended June 30, 2019.March 31, 2020.
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| | | | | | | | | | |
Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that may yet be Purchased under the Plans or Programs(2) (In milions)
|
April 2019 | 2,790 |
| $ | 12.14 |
| — |
| $ | — |
|
May 2019 | — |
| — |
| — |
| |
June 2019 | — |
| — |
| 244,200 |
| 47.5 |
|
Total | 2,790 |
| $ | 12.14 |
| 244,200 |
| $ | 47.5 |
|
(1) Represents shares withheld from employees as tax payments for shares issued under our stock-based compensation plans. See Note 11, "Share-Based Compensation" of the Notes to Consolidated Financial Statements for additional details on our stock-based compensation plans. |
(2) As of the end of the period. |
|
| | | | | | | | | | |
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that may yet be Purchased under the Plans or Programs(1) (In millions)
|
January 2020 | 408,059 |
| $ | 10.53 |
| 397,500 |
| $ | 0.6 |
|
February 2020 | 85,695 |
| 10.11 |
| 81,544 |
| 24.8 |
|
March 2020 | 122,976 |
| 6.87 |
| 61,718 |
| — |
|
Total | 616,730 |
| $ | 9.74 |
| 540,762 |
| $ | — |
|
(1) Includes shares withheld from employees as tax payments for shares issued under our stock-based compensation plans. See Note 6, "Share-Based Compensation" of the Notes to unaudited Consolidated Financial Statements for additional details on our stock-based compensation plans. |
(2) As of the end of the period. |
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities
None.
ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
None.
ITEMItem 5. OTHER INFORMATIONOther Information
(a) Disclosure of Unreported 8-K Information
None.On March 25, 2020, the Company and two of its wholly owned subsidiaries (CURO Canada Receivables GP Inc. and CURO Canada Receivables Limited Partnership, by its General Partner, CURO Canada Receivables GP Inc.) entered into an Amendment Agreement to Credit Agreement and Guaranty (the “Amendment”), which amended the (i) Credit Agreement, dated as of August 2, 2018, among CURO Canada Receivables Limited Partnership, by its General partner, CURO Canada Receivables GP Inc., WF Marlie 2018-1, Ltd., as Lender, Waterfall Asset Management, LLC, as Administrative Agent and the other Lenders party thereto and the (ii) Guaranty, dated as of August 2, 2018, among CURO Group Holdings Corp., LendDirect Corp., Cash Money Cheque Cashing Inc., CURO Canada Receivables Limited Partnership, CURO Canada Receivables GP Inc., WF Marlie 2018-1, Ltd. and Waterfall Asset Management, LLC (the “Guaranty”). The Amendment aligns the measurement of the net worth covenant to the Company’s reporting of GAAP Stockholders’ Equity and establishes the minimum that the Company is required to maintain, which will be tested as of the end of each fiscal quarter beginning with the quarter ended March 31, 2020. The Amendment also includes immaterial administrative amendments to the Guaranty.
(b) Material Changes to Director Nominee Procedures
None.
ITEMItem 6. EXHIBITSExhibits
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| | |
Exhibit no. | | Exhibit Description |
3.110.1 | | |
3.210.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
31.1 | | |
31.2 | | |
32.1 | | |
101 | | The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2019,March 31, 2020, filed with the SEC on August 5, 2019,May 4, 2020, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at June 30, 2019March 31, 2020 and December 31, 2018,2019, (ii) Condensed Consolidated Statements of Operations for the quarter ended June 30,March 31, 2020 and 2019, and 2018, (iii) Condensed Consolidated Statements of Comprehensive Income for the quarter ended June 30,March 31, 2020 and 2019, and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the quarter ended June 30,March 31, 2020 and 2019, and 2018, and (v) Notes to Condensed Consolidated Financial Statements* |
* Filed herewith.
+ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are not material and would likely cause competitive harm to the Company if publicly disclosed.
SIGNATURESignature
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 5, 2019May 4, 2020 CURO Group Holdings Corp.
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| | | |
| By: | /s/ Roger Dean | |
| | Roger Dean | |
| | Executive Vice-PresidentVice President and Chief Financial Officer |