8
| Six Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Cash flows from operating activities | |||||||
| Net income from continuing operations | $ | 46,340 | $ | 43,631 | |||
| Adjustments to reconcile net income to net cash provided by continuing operating activities: | |||||||
| Depreciation and amortization | 9,571 | 9,005 | |||||
| Provision for loan losses | 214,395 | 163,230 | |||||
| Amortization of debt issuance costs and bond (premium)/discount | 1,568 | 2,117 | |||||
| Deferred income tax (benefit) expense | (3,596 | ) | 3,199 | ||||
| Loss on disposal of property and equipment | 1,834 | 517 | |||||
| Loss on extinguishment of debt | — | 11,683 | |||||
| Increase in cash surrender value of life insurance | (991 | ) | (2,223 | ) | |||
| Share-based compensation expense | 4,816 | 4,023 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accrued fees and service charges on loans receivable | (1,171 | ) | 2,928 | ||||
| Prepaid expenses and other assets | 16,344 | 5,853 | |||||
| Other assets | (3,790 | ) | — | ||||
| Accounts payable and accrued liabilities | 9,527 | (2,080 | ) | ||||
| Deferred revenue | (915 | ) | (1,193 | ) | |||
| Income taxes payable | 25,123 | 26,727 | |||||
| Income taxes receivable | (8,253 | ) | (18,436 | ) | |||
| Deferred rent | — | 127 | |||||
| Accrued Interest | (1,247 | ) | (3,284 | ) | |||
| Other liabilities | 2,764 | 909 | |||||
| Net cash provided by continuing operating activities | 312,319 | 246,733 | |||||
| Net cash (used in) provided by discontinued operating activities | (504 | ) | 5,458 | ||||
| Net cash provided by operating activities | 311,815 | 252,191 | |||||
| Cash flows from investing activities | |||||||
| Purchase of property, equipment and software | (6,164 | ) | (2,957 | ) | |||
| Loans receivable originated or acquired | (879,081 | ) | (1,063,072 | ) | |||
| Loans receivable repaid | 661,882 | 868,436 | |||||
| Investments in Cognical Holdings | (4,368 | ) | (958 | ) | |||
| Net cash used in continuing investing activities | (227,731 | ) | (198,551 | ) | |||
| Net cash used in discontinued investing activities | (14,213 | ) | (14,349 | ) | |||
| Net cash used in investing activities | (241,944 | ) | (212,900 | ) | |||
| Cash flows from financing activities | |||||||
| Net proceeds from issuance of common stock | — | 12,431 | |||||
| Proceeds from Non-Recourse U.S. SPV facility | — | 13,000 | |||||
| Payments on Non-Recourse U.S. SPV facility | — | (19,163 | ) | ||||
| Proceeds from Non-Recourse Canada SPV facility | 3,750 | — | |||||
| Payments on Non-Recourse Canada SPV facility | (24,752 | ) | — | ||||
| Payments on 12.00% Senior Secured Notes | — | (77,500 | ) | ||||
| Debt issuance costs paid | (198 | ) | (168 | ) | |||
| Proceeds from credit facilities | 68,002 | 18,798 | |||||
| Payments on credit facilities | (88,002 | ) | (18,798 | ) | |||
| Payments on subordinated stockholder debt | (2,245 | ) | — | ||||
| Payments of call premiums from early debt extinguishments | — | (9,300 | ) | ||||
| Proceeds from exercise of stock options | 27 | 39 | |||||
| Repurchase of common stock | (1,762 | ) | — | ||||
Net cash used in financing activities (1) | (45,180 | ) | (80,661 | ) | |||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and 2019 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows:
| June 30, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Cash and cash equivalents | $ | 269,342 | $ | 92,297 | ||||||||||||||||
| Restricted cash (includes restricted cash of consolidated VIEs of $39,248 and $14,819 as of June 30, 2020 and June 30, 2019, respectively) | 63,274 | 33,712 | ||||||||||||||||||
| Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows | $ | 332,616 | $ | 126,009 | ||||||||||||||||
| Effect of exchange rate changes on cash and restricted cash | 1,461 | (4,189 | ) | ||||
| Net increase (decrease) in cash and restricted cash | 26,152 | (45,559 | ) | ||||
| Cash and restricted cash at beginning of period | 99,857 | 174,491 | |||||
| Cash and restricted cash at end of period | 126,009 | 128,932 | |||||
| Less: Cash and restricted cash of discontinued operations at end of period | — | 12,460 | |||||
| Cash and restricted cash of continuing operations at end of period | $ | 126,009 | $ | 116,472 | |||
| (1) Financing activities include continuing operations only, and were not impacted by discontinued operations | |||||||
See accompanying Notes to Unauditedunaudited Condensed Consolidated Financial Statements.
9
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations and Basis of Presentation
The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its 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 Report on2019 Form 10-K10-K. Interim results of operations are not necessarily indicative of 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, 2019.2020, and it will reevaluate its status as of June 30, 2021.
The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect all adjustments (consisting only of adjustments of a normal and recurring nature) which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented.
COVID-19
A novel strain of coronavirus, COVID-19, surfaced in late 2019 and has subsequently spread worldwide, including to the U.S. and Canada. On 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, which resulted in treatmenthave been significantly affected by the COVID-19 pandemic and there are no reliable estimates of how long the pandemic will last or the scope or magnitude of its near-term or long-term impact. Resurgences of the segmentpandemic in various states in which the Company operates also adds uncertainty as discontinuedjurisdictions establish protocols to lessen the burden of these cases, as described further below. Refer to Note 3, "Loans Receivable and Revenue" for an explanation of the effect of the pandemic on the Company's loans receivable and the allowance for loan losses as of June 30, 2020.
In response to the pandemic, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. However, CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, the Company remains focused on protecting the health and well being of its employees, customers and the communities in which it operates while assuring the continuity of its business operations. While CURO continues serving its customers through both store and online channels, store hours are reduced, enhanced cleaning protocols for all periods presented. Throughout this Quarterly Report on Form 10-Q ("Form 10-Q"), currentfacilities are in place, and prior period financial information is presented as ifsocial distancing guidelines are in effect to aid in combating the U.K. segment was excluded from continuing operations. For further information about the placementspread of the segment into administration, referpandemic.
On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to "--Naturethe limitation on business interest expense and net operating loss provisions, and provides a payment delay of Operations" below.employer payroll taxes incurred subsequent to the date of enactment. The Company expects to delay payment of employer payroll taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.
The Condensed Consolidated Financial Statements shouldCARES Act also included two provisions that directly impacted the demand for the Company's products as well as its customers’ ability to make payments on their existing loans. The CARES Act included one-time Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 (or $198,000 for tax joint filers) and $500 per child under 17 years old, up to $3,400 for a family of four if certain eligibility criteria were met. The CARES Act also provided Unemployment benefit expansion, including (i) an additional $600 federal stimulus payment automatically added to each week of state benefits received between March 29 and July 25, 2020; (ii) expanded Pandemic Unemployment Assistance coverage to self-employed workers, independent contractors, people with limited employment history and people who have used all of their regular unemployment insurance benefits; and (iii) Pandemic Emergency Unemployment Compensation, which extends unemployment insurance benefits from 26 weeks to 39 weeks within a 12-month benefit year.
10
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On March 18, 2020, the Canadian government announced a set of pandemic measures as part of the Government of Canada’s COVID-19 Economic Response Plan. This plan included several provisions that directly impacted the demand for the Company's products as well as its customers’ ability to make payments on their existing loans, including (i) the Canada Emergency Response Benefit which provides a $2,000 benefit every four weeks for 24 weeks to eligible workers who become unemployed or under-employed as a result of COVID-19; (ii) a $300 per child Canada Child Benefit paid on May 20, 2020; (iii) a one-time special payment through Canada’s Goods and Services Tax credit for low and modest-income families that averages $400 for individuals and $600 for couples; and iv) temporary wage increases for low-income essential workers funded at the federal level but disbursed at the provincial level.
Refer to Note 7, "Income Taxes" for the CARES Act impact to the Company's provision for income taxes.
The effect of the COVID-19 pandemic will not be 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.
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements include the accounts of CURO and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Ad Astra Acquisition
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency. Ad Astra, now a wholly-owned subsidiary, is included in the unaudited Condensed Consolidated Financial Statements. Prior to the acquisition, all costs related to Ad Astra were included in "Other costs of providing services." Following the acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," consistent with presentation of other internal collection costs. See Note 17, "Acquisition" for further information.
U.K. Segment Placed into Administration
On February 25, 2019, the Company placed its U.K. segment into administration, which resulted in the treatment of the U.K. segment as discontinued operations for all periods presented. Throughout this Form 10-Q, current and prior period financial information is presented on a continuing operations basis, excluding the results and positions of the U.K. segment. See Note 15, "Discontinued Operations" for additional information.
Equity Investment in Unconsolidated Entity
Use of Estimates
The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions, such as those impacted by COVID-19, that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported.presented. Some of the significant estimates that the Company made in the accompanying unaudited Condensed Consolidated Financial Statements include allowances for loan losses, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, credit services organization ("CSO")CSO liability for losses and estimated tax liabilities. Actual results may differ from those estimates.
11
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Troubled Debt Restructuring
Goodwill
The annual impairment review for goodwill, performed as of Open-End loansOctober 1, consists of performing a qualitative assessment to determine whether it is more likely than not that are upa reporting unit’s fair value is less than its carrying amount as a basis for determining whether or not further testing is required. The Company may elect to 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.
During the year ended December 31, 2018,fourth quarter of 2019, the Company corrected immaterial errorsperformed a quantitative assessment for the U.S. and Canada reporting units. Management concluded that the estimated fair values of these 2 reporting units were greater than their respective carrying values. In the second quarter of 2020, the Company performed an interim qualitative assessment of goodwill on both reporting units to its prior presentationconsider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more-likely-than-not determination that the fair values of cash flows for loan originations and collections on principal.the reporting units fell below their respective carrying values. The Company determined that the historical presentation was in error bydid 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 forrecord an impairment loss during the six months ended June 30, 2018. Total cash flows2020 as a result of its interim qualitative assessment of either reporting unit.
Recently Adopted Accounting Pronouncements
ASU 2018-15
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (i) that are reasonably certain to be exercised by the customer or (ii) for which exercise of the renewal option is controlled by the cloud service provider. The Company adopted ASU 2018-15 on a prospective basis as of January 1, 2020. The adoption of ASU 2018-15 did not change. The Company concluded that the errors were immaterial tohave a material impact on 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:Statements.
12
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASU 2018-13
| (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. | ||||
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.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, and ASU 2019-05 in May 2019.2019, ASU 2019-10 and 11 in November 2019, and ASU 2020-02 in February 2020. The amended 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 qualify as an SRC, for which the Company currently qualifies. ASU 2019-11 provides clarity and improves the codification to ASU 2016-13. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. As issued, 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.permitted. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016‑13,2016-13, 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, as disclosed below, theThe Company is evaluating the impact of the FASB's definition of a SRC todeferred the adoption of ASU 2016-13.2016-13 as permitted under ASU 2019-10. The Company is currently assessing the impact that adoption of ASU 2016-13 will have on its Consolidated Financial Statements.
ASU 2020-01
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2020-01 will have on its Consolidated Financial Statements.
ASU 2020-04
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently assessing the impact that adoption of ASU 2020-04 will have on its Consolidated Financial Statements.
13
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASU 2019-052019-12
In MayDecember 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 balancegeneral principles in Topic 740. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of retained earnings in the statement 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.
NOTE 2 - VARIABLE INTEREST ENTITIES
The carrying amounts of consolidated VIEs' assets and liabilities associated with the VIE subsidiaries were as follows:follows (in thousands):
| June 30, 2020 | December 31, 2019 | |||||||||||||
| Assets | ||||||||||||||
| Restricted cash | $ | 39,248 | $ | 17,427 | ||||||||||
| Loans receivable less allowance for loan losses | 242,840 | 220,067 | ||||||||||||
| Prepaid expenses and other | 699 | — | ||||||||||||
| Total Assets | $ | 282,787 | $ | 237,494 | ||||||||||
| Liabilities | ||||||||||||||
| Accounts payable and accrued liabilities | $ | 20,567 | $ | 13,462 | ||||||||||
| Deferred revenue | 111 | 46 | ||||||||||||
| Accrued interest | 1,030 | 871 | ||||||||||||
| Intercompany payable | 57,836 | 69,639 | ||||||||||||
| Debt | 120,685 | 112,221 | ||||||||||||
| Total Liabilities | $ | 200,229 | $ | 196,239 | ||||||||||
| (in thousands) | June 30, 2019 | December 31, 2018 | |||||
| Assets | |||||||
| Restricted cash | $ | 14,819 | $ | 12,840 | |||
| Gross loans receivable less allowance for loan losses | 190,121 | 136,187 | |||||
| Total Assets | $ | 204,940 | $ | 149,027 | |||
| Liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 15,020 | $ | 4,980 | |||
| Deferred revenue | 45 | 40 | |||||
| Accrued interest | 713 | 831 | |||||
| Long-term debt | 90,977 | 107,479 | |||||
| Total Liabilities | $ | 106,755 | $ | 113,330 | |||
NOTE 3 – LOANS RECEIVABLE AND REVENUE
COVID-19 impacted CURO's customers and overall credit performance. During the second quarter of 2020, federal governments in the U.S. and Canada provided various stimulus and income stability payments, which, among other impacts, resulted in lower demand for the Company's products and lower than expected NCOs. Ongoing impacts from and risks related to COVID-19 have caused continued uncertainty regarding the performance of NCOs over the loss-development period as of June 30, 2020. The Company has maintained its historical allowance approach, but has adjusted future loss estimates for changes in past-due gross loans receivable due to market conditions at June 30, 2020 caused by COVID-19. The estimates and assumptions used to determine an appropriate allowance for loan losses and liability for losses on CSO lender-owned consumer loans are those that are available through the filing of this Form 10-Q and which are indicative of conditions occurring as of June 30, 2020.
Additionally, as a result of COVID-19, the Company enhanced its Customer Care Program and began modifying loans for borrowers that experienced financial distress, as discussed in more detail in Note 1,"Summaryof Significant Accounting Policiesand Natureof Operations" and the tables below.
14
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes revenue by product for the periods indicated:(in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment | $ | 70,429 | $ | 122,112 | $ | 192,838 | $ | 257,890 | ||||||||||||||||||||||||||||||||||||||||||
| Secured Installment | 19,401 | 26,076 | 45,687 | 53,553 | ||||||||||||||||||||||||||||||||||||||||||||||
| Open-End | 56,736 | 54,972 | 127,718 | 107,841 | ||||||||||||||||||||||||||||||||||||||||||||||
| Single-Pay | 22,732 | 45,528 | 67,889 | 92,289 | ||||||||||||||||||||||||||||||||||||||||||||||
| Ancillary | 13,211 | 15,612 | 29,183 | 30,666 | ||||||||||||||||||||||||||||||||||||||||||||||
Total revenue(1) | $ | 182,509 | $ | 264,300 | $ | 463,315 | $ | 542,239 | ||||||||||||||||||||||||||||||||||||||||||
| (1) Includes revenue from CSO programs of $37.8 million and $63.6 million for the three months ended June 30, 2020 and 2019, respectively, and $105.8 million and $127.8 million for the six months ended June 30, 2020 and 2019, respectively. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 Loansloans receivable by product and the related delinquent loans receivable at June 30, 2019:(in thousands):
| June 30, 2020 | ||||||||||||||||||||||||||||||||||||||
Single-Pay(1) | Unsecured Installment | Secured Installment | Open-End | Total | ||||||||||||||||||||||||||||||||||
| Current loans receivable | $ | 36,130 | $ | 63,835 | $ | 44,675 | $ | 253,948 | $ | 398,588 | ||||||||||||||||||||||||||||
| Delinquent loans receivable | — | 17,766 | 8,950 | 31,208 | 57,924 | |||||||||||||||||||||||||||||||||
| Total loans receivable | 36,130 | 81,601 | 53,625 | 285,156 | 456,512 | |||||||||||||||||||||||||||||||||
| Less: allowance for losses | (2,802) | (18,451) | (7,883) | (47,319) | (76,455) | |||||||||||||||||||||||||||||||||
| Loans receivable, net | $ | 33,328 | $ | 63,150 | $ | 45,742 | $ | 237,837 | $ | 380,057 | ||||||||||||||||||||||||||||
| (1) Of the $36.1 million of Single-Pay receivables, $8.1 million relate to mandated extended payment options for certain Canada Single-Pay loans. | ||||||||||||||||||||||||||||||||||||||
| June 30, 2020 | ||||||||||||||||||||||||||
| Unsecured Installment | Secured Installment | Open-End | Total | |||||||||||||||||||||||
| Delinquent loans receivable | ||||||||||||||||||||||||||
| 0-30 days past due | $ | 5,207 | $ | 3,500 | $ | 11,743 | $ | 20,450 | ||||||||||||||||||
| 31-60 days past due | 3,825 | 2,157 | 7,225 | 13,207 | ||||||||||||||||||||||
| 61 + days past due | 8,734 | 3,293 | 12,240 | 24,267 | ||||||||||||||||||||||
| Total delinquent loans receivable | $ | 17,766 | $ | 8,950 | $ | 31,208 | $ | 57,924 | ||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
Single-Pay(1) | Unsecured Installment | Secured Installment | Open-End | Total | ||||||||||||||||||||||||||||||||||
| Current loans receivable | $ | 81,447 | $ | 117,682 | $ | 70,565 | $ | 285,452 | $ | 555,146 | ||||||||||||||||||||||||||||
| Delinquent loans receivable | — | 43,100 | 17,510 | 50,072 | 110,682 | |||||||||||||||||||||||||||||||||
| Total loans receivable | 81,447 | 160,782 | 88,075 | 335,524 | 665,828 | |||||||||||||||||||||||||||||||||
| Less: allowance for losses | (5,869) | (35,587) | (10,305) | (55,074) | (106,835) | |||||||||||||||||||||||||||||||||
| Loans receivable, net | $ | 75,578 | $ | 125,195 | $ | 77,770 | $ | 280,450 | $ | 558,993 | ||||||||||||||||||||||||||||
| (1) Of the $81.4 million of Single-Pay receivables, $22.4 million relate to mandated extended payment options for certain Canada Single-Pay loans. | ||||||||||||||||||||||||||||||||||||||
15
| 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 | |||||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| December 31, 2019 | ||||||||||||||||||||||||||
| Unsecured Installment | Secured Installment | Open-End | Total | |||||||||||||||||||||||
| Delinquent loans receivable | ||||||||||||||||||||||||||
| 0-30 days past due | $ | 15,369 | $ | 8,039 | $ | 21,823 | $ | 45,231 | ||||||||||||||||||
| 31-60 days past due | 12,403 | 4,885 | 13,191 | 30,479 | ||||||||||||||||||||||
| 61 + days past due | 15,328 | 4,586 | 15,058 | 34,972 | ||||||||||||||||||||||
| Total delinquent loans receivable | $ | 43,100 | $ | 17,510 | $ | 50,072 | $ | 110,682 | ||||||||||||||||||
| December 31, 2018 | ||||||||||||||||
| (in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total | |||||||||||
| Current loans receivable | $ | 80,823 | $ | 141,316 | $ | 75,583 | $ | 207,333 | $ | 505,055 | ||||||
| Delinquent loans receivable | — | 49,087 | 17,389 | — | 66,476 | |||||||||||
| Total loans receivable | 80,823 | 190,403 | 92,972 | 207,333 | 571,531 | |||||||||||
| Less: allowance for losses | (4,189 | ) | (37,716 | ) | (12,191 | ) | (19,901 | ) | (73,997 | ) | ||||||
| Loans receivable, net | $ | 76,634 | $ | 152,687 | $ | 80,781 | $ | 187,432 | $ | 497,534 | ||||||
| December 31, 2018 | ||||||||||
| (in thousands) | Unsecured Installment | Secured Installment | Total | |||||||
| Delinquent loans receivable | ||||||||||
| 0-30 days past due | $ | 17,850 | $ | 7,870 | $ | 25,720 | ||||
| 31-60 days past due | 14,705 | 4,725 | 19,430 | |||||||
| 61-90 days past due | 16,532 | 4,794 | 21,326 | |||||||
| Total delinquent loans receivable | $ | 49,087 | $ | 17,389 | $ | 66,476 | ||||
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, 2020 | ||||||||||||||||||||||||||
| Unsecured Installment | Secured Installment | Total | ||||||||||||||||||||||||
| Current loans receivable guaranteed by the Company | $ | 29,063 | $ | 887 | $ | 29,950 | ||||||||||||||||||||
| Delinquent loans receivable guaranteed by the Company | 4,019 | 123 | 4,142 | |||||||||||||||||||||||
| Total loans receivable guaranteed by the Company | 33,082 | 1,010 | 34,092 | |||||||||||||||||||||||
| Less: Liability for losses on CSO lender-owned consumer loans | (5,128) | (36) | (5,164) | |||||||||||||||||||||||
| Loans receivable guaranteed by the Company, net | $ | 27,954 | $ | 974 | $ | 28,928 | ||||||||||||||||||||
| June 30, 2020 | ||||||||||||||||||||
| Unsecured Installment | Secured Installment | Total | ||||||||||||||||||
| Delinquent loans receivable | ||||||||||||||||||||
| 0-30 days past due | $ | 3,411 | $ | 104 | $ | 3,515 | ||||||||||||||
| 31-60 days past due | 347 | 11 | 358 | |||||||||||||||||
| 61+ days past due | 261 | 8 | 269 | |||||||||||||||||
| Total delinquent loans receivable | $ | 4,019 | $ | 123 | $ | 4,142 | ||||||||||||||
| December 31, 2019 | ||||||||||||||||||||||||||
| Unsecured Installment | Secured Installment | Total | ||||||||||||||||||||||||
| Current loans receivable guaranteed by the Company | $ | 61,840 | $ | 1,944 | $ | 63,784 | ||||||||||||||||||||
| Delinquent loans receivable guaranteed by the Company | 12,477 | 392 | 12,869 | |||||||||||||||||||||||
| Total loans receivable guaranteed by the Company | 74,317 | 2,336 | 76,653 | |||||||||||||||||||||||
| Less: Liability for losses on CSO lender-owned consumer loans | (10,553) | (70) | (10,623) | |||||||||||||||||||||||
| Loans receivable guaranteed by the Company, net | $ | 63,764 | $ | 2,266 | $ | 66,030 | ||||||||||||||||||||
| December 31, 2019 | ||||||||||||||||||||
| Unsecured Installment | Secured Installment | Total | ||||||||||||||||||
| Delinquent loans receivable | ||||||||||||||||||||
| 0-30 days past due | $ | 10,392 | $ | 326 | $ | 10,718 | ||||||||||||||
| 31-60 days past due | 1,256 | 40 | 1,296 | |||||||||||||||||
| 61 + days past due | 829 | 26 | 855 | |||||||||||||||||
| Total delinquent loans receivable | $ | 12,477 | $ | 392 | $ | 12,869 | ||||||||||||||
16
| June 30, 2019 | ||||||||||
| (in thousands) | Unsecured Installment | Secured Installment | Total | |||||||
| Current loans receivable guaranteed by the Company | $ | 54,968 | $ | 1,930 | $ | 56,898 | ||||
| Delinquent loans receivable guaranteed by the Company | 10,087 | 354 | 10,441 | |||||||
| Total loans receivable guaranteed by the Company | 65,055 | 2,284 | 67,339 | |||||||
| Less: Liability for losses on CSO lender-owned consumer loans | (9,433 | ) | (71 | ) | (9,504 | ) | ||||
| Loans receivable guaranteed by the Company, net | $ | 55,622 | $ | 2,213 | $ | 57,835 | ||||
| June 30, 2019 | ||||||||||
| (in thousands) | Unsecured Installment | Secured Installment | Total | |||||||
| Delinquent loans receivable | ||||||||||
| 0-30 days past due | $ | 8,511 | $ | 299 | $ | 8,810 | ||||
| 31-60 days past due | 1,052 | 37 | 1,089 | |||||||
| 61-90 days past due | 524 | 18 | 542 | |||||||
| Total delinquent loans receivable | $ | 10,087 | $ | 354 | $ | 10,441 | ||||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 | ||||
| Three Months Ended June 30, 2019 | ||||||||||||||||||
| (in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||
| Balance, beginning of period | $ | 3,897 | $ | 33,666 | $ | 9,796 | $ | 46,963 | $ | — | $ | 94,322 | ||||||
| Charge-offs | (35,759 | ) | (37,336 | ) | (10,295 | ) | (30,688 | ) | (1,342 | ) | (115,420 | ) | ||||||
| Recoveries | 24,301 | 5,366 | 2,693 | 5,537 | 822 | 38,719 | ||||||||||||
| Net charge-offs | (11,458 | ) | (31,970 | ) | (7,602 | ) | (25,151 | ) | (520 | ) | (76,701 | ) | ||||||
| Provision for losses | 12,446 | 33,514 | 7,802 | 29,373 | 520 | 83,655 | ||||||||||||
| Effect of foreign currency translation | 56 | 13 | — | 532 | — | 601 | ||||||||||||
| Balance, end of period | $ | 4,941 | $ | 35,223 | $ | 9,996 | $ | 51,717 | $ | — | $ | 101,877 | ||||||
| Allowance for loan losses as a percentage of gross loan receivables | 6.5 | % | 21.4 | % | 11.7 | % | 18.3 | % | N/A | 16.7 | % | |||||||
| Three Months Ended June 30, 2019 | |||||||||
| (in thousands) | Unsecured Installment | Secured Installment | Total | ||||||
| Balance, beginning of period | $ | 8,583 | $ | 78 | $ | 8,661 | |||
| Charge-offs | (34,564 | ) | (683 | ) | (35,247 | ) | |||
| Recoveries | 7,078 | 657 | 7,735 | ||||||
| Net charge-offs | (27,486 | ) | (26 | ) | (27,512 | ) | |||
| Provision for losses | 28,336 | 19 | 28,355 | ||||||
| Balance, end of period | $ | 9,433 | $ | 71 | $ | 9,504 | |||
| Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||
| Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 4,693 | $ | 28,965 | $ | 9,726 | $ | 56,458 | $ | — | $ | 99,842 | |||||||||||||||||||||||
| Charge-offs | (21,168) | (30,129) | (11,747) | (37,784) | (750) | (101,578) | |||||||||||||||||||||||||||||
| Recoveries | 21,766 | 7,019 | 2,961 | 6,100 | 398 | 38,244 | |||||||||||||||||||||||||||||
| Net charge-offs | 598 | (23,110) | (8,786) | (31,684) | (352) | (63,334) | |||||||||||||||||||||||||||||
| Provision for losses | (2,588) | 12,584 | 6,943 | 21,341 | 352 | 38,632 | |||||||||||||||||||||||||||||
| Effect of foreign currency translation | 99 | 12 | — | 1,204 | — | 1,315 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 2,802 | $ | 18,451 | $ | 7,883 | $ | 47,319 | $ | — | $ | 76,455 | |||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | — | $ | 9,142 | $ | 47 | $ | — | $ | — | $ | 9,189 | |||||||||||||||||||||||
| Decrease in liability | — | 4,014 | 11 | — | — | 4,025 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | — | $ | 5,128 | $ | 36 | $ | — | $ | — | $ | 5,164 | |||||||||||||||||||||||
| Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||||
| Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 3,897 | $ | 33,666 | $ | 9,796 | $ | 46,963 | $ | — | $ | 94,322 | |||||||||||||||||||||||
| Charge-offs | (35,759) | (37,336) | (10,295) | (30,688) | (1,342) | (115,420) | |||||||||||||||||||||||||||||
| Recoveries | 24,301 | 5,366 | 2,693 | 5,537 | 822 | 38,719 | |||||||||||||||||||||||||||||
| Net charge-offs | (11,458) | (31,970) | (7,602) | (25,151) | (520) | (76,701) | |||||||||||||||||||||||||||||
| Provision for losses | 12,446 | 33,514 | 7,802 | 29,373 | 520 | 83,655 | |||||||||||||||||||||||||||||
| Effect of foreign currency translation | 56 | 13 | — | 532 | — | 601 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 4,941 | $ | 35,223 | $ | 9,996 | $ | 51,717 | $ | — | $ | 101,877 | |||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | — | $ | 8,583 | $ | 78 | $ | — | $ | — | $ | 8,661 | |||||||||||||||||||||||
| Increase in liability | — | (850) | 7 | — | — | (843) | |||||||||||||||||||||||||||||
| Balance, end of period | $ | — | $ | 9,433 | $ | 71 | $ | — | $ | — | $ | 9,504 | |||||||||||||||||||||||
17
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||
| Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 5,869 | $ | 35,587 | $ | 10,305 | $ | 55,074 | $ | — | $ | 106,835 | |||||||||||||||||||||||
| Charge-offs | (61,689) | (68,687) | (24,857) | (81,293) | (2,028) | (238,554) | |||||||||||||||||||||||||||||
| Recoveries | 51,770 | 12,802 | 5,870 | 12,511 | 977 | 83,930 | |||||||||||||||||||||||||||||
| Net charge-offs | (9,919) | (55,885) | (18,987) | (68,782) | (1,051) | (154,624) | |||||||||||||||||||||||||||||
| Provision for losses | 7,051 | 38,766 | 16,565 | 62,332 | 1,051 | 125,765 | |||||||||||||||||||||||||||||
| Effect of foreign currency translation | (199) | (17) | — | (1,305) | — | (1,521) | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 2,802 | $ | 18,451 | $ | 7,883 | $ | 47,319 | $ | — | $ | 76,455 | |||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | — | $ | 10,553 | $ | 70 | $ | — | $ | — | $ | 10,623 | |||||||||||||||||||||||
| Decrease in liability | — | 5,425 | 34 | — | — | 5,459 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | — | $ | 5,128 | $ | 36 | $ | — | $ | — | $ | 5,164 | |||||||||||||||||||||||
| Six Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||||
| Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 4,189 | $ | 37,716 | $ | 12,191 | $ | 19,901 | $ | — | $ | 73,997 | |||||||||||||||||||||||
| Charge-offs | (72,280) | (81,573) | (22,966) | (34,326) | (2,693) | (213,838) | |||||||||||||||||||||||||||||
| Recoveries | 52,212 | 11,684 | 5,816 | 10,696 | 1,721 | 82,129 | |||||||||||||||||||||||||||||
| Net charge-offs | (20,068) | (69,889) | (17,150) | (23,630) | (972) | (131,709) | |||||||||||||||||||||||||||||
| Provision for losses | 20,714 | 67,359 | 14,955 | 54,690 | 972 | 158,690 | |||||||||||||||||||||||||||||
| Effect of foreign currency translation | 106 | 37 | — | 756 | — | 899 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | 4,941 | $ | 35,223 | $ | 9,996 | $ | 51,717 | $ | — | $ | 101,877 | |||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | — | $ | 11,582 | $ | 425 | $ | — | $ | — | $ | 12,007 | |||||||||||||||||||||||
| Decrease (increase) in liability | — | 2,149 | 354 | — | — | 2,503 | |||||||||||||||||||||||||||||
| Balance, end of period | $ | — | $ | 9,433 | $ | 71 | $ | — | $ | — | $ | 9,504 | |||||||||||||||||||||||
As of June 30, 2020, Installment and Open-End loans classified as nonaccrual were approximately $8.9 million and $5.3 million, respectively. As of December 31, 2019, Installment and Open-End loans classified as nonaccrual were approximately $16.6 million and $7.9 million, respectively. The Company's loans receivable inherently considers nonaccrual loans in its estimate of the allowance for loan losses as delinquencies are a primary input into the Company's roll rate-based model.
18
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
TDR LOANS RECEIVABLE
The table below presents TDRs included in gross loans receivable and the impairment included in the allowance for loan losses (in thousands):
| As of June 30, 2020 | ||||||||||||||||||||
| Current TDR gross receivables | $ | 13,803 | ||||||||||||||||||
| Delinquent TDR gross receivables | 6,534 | |||||||||||||||||||
| Total TDR gross receivables | 20,337 | |||||||||||||||||||
| Less: Impairment included in the allowance for loan losses | (9,043) | |||||||||||||||||||
| Outstanding TDR receivables, net of impairment | $ | 11,294 | ||||||||||||||||||
There were 0 TDR's as of December 31, 2019.
The tables below reflect new loans modified and classified as TDRs during the three months ended June 30, 2019:periods presented (in thousands):
| Three Months Ended June 30, 2019 | ||||||||||||||||||
| (in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||
| Balance, beginning of period | $ | 3,897 | $ | 42,249 | $ | 9,874 | $ | 46,963 | $ | — | $ | 102,983 | ||||||
| Charge-offs | (35,759 | ) | (71,900 | ) | (10,978 | ) | (30,688 | ) | (1,342 | ) | (150,667 | ) | ||||||
| Recoveries | 24,301 | 12,444 | 3,350 | 5,537 | 822 | 46,454 | ||||||||||||
| Net charge-offs | (11,458 | ) | (59,456 | ) | (7,628 | ) | (25,151 | ) | (520 | ) | (104,213 | ) | ||||||
| Provision for losses | 12,446 | 61,850 | 7,821 | 29,373 | 520 | 112,010 | ||||||||||||
| Effect of foreign currency translation | 56 | 13 | — | 532 | — | 601 | ||||||||||||
| Balance, end of period | $ | 4,941 | $ | 44,656 | $ | 10,067 | $ | 51,717 | $ | — | $ | 111,381 | ||||||
| Three and Six Months Ended June 30, 2020 | ||||||||||||||||||||
| Pre-modification TDR loans receivable | $ | 24,069 | ||||||||||||||||||
| Post-modification TDR loans receivable | 21,390 | |||||||||||||||||||
| Total concessions included in gross charge-offs | $ | 2,679 | ||||||||||||||||||
| Three Months Ended June 30, 2018 | ||||||||||||||||||
| (in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||
| Balance, beginning of period | $ | 3,514 | $ | 33,638 | $ | 11,639 | $ | 6,846 | $ | — | $ | 55,637 | ||||||
| Charge-offs | (41,242 | ) | (31,612 | ) | (11,082 | ) | (23,807 | ) | (593 | ) | (108,336 | ) | ||||||
| Recoveries | 28,266 | 5,085 | 2,296 | 11,883 | 38 | 47,568 | ||||||||||||
| Net charge-offs | (12,976 | ) | (26,527 | ) | (8,786 | ) | (11,924 | ) | (555 | ) | (60,768 | ) | ||||||
| Provision for losses | 13,101 | 23,219 | 7,533 | 14,848 | 555 | 59,256 | ||||||||||||
| Effect of foreign currency translation | (35 | ) | (39 | ) | — | (53 | ) | — | (127 | ) | ||||||||
| 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 | % | |||||||
| Three Months Ended June 30, 2018 | |||||||||
| (in thousands) | Unsecured Installment | Secured Installment | Total | ||||||
| Balance, beginning of period | $ | 9,886 | $ | 526 | $ | 10,412 | |||
| Charge-offs | (33,017 | ) | (993 | ) | (34,010 | ) | |||
| Recoveries | 7,350 | 776 | 8,126 | ||||||
| Net charge-offs | (25,667 | ) | (217 | ) | (25,884 | ) | |||
| Provision for losses | 26,974 | 117 | 27,091 | ||||||
| Balance, end of period | $ | 11,193 | $ | 426 | $ | 11,619 | |||
| 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 | ||||||
| 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 inbelow presents the liabilityCompany's average outstanding TDR loans receivable and interest income recognized on TDR loans for losses on CSO lender-owned consumer loans during the three and six months ended June 30, 2019:2020 (in thousands):
| 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 | |||
| Three and Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||
Average outstanding TDR loans receivable (1) | $ | 20,864 | ||||||||||||||||||||||||
| Interest income recognized | 4,396 | |||||||||||||||||||||||||
Number of TDR loans (2) | 21,512 | |||||||||||||||||||||||||
| (1) As there were 0 TDRs prior to April 1, 2020, the average outstanding TDR loans receivable is calculated based on the amount immediately after the loan was classified as a TDR and the ending TDR balance as of June 30, 2020. | ||||||||||||||||||||||||||
| (2) Presented in ones | ||||||||||||||||||||||||||
| 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 | ||||||
| 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 | % | |||||||
| 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 | |||
| Six Months Ended June 30, 2018 | ||||||||||||||||||
| (in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | ||||||||||||
| Balance, beginning of period | $ | 5,204 | $ | 56,050 | $ | 14,194 | $ | 6,426 | $ | — | $ | 81,874 | ||||||
| Charge-offs | (85,578 | ) | (141,567 | ) | (24,779 | ) | (44,156 | ) | (1,268 | ) | (297,348 | ) | ||||||
| Recoveries | 61,084 | 28,629 | 7,107 | 21,260 | 85 | 118,165 | ||||||||||||
| Net charge-offs | (24,494 | ) | (112,938 | ) | (17,672 | ) | (22,896 | ) | (1,183 | ) | (179,183 | ) | ||||||
| Provision for losses | 22,993 | 98,488 | 14,290 | 26,276 | 1,183 | 163,230 | ||||||||||||
| Effect of foreign currency translation | (99 | ) | (116 | ) | — | (89 | ) | — | (304 | ) | ||||||||
| Balance, end of period | $ | 3,604 | $ | 41,484 | $ | 10,812 | $ | 9,717 | $ | — | $ | 65,617 | ||||||
NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivable amountsreceivables under CSO programs were $12.0$3.8 million and $14.3$14.7 million at June 30, 20192020 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, 20192020 and December 31, 2018,2019, the incremental maximum amount payable under all such guarantees was $56.0$28.6 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.lenders. Liability for incurred losses on CSO loans Guaranteed by the Company was $9.5$5.2 million and $12.0$10.6 million at June 30, 20192020 and December 31, 2018,2019, respectively.
19
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company placed $5.8$3.4 million and $17.2$6.2 million in collateral accounts for the benefit of lenders at June 30, 20192020 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 June 30, 2020 and December 31, 2019 and there were no costs to obtain, or costs to fulfill, capitalized under the program. See Note 3, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.
NOTE 5 – LONG-TERM DEBT
| (in thousands) | June 30, 2019 | December 31, 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 | ||||
| June 30, 2020 | December 31, 2019 | |||||||||||||
| 8.25% Senior Secured Notes (due 2025) | $ | 679,143 | $ | 678,323 | ||||||||||
| Non-Recourse U.S. SPV Facility | 31,896 | — | ||||||||||||
| Non-Recourse Canada SPV Facility | 88,789 | 112,221 | ||||||||||||
| Debt | $ | 799,828 | $ | 790,544 | ||||||||||
8.25% Senior Secured Notes
In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes which mature on September 1, 2025 ("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 remaining balance of capitalized financing costs of approximately $12.8$10.9 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.
Non-Recourse U.S. SPV Facility
In April, 2020, Curo Receivables Finance II, LLC, a bankruptcy-remote special purpose vehicle (the “U.S. SPV Borrower”) and an indirect wholly-owned subsidiary of the Company, entered into the Non-Recourse U.S. SPV Facility with Midtown Madison Management LLC, as administrative agent, and Atalaya Asset Income Fund VI LP, as the initial lender. As of June 30, 2020, the Non-Recourse U.S. SPV Facility provided for $100.0 million of borrowing capacity. On July 31, 2020, the Company obtained additional commitments, which increased its capacity to $200.0 million. See Note 19, "Subsequent Events" for additional information.
The proceedsNon-Recourse U.S. SPV Facility is secured by a first lien against all assets of this issuance were usedthe U.S. SPV Borrower. The lenders will make advances against the principal balance of the eligible Installment, Open-End and bank partner loans sold to the U.S. SPV Borrower. The initial advance rate is 65% and, subject to certain conditions, may increase to up to 90% beginning October 1, 2020. Interest accrues at an annual rate of one-month LIBOR plus (i) prior to redeem the outstanding 12.00% Senior Secured Notesincrease in commitments, 9.75% and (ii) from and after the increase in commitments, 5.75%. The U.S. SPV Borrower will pay the lenders additional interest if it does not borrow minimum specified percentages of CFTC, (ii) to repaythe available commitments and a monthly 0.50% per annum commitment fee on the unused portion of the outstanding indebtednesscommitments. Advances under the five-year revolving credit facilityNon-Recourse U.S. SPV Facility will be subject to a 1.0% original issue discount against the maximum commitment. The Non-Recourse U.S. SPV Facility may not be prepaid prior to April 8, 2021. Prepayments incur a fee equal to (a) prior to September 8, 2021, 3.0% of CURO Receivables Finance I, LLC, a wholly-owned subsidiary ("CURO Receivables"), which consistedthe aggregate commitments, (b) thereafter, until March 8, 2022, 2.0% of a term loanthe aggregate commitments, and revolving borrowing capacity, (iii) for general corporate purposes and (iv)(c) thereafter, 0.
As of June 30, 2020, outstanding borrowers under the Non-Recourse U.S. SPV Facility were $31.9 million, net of deferred financing costs of $3.3 million. For further information on the Non-Recourse U.S. SPV Facility, refer to pay fees, expenses, premiums and accrued interest in connection therewith.Note 2, "Variable Interest Entities."
20
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Non-Recourse Canada SPV Facility
On August 2, 2018, CURO Canada Receivables Limited Partnership, a newly created, bankruptcy-remote special purpose vehicle (the "Canada SPV Borrower") and a wholly-owned subsidiary, entered into a four-year revolving credit facilitythe Non-Recourse Canada SPV Facility with Waterfall Asset Management, LLC that provided for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million ("Non-Recourse Canada SPV Facility").million. The loans bear interest at an annual rate of 6.75% plus the three-month CDOR. The Canada SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. In April 2019, the facility's maturity date was extended one year, to September 2, 2023.
As of June 30, 2019, the Canada SPV Borrower was in full compliance with the covenants and other provisions of the Non-Recourse Canada SPV Facility.
Senior Revolver
The terms of the Senior Revolver also require that its outstanding balance be zero0 for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries that guarantee the 8.25% Senior Secured Notes and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 8.25% Senior Secured Notes. Additionally, the negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for the 8.25% Senior Secured Notes. The revolver was undrawn at June 30, 2019.
The Senior Revolver contains various conditions to borrowing and affirmative, negative and financial maintenance covenants. Certain of the more significant covenants are (i) minimum eligible collateral value, (ii) consolidated interest coverage ratio and (iii) consolidated leverage ratio. The Senior Revolver also contains various events of default, the occurrence of which could result in termination of the lenders’ commitments to lend and the acceleration of all obligations under the Senior Revolver. As of
The revolver was undrawn at June 30, 2019, the Company was in full compliance with the covenants and other provisions of the Senior Revolver.2020.
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., a Canadian subsidiary ("maintains the Cash Money"), maintainsMoney Revolving Credit Facility, 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 athe percentage of cash, deposits in transit and accounts receivable, and (ii) C$10.0 million. As of June 30, 2019,2020, 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, 2019 and December 31, 2018.2020.
NOTE 6 – SHARE-BASED COMPENSATION
The Company's stockholder-approved 2017 Incentive Plan provides for the issuance of up to 5.0 million shares, subject to certain adjustment provisions,adjustments, 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.
21
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Stock Units
Grants of time-based RSUs are valued at the date of grant based on the valueclosing market price of our common stock and are expensed using the straight-line method over the service period. TheseTime-based RSUs are subject to time-based vesting and typically vest over a three-year period.
A summary of the statusactivity of time-based and market-based unvested RSUs as of June 30, 20192020 and changes during the six months ended June 30, 20192020 are presented in the following table:
| Number of RSUs | |||||||||||||||||
| Time-Based | Market-Based | Weighted Average Grant Date Fair Value per Share | |||||||||||||||
| December 31, 2019 | 1,061,753 | 394,861 | $ | 11.47 | |||||||||||||
| Granted | 679,413 | 368,539 | 10.42 | ||||||||||||||
| Vested | (307,142) | — | 11.34 | ||||||||||||||
| Forfeited | (24,025) | (4,687) | 11.99 | ||||||||||||||
| June 30, 2020 | 1,409,999 | 758,713 | $ | 10.97 | |||||||||||||
| Number of RSUs | ||||||||
| Time-Based | Market-Based | Weighted Average Grant Date Fair Value per Share | ||||||
| December 31, 2018 | 1,060,350 | — | $ | 14.29 | ||||
| Granted | 579,540 | 394,755 | 10.07 | |||||
| Vested | (83,481 | ) | — | 15.59 | ||||
| Forfeited | (68,778 | ) | — | 14.05 | ||||
| June 30, 2019 | 1,487,631 | 394,755 | $ | 12.06 | ||||
Share-based compensation expense for the three months ended June 30, 20192020 and 2018,2019, which includes compensation costs from stock options and RSUs, was $2.6$3.3 million and $2.2$2.6 million, respectively, and during the six months ended June 30, 2020 and 2019 was $6.5 million and 2018 was $4.8 million, and $4.0 million, respectively, andrespectively. Share-based compensation expense is included in the unaudited Condensed Consolidated Statements of Operations as a component of "Corporate, district and other expenses."
As of June 30, 2019,2020, there was $18.5$17.2 million of total unrecognized compensation cost related to stock options and RSUs, of which $15.4$12.0 million related to stock options and time-based RSUs and $3.1$5.0 million related to market-based RSUs. Total unrecognized compensation costs will be recognized over a weighted-average period of 2.01.9 years.
NOTE 7 – INCOME TAXES
The Company's effective income tax rate from continuing operations was 27.4%5.0% and 27.6%27.4% for the six months ended June 30, 2020 and 2019, and 2018, respectively.
Losses from the Company's equity method investment in Katapult for the six months ended June 30, 2018. The Company recorded an estimated GILTI2020 are not tax of $0.5 million and $0.6 million duringdeductible, thus increasing the six months ended June 30, 2019 and 2018, respectively.above effective income tax rate.
The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the earnings of $159.3$185.2 million were distributed to the U.S., legal entities, the Company would be subject to Canadian withholding taxes of an estimated $8.0$9.3 million. In the event the earnings were distributed to the U.S., legal entities, the Company would adjust the income tax provision for the applicable period and would determine the amount of foreign tax credit that would be available.
22
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 June 30, 2020 (in thousands):
| Estimated Fair Value | ||||||||||||||||||||||||||
| Carrying Value June 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||
| Cash Surrender Value of Life Insurance | $ | 6,409 | $ | 6,409 | $ | — | $ | — | $ | 6,409 | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||
| Non-qualified deferred compensation plan | $ | 4,292 | $ | 4,292 | $ | — | $ | — | $ | 4,292 | ||||||||||||||||
The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2019 (in thousands):
| Estimated Fair Value | ||||||||||||||||||||||||||
| Carrying Value December 31, 2019 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||
| Cash Surrender Value of Life Insurance | $ | 6,171 | $ | 6,171 | $ | — | $ | — | $ | 6,171 | ||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||
| Non-qualified deferred compensation plan | $ | 4,666 | $ | 4,666 | $ | — | $ | — | $ | 4,666 | ||||||||||||||||
23
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Financial Assets and Liabilities Not Carried at Fair Value
The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at June 30, 2019:2020 (in thousands):
| Estimated Fair Value | ||||||||||||||||||||||||||
| Carrying Value June 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 269,342 | $ | 269,342 | $ | — | $ | — | $ | 269,342 | ||||||||||||||||
| Restricted cash | 63,274 | 63,274 | — | — | 63,274 | |||||||||||||||||||||
| Loans receivable, net | 380,057 | — | — | 380,057 | 380,057 | |||||||||||||||||||||
| Equity method investment | 9,191 | — | — | 9,191 | 9,191 | |||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans | $ | 5,164 | $ | — | $ | — | $ | 5,164 | $ | 5,164 | ||||||||||||||||
| 8.25% Senior Secured Notes | 679,143 | — | 543,111 | — | 543,111 | |||||||||||||||||||||
| Non-Recourse U.S. SPV facility | 31,896 | — | — | 35,206 | 35,206 | |||||||||||||||||||||
| Non-Recourse Canada SPV facility | 88,789 | — | — | 91,109 | 91,109 | |||||||||||||||||||||
| 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 | ||||||||||
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 | ||||||||||||||||||||||||||
| Carrying Value December 31, 2019 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 75,242 | $ | 75,242 | $ | — | $ | — | $ | 75,242 | ||||||||||||||||
| Restricted cash | 34,779 | 34,779 | — | — | 34,779 | |||||||||||||||||||||
| Loans receivable, net | 558,993 | — | — | 558,993 | 558,993 | |||||||||||||||||||||
| Equity method investment | 10,068 | — | — | 10,068 | 10,068 | |||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans | $ | 10,623 | $ | — | $ | — | $ | 10,623 | $ | 10,623 | ||||||||||||||||
| 8.25% Senior Secured Notes | 678,323 | — | 596,924 | — | 596,924 | |||||||||||||||||||||
| Non-Recourse Canada SPV facility | 112,221 | — | — | 115,243 | 115,243 | |||||||||||||||||||||
| Estimated Fair Value | |||||||||||||||
| (in thousands) | Carrying Value December 31, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||
| Financial assets: | |||||||||||||||
| Cash | $ | 61,175 | $ | 61,175 | $ | — | $ | — | $ | 61,175 | |||||
| Restricted cash | 25,439 | 25,439 | — | — | 25,439 | ||||||||||
| Loans receivable, net | 497,534 | — | — | 497,534 | 497,534 | ||||||||||
| Investment in Cognical | 6,558 | — | — | 6,558 | 6,558 | ||||||||||
| Financial liabilities: | |||||||||||||||
| Liability for losses on CSO lender-owned consumer loans | $ | 12,007 | $ | — | $ | — | $ | 12,007 | $ | 12,007 | |||||
| 8.25% Senior Secured notes | 676,661 | — | — | 531,179 | 531,179 | ||||||||||
| Non-Recourse Canada SPV facility | 107,479 | — | — | 111,335 | 111,335 | ||||||||||
| 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 June 30, 2020, the Company owned approximately 42.5% of the outstanding shares of Katapult.
In connection with CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company is required to purchase from the lender defaulted loans that it has guaranteed.
24
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 U.S. SPV Facility and Non-Recourse Canada SPV facility and the Senior RevolverFacility were based on the cash needed for their respective final settlements.
NOTE 9 – STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for the three and six months ended June 30, 20182020 and 2019:2019 (in thousands):
| Common Stock | Treasury Stock | Paid-in capital | Retained Earnings (Deficit) | AOCI (1) | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 41,156,224 | $ | 9 | $ | (72,343) | $ | 68,087 | $ | 93,423 | $ | (38,663) | $ | 50,513 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | — | — | — | — | 36,013 | — | 36,013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from discontinued operations | — | — | — | — | 292 | — | 292 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (22,193) | (22,193) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (2,256) | — | — | (2,256) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 3,194 | — | — | 3,194 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | 42,094 | — | — | 126 | — | — | 126 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (540,762) | — | (5,509) | — | — | — | (5,509) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 121,891 | — | — | (609) | — | — | (609) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2020 | 40,779,447 | $ | 9 | $ | (77,852) | $ | 70,798 | $ | 127,472 | $ | (60,856) | $ | 59,571 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | — | — | — | — | 21,080 | — | 21,080 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from discontinued operations | — | — | — | — | 993 | — | 993 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 10,261 | 10,261 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (2,244) | — | (2,244) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 3,310 | — | — | 3,310 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 105,098 | — | — | (29) | — | — | (29) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2020 | 40,884,545 | $ | 9 | $ | (77,852) | $ | 74,079 | $ | 147,301 | $ | (50,595) | $ | 92,942 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Accumulated other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
25
| 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) | ||||||||||||||||||||||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Common Stock | Treasury Stock | Paid-in capital | Retained Earnings (Deficit) | AOCI (1) | Total Stockholders' Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 46,412,231 | $ | 9 | $ | — | $ | 60,015 | $ | (18,065) | $ | (61,060) | $ | (19,101) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | — | — | — | — | 28,673 | — | 28,673 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from discontinued operations | — | — | — | — | 8,375 | — | 8,375 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 16,695 | 16,695 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 2,172 | — | — | 2,172 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | 7,888 | — | — | 40 | — | — | 40 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 11,170 | — | — | (110) | — | — | (110) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 46,431,289 | $ | 9 | $ | — | $ | 62,117 | $ | 18,983 | $ | (44,365) | $ | 36,744 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | — | — | — | — | 17,667 | — | 17,667 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss from discontinued operations | — | — | — | — | (834) | — | (834) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 3,635 | 3,635 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 2,644 | — | — | 2,644 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | 4,908 | — | — | 29 | — | — | 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (244,200) | — | (2,507) | — | — | — | (2,507) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for RSU's vesting, net of shares withheld and withholding paid for employee taxes | 63,285 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2019 | 46,255,282 | $ | 9 | $ | (2,507) | $ | 64,790 | $ | 35,816 | $ | (40,730) | $ | 57,378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Accumulated other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend
On February 5, 2020, the Company's Board of Directors announced the initiation of a dividend program and declared the Company's first cash dividend of $0.055 per share. A dividend of $2.2 million was paid on March 2, 2020 to stockholders of record on February 18, 2020.
On April 30, 2020, the Company's Board of Directors declared its second dividend under the previously announced dividend program, of $0.055 per share. A dividend of $2.2 million was paid on May 27, 2020 to stockholders of record on May 13, 2020.
On August 3, 2020, the Company's Board of Directors declared its third dividend under the program of $0.055 per share. See Note 19, "Subsequent Events" for additional information.
26
| 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) | ||||||||||||||||||||||||||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 21,080 | $ | 17,667 | $ | 57,093 | $ | 46,340 | |||||||||||||||||||||||||||
| Net income (loss) from discontinued operations, net of tax | 993 | (834) | 1,285 | 7,541 | |||||||||||||||||||||||||||||||
| Net income | $ | 22,073 | $ | 16,833 | $ | 58,378 | $ | 53,881 | |||||||||||||||||||||||||||
| Weighted average common shares - basic | 40,810 | 46,451 | 40,814 | 46,438 | |||||||||||||||||||||||||||||||
| Dilutive effect of stock options and restricted stock units | 735 | 656 | 872 | 897 | |||||||||||||||||||||||||||||||
| Weighted average common shares - diluted | 41,545 | 47,107 | 41,686 | 47,335 | |||||||||||||||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||||||||||||||
| Continuing operations | $ | 0.52 | $ | 0.38 | $ | 1.40 | $ | 1.00 | |||||||||||||||||||||||||||
| Discontinued operations | 0.02 | (0.02) | 0.03 | 0.16 | |||||||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.54 | $ | 0.36 | $ | 1.43 | $ | 1.16 | |||||||||||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||||||||||||||
| Continuing operations | $ | 0.51 | $ | 0.38 | $ | 1.37 | $ | 0.98 | |||||||||||||||||||||||||||
| Discontinued operations | 0.02 | (0.02) | 0.03 | 0.16 | |||||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 0.53 | $ | 0.36 | $ | 1.40 | $ | 1.14 | |||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income from continuing operations | $ | 17,667 | $ | 18,718 | $ | 46,340 | $ | 43,631 | |||||||
Net income (loss) from discontinued operations, net of tax | (834 | ) | (2,743 | ) | $ | 7,541 | $ | (4,364 | ) | ||||||
| Net income | $ | 16,833 | $ | 15,975 | $ | 53,881 | $ | 39,267 | |||||||
| Weighted average common shares - basic | 46,451 | 45,650 | 46,438 | 45,578 | |||||||||||
| Dilutive effect of stock options and restricted stock units | 656 | 2,346 | 897 | 2,179 | |||||||||||
| Weighted average common shares - diluted | 47,107 | 47,996 | 47,335 | 47,757 | |||||||||||
| Basic income (loss) per share: | |||||||||||||||
| Continuing operations | $ | 0.38 | $ | 0.41 | $ | 1.00 | $ | 0.96 | |||||||
| Discontinued operations | (0.02 | ) | (0.06 | ) | 0.16 | (0.10 | ) | ||||||||
| Basic income per share | $ | 0.36 | $ | 0.35 | $ | 1.16 | $ | 0.86 | |||||||
| Diluted income (loss) per share: | |||||||||||||||
| Continuing operations | $ | 0.38 | $ | 0.39 | $ | 0.98 | $ | 0.92 | |||||||
| Discontinued operations | (0.02 | ) | (0.06 | ) | 0.16 | (0.10 | ) | ||||||||
| Diluted income per share | $ | 0.36 | $ | 0.33 | $ | 1.14 | $ | 0.82 | |||||||
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 "Diluteddiluted earnings per share." For the three and six months ended June 30, 20192020, there were 2.3 million and 1.7 million, respectively, and for the three and six months ended June 30, 2019, there were 1.3 million and 1.2 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. 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 Diluteddiluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow information:information (in thousands):
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Cash paid for: | |||||||||||||||||
| Interest | $ | 34,125 | $ | 34,678 | |||||||||||||
| Income taxes, net of refunds | 1,133 | 4,231 | |||||||||||||||
| Non-cash investing activities: | |||||||||||||||||
| Property and equipment accrued in accounts payable and accrued liabilities | $ | 117 | $ | 105 | |||||||||||||
27
| Six Months Ended June 30, | |||||||
| (dollars in thousands) | 2019 | 2018 | |||||
| Cash paid for: | |||||||
| Interest | $ | 34,678 | $ | 44,250 | |||
| Income taxes | 4,231 | 11,621 | |||||
| Non-cash investing activities: | |||||||
| Property and equipment accrued in accounts payable | $ | 105 | $ | 595 | |||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's Chief Operating Decision Maker ("CODM")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 June 30, 2020, the first quarterCompany operated a total of 2019, the U.K. Subsidiaries met discontinued operations criteria, resulting211 U.S. retail locations and had 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. As disclosed in Note 17, "Acquisition," the acquisition of Ad Astra closed during January 2020. The results of Ad Astra are included within the U.S. reporting segment.
Canada. As of June 30, 2020, the Company operated a total of 204 stores across 7 Canadian provinces and territories and had an online presence in 5 provinces. The Company provides Single-Pay loans, Installment loans and Open-End loans, insurance products to Open-End and Installment loan customers, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.
The following table illustrates summarized financial information concerning reportable segments.segments (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||
Revenues by segment: (1) | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 137,320 | $ | 210,046 | $ | 359,088 | $ | 436,165 | ||||||||||||||||||||||||||||||
| Canada | 45,189 | 54,254 | 104,227 | 106,074 | ||||||||||||||||||||||||||||||||||
| Consolidated revenue | $ | 182,509 | $ | 264,300 | $ | 463,315 | $ | 542,239 | ||||||||||||||||||||||||||||||
| Net revenues by segment: | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 95,790 | $ | 117,494 | $ | 231,517 | $ | 258,633 | ||||||||||||||||||||||||||||||
| Canada | 36,026 | 34,796 | $ | 67,569 | 69,211 | |||||||||||||||||||||||||||||||||
| Consolidated net revenue | $ | 131,816 | $ | 152,290 | $ | 299,086 | $ | 327,844 | ||||||||||||||||||||||||||||||
| Gross margin by segment: | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 56,860 | $ | 65,067 | $ | 144,400 | $ | 154,870 | ||||||||||||||||||||||||||||||
| Canada | 19,639 | 16,114 | 31,798 | 31,808 | ||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 76,499 | $ | 81,181 | $ | 176,198 | $ | 186,678 | ||||||||||||||||||||||||||||||
| Segment operating income: | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 11,857 | $ | 17,029 | $ | 45,283 | $ | 48,224 | ||||||||||||||||||||||||||||||
| Canada | 10,291 | 8,091 | 14,815 | 15,615 | ||||||||||||||||||||||||||||||||||
| Consolidated operating income | $ | 22,148 | $ | 25,120 | $ | 60,098 | $ | 63,839 | ||||||||||||||||||||||||||||||
| Expenditures for long-lived assets by segment: | ||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 248 | $ | 2,568 | $ | 4,528 | $ | 4,998 | ||||||||||||||||||||||||||||||
| Canada | 144 | 477 | 697 | 1,166 | ||||||||||||||||||||||||||||||||||
| Consolidated expenditures for long-lived assets | $ | 392 | $ | 3,045 | $ | 5,225 | $ | 6,164 | ||||||||||||||||||||||||||||||
(1) For revenue by product, see Note 3, "Loans Receivable and Revenue." | ||||||||||||||||||||||||||||||||||||||
28
| 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 | |||||||
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:segment (in thousands):
| June 30, 2020 | December 31, 2019 | |||||||||||||
| U.S. | $ | 199,734 | $ | 363,453 | ||||||||||
| Canada | 256,778 | 302,375 | ||||||||||||
| Total gross loans receivable | $ | 456,512 | $ | 665,828 | ||||||||||
| (dollars in thousands) | June 30, 2019 | December 31, 2018 | |||||
| U.S. | $ | 340,968 | $ | 361,473 | |||
| Canada | 268,625 | 210,058 | |||||
| Total gross loans receivable | $ | 609,593 | $ | 571,531 | |||
The following table providesrepresents 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):
| June 30, 2020 | December 31, 2019 | |||||||||||||
| U.S. | $ | 39,974 | $ | 43,618 | ||||||||||
| Canada | 24,285 | 27,193 | ||||||||||||
| Total net long-lived assets | $ | 64,259 | $ | 70,811 | ||||||||||
| (dollars in thousands) | June 30, 2019 | December 31, 2018 | |||||
| U.S. | $ | 44,209 | $ | 47,918 | |||
| Canada | 28,784 | 28,832 | |||||
| Total net long-lived assets | $ | 72,993 | $ | 76,750 | |||
The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
NOTE 13 – CONTINGENT LIABILITIESCOMMITMENTS AND CONTINGENCIES
Securities Litigation and Enforcement
On December 5, 2018, a putative securities fraud class action lawsuit was filed against the Company and its chief executive officer, chief financial officer and chief operating officer in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662.18-2662 (the "Yellowdog Action"). On May 31, 2019, plaintiffsplaintiff filed a consolidated complaint naming Doug Rippel, Chad Faulkner, Mike McKnight, Friedman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P., and FFL Parallel Fund II, L.P. (collectively, the "FFL Defendants") as additional defendants. The complaint alleges that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and that certain defendants also violated Section 20(a) of the Exchange Act as "control persons" of CURO. Plaintiffs purportPlaintiff purports to bring these claims on behalf of a class of investors who purchased Company common stock between April 27, 2018 and October 24, 2018.
On May 27, 2020, the parties accepted a mediator’s proposal to settle the action for $9.0 million. On June 1, 2020, the parties informed the Court of the settlement. On August 1, 2020, the parties’ submitted settlement papers to the Court seeking an order preliminarily approving the proposed settlement and providing for notice to the class and a final settlement hearing. The Company's directors' and officers' insurance carriers are expected to pay any amount in excess of the $2.5 million retention under the policy. As of June 30, 2020, the Company recorded a $9.0 million receivable in "Other assets" and an incremental $9.0 million liability in "Accounts Payable and accrued liabilities." In addition, there was $1.3 million in "Accounts payable and accrued liabilities," which represents the liability remaining of the $2.5 million insurance retention less cash payments made toward the retention.
On June 25, 2020, July 2, 2020 and July 16, 2020, three shareholder derivative lawsuits were filed against certain directors and officers of the Company, the Company, and in two of the three lawsuits, the FFL Defendants, in the United States District Court for the District of Delaware. Plaintiffs generally allege the same underlying facts of the Yellowdog Action.
While the Company is vigorously contesting this lawsuit,these lawsuits, it cannot determine the final resolution or when itthey might be resolved. In addition to the expenses incurred in defending this litigationthese litigations and any damages in excess of insurance coverages that may be awarded in the event of anany adverse ruling,rulings, management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcome, this litigationoutcomes, these litigations may have a material
29
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
adverse impact on results because of defense costs, including costs related to indemnification obligations, diversion of resources and other factors.
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.
On May 15, 2020, the City of Austin proposed an ordinance in direct response to a recent Texas Attorney General’s opinion which would arguably allow CSO’s to provide signature loans outside the regulatory authority of the OCCC and the City of Austin. The proposed ordinance was effective June 1, 2020. The City not only implemented restrictions on CSO transactions, but also revised certain definitions found in the ordinance. These revisions potentially affect the foundation upon which the Company's previous arguments in municipal court were based.
On June 8, 2020, another company within CURO's industry filed a Petition for Declaratory Relief, Application for Temporary Restraining Order, and Application for Temporary and Permanent Injunction against the City. The Temporary Restraining Order was granted, and extended to August 24, 2020. During the pendency of the Temporary Restraining Order, the revised ordinance is stayed as to its effectiveness for all impacted companies, including the Company.
The Company does not anticipate having a final determination of the lawfulness of its CAB program under the Austin ordinanceordinances (and similar ordinances in other Texas cities) in the near future. A final adverse decision could potentially result in material monetary liability in Austin and elsewhere in Texas, and wouldcould 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
30
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at commencement date. The rate implicit in the Company's leases typically are not readily determinable. As a result, the Company uses its estimated incremental borrowing rate, as allowed by ASC 842, in determining the present value of lease payments. The incremental borrowing rate is based on internal and external information available at the lease commencement date and is determined using a portfolio approach (i.e., using the weighted average terms of all leases in the Company's portfolio). This rate is the theoretical rate the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as that of the portfolio.
The Company uses quoted interest rates obtained from financial institutions as an input, adjusted for Company specific factors, to derive the incremental borrowing rate as the discount rate for the leases. As new leases are added each period, the Company evaluates whether the incremental borrowing rate has changed. If the incremental borrowing rate has changed, the Company will apply the rate to new leases if not doing so would result in a material difference to the ROU asset and lease liability presented on the balance sheet.
The majority of the leases have an original term of five years with two,2 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 hadfollowing table summarizes the 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 millionother information for the three months ended June 30, 2019.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating lease costs: | |||||||||||||||||||||||
| Third-Party | $ | 7,576 | $ | 7,608 | $ | 15,221 | $ | 15,246 | |||||||||||||||
| Related-Party | 845 | 865 | 1,691 | 1,741 | |||||||||||||||||||
| Total operating lease costs | $ | 8,421 | $ | 8,473 | $ | 16,912 | $ | 16,987 | |||||||||||||||
| Operating cash flow - Operating leases | $ | 16,545 | $ | 17,420 | |||||||||||||||||||
| New ROU assets - Operating leases | $ | 6,922 | $ | 9,468 | |||||||||||||||||||
| Weighted average remaining lease term - Operating leases | 6.1 years | 6.3 years | |||||||||||||||||||||
| Weighted average discount rate - Operating leases | 10.3 | % | 10.3 | % | |||||||||||||||||||
The following table summarizes the future minimumaggregate operating lease paymentsmaturities that the Company is contractually obligated to make under operating leases as of June 30, 2019:2020 (in thousands):
| Third-Party | Related-Party | Total | ||||||||||||||||||
| Remainder of 2020 | $ | 15,334 | $ | 1,839 | $ | 17,173 | ||||||||||||||
| 2021 | 28,475 | 3,763 | 32,238 | |||||||||||||||||
| 2022 | 25,638 | 3,663 | 29,301 | |||||||||||||||||
| 2023 | 20,836 | 1,319 | 22,155 | |||||||||||||||||
| 2024 | 15,911 | 964 | 16,875 | |||||||||||||||||
| 2025 | 11,492 | 864 | 12,356 | |||||||||||||||||
| Thereafter | 30,676 | 2,661 | 33,337 | |||||||||||||||||
| Total | 148,362 | 15,073 | 163,435 | |||||||||||||||||
| Less: Imputed interest | (40,146) | (3,522) | (43,668) | |||||||||||||||||
| Operating lease liabilities | $ | 108,216 | $ | 11,551 | $ | 119,767 | ||||||||||||||
| (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 | |||||
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
31
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
and property of the U.K. Subsidiaries under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries, which comprised the U.K. reportable operating segment, as of February 25, 2019 and classified them as Discontinued Operations for all periods presented.
The following table presents the results of operations of the U.K. Subsidiaries, which meet the criteria of Discontinued Operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019(1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | 6,957 | ||||||||||||||||||||||||||||||||||||||||||
| Provision for losses | — | — | — | 1,703 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | — | — | — | 5,254 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost of providing services | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Office | — | — | — | 246 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other costs of providing services | — | — | — | 61 | ||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | — | — | — | 775 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of providing services | — | — | — | 1,082 | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | — | — | — | 4,172 | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating (income) expense | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | — | — | — | 3,810 | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | — | — | — | (4) | ||||||||||||||||||||||||||||||||||||||||||||||
| (Gain) loss on disposition | (1,324) | — | (1,714) | 39,414 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total operating (income) expense | (1,324) | — | (1,714) | 43,220 | ||||||||||||||||||||||||||||||||||||||||||||||
| Pre-tax income (loss) from operations of discontinued operations | 1,324 | — | 1,714 | (39,048) | ||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) related to disposition | 331 | 834 | 429 | (46,589) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from discontinued operations | $ | 993 | $ | (834) | $ | 1,285 | $ | 7,541 | ||||||||||||||||||||||||||||||||||||||||||
| (1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue and expenses related to discontinued operations included activity prior to the deconsolidation of the U.K. Subsidiariessubsidiaries effective February 25, 2019. For the six months ended June 30, 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 million, which will be available to offset the Company's future U.S. federal and state income tax obligations. In the second quarter ofSubsequently, in 2019, the Company revised the estimate of theestimated tax basis in the U.K. Subsidiaries, resulting in a $0.8 million reduction in the income tax benefit recorded inas of June 30, 2019.
During the first quarter of 2019.
32
| 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. | |||||||||||||||
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| (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 | ||
The following table presents cash flows of the U.K. Subsidiaries:Subsidiaries (in thousands):
| Six Months Ended June 30, | |||||||||||||||||
| 2020 | 2019(1) | ||||||||||||||||
| Net cash provided by (used in) discontinued operating activities | $ | 1,714 | $ | (504) | |||||||||||||
| Net cash used in discontinued investing activities | — | (14,213) | |||||||||||||||
| Net cash used in discontinued financing activities | — | — | |||||||||||||||
| (1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | |||||||||||||||||
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. | |||||||
NOTE 16 – CONDENSED CONSOLIDATING FINANCIAL INFORMATIONGOODWILL
The change in the carrying amount of goodwill by operating segment for the six months ended June 30, 2020 was as follows (in thousands):
| U.S. | Canada | Total | |||||||||||||||
| Goodwill at December 31, 2019 | $ | 91,131 | $ | 29,478 | $ | 120,609 | |||||||||||
| Acquisition (Note 17) | 14,791 | — | 14,791 | ||||||||||||||
| Foreign currency translation | — | (1,423) | (1,423) | ||||||||||||||
| Goodwill at June 30, 2020 | $ | 105,922 | $ | 28,055 | $ | 133,977 | |||||||||||
The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment of goodwill on October 1) and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2019 Form 10-K for additional information on the Company's policy for assessing goodwill for impairment.
In August 2018, CGHC issued $690.0the second quarter of 2020, the Company performed an interim qualitative assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more-likely-than-not determination that the fair values of the reporting units fell below their respective carrying values. As a result of the interim qualitative assessment, the Company concluded that the fair value of each reporting unit was in excess of its respective carrying value and did 0t record any impairment losses during the six months ended June 30, 2020.
Ad Astra Acquisition
The Company completed the acquisition of Ad Astra on January 3, 2020. Goodwill of $14.8 million was recorded in the U.S. reporting unit during the six months ended June 30, 2020, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. See Note 17, "Acquisition" for more information related to the business combination.
NOTE 17 – ACQUISITION
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for total consideration of $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency.
The Company began consolidating the financial results of this acquisition in the unaudited Condensed Consolidated Financial Statements on January 3, 2020. For the six months ended June 30, 2019, prior to the acquisition, $8.4 million of 8.25% Senior Secured Notes due September 1, 2025. The proceeds from issuancecosts related to Ad Astra were included in "Other costs 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 pursuantproviding services." Subsequent to the indenture governing the 8.25% Senior Secured Notes. See Note 5, "Long-Term Debt,acquisition, operating costs for Ad Astra are included within "Corporate, district and other expenses," for additional details.
33
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The transaction has been accounted for using the outstanding principal amountacquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the current Senior Secured Notes to a one-time waiver with respectacquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the restrictions contained in Section 5.07(a)assets acquired and liabilities assumed are based on their estimates of fair value available. The Company completed the determination of the indenture governing the 12.00% Senior Secured Notes to permit the dividend.
information available during March 2020.
The following condensed consolidating financing information, which has been prepared in accordance withtable summarizes the requirements for presentationallocation of Rule 3-10(d)the estimated fair values of Regulation S-X promulgated under the Securities Act, presentsassets acquired and liabilities assumed at the condensed consolidating financial information separately for:date of acquisition:
| (in thousands) | Amounts acquired on January 3, 2020 | ||||
| Cash consideration transferred: | $ | 17,811 | |||
| 3,360 | ||||
| 465 | ||||
| 358 | ||||
| 1,101 | ||||
| 14,791 | ||||
| 235 | |||||
| Operating lease liabilities | (235) | ||||
| Total | $ | 17,811 | |||
| 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 | |||||
| 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 | |||||
| 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 | ||||
| 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 | ||||||
| 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 | ||||
| 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 | |||||||
| 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 | ||||||||||||||||||
| 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 | |||||||||
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. Due to uncertainty caused by COVID-19, the Board suspended the program on March 15, 2020. There were no material purchases under the program during the six months ended June 30, 2020.
In April 2019, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, 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 six months ended June 30, 2020. Purchases under the program were made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares will beare available for use in connection with equity plans or other corporate purposes.
| 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 | ||
NOTE 1819 – SUBSEQUENT EVENTS
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CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Non-Recourse U.S. SPV Facility
On July 2019, as part of the broader capital structure reorganization by the investee company described in Note 1 - "Summary of Significant Accounting Policies and Nature of Operations" and Note 8 - "Financial Instruments",31, 2020, the Company purchased 10,695,187obtained additional preferred sharescommitments on the Non-Recourse U.S. SPV Facility, which increased its capacity to $200.0 million and reduced the interest rate to one-month LIBOR (with a floor of Zibby1.65%) plus 6.25% on balances up to $145.5 million. Balances above $145.5 million accrue interest at an annual rate of one-month LIBOR (with a floor of 1.65%) plus 9.75%. See Note 5, "Debt" for $4.0 million. As a result of this transaction,additional information on the Company's fully-diluted ownership in Zibby increased to 42.3%.
Non-Recourse U.S. SPV Facility.
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| 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 Annual2019 Form 10-K and our Current Report on Form 10-K for
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 20nearly 25 years of experience, we seek to offer a variety of convenient, easily-accessible financial and loan services in all of our markets.
CURO Financial Technologies Corp., previously known as Speedy Cash Holdings Corp. ("CFTC"), was incorporated in Delaware in July 2008. CURO Group Holdings Corp., previously known as Speedy Group Holdings Corp., was incorporated in Delaware in 2013 as the parent company of CFTC. The terms “CURO," "we,” “our,” “us” and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated. The term "CFTC" refers to CURO Financial Technologies Corp.
In the U.S., our wholly-owned subsidiary,stores operate under "Speedy Cash" and its directly and indirectly owned subsidiaries as a consolidated entity, except where otherwise stated.
COVID-19. A novel strain of Directors authorizedcoronavirus, known as COVID-19, surfaced in late 2019 and has spread around the world, including to the U.S. and, to a lesser extent, Canada. In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. In response to the COVID-19 pandemic, various governmental bodies have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. As the pandemic has continued to affect millions of people across the U.S. and Canada, with resurgences in some jurisdictions, guidance regarding reopening procedures, typically referred to as phases, has been provided. CURO's operations have been designated as essential financial services by federal guidelines and local regulations. As a provider of an essential service, we remain focused on protecting the health and wellbeing of our employees, customers, and the communities in which we operate while assuring the continuity of our business operations. In response to the pandemic, we have taken the following steps to ensure our financial stability while maintaining the health and well being of our employees and customers:
•Cancellation of the 2020 Short-Term Incentive Plan.
•Suspension of our $25 million share repurchase program, previously announced in April 2019February 2020.
•Suspension of earnings guidance in light of current macroeconomic events driven by the pandemic. We will continue to monitor conditions and provide guidance as appropriate.
•Establishment of an enhanced Customer Care Program, as described further below.
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•Designation of stores across both the U.S. and Canada as an essential service, allowing stores to remain open during local governments' lock down orders.
•Adjustment of our credit underwriting models to tighten approval rates and enhance our employment and income verification practices for both the store and on-line lending platforms.
•Implementation of work-from-home for virtually all 1,100 of the Company’s contact center and corporate support personnel in Wichita, Toronto and Chicago.
For our communities, we committed $500,000 to support local healthcare workers battling COVID-19. To date, in addition to providing financial support to Frontline Foods chapters, our CURO volunteers have personally coordinated more than 20,000 meals to area hospitals in Wichita, KS and Toronto, ON.
The CARES Act also included two provisions that directly impacted the demand for the repurchaseour products as well as our customers’ ability to make payments on their existing loans. The CARES Act included one-time Economic Impact Payments to American households of up to $50.0 million$1,200 per adult for individuals whose income was less than $99,000 (or $198,000 for tax joint filers) and $500 per child under 17 years old, up to $3,400 for a family of four if certain eligibility criteria were met. The CARES Act also provided Unemployment benefit expansion, including (i) an additional $600 federal stimulus payment automatically added to each week of state benefits received between March 29 and July 25, 2020; (ii) expanded Pandemic Unemployment Assistance coverage to self-employed workers, independent contractors, people with limited employment history and people who have used all of their regular unemployment insurance benefits; and (iii) Pandemic Emergency Unemployment Compensation which extends unemployment insurance benefits from 26 weeks to 39 weeks within a 12-month benefit year.
On March 18, 2020, the Canadian government announced a set of pandemic measures as part of the Government of Canada’s COVID-19 Economic Response Plan. This plan included several provisions that directly impacted the demand for our products as well as our customers’ ability to make payments on their existing loans, including (i) the Canada Emergency Response Benefit with provides a $2,000 benefit every 4 weeks for 24 weeks to eligible workers who become unemployed or under-employed as a result of COVID-19; (ii) a $300 per child Canada Child Benefit paid on May 20, 2020; (iii) a one-time special payment through Canada’s Goods and Services Tax credit for low and modest-income families that averages $400 for individuals and $600 for couples; and iv) temporary wage increases for low-income essential workers funded at the federal level but disbursed at the provincial level.
Customer Care Program. To better serve our customers during the COVID-19 pandemic as they face unprecedented economic challenges and uncertainties, we established an enhanced Customer Care Program. The program enables our team members to provide relief to customers in various ways, ranging from due date extensions, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. As of June 30, 2020, we have granted concessions on more than 50,000 loans, or 11% of our common stock. The repurchase program,active loans, and waived over $3.7 million in payments and fees. We also temporarily suspended all returned item fees. Approximately 25,000 of the loans on which 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 availablewe granted concessions for use in connection with equity plans and for other corporate purposes. Under this program, the Company has repurchased 244,200 sharesqualified as a TDR as of common stock through June 30, 2019.2020. See Note 3, "Loans Receivable and Revenue" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional information.
Ad Astra Acquisition. On January 3, 2020, we acquired Ad Astra, previously our exclusive provider of third-party collection services for the U.S. business. The acquisition brings all U.S. servicing and recovery in-house, drives operational and financial synergies to ensure all aspects of the recovery portfolio are coordinated, reduces operational redundancy and increases peak volume management, improve compliance synergies, and facilitates integrated and personalized CRM strategies and campaign management across the servicing and recovery lifecycle. See Note 17, "Acquisition" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional information.
Credit facilitiesFacilities. On April 8, 2020, we entered into the Non-Recourse U.S. SPV Facility to provide financing for U.S. Installment and Open-End receivables, including those generated under our technology, marketing and servicing relationship with Stride Bank. The credit facility provides for an initial borrowing capacity of $100.0 million, dependent upon the borrowing base of eligible collateral and certain other conditions, as described in Note 5, "Debt."For recent developments related to our Senior Secured Notes, Non-Recourse Canada SPV facilitiesfacility and other capital resources, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
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CFPB Rule on Form 8-K filed withSmall Dollar Lending. On July 7, 2020, the SECCFPB issued its decision on January 31,the 2019 related to Curo Transatlantic LimitedProposed Rule and SRC Transatlantic Limited (collectivelyrescinded the "U.K. Subsidiaries"), would not be implemented. We also announced that effective February 25, 2019, in accordance with themandatory underwriting provisions of the U.K. Insolvency Act 1986 and as approved by2017 Final CFPB Rule. However, the boards of directors of our U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as administrators ("Administrators") forCFPB did not rescind or alter the U.K. Subsidiaries. The effectpayment provisions of the U.K. Subsidiaries’ entry into administration was to place2017 Final CFPB Rule. We cannot predict when the management, affairs, business and propertypayment provisions of the U.K. Subsidiaries under2017 Final CFPB Rule will come into effect given that the direct control of the Administrators. Asrule is currently stayed 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").
Revenue by Product
We exclude financial results of our former U.K. operations for all periods presented, as they were discontinued for accounting and reporting purposes in February 2019. See Note 15, "Discontinued Operations" for additional details.
The following table summarizes revenue by product, including CSO fees, for the period indicated (in thousands, unaudited):
| For the Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||
| U.S. | Canada | Total | U.S. | Canada | Total | |||||||||||||||||||||||||||||||||||||||
| Unsecured Installment | $ | 69,143 | $ | 1,286 | $ | 70,429 | $ | 120,482 | $ | 1,630 | $ | 122,112 | ||||||||||||||||||||||||||||||||
| Secured Installment | 19,401 | — | 19,401 | 26,076 | — | 26,076 | ||||||||||||||||||||||||||||||||||||||
| Open-End | 30,917 | 25,819 | 56,736 | 32,318 | 22,654 | 54,972 | ||||||||||||||||||||||||||||||||||||||
| Single-Pay | 14,317 | 8,415 | 22,732 | 26,425 | 19,103 | 45,528 | ||||||||||||||||||||||||||||||||||||||
| Ancillary | 3,542 | 9,669 | 13,211 | 4,745 | 10,867 | 15,612 | ||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 137,320 | $ | 45,189 | $ | 182,509 | $ | 210,046 | $ | 54,254 | $ | 264,300 | ||||||||||||||||||||||||||||||||
Year-over-year comparisons for Open-Endthe second quarter were affectedimpacted by factors related to COVID-19, including lower consumer demand, increased or accelerated repayments as customers benefited from government stimulus programs, our decision to tighten credit and the Q1 2019 Open-End Loss Recognition Change. Throughout this Form 10-Q, we do not include information for our U.K. Subsidiaries as they were discontinued in February 2019.
| For the Three Months Ended | ||||||||||||||||||||
| June 30, 2019 | June 30, 2018 | |||||||||||||||||||
| (in thousands, unaudited) | U.S. | Canada | Total | U.S. | Canada | Total | ||||||||||||||
| Unsecured Installment | $ | 120,482 | $ | 1,630 | $ | 122,112 | $ | 111,244 | $ | 3,692 | $ | 114,936 | ||||||||
| Secured Installment | 26,076 | — | 26,076 | 25,777 | — | 25,777 | ||||||||||||||
| Open-End | 32,318 | 22,654 | 54,972 | 23,261 | 3,961 | 27,222 | ||||||||||||||
| Single-Pay | 26,425 | 19,103 | 45,528 | 24,978 | 33,347 | 58,325 | ||||||||||||||
| Ancillary | 4,745 | 10,867 | 15,612 | 4,866 | 6,043 | 10,909 | ||||||||||||||
| Total revenue | $ | 210,046 | $ | 54,254 | $ | 264,300 | $ | 190,126 | $ | 47,043 | $ | 237,169 | ||||||||
. During the three months ended June 30, 2019,2020, total revenue grew $27.1declined $81.8 million, or 11.4%30.9%, to $264.3$182.5 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.period. Geographically, total revenue in the U.S. and Canada grew 10.5%revenues declined 34.6% and 15.3%16.7%, respectively.
From a product perspective, Unsecured Installment revenues rose 6.2%, driven by related loan growth whileand Secured Installment revenues decreased $51.7 million, or 42.3%, and related receivables were consistent year-over-year. Year-over-year Canadian Single-Pay usage and product profitability were negatively impacted by$6.7 million, or 25.6%, respectively, because of COVID-19 Impacts, regulatory changes in OntarioCalifornia effective JulyJanuary 1, 20182020, and regulatory changes for CSOs in Ohio effective May 1, 2019.
Single-Pay revenue declined $22.8 million, or 50.1%, for the strategic transitionthree months ended June 30, 2020 compared to the prior-year period, primarily due to COVID-19 impacts on loan balances, which declined $40.0 million, or 52.5%, year over year. Single-Pay loan volumes were particularly affected by the broad reduction in storefront usage by customers during the time of qualifying customers to self-quarantine and stay-at-home orders, as well as by increased payments.
Open-End loans.loans receivable in Canada grew $12.7 million, or 5.8%, from June 30, 2019, with related revenue growth of $3.2 million, or 14.0%. Open-End 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 driven primarilypartially offset by a decrease in U.S. Open-End loans of $10.9 million, or 17.0%, with related revenue decrease of $1.4 million, or 4.3%. Open-End loan balances in both countries were also affected by the introductiondemand dynamics of Open-End loans in Ontario during the third quarterCOVID-19 Impacts, namely reduced application volumes and lower utilization of 2018. Open-End loans in Canada grew $35.1 million, or 19.1%, sequentially (defined within this Form 10-Q as the change from the first quarter of 2019 to the second quarter of 2019, or comparable periods for 2018 sequential metrics). Single-Pay loan balances stabilized in Canada sequentially. approved credit lines.
Ancillary revenues, increased 43.1% versus the same quarter a year ago, primarily due towhich included the sale of insurance products to InstallmentOpen-End and Open-EndInstallment loan customers in Canada.Canada, decreased 15.4% versus the prior-year period, stemming from COVID-19 Impacts.
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| 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, 2020 | June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||
| U.S. | Canada | Total | U.S. | Canada | Total | |||||||||||||||||||||||||||||||||||||||
| Unsecured Installment | $ | 189,972 | $ | 2,866 | $ | 192,838 | $ | 254,485 | $ | 3,405 | $ | 257,890 | ||||||||||||||||||||||||||||||||
| Secured Installment | 45,687 | — | 45,687 | 53,553 | — | 53,553 | ||||||||||||||||||||||||||||||||||||||
| Open-End | 72,907 | 54,811 | 127,718 | 64,911 | 42,930 | 107,841 | ||||||||||||||||||||||||||||||||||||||
| Single-Pay | 42,471 | 25,418 | 67,889 | 53,593 | 38,696 | 92,289 | ||||||||||||||||||||||||||||||||||||||
| Ancillary | 8,051 | 21,132 | 29,183 | 9,623 | 21,043 | 30,666 | ||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 359,088 | $ | 104,227 | $ | 463,315 | $ | 436,165 | $ | 106,074 | $ | 542,239 | ||||||||||||||||||||||||||||||||
Year-over-year comparisons for the six-month periods also were affected by COVID-19 Impacts. During the six months ended June 30, 2019,2020, total revenue grew $54.2declined $78.9 million, or 11.1%14.6%, to $542.2$463.3 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.period. Geographically, total revenue in the U.S. and Canada grew 10.5%revenues declined 17.7% and 13.7%1.7%, respectively.
From a product perspective, Unsecured Installment revenues rose 7.3%, driven by related loan growth whileand Secured Installment revenues decreased 25.2% and related receivables were consistent year-over-year. Year-over-year Canadian Single-Pay usage and product profitability were negatively impacted by14.7%, respectively, because of COVID-19 Impacts, regulatory changes in OntarioCalifornia effective JulyJanuary 1, 20182020 and regulatory changes for CSOs in Ohio effective May 1, 2019.
Single-Pay revenue declined $24.4 million, or 26.4%, for the strategic transitionsix months ended June 30, 2020 compared to the prior-year period, primarily due to COVID-19 impacts on loan balances, which declined $40.0 million, or 52.5%, year over year. Single-Pay loan volumes were particularly affected by the broad reduction in storefront usage by customers during the time of qualifying customers to Open-End loans. self-quarantine and stay-at-home orders, as well as by increased payments.
Open-End revenues rose 98.1% on organic growth in legacy states andgrew $19.9 million, or 18.4%, compared to the newer Virginia market in the U.S.prior-year period primarily due to $12.7 million, or 5.8%, of Open-End loan growth in Canada, was driven primarilypartially offset by a $10.9 million, or 17.0%, decline in the U.S. Additionally, Open-End loan balances in both countries were affected by the introductiondemand dynamics of Open-End loans in Ontario during the third quarterCOVID-19 Impacts, namely reduced application volumes and lower utilization of 2018. approved credit lines.
Ancillary revenues,
Online revenue as a percentage of consolidated revenue increased during the three and six months ended June 30, 2020, as consumers self-quarantined due to COVID-19. Our online channel provides consumers with a safe and contactless option in the event of temporary store closures for store cleaning purposes. For the three months ended June 30, 20192020 and 2018, 2019,
39
revenue generated through our online channel was 44%47% and 40%44%, respectively, of consolidated revenue. For the three months ended June 30, 2020 online originations accounted for 49.3% of our total loan originations, compared to 35.3% for the prior-year period.
For the six months ended June 30, 20192020 and 2018,2019, revenue generated through our online channel was 45%47% and 41%45%, respectively, of consolidated revenue. For the six months ended June 30, 2020, online originations accounted for 43.3% of our total loan originations, compared to 35.1% for the prior-year period.
Gross Combined Loans Receivable
The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, with reconciliation to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivables includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender (in millions, unaudited):
| As of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company Owned gross loans receivable | $ | 456.5 | $ | 564.4 | $ | 665.8 | $ | 657.6 | $ | 609.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross loans receivable Guaranteed by the Company | 34.1 | 55.9 | 76.7 | 73.1 | 67.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross combined loans receivable (1) | $ | 490.6 | $ | 620.3 | $ | 742.5 | $ | 730.7 | $ | 676.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) See "Non-GAAP Financial Measures" below for definition and additional information. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross combined loans receivable by product is presented below:
Gross combined loans receivable decreased $186.3 million, or 27.5%, to $490.6 million as of June 30, 2020, from $676.9 million as of June 30, 2019. Sequentially, gross combined loans receivable decreased $129.8 million, or 20.9%. The decrease from both periods was driven by COVID-19 Impacts and, for Installment loans, the impact of regulatory changes in California effective January 1, 2020.
Gross combined loans receivable performance by product is explained further in the following sections.
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Loan Volume and Portfolio Performance Analysis
Unsecured Installment Loans - Company Owned
Company Owned Unsecured Installment revenue and related gross combined loans receivable increaseddecreased $26.4 million, or 44.1%, and $83.1 million, or 50.5%, respectively, from the prior-year quarterperiod due to growth in the U.S., primarilyCOVID-19 Impacts and regulatory changes in California and Texas. effective January 1, 2020.
Unsecured Installment gross combinedloans in California were $37.0 million, or 45.3%, of total Company Owned Unsecured Installment loans as of June 30, 2020, a decrease of $49.5 million, or 57.2%, from June 30, 2019. Sequentially, California Company Owned Unsecured Installment loans decreased $14.5 million, or 28.1%, from $51.5 million as of March 31, 2020. Excluding California, Company Owned Unsecured Installment loans receivable grew $3.1decreased $33.6 million, or 1.4%43.0%, from the prior-year period, while revenues for the three months ended June 30, 2020 decreased $13.7 million, or 39.6%, compared to June 30, 2018, despite a decline in Canada of $9.1 millionthe prior-year period, due to mix shift to Open-End loans. In the U.S., Unsecured Installment gross combined loans receivable increased 6.0% year-over-year.COVID-19 Impacts. Sequentially, excluding California, Company Owned Unsecured Installment loans Guaranteed byreceivable decreased $27.0 million, or 37.7%, from March 31, 2020, while revenue decreased $17.2 million, or 45.1%.
NCOs declined $8.9 million, or 27.7%, in the Company declined $1.3 million year-over-year duesecond quarter of 2020 compared to a regulatory change in Ohio and the subsequent conversionsecond quarter of Ohio CSO volume to Company-Owned loans, partially offset by growth in Texas.
The Unsecured Installment Allowance for loan losses as a percentage of Company Owned Unsecured Installment gross loans receivable ("allowance coverage") increased sequentiallyyear-over-year, from 20.8% as of March 31, 2019, to 21.4% as of June 30, 2019 primarilyto 22.6% as of June 30, 2020, as a result of related higherthe previously-mentioned increase in NCO rates and loan modifications under the Customer Care Program as TDRs. Loans classified as TDRs remain included within Company Owned gross loans receivable. Amounts waived on these loans are immediately charged-off and the pastimpairment for these loans is included within the Allowance for loan losses. Determination of the impairment for TDRs includes an estimate of lifetime losses on these loans, which is greater than estimated incurred losses at a point in time. Sequentially, past-due balances improved from 28.4% to 21.8% and allowance coverage decreased from 23.5% to 22.6% during the three months ended June 30, 2020.
Unsecured Installment Loans - Guaranteed by the Company
Unsecured Installment loans Guaranteed by the Company declined $32.0 million year-over-year due rate rose only 60 bps versusprimarily to COVID-19 Impacts and regulatory changes in Ohio effective May 1, 2019.
NCOs declined $12.1 million, or 43.9%, in the samesecond quarter a year ago.
of 2020 compared to the second quarter of 2019. NCO rates for Unsecured Installment loans Guaranteed by the Company increased 150improved 865 bps compared to the same quarter in 2018 because of credit-line increasesprior-year period and wind down of780 bps sequentially. Because Unsecured Installment loans Guaranteed by the Ohio portfolio.Company are charged off after two missed payments, there is a more direct correlation between NCOs and the NCO rate than for Company Owned Unsecured Installment loans. The CSO liability for losses remained consistent sequentiallyas a percentage of loans Guaranteed by the Company increased year-over-year from 14.4% last quarter14.5% to 14.5%15.5% as of June 30, 2020 due primarily to an increased liability for certain loans modified under the Customer Care Program. Sequentially, past-due balances as a percent of gross loans receivable decreased from 17.1% to 12.1% and the CSO liability for losses declined from 16.9% to 15.5% during the second quarter of 2019, as the past-due rate was flat versus the second quarter of last year.
three months ended June 30, 2020.
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| 2019 | 2018 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment loans: | Unsecured Installment loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue - Company Owned | $ | 59,814 | $ | 65,542 | $ | 69,748 | $ | 64,146 | $ | 54,868 | Revenue - Company Owned | $ | 33,405 | $ | 55,569 | $ | 63,428 | $ | 65,809 | $ | 59,814 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses - Company Owned | 33,514 | 33,845 | 39,565 | 32,946 | 23,219 | Provision for losses - Company Owned | 12,932 | 26,182 | 33,183 | 31,891 | 33,514 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue - Company Owned | $ | 26,300 | $ | 31,697 | $ | 30,183 | $ | 31,200 | $ | 31,649 | Net revenue - Company Owned | $ | 20,473 | $ | 29,387 | $ | 30,245 | $ | 33,918 | $ | 26,300 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs - Company Owned | $ | 31,970 | $ | 37,919 | $ | 37,951 | $ | 27,308 | $ | 26,527 | Net charge-offs - Company Owned | $ | 23,110 | $ | 32,775 | $ | 35,729 | $ | 28,973 | $ | 31,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue - Guaranteed by the Company | $ | 62,298 | $ | 70,236 | $ | 75,559 | $ | 73,514 | $ | 60,069 | Revenue - Guaranteed by the Company | $ | 37,024 | $ | 66,840 | $ | 72,183 | $ | 71,424 | $ | 62,298 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses - Guaranteed by the Company | 28,336 | 27,422 | 37,352 | 39,552 | 26,974 | Provision for losses - Guaranteed by the Company | 11,418 | 26,338 | 34,858 | 36,664 | 28,336 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue - Guaranteed by the Company | $ | 33,962 | $ | 42,814 | $ | 38,207 | $ | 33,962 | $ | 33,095 | Net revenue - Guaranteed by the Company | $ | 25,606 | $ | 40,502 | $ | 37,325 | $ | 34,760 | $ | 33,962 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs - Guaranteed by the Company | $ | 27,486 | $ | 30,421 | $ | 38,522 | $ | 37,995 | $ | 25,667 | Net charge-offs - Guaranteed by the Company | $ | 15,432 | $ | 27,749 | $ | 34,486 | $ | 35,916 | $ | 27,486 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment gross combined loans receivable: | Unsecured Installment gross combined loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company Owned | $ | 164,722 | $ | 161,716 | $ | 190,403 | $ | 185,130 | $ | 160,285 | Company Owned | $ | 81,601 | $ | 123,118 | $ | 160,782 | $ | 174,489 | $ | 164,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guaranteed by the Company (1)(2) | 65,055 | 59,740 | 77,451 | 75,807 | 66,351 | Guaranteed by the Company (1)(2) | 33,082 | 54,097 | 74,317 | 70,704 | 65,055 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured Installment gross combined loans receivable (1)(2) | $ | 229,777 | $ | 221,456 | $ | 267,854 | $ | 260,937 | $ | 226,636 | Unsecured Installment gross combined loans receivable (1)(2) | $ | 114,683 | $ | 177,215 | $ | 235,099 | $ | 245,193 | $ | 229,777 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average gross loans receivable: | Average gross loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Unsecured Installment gross loans receivable - Company Owned | $ | 163,219 | $ | 176,060 | $ | 187,767 | $ | 172,708 | $ | 158,121 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Unsecured Installment gross loans receivable - Guaranteed by the Company | $ | 62,398 | $ | 68,596 | $ | 76,629 | $ | 71,079 | $ | 60,342 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Unsecured Installment gross loans receivable - Company Owned (3) | Average Unsecured Installment gross loans receivable - Company Owned (3) | $ | 102,360 | $ | 141,950 | $ | 167,636 | $ | 169,606 | $ | 163,219 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Unsecured Installment gross loans receivable - Guaranteed by the Company (3) | Average Unsecured Installment gross loans receivable - Guaranteed by the Company (3) | $ | 43,590 | $ | 64,207 | $ | 72,511 | $ | 67,880 | $ | 62,398 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses and CSO liability for losses: | 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 | Unsecured Installment Allowance for loan losses (3) | $ | 18,451 | $ | 28,965 | $ | 35,587 | $ | 38,127 | $ | 35,223 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured Installment CSO liability for losses (3) | $ | 9,433 | $ | 8,584 | $ | 11,582 | $ | 12,750 | $ | 11,193 | Unsecured Installment CSO liability for losses (3) | $ | 5,128 | $ | 9,142 | $ | 10,553 | $ | 10,181 | $ | 9,433 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable | 21.4 | % | 20.8 | % | 19.8 | % | 19.5 | % | 18.9 | % | Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable | 22.6 | % | 23.5 | % | 22.1 | % | 21.9 | % | 21.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans guaranteed by the Company | 14.5 | % | 14.4 | % | 15.0 | % | 16.8 | % | 16.9 | % | Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans guaranteed by the Company | 15.5 | % | 16.9 | % | 14.2 | % | 14.4 | % | 14.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment past-due balances: | Unsecured Installment past-due balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment gross loans receivable | $ | 38,037 | $ | 40,801 | $ | 49,087 | $ | 49,637 | $ | 36,125 | Unsecured Installment gross loans receivable | $ | 17,766 | $ | 34,966 | $ | 43,100 | $ | 46,537 | $ | 38,037 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment gross loans guaranteed by the Company | $ | 10,087 | $ | 7,967 | $ | 11,708 | $ | 12,120 | $ | 10,319 | Unsecured Installment gross loans guaranteed by the Company | $ | 4,019 | $ | 9,232 | $ | 12,477 | $ | 11,842 | $ | 10,087 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past-due Unsecured Installment gross loans receivable -- percentage (2) | 23.1 | % | 25.2 | % | 25.8 | % | 26.8 | % | 22.5 | % | Past-due Unsecured Installment gross loans receivable -- percentage (2) | 21.8 | % | 28.4 | % | 26.8 | % | 26.7 | % | 23.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (2) | 15.5 | % | 13.3 | % | 15.1 | % | 16.0 | % | 15.6 | % | Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (2) | 12.1 | % | 17.1 | % | 16.8 | % | 16.7 | % | 15.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment other information: | Unsecured Installment other information: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Originations - Company Owned | $ | 102,792 | $ | 78,515 | $ | 114,182 | $ | 121,415 | $ | 114,038 | Originations - Company Owned | $ | 24,444 | $ | 55,941 | $ | 87,080 | $ | 107,275 | $ | 102,792 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Originations - Guaranteed by the Company (1) | $ | 80,445 | $ | 68,899 | $ | 89,319 | $ | 91,828 | $ | 84,082 | Originations - Guaranteed by the Company (1) | $ | 33,700 | $ | 64,836 | $ | 91,004 | $ | 89,644 | $ | 80,445 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsecured Installment ratios: | Unsecured Installment ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision as a percentage of gross loans receivable - Company Owned | 20.3 | % | 20.9 | % | 20.8 | % | 17.8 | % | 14.5 | % | Provision as a percentage of gross loans receivable - Company Owned | 15.8 | % | 21.3 | % | 20.6 | % | 18.3 | % | 20.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision as a percentage of gross loans receivable - Guaranteed by the Company | 43.6 | % | 45.9 | % | 48.2 | % | 52.2 | % | 40.7 | % | Provision as a percentage of gross loans receivable - Guaranteed by the Company | 34.5 | % | 48.7 | % | 46.9 | % | 51.9 | % | 43.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Includes loans originated by third-party lenders through CSO programs, which are not included in 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Secured Installment Loans
Secured Installment revenue and the related gross combined loans receivable balancesfor the three months ended June 30, 2020 decreased 25.6% and 37.7%, respectively, compared to the prior-year period. The decrease was due to COVID-19 Impacts and regulatory changes in California effective January 1, 2020. California accounted for $21.6 million, or 39.6%, of total Secured Installment gross combined loans receivable as of June 30, 2020 compared to $42.3 million, or 48.3%, as of June 30, 2019, remained consistenta decrease of $20.7 million year-over-year. BothExcluding California, Secured Installment loans receivable decreased $12.3 million, or 27.2%, from the prior-year period, while revenues decreased $2.6 million, or 15.7%, year-over-year, due to COVID-19 Impacts.
NCOs increased $1.5 million year-over-year, resulting in a 515 bps increase in the NCO rate over that same time period and 160 bps sequentially. Year-over-year NCO rates were impacted by the Denominator Effect. Elevated NCOs were attributable to the higher past-due rates decreased modestly year-over-year.receivables balance as of March 31, 2020. Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable decreased sequentiallyincreased to 14.5% from 11.9% last quarter to 11.5% duringin the secondcorresponding period in 2019 and from 13.1% at the end of the first quarter of 2019, based primarily on2020. These increases were attributable to higher NCO rate improvement.rates as described above as well as the classification of certain loan modifications under the Customer Care Program as TDRs, partially offset by the impact of lower past-due receivables as of June 30, 2020.
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 19,401 | $ | 26,286 | $ | 28,690 | $ | 28,270 | $ | 26,076 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses | 7,238 | 9,682 | 11,492 | 8,819 | 7,821 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 12,163 | $ | 16,604 | $ | 17,198 | $ | 19,451 | $ | 18,255 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | $ | 9,092 | $ | 10,284 | $ | 11,548 | $ | 8,455 | $ | 7,630 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment gross combined loan balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Installment gross combined loans receivable (1)(2) | $ | 54,635 | $ | 74,405 | $ | 90,411 | $ | 92,478 | $ | 87,718 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Secured Installment gross combined loans receivable (3) | $ | 64,520 | $ | 82,408 | $ | 91,445 | $ | 90,098 | $ | 85,403 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Installment Allowance for loan losses and CSO liability for losses (4) | $ | 7,919 | $ | 9,773 | $ | 10,375 | $ | 10,431 | $ | 10,067 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable | 14.5 | % | 13.1 | % | 11.5 | % | 11.3 | % | 11.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment past-due balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment past-due gross loans receivable and gross loans guaranteed by the Company | $ | 9,072 | $ | 15,612 | $ | 17,902 | $ | 17,645 | $ | 14,570 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (1)(2) | 16.6 | % | 21.0 | % | 19.8 | % | 19.1 | % | 16.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment other information: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Originations (2) | $ | 11,242 | $ | 20,990 | $ | 40,961 | $ | 45,990 | $ | 49,051 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secured Installment ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision as a percentage of gross combined loans receivable | 13.2 | % | 13.0 | % | 12.7 | % | 9.5 | % | 8.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (2) Includes loans originated by third-party lenders through CSO programs, which are not included in our unaudited Condensed Consolidated Financial Statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (3) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as beginning of quarter and end of quarter gross loans receivable. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (4) We report Allowance for loan losses as a contra-asset reducing gross loans receivable and the CSO liability for losses as a liability on our unaudited Condensed Consolidated Balance Sheets. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
44
| 2019 | 2018 | |||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||
| Secured Installment loans: | ||||||||||||||||
| Revenue | $ | 26,076 | $ | 27,477 | $ | 29,482 | $ | 28,562 | $ | 25,777 | ||||||
| Provision for losses | 7,821 | 7,080 | 12,035 | 10,188 | 7,650 | |||||||||||
| Net revenue | $ | 18,255 | $ | 20,397 | $ | 17,447 | $ | 18,374 | $ | 18,127 | ||||||
| Net charge-offs | $ | 7,630 | $ | 9,822 | $ | 11,132 | $ | 9,285 | $ | 9,003 | ||||||
| Secured Installment gross combined loan balances: | ||||||||||||||||
Secured Installment gross combined loans receivable (1)(2) | $ | 87,718 | $ | 83,087 | $ | 95,922 | $ | 94,194 | $ | 87,434 | ||||||
| Average Secured Installment gross combined loans receivable | $ | 85,403 | $ | 89,505 | $ | 95,058 | $ | 90,814 | $ | 84,984 | ||||||
Secured Installment Allowance for loan losses and CSO liability for losses (2) | $ | 10,067 | $ | 9,874 | $ | 12,616 | $ | 11,714 | $ | 10,812 | ||||||
| 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 | % | ||||||
| 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 | ||||||
Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (1) | 16.6 | % | 16.7 | % | 18.6 | % | 18.8 | % | 17.4 | % | ||||||
| Secured Installment other information: | ||||||||||||||||
Originations (3) | $ | 49,051 | $ | 33,490 | $ | 49,217 | $ | 51,742 | $ | 53,597 | ||||||
| Secured Installment ratios: | ||||||||||||||||
| Provision as a percentage of gross combined loans receivable | 8.9 | % | 8.5 | % | 12.5 | % | 10.8 | % | 8.7 | % | ||||||
| (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. | ||||||||||||||||
Open-End Loans
Open-End loan balances as of June 30, 20192020 increased by $192.3$1.8 million, or 0.7% ($12.3 million, or 4.3%, on a constant-currency basis), compared to June 30, 2018, primarily due to the launch of Open-End loans2019, on 5.8% (10.6% on a constant-currency basis) growth in Canada, offset by a decline in late 2017, which accounted for $167.9the U.S. of $10.9 million, of the year-over-year growth. Also, the Q1 2019or 17.0%. Open-End Loss Recognition Change affected comparability with the inclusion of $35.4 million of past-due Open-End loansloan balances as of June 30, 2019. Open-End balances in Canada grew $35.12020 decreased $28.9 million, sequentially from the first quarter of 2019or 9.2% ($30.838.4 million, or 12.2%, on a constant currencyconstant-currency basis), sequentially due to organic growth of the product. Remaining year-over-year loan growth was driven by the organic growth in seasoned markets, such as Tennessee and Kansas, and the relatively new Virginia market.COVID-19 Impacts.
The Open-End NCO rate during the second quarter of 2019 was 9.6% compared to 16.7% in the same quarter in the prior year,Allowance for loan losses as a resultpercentage of a modest improvement in the U.S. and overall mix shiftOpen-End gross loans receivable decreased sequentially from 18.0% to Canada. NCO rates are lower in Canada, and Open-End loans in Canada comprised 77.4% of total Open-End loans16.6% as of June 30, 2019, compared2020. The decrease was primarily due to 56.4%a shift in the geographic mix shift of receivables, the sequential decline in past-due balances as a percentage of June 30, 2018. Sequentially, on a non-GAAP pro forma basis, as described below,gross loans receivable from 15.9% to 10.9% and an 85 bps sequential improvement in Open-End NCO rates. Year-over-year, NCO rates improved 170 bps, primarily on portfolio improvementswere impacted by the Denominator Effect and increased 100 bps. The decrease in allowance coverage was partially attributable to the continued Open-End product maturation in Canada.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe 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.
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 56,736 | $ | 70,982 | $ | 71,295 | $ | 66,120 | $ | 54,972 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses | 21,341 | 40,991 | 37,816 | 31,220 | 29,373 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 35,395 | $ | 29,991 | $ | 33,479 | $ | 34,900 | $ | 25,599 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net charge-offs (1) | $ | 31,684 | $ | 37,098 | $ | 37,426 | $ | 28,202 | $ | 25,151 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End gross loan balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End gross loans receivable | $ | 285,156 | $ | 314,006 | $ | 335,524 | $ | 314,971 | $ | 283,311 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Open-End gross loans receivable (1) | $ | 299,581 | $ | 324,765 | $ | 325,248 | $ | 299,141 | $ | 262,051 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses | $ | 47,319 | $ | 56,458 | $ | 55,074 | $ | 54,233 | $ | 51,717 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable | 16.6 | % | 18.0 | % | 16.4 | % | 17.2 | % | 18.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End past-due balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open-End past-due gross loans receivable | $ | 31,208 | $ | 49,987 | $ | 50,072 | $ | 46,053 | $ | 35,395 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past-due Open-End gross loans receivable - percentage | 10.9 | % | 15.9 | % | 14.9 | % | 14.6 | % | 12.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as average of beginning of quarter and end of quarter gross loans receivable. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
45
| 2019 | 2018 | |||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||
| Open-End loans: | ||||||||||||||||
| Revenue | $ | 54,972 | $ | 52,869 | $ | 47,228 | $ | 40,290 | $ | 27,222 | ||||||
| Provision for losses | 29,373 | 25,317 | 28,337 | 31,686 | 14,848 | |||||||||||
| Net revenue | $ | 25,599 | $ | 27,552 | $ | 18,891 | $ | 8,604 | $ | 12,374 | ||||||
Net charge-offs (1) | $ | 25,151 | $ | (1,521 | ) | $ | 25,218 | $ | 23,579 | $ | 11,924 | |||||
| Open-End gross loan balances: | ||||||||||||||||
| Open-End gross loans receivable | $ | 283,311 | $ | 240,790 | $ | 207,333 | $ | 184,067 | $ | 91,033 | ||||||
| Average Open-End gross loans receivable | $ | 262,051 | $ | 224,062 | $ | 195,700 | $ | 137,550 | $ | 71,299 | ||||||
| Open-End allowance for loan losses: | ||||||||||||||||
| Allowance for loan losses | $ | 51,717 | $ | 46,963 | $ | 19,901 | $ | 18,013 | $ | 9,717 | ||||||
| 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 | % | ||||||
| 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 | % | — | % | — | % | — | % | ||||||
(1) Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, NCOs for the first quarter 2019 were $31,788. | ||||||||||||||||
In addition, the 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 | |||||||||||||||||||||||||||||||
| (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. | ||||||||||||||||||||||||||||||||
| 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 | % | |||
Single-Pay
Single-Pay revenue declined year-over-year and related loans receivable duringsequentially by approximately 50% for the three months ended June 30, 2019 declined year-over-year compared to the three months ended June 30, 2018,2020, primarily due to regulatory changes in Canada (rateCOVID-19 Impacts. Related receivables declined 52.5% year-over-year and product changes in Ontario and British Columbia) that accelerated the shift to Open-End loans. The aforementioned Open-End growth in Canada ($167.9
| 2019 | 2018 | |||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||
| Single-pay loans: | ||||||||||||||||
| Revenue | $ | 45,528 | $ | 46,761 | $ | 49,696 | $ | 50,614 | $ | 58,325 | ||||||
| Provision for losses | 12,446 | 8,268 | 12,825 | 12,757 | 13,101 | |||||||||||
| Net revenue | $ | 33,082 | $ | 38,493 | $ | 36,871 | $ | 37,857 | $ | 45,224 | ||||||
| Net charge-offs | $ | 11,458 | $ | 8,610 | $ | 11,838 | $ | 12,892 | $ | 12,976 | ||||||
| Single-Pay gross loan balances: | ||||||||||||||||
| Single-Pay gross loans receivable | $ | 76,126 | $ | 69,753 | $ | 80,823 | $ | 77,390 | $ | 84,665 | ||||||
| Average Single-Pay gross loans receivable | $ | 72,940 | $ | 75,288 | $ | 79,107 | $ | 81,028 | $ | 83,353 | ||||||
| Single-Pay Allowance for loan losses | $ | 4,941 | $ | 3,897 | $ | 4,189 | $ | 3,293 | $ | 3,604 | ||||||
| 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 | % | ||||||
| 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. | |||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Single-pay loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 22,732 | $ | 45,157 | $ | 49,844 | $ | 49,312 | $ | 45,528 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses | (2,588) | 9,639 | 12,289 | 14,736 | 12,446 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 25,320 | $ | 35,518 | $ | 37,555 | $ | 34,576 | $ | 33,082 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | $ | (598) | $ | 10,517 | $ | 12,145 | $ | 13,913 | $ | 11,458 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Pay gross loan balances: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Pay gross loans receivable | $ | 36,130 | $ | 54,728 | $ | 81,447 | $ | 78,039 | $ | 76,126 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Single-Pay gross loans receivable (1) | $ | 45,429 | $ | 68,088 | $ | 78,787 | $ | 77,083 | $ | 72,940 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Pay Allowance for loan losses | $ | 2,802 | $ | 4,693 | $ | 5,869 | $ | 5,662 | $ | 4,941 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable | 7.8 | % | 8.6 | % | 7.2 | % | 7.3 | % | 6.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) We calculate Average gross loans receivable, which we utilize to calculate product yield and NCO rates, as average of beginning of quarter and end of quarter gross loans receivable. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
46
Consolidated Results of Operations - CURO Group Consolidated Operations
Condensed Consolidated Statements of Operations
(in thousands, unaudited)
| Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, unaudited) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | Change $ | Change % | 2019 | 2018 | Change $ | Change % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change $ | Change % | 2020 | 2019 | Change $ | Change % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 264,300 | $ | 237,169 | $ | 27,131 | 11.4 | % | $ | 542,239 | $ | 488,012 | $ | 54,227 | 11.1 | % | $ | 182,509 | $ | 264,300 | $ | (81,791) | (30.9) | % | $ | 463,315 | $ | 542,239 | $ | (78,924) | (14.6) | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for losses | 112,010 | 86,347 | 25,663 | 29.7 | % | 214,395 | 163,230 | 51,165 | 31.3 | % | Provision for losses | 50,693 | 112,010 | (61,317) | (54.7) | % | 164,229 | 214,395 | (50,166) | (23.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | 152,290 | 150,822 | 1,468 | 1.0 | % | 327,844 | 324,782 | 3,062 | 0.9 | % | Net revenue | 131,816 | 152,290 | (20,474) | (13.4) | % | 299,086 | 327,844 | (28,758) | (8.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advertising costs | 12,780 | 15,113 | (2,333 | ) | (15.4 | )% | 20,566 | 22,998 | (2,432 | ) | (10.6 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | Advertising | 5,750 | 12,780 | (7,030) | (55.0) | % | 17,969 | 20,566 | (2,597) | (12.6) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-advertising costs of providing services | 58,329 | 58,361 | (32 | ) | (0.1 | )% | 120,600 | 118,590 | 2,010 | 1.7 | % | Non-advertising costs of providing services | 49,567 | 58,329 | (8,762) | (15.0) | % | 104,919 | 120,600 | (15,681) | (13.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of providing services | 71,109 | 73,474 | (2,365 | ) | (3.2 | )% | 141,166 | 141,588 | (422 | ) | (0.3 | )% | Total cost of providing services | 55,317 | 71,109 | (15,792) | (22.2) | % | 122,888 | 141,166 | (18,278) | (12.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 81,181 | 77,348 | 3,833 | 5.0 | % | 186,678 | 183,194 | 3,484 | 1.9 | % | Gross margin | 76,499 | 81,181 | (4,682) | (5.8) | % | 176,198 | 186,678 | (10,480) | (5.6) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expense | Operating expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 39,038 | 32,980 | 6,058 | 18.4 | % | 88,126 | 68,409 | 19,717 | 28.8 | % | Corporate, district and other expenses | 36,781 | 35,290 | 1,491 | 4.2 | % | 79,588 | 84,378 | (4,790) | (5.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 17,023 | 20,472 | (3,449 | ) | (16.8 | )% | 34,713 | 42,826 | (8,113 | ) | (18.9 | )% | Interest expense | 18,311 | 17,023 | 1,288 | 7.6 | % | 35,635 | 34,713 | 922 | 2.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | # | — | 11,683 | (11,683 | ) | # | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Gain) loss from equity method investment | (Gain) loss from equity method investment | (741) | 3,748 | (4,489) | # | 877 | 3,748 | (2,871) | (76.6) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expense | 56,061 | 53,452 | 2,609 | 4.9 | % | 122,839 | 122,918 | (79 | ) | (0.1 | )% | Total operating expense | 54,351 | 56,061 | (1,710) | (3.1) | % | 116,100 | 122,839 | (6,739) | (5.5) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income from continuing operations before income taxes | 25,120 | 23,896 | 1,224 | 5.1 | % | 63,839 | 60,276 | 3,563 | 5.9 | % | Income from continuing operations before income taxes | 22,148 | 25,120 | (2,972) | (11.8) | % | 60,098 | 63,839 | (3,741) | (5.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 7,453 | 5,178 | 2,275 | 43.9 | % | 17,499 | 16,645 | 854 | 5.1 | % | Provision for income taxes | 1,068 | 7,453 | (6,385) | (85.7) | % | 3,005 | 17,499 | (14,494) | (82.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | 17,667 | 18,718 | (1,051 | ) | (5.6 | )% | 46,340 | 43,631 | 2,709 | 6.2 | % | Net income from continuing operations | 21,080 | 17,667 | 3,413 | 19.3 | % | 57,093 | 46,340 | 10,753 | 23.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from discontinued operations, net of tax | (834 | ) | (2,743 | ) | 1,909 | (69.6 | )% | 7,541 | (4,364 | ) | 11,905 | # | Net income (loss) from discontinued operations, net of tax | 993 | (834) | 1,827 | # | 1,285 | 7,541 | (6,256) | (83.0) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 16,833 | $ | 15,975 | $ | 858 | 5.4 | % | $ | 53,881 | $ | 39,267 | $ | 14,614 | 37.2 | % | Net income | $ | 22,073 | $ | 16,833 | $ | 5,240 | 31.1 | % | $ | 58,378 | $ | 53,881 | $ | 4,497 | 8.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| # - Variance greater than 100% or not meaningful | # - Variance greater than 100% or not meaningful | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 20192020 and 20182019
Revenue and Net Revenue
Revenue increased $27.1decreased $81.8 million, or 11.4%30.9%, to $182.5 million for the three months ended June 30, 2020, from $264.3 million for the three months ended June 30, 2019, as a result of the declines in combined gross loan receivables discussed previously. Year-over-year U.S. and Canada revenues decreased 34.6% and 16.7%, respectively.
Provision for losses decreased by $61.3 million, or 54.7%, for the three months ended June 30, 2020 compared to the prior-year period. The decrease in provision for loan losses was due to the sequential decline in loan balances in the second quarter of 2020 and better credit performance from $237.2COVID-19 Impacts as discussed in more detail in the "Loan Product and Portfolio Performance" and "Segment Analysis" sections.
Cost of Providing Services
Non-advertising costs of providing services decreased $8.8 million, or 15.0%, to $49.6 million in the three months ended June 30, 2020, compared to $58.3 million in the three months ended June 30, 2019. Of the $8.8 million decrease, $3.7 million was related to third-party collection costs incurred in 2019 related to Ad Astra, which were included in Non-advertising costs of providing services. Subsequent to our acquisition of Ad Astra, a wholly owned subsidiary as of January 3, 2020, its operating costs are included within "Corporate, district and other expenses," consistent with presentation of our other internal collection costs. The remaining decrease year-over-year in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand, (ii) lower collection costs after stimulus-related pay-downs and (iii) lower discretionary variable compensation.
Advertising costs decreased $7.0 million, or 55.0%, year-over-year because of COVID-19 Impacts.
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Corporate, district and other expenses
Corporate, district and other expenses were $36.8 million for the three months ended June 30, 2018. Revenue2020, an increase of $1.5 million, or 4.2%, compared to the three months ended June 30, 2019. Corporate, district and other expenses in the three months ended June 30, 2020 included $2.1 million of collection costs related to Ad Astra, which we included in Non-advertising costs of providing services prior to acquisition. For the three months ended June 30, 2020, corporate, district and other expenses also included (i) $3.3 million of share-based compensation costs, (ii) $2.2 million of Canadian GST described in our reconciliation to Adjusted Net Income above, and (iii) $0.9 million of legal and other costs also described in our reconciliation to Adjusted Net Income above. For the three months ended June 30, 2019, corporate district and other costs included (i) share-based compensation costs of $2.6 million and (ii) U.K. related costs of $0.7 million as described in our reconciliation to Adjusted Net Income above.
Excluding Ad Astra costs, share-based compensation expense and other costs described above, comparable corporate, district and other expenses decreased $3.7 million year-over-year, primarily due to the timing and extent of variable compensation and other cost reductions including work-from-home initiatives to manage COVID-19 Impacts.
Equity Method Investment
We account for our investment in Katapult under the equity method. We record our pro rata share of Katapult's income or losses on a two-month lag in the unaudited Condensed Consolidated Statement of Operations, with a corresponding adjustment to the carrying value of our investment in "Other assets" on the unaudited Condensed Consolidated Balance Sheet. For the three months ended June 30, 2020, our share of Katapult's income was $0.7 million.
Interest Expense
Interest expense for the three months ended June 30, 2019 included interest earned2020 remained consistent with the prior-year period 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. U.S. revenue increased 10.5% driven by volume growth. Canadian revenue increased 15.3% (19.5% 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.flat year-over-year average borrowings.
Provision for losses increased $25.7 million, or 29.7%, to $112.0 millionIncome Taxes
The effective income tax rate for the three months ended June 30, 2019, from $86.3 million2020 was 4.8%, compared to a tax rate of 29.7% for the three months ended June 30, 2018,2019. The decrease in the effective income tax rate was primarily due to changesa tax benefit of $4.6 million from the release of a valuation allowance previously recorded against NOLs for certain entities in Canada. This benefit was partially offset by uncertain tax position reserve adjustments in the allowance coverageU.S. of $1.1 million. Additionally, during the quarter, we recognized income from our equity method investment in Katapult, which is not taxable due to the 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.gain offsetting prior accumulated losses. Excluding the impact of the allowance coverage change, provision for losses increased $16.3 million, or 16.7%, because ofNOL benefit in Canada, the Q1 2019 Open-End Loss Recognition Changeuncertain tax position reserve adjustment, and increased earning asset volume year-over-year as further described in "Segment Analysis" below.
For the six months ended June 30, 20192020 and 20182019
Revenue and Net Revenue
Revenue increased $54.2decreased $78.9 million, or 11.1%14.6%, to $463.3 million for the six months ended June 30, 2020, from $542.2 million for the six months ended June 30, 2019, from $488.0as a result of the declines in combined gross loans receivable discussed above. Year-over-year, U.S. and Canada revenues decreased 17.7% and 1.7%, respectively.
Provision for losses decreased by $50.2 million, or 23.4%, for the six months ended June 30, 2020 compared to the prior-year period. The decrease in provision for loan losses was primarily due to lower loan volume and lower NCOs as a result of COVID-19 Impacts as discussed in more detail in the "Loan Product and Portfolio Performance" and "Segment Analysis" sections.
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Cost of Providing Services
Non-advertising costs of providing services decreased $15.7 million, or 13.0%, to $104.9 million in the six months ended June 30, 2020, compared to $120.6 million in the six months ended June 30, 2019. Of the $15.7 million decrease, $8.4 million was related to third-party collection costs incurred in 2019 related to Ad Astra, which were included in Non-advertising costs of providing services. Subsequent to our acquisition of Ad Astra, we include its operating costs within "Corporate, district and other expenses," consistent with the presentation of our other internal collection costs. The remaining decrease year-over-year in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand, (ii) lower collection costs after governmental stimulus-related pay-downs and (iii) lower discretionary variable compensation.
Advertising costs decreased $2.6 million, or 12.6%, year-over-year because of COVID-19 Impacts.
Corporate, district and other expenses
Corporate, district and other expenses were $79.6 million for the six months ended June 30, 2018. Revenue2020, a decrease of $4.8 million, or 5.7%, compared to the three months ended June 30, 2019. Corporate, district and other expenses in the six months ended June 30, 2020 included $5.6 million of collection costs related to Ad Astra, which prior to the acquisition of it in January 2020, were included in Non-advertising costs of providing services. For the six months ended June 30, 2020, corporate, district and other expenses also included (i) $6.5 million of share-based compensation costs, (ii) $2.2 million of Canadian GST described in our reconciliation to Adjusted Net Income above and (iii) $2.1 million of legal and other costs also described in our reconciliation to Adjusted Net Income above. For the six months ended June 30, 2019, corporate district and other costs included (i) U.K. related costs of $8.5 million, (ii) $4.8 million of share-based compensation and (iii) $1.8 million of legal and other costs as described in our reconciliation to Adjusted Net Income above.
Excluding Ad Astra costs, share-based compensation expense and other costs described above, comparable corporate, district and other expenses decreased $6.1 million year-over-year, primarily due to the timing and extent of variable compensation and other cost reductions including work-from-home initiatives to manage COVID-19 Impacts.
Equity Method Investment
We account for our investment in Katapult under the equity method. We record our pro rata share of Katapult's income or losses on a two-month lag in the unaudited Condensed Consolidated Statement of Operations with a corresponding adjustment to the carrying value of our investment in "Other assets" on the unaudited Condensed Consolidated Balance Sheet. For the six months ended June 30, 2020, our share of Katapult's loss was $0.9 million.
Interest Expense
Interest expense for the six months ended June 30, 2019 included interest earned2020 remained consistent with the prior-year period 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.flat year-over-year average borrowings.
Provision for losses increased $51.2 million, or 31.3%, to $214.4 millionIncome Taxes
The effective income tax rate for the six months ended June 30, 2019, from $163.2 million2020 was 5.0%, compared to a tax rate of 27.4% for the six months ended June 30, 2018, primarily due to changes2019. The decrease in the effective income tax rate was the result of two discrete, one-time developments related to usage of NOLs. First, the CARES Act, which was enacted on March 27, 2020 in response to COVID-19, among other things, allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid Federal income taxes. We have recorded an income tax benefit of $9.1 million related to the carry-back of NOL from tax years 2018 and 2019, which will offset our tax liability for years prior to tax reform and generate a refund of previously paid taxes at a 35% statutory rate. Additionally, we recorded a tax benefit of $4.6 million related to the release of a valuation allowance coveragepreviously recorded against NOLs for certain entities in Canada. These benefits were partially offset by uncertain tax position reserve adjustments in the second quarterU.S. 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.
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Segment Analysis
We report financial results for two reportable segments: the U.S. and Canada. Following is a summary of results of operations for the segment and period indicated:indicated (in thousands, unaudited):
| U.S. Segment Results | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change $ | Change % | 2020 | 2019 | Change $ | Change % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 137,320 | $ | 210,046 | $ | (72,726) | (34.6) | % | $ | 359,088 | $ | 436,165 | $ | (77,077) | (17.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Provision for losses | 41,530 | 92,552 | (51,022) | (55.1) | % | 127,571 | 177,532 | (49,961) | (28.1) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | 95,790 | 117,494 | (21,704) | (18.5) | % | 231,517 | 258,633 | (27,116) | (10.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | 5,269 | 11,179 | (5,910) | (52.9) | % | 16,214 | 17,533 | (1,319) | (7.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Non-advertising costs of providing services | 33,661 | 41,248 | (7,587) | (18.4) | % | 70,903 | 86,230 | (15,327) | (17.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of providing services | 38,930 | 52,427 | (13,497) | (25.7) | % | 87,117 | 103,763 | (16,646) | (16.0) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 56,860 | 65,067 | (8,207) | (12.6) | % | 144,400 | 154,870 | (10,470) | (6.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 29,631 | 29,649 | (18) | (0.1) | % | 67,281 | 73,529 | (6,248) | (8.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 16,113 | 14,641 | 1,472 | 10.1 | % | 30,959 | 29,369 | 1,590 | 5.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| (Gain) loss from equity method investment | (741) | 3,748 | (4,489) | # | 877 | 3,748 | (2,871) | (76.6) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expense | 45,003 | 48,038 | (3,035) | (6.3) | % | 99,117 | 106,646 | (7,529) | (7.1) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment operating income | 11,857 | 17,029 | (5,172) | (30.4) | % | 45,283 | 48,224 | (2,941) | (6.1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 16,113 | 14,641 | 1,472 | 10.1 | % | 30,959 | 29,369 | 1,590 | 5.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 3,309 | 3,437 | (128) | (3.7) | % | 6,686 | 7,163 | (477) | (6.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||
EBITDA(1) | 31,279 | 35,107 | (3,828) | (10.9) | % | 82,928 | 84,756 | (1,828) | (2.2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and other costs | 938 | — | 938 | 2,087 | 1,617 | 470 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other adjustments | 305 | (143) | 448 | 164 | (248) | 412 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| U.K. related costs | — | 679 | (679) | — | 8,496 | (8,496) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 3,310 | 2,644 | 666 | 6,504 | 4,816 | 1,688 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (Gain) loss from equity method investment | (741) | 3,748 | (4,489) | 877 | 3,748 | (2,871) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA(1) | $ | 35,091 | $ | 42,035 | $ | (6,944) | (16.5) | % | $ | 92,560 | $ | 103,185 | $ | (10,625) | (10.3) | % | ||||||||||||||||||||||||||||||||||||||||
| (1) These are non-GAAP metrics. For a description and reconciliation of each Non-GAAP metric, see "Supplemental Non-GAAP Financial Information." | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| # - Variance greater than 100% or not meaningful. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Segment Results | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| (dollars in thousands, unaudited) | 2019 | 2018 | Change $ | Change % | 2019 | 2018 | Change $ | Change % | |||||||||||||||
| Revenue | $ | 210,046 | $ | 190,126 | $ | 19,920 | 10.5 | % | $ | 436,165 | $ | 394,719 | $ | 41,446 | 10.5 | % | |||||||
| Provision for losses | 92,552 | 71,987 | 20,565 | 28.6 | % | 177,532 | 136,320 | 41,212 | 30.2 | % | |||||||||||||
| Net revenue | 117,494 | 118,139 | (645 | ) | (0.5 | )% | 258,633 | 258,399 | 234 | 0.1 | % | ||||||||||||
| Advertising costs | 11,179 | 12,409 | (1,230 | ) | (9.9 | )% | 17,533 | 17,568 | (35 | ) | (0.2 | )% | |||||||||||
| Non-advertising costs of providing services | 41,248 | 41,682 | (434 | ) | (1.0 | )% | 86,230 | 85,439 | 791 | 0.9 | % | ||||||||||||
| Total cost of providing services | 52,427 | 54,091 | (1,664 | ) | (3.1 | )% | 103,763 | 103,007 | 756 | 0.7 | % | ||||||||||||
| Gross margin | 65,067 | 64,048 | 1,019 | 1.6 | % | 154,870 | 155,392 | (522 | ) | (0.3 | )% | ||||||||||||
| Corporate, district and other expenses | 33,397 | 28,221 | 5,176 | 18.3 | % | 77,277 | 58,753 | 18,524 | 31.5 | % | |||||||||||||
| Interest expense | 14,641 | 20,465 | (5,824 | ) | (28.5 | )% | 29,369 | 42,762 | (13,393 | ) | (31.3 | )% | |||||||||||
| Loss on extinguishment of debt | — | — | — | # | — | 11,683 | (11,683 | ) | # | ||||||||||||||
| Total operating expense | 48,038 | 48,686 | (648 | ) | (1.3 | )% | 106,646 | 113,198 | (6,552 | ) | (5.8 | )% | |||||||||||
| Segment operating income | 17,029 | 15,362 | 1,667 | 10.9 | % | 48,224 | 42,194 | 6,030 | 14.3 | % | |||||||||||||
| Interest expense | 14,641 | 20,465 | (5,824 | ) | (28.5 | )% | 29,369 | 42,762 | (13,393 | ) | (31.3 | )% | |||||||||||
| Depreciation and amortization | 3,437 | 3,379 | 58 | 1.7 | % | 7,163 | 6,786 | 377 | 5.6 | % | |||||||||||||
| EBITDA | 35,107 | 39,206 | (4,099 | ) | (10.5 | )% | 84,756 | 91,742 | (6,986 | ) | (7.6 | )% | |||||||||||
| Loss on extinguishment of debt | — | — | — | — | 11,683 | (11,683 | ) | ||||||||||||||||
| Restructuring costs | — | — | — | 1,617 | — | 1,617 | |||||||||||||||||
| Other adjustments | (143 | ) | (66 | ) | (77 | ) | (248 | ) | (125 | ) | (123 | ) | |||||||||||
| U.K. related costs | 679 | — | 679 | 8,496 | — | 8,496 | |||||||||||||||||
| 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 | ||||||||||||||||||
| Adjusted EBITDA | $ | 42,035 | $ | 41,321 | $ | 714 | 1.7 | % | $ | 103,185 | $ | 107,323 | $ | (4,138 | ) | (3.9 | )% | ||||||
| # - Change greater than 100% or not meaningful. | |||||||||||||||||||||||
U.S. Segment Results - For the three months ended June 30, 20192020 and 20182019
U.S. revenues increaseddecreased by $19.9$72.7 million, or 10.5%34.6%, to $210.0$137.3 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-due Open-End loan balances of approximately $10 million from the Q1 2019 Open-End Loss Recognition Change, offset by a related higher provision for losses. Unsecured Installment combined receivables increased year-over-year by $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 and inclusion of past-due receivables2020, as a result of the Q1 2019 Open-End Loss Recognition Change. Secureddeclines in combined gross loans receivable discussed above. Excluding the impact of California Installment gross combined receivables remained flat compared to the prior-year period, while Single-Pay receivables grew $3.7loan runoff stemming from regulatory changes effective January 1, 2020, U.S. revenues decreased $56.0 million, or 9.9%31.9%.
The provision for losses' increase of $20.6losses decreased $51.0 million, or 28.6%55.1%, was primarily due to changes in allowance coverage in the second quarteras a result 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 assetlower loan volume, year-over-year.as previously discussed.
Advertising costs decreased $5.9 million, or 52.9%, year-over-year because of COVID-19 Impacts.
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Corporate, district and other operating expenses increased $5.2of $29.6 million or 18.3%,for the three months ended June 30, 2020, were flat compared to the same periodprior-year period. Corporate, district and other expenses for the three months ended June 30, 2020 included $2.1 million of collection costs related to Ad Astra, which were historically included in Non-advertising costs of providing services. For the prior year,three months ended June 30, 2020, corporate, district and other costs included (i) $0.9 million of legal and other costs described in our reconciliation to Adjusted Net Income above and (ii) $3.3 million of share-based compensation costs. For the three months ended June 30, 2019, corporate, district and other expenses included (i) U.K. related costs of $0.7 million as described in our reconciliation to Adjusted Net Income above and (ii) share-based compensation costs of $2.6 million.
Excluding the aforementioned items, comparable corporate district and other expenses decreased $3.1 million year-over-year, primarily due to the timing and extent of variable compensation and certain cost reductions, including work-from-home initiatives, to manage COVID-19 Impacts.
We hold a $3.742.5% ownership stake in Katapult and account for this ownership under the equity method of accounting. During the second quarter of 2020, Katapult’s leasing volumes benefited from the shift to online shopping during COVID-19 stay-at-home and quarantine orders. Katapult posted its highest weekly origination volumes and highest historical approval rates during the height of COVID-19 as stay-at-home consumers shopped online due to retail store closings and prime and near-prime online financing providers tightened credit and drove more customers to Katapult. Through the end of June, Katapult originated approximately $100 million impairment charge relatedin leases year-to-date compared to $30 million in the first half of 2019. Currently, one retail partner accounts for a majority of Katapult's volume. Credit trends have continued to improve even with the outsized growth in volume such that Katapult has turned profitable to us during the second quarter. We recognize our investment in Zibby,share of Katapult’s income on a two-month lag, from which we recorded income of $0.7 million for the second quarter of U.K. disposition-related costs2020 and $1.0a loss of $0.9 million higher performance-based variable compensation costs. Excludingfor the Zibby impairment charge, share-based compensation costs in both periods presented and U.K. related costs, operating expenses increased by $0.3 million.six months ended June 30, 2020.
U.S. interest expense for the second quarter of 2019 decreased by $5.8three months ended June 30, 2020 increased $1.5 million, comparedor 10.1%, primarily related 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
U.S. Segment Results - For the six months ended June 30, 20192020 and 20182019
U.S. revenues increaseddecreased by $41.4$77.1 million, or 10.5%17.7%, to $436.2 million. U.S. revenue growth was driven by a $40.6$359.1 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. revenuethe prior-year period for the six months ended June 30, 2019 included interest earned on past-due Open-End2020, as a result of decreases in combined gross loans receivable. Excluding the aforementioned impact of California Installment loan balances of approximately $18 million from the Q1 2019 Open-End Loss Recognition Change, offsetrunoff, U.S. revenues decreased by related higher provision rate and higher provision for losses. Unsecured Installment receivables increased year-over-year $12.2$47.2 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%13.0%.
The provision for losses' increase of $41.2losses decreased $50.0 million, or 30.2%28.1%, wasfor the six months ended June 30, 2020, compared to the prior-year period, primarily due to changes in allowance coverage in the first halfas a result 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.lower loan volume.
Advertising costs decreased $1.3 million, or 7.5%, year-over-year because of COVID-19 Impacts.
Corporate, district and other operating expenses increased $18.5were $67.3 million for the six months ended June 30, 2020, a decrease of $6.2 million, or 31.5%8.5%, compared to the same periodthree months ended June 30, 2019. Corporate, district and other expenses for the six months ended June 30, 2020 included $5.6 million of collection costs related to Ad Astra, which were historically included in Non-advertising costs of providing services. For the prior year,six months ended June 30, 2020, corporate, district and other costs included (i) $2.1 million of legal and other costs described in our reconciliation to Adjusted Net Income above and (ii) $6.5 million of share-based compensation costs. For the six months ended June 30, 2019, corporate, district and other expenses included (i) U.K. related costs of $8.5 million as described in our reconciliation to Adjusted Net Income above, and (ii) share-based compensation costs of $4.8 million.
Excluding these items, comparable corporate, district and other expenses decreased $5.5 million year-over-year, primarily due to $8.5 millionthe timing and extent 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, $1.6and certain cost reductions, including work-from-home initiatives, to manage COVID-19 Impacts for the six months ended June 30, 2020.
As described above, we recognize our share of Katapult's income on a two-month lag and recorded a loss of $0.9 million for the first half of 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.2020.
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U.S. interest expense for the first six months of 2019 decreased by $13.4ended June 30, 2020 increased $1.6 million, comparedor 5.4%, primarily related 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 anew Non-Recourse CanadaU.S. SPV Facility, in the third quarter of 2018 with a lower interest rate than our previous U.S. SPV facility,on which we fully repaid with the proceeds from the 8.25% Senior Secured Notes.drew $35.2 million when it closed in April 2020.
| Canada Segment Results | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change $ | Change % | 2020 | 2019 | Change $ | Change % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 45,189 | $ | 54,254 | $ | (9,065) | (16.7) | % | $ | 104,227 | $ | 106,074 | $ | (1,847) | (1.7) | % | ||||||||||||||||||||||||||||||||||||||||
| Provision for losses | 9,163 | 19,458 | (10,295) | (52.9) | % | 36,658 | 36,863 | (205) | (0.6) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | 36,026 | 34,796 | 1,230 | 3.5 | % | 67,569 | 69,211 | (1,642) | (2.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Advertising | 481 | 1,601 | (1,120) | (70.0) | % | 1,755 | 3,033 | (1,278) | (42.1) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Non-advertising costs of providing services | 15,906 | 17,081 | (1,175) | (6.9) | % | 34,016 | 34,370 | (354) | (1.0) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of providing services | 16,387 | 18,682 | (2,295) | (12.3) | % | 35,771 | 37,403 | (1,632) | (4.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 19,639 | 16,114 | 3,525 | 21.9 | % | 31,798 | 31,808 | (10) | — | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 7,150 | 5,641 | 1,509 | 26.8 | % | 12,307 | 10,849 | 1,458 | 13.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 2,198 | 2,382 | (184) | (7.7) | % | 4,676 | 5,344 | (668) | (12.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expense | 9,348 | 8,023 | 1,325 | 16.5 | % | 16,983 | 16,193 | 790 | 4.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment operating income | 10,291 | 8,091 | 2,200 | 27.2 | % | 14,815 | 15,615 | (800) | (5.1) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 2,198 | 2,382 | (184) | (7.7) | % | 4,676 | 5,344 | (668) | (12.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,108 | 1,214 | (106) | (8.7) | % | 2,268 | 2,408 | (140) | (5.8) | % | ||||||||||||||||||||||||||||||||||||||||||||||
EBITDA(1) | 13,597 | 11,687 | 1,910 | 16.3 | % | 21,759 | 23,367 | (1,608) | (6.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Legal and other costs | — | — | — | — | 135 | (135) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada GST adjustment | 2,160 | — | 2,160 | 2,160 | — | 2,160 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other adjustments | 281 | (33) | 314 | 437 | (144) | 581 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA(1) | $ | 16,038 | $ | 11,654 | $ | 4,384 | 37.6 | % | $ | 24,356 | $ | 23,358 | $ | 998 | 4.3 | % | ||||||||||||||||||||||||||||||||||||||||
| (1) These are non-GAAP metrics. For a description and reconciliation of each Non-GAAP metric, see "Supplemental Non-GAAP Financial Information." | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada Segment Results | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| (dollars in thousands, unaudited) | 2019 | 2018 | Change $ | Change % | 2019 | 2018 | Change $ | Change % | |||||||||||||||
| Revenue | $ | 54,254 | $ | 47,043 | $ | 7,211 | 15.3 | % | $ | 106,074 | $ | 93,293 | $ | 12,781 | 13.7 | % | |||||||
| Provision for losses | 19,458 | 14,360 | 5,098 | 35.5 | % | 36,863 | 26,910 | 9,953 | 37.0 | % | |||||||||||||
| Net revenue | 34,796 | 32,683 | 2,113 | 6.5 | % | 69,211 | 66,383 | 2,828 | 4.3 | % | |||||||||||||
| Advertising costs | 1,601 | 2,704 | (1,103 | ) | (40.8 | )% | 3,033 | 5,430 | (2,397 | ) | (44.1 | )% | |||||||||||
| Non-advertising costs of providing services | 17,081 | 16,679 | 402 | 2.4 | % | 34,370 | 33,151 | 1,219 | 3.7 | % | |||||||||||||
| Total cost of providing services | 18,682 | 19,383 | (701 | ) | (3.6 | )% | 37,403 | 38,581 | (1,178 | ) | (3.1 | )% | |||||||||||
| Gross margin | 16,114 | 13,300 | 2,814 | 21.2 | % | 31,808 | 27,802 | 4,006 | 14.4 | % | |||||||||||||
| Corporate, district and other expenses | 5,641 | 4,759 | 882 | 18.5 | % | 10,849 | 9,656 | 1,193 | 12.4 | % | |||||||||||||
| Interest expense | 2,382 | 7 | 2,375 | # | 5,344 | 64 | 5,280 | # | |||||||||||||||
| Total operating expense | 8,023 | 4,766 | 3,257 | 68.3 | % | 16,193 | 9,720 | 6,473 | 66.6 | % | |||||||||||||
| Segment operating income | 8,091 | 8,534 | (443 | ) | (5.2 | )% | 15,615 | 18,082 | (2,467 | ) | (13.6 | )% | |||||||||||
| Interest expense | 2,382 | 7 | 2,375 | # | 5,344 | 64 | 5,280 | # | |||||||||||||||
| Depreciation and amortization | 1,214 | 1,091 | 123 | 11.3 | % | 2,408 | 2,219 | 189 | 8.5 | % | |||||||||||||
| EBITDA | 11,687 | 9,632 | 2,055 | 21.3 | % | 23,367 | 20,365 | 3,002 | 14.7 | % | |||||||||||||
| Restructuring costs | — | — | — | 135 | — | 135 | |||||||||||||||||
| Other adjustments | (33 | ) | 157 | (190 | ) | (144 | ) | 173 | (317 | ) | |||||||||||||
| Adjusted EBITDA | $ | 11,654 | $ | 9,789 | $ | 1,865 | 19.1 | % | $ | 23,358 | $ | 20,538 | $ | 2,820 | 13.7 | % | |||||||
| # - Change greater than 100% or not meaningful. | |||||||||||||||||||||||
Canada Segment Results - For the three months ended June 30, 20192020 and 20182019
Canada revenue increased $7.2decreased $9.1 million, or 15.3%16.7% ($7.4 million, or 13.6%, on a constant-currency basis), to $54.3$45.2 million for the three months ended June 30, 2019,2020, from $47.0$54.3 million in the prior year, as a result of the declines in gross loans receivable discussed previously.
Canada non-Single-Pay revenue increased $1.6 million, or 4.6% ($3.0 million, or 8.5%, on a constant-currency basis), to $36.8 million, compared to $35.2 million in the prior-year period. On a constant currency basis, revenue increased $9.2period, on growth of $9.1 million, or 3.9% ($20.0 million, or 19.5%. Revenue8.6%, on a constant-currency basis), in related loan balances. The increase was driven by continued growth in Canada was impacted favorably by the significant asset growth and the product transition from Single-Pay and Unsecured Installmentof Open-End loans despite COVID-19 Impacts. Ancillary revenue, which includes sales of insurance to Open-End loans. Additionally, Canada revenue forloan customers, decreased $1.2 million, or 11.0% ($0.8 million, or 7.7%, on a constant-currency basis). The decrease was driven by additional insurance claims from consumers impacted by COVID-19 during the three months ended June 30, 2019 included interest earned on past-due Open-End loan balancessecond quarter of approximately $2 million from the Q1 2019 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.2020.
Single-Pay revenue decreased $14.2$10.7 million, or 42.7%55.9% ($10.4 million, or 54.3%, on a constant-currency basis), to $19.1$8.4 million for the three months ended June 30, 2019,2020, and Single-Pay receivables decreased $12.2$20.9 million, or 25.8%59.6% ($20.3 million, or 57.7%, on a constant-currency basis), to $35.1$14.2 million, from $47.3$35.1 million, in the prior year. The decreases in Single-Pay revenue and receivables were due to the continued product mix shifta significant decline in Canada from Single-Pay loansdemand attributable to Open-End loans and by regulatory changes effective January and July 2018 that lowered Single Pay pricing year-over-year.COVID-19 Impacts.
The provision for losses increased $5.1decreased $10.3 million, or 35.5%52.9% ($10.0 million, or 51.3%, on a constant-currency basis), to $19.5$9.2 million for the three months ended June 30, 2019,2020, compared to $14.4$19.5 million in the prior-year period, becauseperiod. The decrease in provision for loan losses was primarily a result of mix shift from Single-Pay loans to Unsecured Installmentlower loan volume 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 quarterlower NCOs as a result of 2019, compared to sequential growth of $20.9 million in the second quarter of 2018.COVID-19 Impacts as discussed previously. On a constant currencyquarterly basis, provision for losses increased by $5.8 million,despite COVID-19 Impacts, loss rates improved approximately 190 bps, or 40.5% compared28.4%, year over year due to the prior-year period.stimulus-related pay-downs and overall portfolio maturation.
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2019, primarily related to certain cost reductions to manage COVID-19 Impacts and reduced advertising efforts during the second quarter of providing services of $0.4 million. There was no material impact on the cost of providing services from exchange rate changes.2020.
Canada operating expenses increased $3.3 million, or 68.3%, to $8.0 million infor the three months ended June 30, 2019 from $4.82020 were $9.3 million, an increase of $1.3 million, or 16.5% ($1.6 million, or 20.0%, on a constant-currency basis), compared to $8.0 million in the prior-year period, primarily duerelated to interest expense on the Non-Recourse Canada SPV Facility that began$2.2 million of Canadian GST described in August 2018.our reconciliation to Adjusted Net Income above.
Canada Segment Results - For the six months ended June 30, 20192020 and 20182019
Canada revenue increased $12.8decreased $1.8 million, or 13.7%1.7% (increased $0.3 million, or 0.3%, on a constant-currency basis), to $106.1$104.2 million for the six months ended June 30, 20192020, from $93.3$106.1 million in the prior year as a result of the declines in gross loans receivable.
Canada non-Single-Pay revenue increased $11.4 million, or 17.0% ($12.9 million, or 19.2%, on a constant-currency basis), to $78.8 million, compared to $67.4 million in the prior-year period. On a constant currency basis, revenue increased $17.5period, on growth of $9.1 million, or 3.9% ($20.0 million, or 18.7%. Revenue8.6%, on a constant-currency basis), in related loan balances. The increase was driven by continued growth in Canada was impacted favorably by the significant asset growth and product transition from Single-Pay and Unsecured Installment loansof Open-End loan despite COVID-19 related impacts. Ancillary revenue, which includes sales of insurance to Open-End loans that have a lower yield. Additionally, Canada revenues forloan customers, remained flat year-over-year due to increased insurance claims from consumers impacted by COVID-19 during the six months ended June 30, 2019 included interest earned on past-due Open-End loan balancessecond quarter 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.2020.
Single-Pay revenue decreased $28.9$13.3 million, or 42.8%34.3% ($12.9 million, or 33.5%, on a constant-currency basis), to $38.7$25.4 million for the six months ended June 30, 2019,2020, and Single-Pay receivables decreased $12.2$20.9 million, or 25.8%59.6% ($20.3 million, or 57.7% on a constant-currency basis), to $35.1$14.2 million from $47.3$35.1 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.as well as significant declines in demand attributable to COVID-19 Impacts.
The provision for losses increased $10.0decreased $0.2 million, or 37.0%0.6% (increased $0.5 million, or 1.3%, on a constant-currency basis), to $36.7 million for the six months ended June 30, 2020, compared to $36.9 million in the prior-year period. The decrease in provision for loan losses was primarily a result lower loan volume and lower NCOs as a result of COVID-19 Impacts as discussed previously. On a quarterly basis, despite COVID-19 Impacts, loss rates improved approximately 190 bps, or 28.4%, year over year due to stimulus-related pay-downs.
Canada cost of providing services for the six months ended June 30, 2020 was $35.8 million, a decrease of $1.6 million, or 4.4% ($0.9 million, or 2.3%, on a constant-currency basis), compared to $37.4 million for the six months ended June 30, 2019, comparedprimarily related to $26.9 million in the prior-year period primarily duecertain cost reductions to provisioning on Open-End loansmanage COVID-19 Impacts 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 duringreduced advertising efforts through 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.2020.
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, gain or loss from equity method investment, goodwill and intangible asset impairments, certain costs related to the disposition of U.K., transaction-related costs, share-based compensation, intangible asset amortizationamortization. certain tax adjustments and impacts from tax law changes and cumulative tax effect of applicable adjustments, on a total and per share basis);
•EBITDA (earnings(net income from continuing operations before interest, income taxes, depreciation and amortization);
•Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items);
•Adjusted effective income tax rate (effective tax rate plus or minus certain non-cash and other adjusting items); and
•Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in our unaudited Condensed Consolidated Financial Statements).
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We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of the Company's operations. We believe that these non-GAAP financial measures offer another way to view aspects of our business that, when viewed with our US GAAP results, provide a more complete understanding of factors and trends affecting our business.
We believe that investors regularly rely on non-GAAP financial measures, such as Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA, to assess operating performance and that such measures may highlight trends in the business that may not otherwise be apparent when relying on financial measures calculated in accordance with 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 unaudited Condensed Consolidated Financial Statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income or any other performance measure derived in accordance with 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 believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate our ability to incur and service debt and the capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. The computation of
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Adjusted EBITDA as presented in this Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.
Reconciliation of Net income from continuing operations and Diluted Earnings per Share to Adjusted Net incomeIncome and Adjusted Diluted Earnings per Share, non-GAAP measures (in thousands, except per share data, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change $ | Change % | 2020 | 2019 | Change $ | Change % | ||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 21,080 | $ | 17,667 | $ | 3,413 | 19.3 | % | $ | 57,093 | $ | 46,340 | $ | 10,753 | 23.2 | ||||||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
Legal and related costs (1) | 938 | — | 2,087 | 1,752 | |||||||||||||||||||||||||||||||||||||||||||
U.K. related costs (2) | — | 679 | — | 8,496 | |||||||||||||||||||||||||||||||||||||||||||
(Gain) loss from equity method investment (3) | (741) | 3,748 | 877 | 3,748 | |||||||||||||||||||||||||||||||||||||||||||
Share-based compensation (4) | 3,310 | 2,644 | 6,504 | 4,816 | |||||||||||||||||||||||||||||||||||||||||||
| Intangible asset amortization | 759 | 761 | 1,496 | 1,557 | |||||||||||||||||||||||||||||||||||||||||||
Canada GST adjustment (5) | 2,160 | — | 2,160 | — | |||||||||||||||||||||||||||||||||||||||||||
Income tax valuations (6) | (3,472) | — | (3,472) | — | |||||||||||||||||||||||||||||||||||||||||||
Impact of tax law changes (7) | — | — | (9,114) | — | |||||||||||||||||||||||||||||||||||||||||||
Cumulative tax effect of adjustments (8) | (1,864) | (1,062) | (3,185) | (4,322) | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted Net Income | $ | 22,170 | $ | 24,437 | $ | (2,267) | (9.3) | % | $ | 54,446 | $ | 62,387 | $ | (7,941) | (12.7) | % | |||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 21,080 | $ | 17,667 | $ | 57,093 | $ | 46,340 | |||||||||||||||||||||||||||||||||||||||
Diluted Weighted Average Shares Outstanding | 41,545 | 47,107 | 41,686 | 47,335 | |||||||||||||||||||||||||||||||||||||||||||
| Diluted Earnings per Share from continuing operations | $ | 0.51 | $ | 0.38 | $ | 0.13 | 34.2 | % | $ | 1.37 | $ | 0.98 | $ | 0.39 | 39.8 | ||||||||||||||||||||||||||||||||
| Per Share impact of adjustments to Net income | 0.02 | 0.14 | (0.06) | 0.34 | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted Diluted Earnings per Share | $ | 0.53 | $ | 0.52 | $ | 0.01 | 1.9 | % | $ | 1.31 | $ | 1.32 | $ | (0.01) | (0.8) | % | |||||||||||||||||||||||||||||||
| Note: Footnotes follow Reconciliation of Adjusted EBITDA table immediately below. | |||||||||||||||||||||||||||||||||||||||||||||||
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| 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 | % | |||||||
Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change $ | Change % | 2020 | 2019 | Change $ | Change % | ||||||||||||||||||||||||||||||||||||||||
| Net income from continuing operations | $ | 21,080 | $ | 17,667 | $ | 3,413 | 19.3 | % | $ | 57,093 | $ | 46,340 | $ | 10,753 | 23.2 | ||||||||||||||||||||||||||||||||
| Provision for income taxes | 1,068 | 7,453 | (6,385) | (85.7) | % | 3,005 | 17,499 | (14,494) | (82.8) | ||||||||||||||||||||||||||||||||||||||
| Interest expense | 18,311 | 17,023 | 1,288 | 7.6 | % | 35,635 | 34,713 | 922 | 2.7 | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 4,417 | 4,651 | (234) | (5.0) | % | 8,954 | 9,571 | (617) | (6.4) | % | |||||||||||||||||||||||||||||||||||||
| EBITDA | 44,876 | 46,794 | (1,918) | (4.1) | % | 104,687 | 108,123 | (3,436) | (3.2) | ||||||||||||||||||||||||||||||||||||||
Legal and related costs (1) | 938 | — | 2,087 | 1,752 | |||||||||||||||||||||||||||||||||||||||||||
U.K. related costs (2) | — | 679 | — | 8,496 | |||||||||||||||||||||||||||||||||||||||||||
(Gain) loss from equity method investment (3) | (741) | 3,748 | 877 | 3,748 | |||||||||||||||||||||||||||||||||||||||||||
Share-based compensation (4) | 3,310 | 2,644 | 6,504 | 4,816 | |||||||||||||||||||||||||||||||||||||||||||
Canada GST adjustment (5) | 2,160 | — | 2,160 | — | |||||||||||||||||||||||||||||||||||||||||||
Other adjustments (9) | 586 | (176) | 601 | (392) | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 51,129 | $ | 53,689 | $ | (2,560) | (4.8) | % | $ | 116,916 | $ | 126,543 | $ | (9,627) | (7.6) | % | |||||||||||||||||||||||||||||||
| Adjusted EBITDA Margin | 28.0 | % | 20.3 | % | 25.2 | 23.3 | % | ||||||||||||||||||||||||||||||||||||||||
| 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 | # | |||||||
| Provision for income taxes | 7,453 | 5,178 | 2,275 | 43.9 | % | 17,499 | 16,645 | 854 | 5.1 | % | |||||||||||||
| Interest expense | 17,023 | 20,472 | (3,449 | ) | (16.8 | )% | 34,713 | 42,826 | (8,113 | ) | (18.9 | )% | |||||||||||
| Depreciation and amortization | 4,651 | 4,470 | 181 | 4.0 | % | 9,571 | 9,005 | 566 | 6.3 | % | |||||||||||||
| EBITDA | 46,794 | 48,838 | (2,044 | ) | (4.2 | )% | 108,123 | 112,107 | (3,984 | ) | (3.6 | )% | |||||||||||
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 | |||||||||||||||||||
Other adjustments (7) | (176 | ) | 91 | (392 | ) | 48 | |||||||||||||||||
| Adjusted EBITDA | $ | 53,689 | $ | 51,110 | $ | 2,579 | 5.0 | % | $ | 126,543 | $ | 127,861 | $ | (1,318 | ) | (1.0 | )% | ||||||
| Adjusted EBITDA Margin | 20.3 | % | 21.6 | % | 23.3 | % | 26.2 | % | |||||||||||||||
| (1) | |||||
Legal and other costs of $1.8 million for the six months ended June 30, 2019 were due to eliminating 121 positions in North America. The store employee reductions | |||||
| (2) | U.K. related costs of $8.5 million for the six months ended June 30, 2019 relate to placing the U.K. subsidiaries into administration on February 25, 2019, which included $7.6 million to obtain consent from the holders of the 8.25% Senior Secured Notes to deconsolidate the U.K. Segment and $0.9 million for other costs. | ||||
| (3) | The Loss from equity method investment for the six months ended June 30, 2020 of $0.9 million includes our share of the estimated GAAP net loss of Katapult. As of June 30, 2020, we owned 42.5% of the outstanding shares of Katapult. The Loss from equity method investment for the six months ended June 30, 2019 of $3.7 million represented the market value adjustment recognized during the second quarter of 2019 as a result of an equity raising round from April through July of 2019 | ||||
We approved the adoption of share-based compensation plans during 2010 and 2017 for key members of senior management. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period. | |||||
| (5) | We received a | ||||
| (6) | In the second quarter of 2020, a Texas court ruling related to the apportionment of income to the state for another company resulted in a change in estimate regarding the realization of a tax benefit previously taken. Accordingly, we recorded a $1.1 million liability for our estimated exposure related to this position. Also in the second quarter of 2020, we released a $4.6 million valuation allowance related to NOLs for certain entities in Canada. | ||||
| (7) | On March 27, 2020, the CARES Act was enacted by the U.S. Federal government in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the | ||||
| Cumulative tax effect of adjustments included in Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA table is calculated using the estimated incremental tax rate by country. | |||||
| (9) | Other adjustments primarily include | ||||
Currency Information
We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.
56
Constant Currency Analysis
We have operations in the U.S. and Canada. In the three months ended June 30, 2020 and 2019, 24.8% and 2018, approximately 20.5% and 19.8%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. In the six months ended June 30, 2020 and 2019, 22.5% and 19.6%, respectively, of our revenues from continuing operations were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.
Income Statement - Three Months Ended June 30, 20192020 and 20182019
| Average Exchange Rates | |||||||||||||||||||||||
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| Canadian Dollar | $ | 0.7215 | $ | 0.7477 | ($0.0262) | (3.5) | % | ||||||||||||||||
| Average Exchange Rates | ||||||||||||
| Three Months Ended June 30, | Change | |||||||||||
| 2019 | 2018 | $ | % | |||||||||
| Canadian Dollar | $ | 0.7477 | $ | 0.7749 | ($0.0272 | ) | (3.5 | )% | ||||
Income Statement - Six Months Ended June 30, 20192020 and 20182019
| Average Exchange Rates | ||||||||||||
| Six Months Ended June 30, | Change | |||||||||||
| 2019 | 2018 | $ | % | |||||||||
| Canadian Dollar | $ | 0.7501 | $ | 0.7831 | ($0.0330 | ) | (4.2 | )% | ||||
| Average Exchange Rates | |||||||||||||||||||||||
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| Canadian Dollar | $ | 0.7335 | $ | 0.7501 | ($0.0166) | (2.2) | % | ||||||||||||||||
Balance Sheet - Exchange rate as of June 30, 2020 and December 31, 2019
| Exchange Rate as of | |||||||||||||||||||||||
| June 30, | December 31, | Change | |||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| Canadian Dollar | $ | 0.7312 | $ | 0.7683 | ($0.0371) | (4.8) | % | ||||||||||||||||
The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
| Three Months Ended June 30, | Change | |||||||||||||||||||||||||||||||||||||
| (in thousands, unaudited) | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||
| Canada – constant currency basis: | ||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 46,858 | $ | 54,254 | $ | (7,396) | (13.6) | % | ||||||||||||||||||||||||||||||
| Gross Margin | $ | 20,406 | $ | 16,114 | $ | 4,292 | 26.6 | % | ||||||||||||||||||||||||||||||
57
| Three Months Ended June 30, | Change | |||||||||||||||
| (dollars in thousands, unaudited) | 2019 | 2018 | $ | % | ||||||||||||
| Canada – constant currency basis: | ||||||||||||||||
| Revenues | $ | 56,224 | $ | 47,043 | $ | 9,181 | 19.5 | % | ||||||||
| Gross Margin | 16,691 | 13,300 | 3,391 | 25.5 | % | |||||||||||
| Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||||||||||
| (in thousands, unaudited) | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||
| Canada – constant currency basis: | ||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 106,382 | $ | 106,074 | $ | 308 | 0.3 | % | ||||||||||||||||||||||||||||||
| Gross Margin | $ | 32,523 | $ | 31,808 | $ | 715 | 2.2 | % | ||||||||||||||||||||||||||||||
| 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 | % | |||||||||||
We calculated gross loans receivable below as of June 30, 2020 using the actual exchange rate as of December 31, 2019.
| June 30, | December 31, | Change | ||||||||||||||||||||||||||||||
| (in thousands, unaudited) | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||
| Canada – constant currency basis: | ||||||||||||||||||||||||||||||||
| Gross loans receivable | $ | 269,802 | $ | 302,376 | $ | (32,574) | (10.8) | % | ||||||||||||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, our Senior Revolver, our Cash Money Revolving Credit Facility, funds from third-party lenders under our CSO programs, our Non-Recourse U.S. SPV Facility and our Non-Recourse Canada SPV Facility (defined below). DuringFacility. Additionally, in August 2018, we issued $690.0 million 8.25% Senior Secured Notes due September 2025 ("8.25% Senior Secured Notes") 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.2025.
As of June 30, 2019,2020, 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 previously announced in the form of dividends.
Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable.
Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers 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.shortfalls, such as tightening our credit approval practices (as we have done during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments. We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements andor reduce our capital spending in order to generate additional liquidity. As a result of lower consumer demand, increased or accelerated repayments as customers benefited from government stimulus programs, our decision to tighten credit and the resulting favorable credit performance, and the runoff of California Installment loans, our available cash on hand was $269.3 million and our total liquidity was $363.4 million as of June 30, 2020. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.
58
Borrowings
Our long-term debt consisted of the following as of June 30, 2019 and December 31, 2018 (net2020, net of deferred financing costs)costs (in thousands):
| Capacity | Interest Rate | Maturity | Counter-parties | Balance as of June 30, 2020 | ||||||||||||||||||||||||||||||||||
Non-Recourse Canada SPV Facility (1) | C$175.0 million | 3-Mo CDOR + 6.75% | September 2, 2023 | Waterfall Asset Management | $ | 88,789 | ||||||||||||||||||||||||||||||||
| Senior Secured Revolving Credit Facility | $50.0 million | 1-Mo LIBOR + 5.00% | June 30, 2021 | BayCoast Bank; Stride Bank; Hancock-Whitney Bank; Metropolitan Commercial Bank | — | |||||||||||||||||||||||||||||||||
| Non-Recourse U.S. SPV Facility | $200.0 million | 1-Mo LIBOR + 6.25(2) | April 8, 2024 | Atalaya Capital Management | 31,896 | |||||||||||||||||||||||||||||||||
Cash Money Revolving Credit Facility (1) | C$10.0 million | Canada Prime Rate +1.95% | On-demand | Royal Bank of Canada | — | |||||||||||||||||||||||||||||||||
| 8.25% Senior Secured Notes (due 2025) | $690.0 million | 8.25% | September 1, 2025 | $ | 679,143 | |||||||||||||||||||||||||||||||||
| (1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of June 30, 2020 are denominated in U.S. dollars. | ||||||||||||||||||||||||||||||||||||||
| (2) The Non-Recourse U.S. SPV Facility initially provided for $100.0 million of borrowing capacity and, on July 31, 2020, additional commitments were obtained increasing capacity to $200.0 million. As a result of the increase in commitments, interest now accrues at an annual rate of one-month LIBOR (with a floor of 1.65%) plus 6.25% on balances up to $145.5 million. Balances over that amount accrue interest at an annual rate of one-month LIBOR (with a floor of 1.65%) plus 9.75%. | ||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
| 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 | ||
(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 we capitalized financing costs of approximately $12.9 million,that were redeemed in August 2018, (y) CURO Intermediate, but excluding the balance ofU.S. SPV and Canada SPV (the “Subsidiary Guarantors”), on a consolidated basis, which is included in the Condensed Consolidated Balance Sheets as a component of Long-Term Debt,are 100% owned by CURO, and is being amortized over the termwhich are guarantors of the 8.25% Senior Secured Notes and included asissued in August 2018;
(iii)The Non-Recourse U.S. SPV facility, a component of interest expense.wholly-owned, bankruptcy-remote special purpose subsidiary, created in April 2020;
(iv)The Non-Recourse Canada SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary;
(vi)Consolidating and eliminating entries representing adjustments to:
2.eliminate the investments in subsidiaries; and
For additional details, see Note 5, "Debt."
59
Condensed Consolidating Balance Sheets
| June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | U.S. SPV | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 193,605 | $ | — | $ | — | $ | 75,737 | $ | — | $ | 269,342 | |||||||||||||||||||||||||||
| Restricted cash | — | 21,142 | 16,455 | 22,793 | 2,884 | — | 63,274 | ||||||||||||||||||||||||||||||||||
| Loans receivable, net | — | 105,903 | 47,925 | 194,915 | 31,314 | — | 380,057 | ||||||||||||||||||||||||||||||||||
| Income taxes receivable | 42,755 | (24,444) | — | — | 494 | — | 18,805 | ||||||||||||||||||||||||||||||||||
| Prepaid expenses and other | — | 24,616 | — | 699 | 7,545 | — | 32,860 | ||||||||||||||||||||||||||||||||||
| Property and equipment, net | — | 39,974 | — | — | 24,285 | — | 64,259 | ||||||||||||||||||||||||||||||||||
| Right of use asset - operating leases | — | 73,402 | — | — | 38,458 | — | 111,860 | ||||||||||||||||||||||||||||||||||
| Deferred tax assets | 14,230 | (14,230) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Goodwill | — | 105,922 | — | — | 28,055 | — | 133,977 | ||||||||||||||||||||||||||||||||||
| Other intangibles, net | — | 14,429 | — | — | 21,278 | — | 35,707 | ||||||||||||||||||||||||||||||||||
| Intercompany receivable | — | 142,884 | — | — | — | (142,884) | — | ||||||||||||||||||||||||||||||||||
| Investment in subsidiaries | 136,508 | — | — | — | — | (136,508) | — | ||||||||||||||||||||||||||||||||||
| Other assets | — | 16,366 | — | — | 652 | — | 17,018 | ||||||||||||||||||||||||||||||||||
| Total assets | $ | 193,493 | $ | 699,569 | $ | 64,380 | $ | 218,407 | $ | 230,702 | $ | (279,392) | $ | 1,127,159 | |||||||||||||||||||||||||||
| Liabilities and Stockholders' equity (deficit): | |||||||||||||||||||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | (15) | $ | 49,273 | $ | 240 | $ | 20,327 | $ | (5,865) | $ | — | $ | 63,960 | |||||||||||||||||||||||||||
| Deferred revenue | — | 3,202 | 77 | 34 | 1,661 | — | 4,974 | ||||||||||||||||||||||||||||||||||
| Lease liability - operating leases | — | 81,314 | — | — | 38,453 | — | 119,767 | ||||||||||||||||||||||||||||||||||
| Income taxes payable | (6,796) | 6,796 | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Accrued interest | 18,975 | — | 362 | 668 | — | — | 20,005 | ||||||||||||||||||||||||||||||||||
| Liability for losses on CSO lender-owned consumer loans | — | 5,164 | — | — | — | — | 5,164 | ||||||||||||||||||||||||||||||||||
| Debt | 679,143 | — | 31,896 | 88,789 | — | — | 799,828 | ||||||||||||||||||||||||||||||||||
| Intercompany payable | — | (16,393) | 16,393 | 41,443 | 101,441 | (142,884) | — | ||||||||||||||||||||||||||||||||||
| Payable to CURO Holdings Corp. | (600,167) | 600,167 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other long-term liabilities | — | 11,402 | — | — | 59 | — | 11,461 | ||||||||||||||||||||||||||||||||||
| Deferred tax liabilities | 9,411 | — | — | — | (353) | — | 9,058 | ||||||||||||||||||||||||||||||||||
| Total liabilities | 100,551 | 740,925 | 48,968 | 151,261 | 135,396 | (142,884) | 1,034,217 | ||||||||||||||||||||||||||||||||||
| Stockholders' equity (deficit) | 92,942 | (41,356) | 15,412 | 67,146 | 95,306 | (136,508) | 92,942 | ||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 193,493 | $ | 699,569 | $ | 64,380 | $ | 218,407 | $ | 230,702 | $ | (279,392) | $ | 1,127,159 | |||||||||||||||||||||||||||
60
| December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 44,727 | $ | — | $ | 30,515 | $ | — | $ | 75,242 | ||||||||||||||||||||||||||
| Restricted cash | — | 14,958 | 17,427 | 2,394 | — | 34,779 | ||||||||||||||||||||||||||||||||
| Loans receivable, net | — | 286,881 | 220,067 | 52,045 | — | 558,993 | ||||||||||||||||||||||||||||||||
| Right of use asset - operating leases | — | 74,845 | — | 42,608 | — | 117,453 | ||||||||||||||||||||||||||||||||
| Deferred tax asset | 8,561 | (3,506) | — | — | — | 5,055 | ||||||||||||||||||||||||||||||||
| Income taxes receivable | 19,690 | (8,987) | — | 723 | — | 11,426 | ||||||||||||||||||||||||||||||||
| Prepaid expenses and other | — | 26,623 | — | 9,267 | — | 35,890 | ||||||||||||||||||||||||||||||||
| Property and equipment, net | — | 43,618 | — | 27,193 | — | 70,811 | ||||||||||||||||||||||||||||||||
| Goodwill | — | 91,131 | — | 29,478 | — | 120,609 | ||||||||||||||||||||||||||||||||
| Other intangibles, net | — | 11,569 | — | 22,358 | — | 33,927 | ||||||||||||||||||||||||||||||||
| Intercompany receivable | — | 113,599 | — | — | (113,599) | — | ||||||||||||||||||||||||||||||||
| Investment in subsidiaries | 84,514 | — | — | — | (84,514) | — | ||||||||||||||||||||||||||||||||
| Other assets | — | 17,006 | — | 704 | — | 17,710 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 112,765 | $ | 712,464 | $ | 237,494 | $ | 217,285 | $ | (198,113) | $ | 1,081,895 | ||||||||||||||||||||||||||
| Liabilities and Stockholder's equity (deficit): | ||||||||||||||||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 465 | $ | 48,333 | $ | 13,462 | $ | (2,177) | $ | — | $ | 60,083 | ||||||||||||||||||||||||||
| Deferred revenue | — | 6,828 | 46 | 3,296 | — | 10,170 | ||||||||||||||||||||||||||||||||
| Lease liability - operating leases | — | 82,593 | — | 42,406 | — | 124,999 | ||||||||||||||||||||||||||||||||
| Accrued interest | 18,975 | 1 | 871 | — | — | 19,847 | ||||||||||||||||||||||||||||||||
| Payable to CURO Holdings Corp. | (635,511) | 635,511 | — | — | — | — | ||||||||||||||||||||||||||||||||
| CSO liability for losses | — | 10,623 | — | — | — | 10,623 | ||||||||||||||||||||||||||||||||
| Debt | 678,323 | — | 112,221 | — | — | 790,544 | ||||||||||||||||||||||||||||||||
| Intercompany payable | — | — | 69,639 | 43,960 | (113,599) | — | ||||||||||||||||||||||||||||||||
| Other liabilities | — | 10,285 | — | 379 | — | 10,664 | ||||||||||||||||||||||||||||||||
| Liabilities from discontinued operations | — | — | — | 4,452 | — | 4,452 | ||||||||||||||||||||||||||||||||
| Total liabilities | 62,252 | 794,174 | 196,239 | 92,316 | (113,599) | 1,031,382 | ||||||||||||||||||||||||||||||||
| Stockholders' equity (deficit) | 50,513 | (81,710) | 41,255 | 124,969 | (84,514) | 50,513 | ||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 112,765 | $ | 712,464 | $ | 237,494 | $ | 217,285 | $ | (198,113) | $ | 1,081,895 | ||||||||||||||||||||||||||
61
Condensed Consolidating Statements of 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.Operations
| Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | U.S. SPV | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||||
| Revenue | $ | — | $ | 97,485 | $ | 39,835 | $ | 30,372 | $ | 14,817 | $ | — | $ | 182,509 | |||||||||||||||||||||||||||
| Provision for losses | — | 18,352 | 23,178 | 9,244 | (81) | — | 50,693 | ||||||||||||||||||||||||||||||||||
| Net revenue | — | 79,133 | 16,657 | 21,128 | 14,898 | — | 131,816 | ||||||||||||||||||||||||||||||||||
| Cost of providing services: | |||||||||||||||||||||||||||||||||||||||||
| Salaries and benefits | — | 16,663 | — | — | 8,060 | — | 24,723 | ||||||||||||||||||||||||||||||||||
| Occupancy | — | 7,586 | — | — | 5,457 | — | 13,043 | ||||||||||||||||||||||||||||||||||
| Office | — | 2,777 | — | — | 1,023 | — | 3,800 | ||||||||||||||||||||||||||||||||||
| Other costs of providing services | — | 6,635 | — | — | 1,366 | — | 8,001 | ||||||||||||||||||||||||||||||||||
| Advertising | — | 5,269 | — | — | 481 | — | 5,750 | ||||||||||||||||||||||||||||||||||
| Total cost of providing services | — | 38,930 | — | — | 16,387 | — | 55,317 | ||||||||||||||||||||||||||||||||||
| Gross margin | — | 40,203 | 16,657 | 21,128 | (1,489) | — | 76,499 | ||||||||||||||||||||||||||||||||||
| Operating expense (income): | |||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 3,398 | 26,197 | 37 | 104 | 7,045 | — | 36,781 | ||||||||||||||||||||||||||||||||||
| Intercompany management fee | — | (3,345) | — | 645 | 2,700 | — | — | ||||||||||||||||||||||||||||||||||
| Interest expense | 14,647 | 258 | 1,208 | 2,112 | 86 | — | 18,311 | ||||||||||||||||||||||||||||||||||
| Gain from equity method investment | — | (741) | — | — | — | — | (741) | ||||||||||||||||||||||||||||||||||
| Intercompany interest (income) expense | — | (1,442) | — | 533 | 909 | — | — | ||||||||||||||||||||||||||||||||||
| Total operating expense | 18,045 | 20,927 | 1,245 | 3,394 | 10,740 | — | 54,351 | ||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (18,045) | 19,276 | 15,412 | 17,734 | (12,229) | — | 22,148 | ||||||||||||||||||||||||||||||||||
| Provision (benefit) for income tax expense | (2,872) | 7,504 | — | — | (3,564) | — | 1,068 | ||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | (15,173) | 11,772 | 15,412 | 17,734 | (8,665) | — | 21,080 | ||||||||||||||||||||||||||||||||||
| Net income on discontinued operations | — | — | — | — | 993 | — | 993 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | (15,173) | 11,772 | 15,412 | 17,734 | (7,672) | — | 22,073 | ||||||||||||||||||||||||||||||||||
| Equity in net income (loss) of subsidiaries: | |||||||||||||||||||||||||||||||||||||||||
| CFTC | 37,246 | — | — | — | — | (37,246) | — | ||||||||||||||||||||||||||||||||||
| Guarantor Subsidiaries | — | 11,772 | — | — | — | (11,772) | — | ||||||||||||||||||||||||||||||||||
| Non-Guarantor Subsidiaries | — | (7,672) | — | — | — | 7,672 | — | ||||||||||||||||||||||||||||||||||
| U.S. SPV | — | 15,412 | — | — | — | (15,412) | — | ||||||||||||||||||||||||||||||||||
| Canada SPV | — | 17,734 | — | — | — | (17,734) | — | ||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to CURO | $ | 22,073 | $ | 49,018 | $ | 15,412 | $ | 17,734 | $ | (7,672) | $ | (74,492) | $ | 22,073 | |||||||||||||||||||||||||||
62
| Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | |||||||||||||||||||||||||||||
| Revenue | $ | — | $ | 210,046 | $ | 26,092 | $ | 28,162 | $ | — | $ | 264,300 | |||||||||||||||||||||||
| Provision for losses | — | 92,552 | 13,114 | 6,344 | — | 112,010 | |||||||||||||||||||||||||||||
| Net revenue | — | 117,494 | 12,978 | 21,818 | — | 152,290 | |||||||||||||||||||||||||||||
| Cost of providing services: | |||||||||||||||||||||||||||||||||||
| Salaries and benefits | — | 17,422 | — | 8,664 | — | 26,086 | |||||||||||||||||||||||||||||
| Occupancy | — | 8,033 | — | 5,899 | — | 13,932 | |||||||||||||||||||||||||||||
| Office | — | 4,004 | — | 1,453 | — | 5,457 | |||||||||||||||||||||||||||||
| Other costs of providing services | — | 11,789 | — | 1,065 | — | 12,854 | |||||||||||||||||||||||||||||
| Advertising | — | 11,179 | — | 1,601 | — | 12,780 | |||||||||||||||||||||||||||||
| Total cost of providing services | — | 52,427 | — | 18,682 | — | 71,109 | |||||||||||||||||||||||||||||
| Gross margin | — | 65,067 | 12,978 | 3,136 | — | 81,181 | |||||||||||||||||||||||||||||
| Operating (income) expense: | |||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 2,631 | 30,766 | (781) | 6,422 | — | 39,038 | |||||||||||||||||||||||||||||
| Intercompany management fee | — | (3,237) | 8 | 3,229 | — | — | |||||||||||||||||||||||||||||
| Interest expense | 14,614 | 27 | 2,375 | 7 | — | 17,023 | |||||||||||||||||||||||||||||
| Intercompany interest (income) expense | — | (1,513) | 623 | 890 | — | — | |||||||||||||||||||||||||||||
| Total operating expense | 17,245 | 26,043 | 2,225 | 10,548 | — | 56,061 | |||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (17,245) | 39,024 | 10,753 | (7,412) | — | 25,120 | |||||||||||||||||||||||||||||
| Provision (benefit) for income tax expense | (3,232) | 9,591 | — | 1,094 | — | 7,453 | |||||||||||||||||||||||||||||
| Net (loss) income from continuing operations | (14,013) | 29,433 | 10,753 | (8,506) | — | 17,667 | |||||||||||||||||||||||||||||
| Net loss on discontinued operations | — | — | — | (834) | — | (834) | |||||||||||||||||||||||||||||
| Net (loss) income | (14,013) | 29,433 | 10,753 | (9,340) | — | 16,833 | |||||||||||||||||||||||||||||
| Equity in net income (loss) of subsidiaries: | |||||||||||||||||||||||||||||||||||
| CFTC | 30,846 | — | — | — | (30,846) | — | |||||||||||||||||||||||||||||
| Guarantor Subsidiaries | — | 29,433 | — | — | (29,433) | — | |||||||||||||||||||||||||||||
| Non-Guarantor Subsidiaries | — | (9,340) | — | — | 9,340 | — | |||||||||||||||||||||||||||||
| Canada SPV | — | 10,753 | — | (10,753) | — | ||||||||||||||||||||||||||||||
| Net income (loss) attributable to CURO | $ | 16,833 | $ | 60,279 | $ | 10,753 | $ | (9,340) | $ | (61,692) | $ | 16,833 | |||||||||||||||||||||||
63
| Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | U.S. SPV | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||||
| Revenue | $ | — | $ | 319,253 | $ | 39,835 | $ | 64,398 | $ | 39,829 | $ | — | $ | 463,315 | |||||||||||||||||||||||||||
| Provision for losses | — | 104,393 | 23,178 | 28,976 | 7,682 | — | 164,229 | ||||||||||||||||||||||||||||||||||
| Net revenue | — | 214,860 | 16,657 | 35,422 | 32,147 | — | 299,086 | ||||||||||||||||||||||||||||||||||
| Cost of providing services: | |||||||||||||||||||||||||||||||||||||||||
| Salaries and benefits | — | 33,575 | — | — | 17,155 | — | 50,730 | ||||||||||||||||||||||||||||||||||
| Occupancy | — | 15,411 | — | — | 11,648 | — | 27,059 | ||||||||||||||||||||||||||||||||||
| Office | — | 7,077 | — | — | 2,397 | — | 9,474 | ||||||||||||||||||||||||||||||||||
| Other costs of providing services | — | 14,840 | — | — | 2,816 | — | 17,656 | ||||||||||||||||||||||||||||||||||
| Advertising | — | 16,214 | — | — | 1,755 | — | 17,969 | ||||||||||||||||||||||||||||||||||
| Total cost of providing services | — | 87,117 | — | — | 35,771 | — | 122,888 | ||||||||||||||||||||||||||||||||||
| Gross margin | — | 127,743 | 16,657 | 35,422 | (3,624) | — | 176,198 | ||||||||||||||||||||||||||||||||||
| Operating expense (income): | |||||||||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 6,791 | 60,453 | 37 | 278 | 12,029 | — | 79,588 | ||||||||||||||||||||||||||||||||||
| Intercompany management fee | — | (7,144) | — | 1,375 | 5,769 | — | — | ||||||||||||||||||||||||||||||||||
| Interest expense | 29,284 | 467 | 1,208 | 4,733 | (57) | — | 35,635 | ||||||||||||||||||||||||||||||||||
| Loss from equity method investment | — | 877 | — | — | — | — | 877 | ||||||||||||||||||||||||||||||||||
| Intercompany interest (income) expense | — | (2,883) | — | 1,083 | 1,800 | — | — | ||||||||||||||||||||||||||||||||||
| Total operating expense | 36,075 | 51,770 | 1,245 | 7,469 | 19,541 | — | 116,100 | ||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (36,075) | 75,973 | 15,412 | 27,953 | (23,165) | — | 60,098 | ||||||||||||||||||||||||||||||||||
| Provision (benefit) for income tax expense | (26,119) | 32,502 | — | — | (3,378) | — | 3,005 | ||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | (9,956) | 43,471 | 15,412 | 27,953 | (19,787) | — | 57,093 | ||||||||||||||||||||||||||||||||||
| Net income on discontinued operations | — | — | — | — | 1,285 | — | 1,285 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | (9,956) | 43,471 | 15,412 | 27,953 | (18,502) | — | 58,378 | ||||||||||||||||||||||||||||||||||
| Equity in net income (loss) of subsidiaries: | |||||||||||||||||||||||||||||||||||||||||
| CFTC | 68,334 | — | — | — | — | (68,334) | — | ||||||||||||||||||||||||||||||||||
| Guarantor Subsidiaries | — | 43,471 | — | — | — | (43,471) | — | ||||||||||||||||||||||||||||||||||
| Non-Guarantor Subsidiaries | — | (18,502) | — | — | — | 18,502 | — | ||||||||||||||||||||||||||||||||||
| U.S. SPV | — | 15,412 | — | — | — | (15,412) | — | ||||||||||||||||||||||||||||||||||
| Canada SPV | — | 27,953 | — | — | — | (27,953) | — | ||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to CURO | $ | 58,378 | $ | 111,805 | $ | 15,412 | $ | 27,953 | $ | (18,502) | $ | (136,668) | $ | 58,378 | |||||||||||||||||||||||||||
64
| Six Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | |||||||||||||||||||||||||||||
| Revenue | $ | — | $ | 436,165 | $ | 51,138 | $ | 54,936 | $ | — | $ | 542,239 | |||||||||||||||||||||||
| Provision for losses | — | 177,532 | 26,420 | 10,443 | — | 214,395 | |||||||||||||||||||||||||||||
| Net revenue | — | 258,633 | 24,718 | 44,493 | — | 327,844 | |||||||||||||||||||||||||||||
| Cost of providing services: | |||||||||||||||||||||||||||||||||||
| Salaries and benefits | — | 37,373 | — | 17,414 | — | 54,787 | |||||||||||||||||||||||||||||
| Occupancy | — | 16,043 | — | 12,126 | — | 28,169 | |||||||||||||||||||||||||||||
| Office | — | 7,893 | — | 2,677 | — | 10,570 | |||||||||||||||||||||||||||||
| Other costs of providing services | — | 24,921 | — | 2,153 | — | 27,074 | |||||||||||||||||||||||||||||
| Advertising | — | 17,533 | — | 3,033 | — | 20,566 | |||||||||||||||||||||||||||||
| Total cost of providing services | — | 103,763 | — | 37,403 | — | 141,166 | |||||||||||||||||||||||||||||
| Gross margin | — | 154,870 | 24,718 | 7,090 | — | 186,678 | |||||||||||||||||||||||||||||
| Operating expense (income): | |||||||||||||||||||||||||||||||||||
| Corporate, district and other expenses | 4,973 | 72,304 | (755) | 11,604 | — | 88,126 | |||||||||||||||||||||||||||||
| Intercompany management fee | — | (6,300) | 16 | 6,284 | — | — | |||||||||||||||||||||||||||||
| Interest expense | 29,052 | 317 | 5,265 | 79 | — | 34,713 | |||||||||||||||||||||||||||||
| Intercompany interest (income) expense | — | (2,393) | 623 | 1,770 | — | — | |||||||||||||||||||||||||||||
| Total operating expense | 34,025 | 63,928 | 5,149 | 19,737 | — | 122,839 | |||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (34,025) | 90,942 | 19,569 | (12,647) | — | 63,839 | |||||||||||||||||||||||||||||
| Provision (benefit) for income tax expense | (8,240) | 23,610 | — | 2,129 | — | 17,499 | |||||||||||||||||||||||||||||
| Net (loss) income from continuing operations | (25,785) | 67,332 | 19,569 | (14,776) | — | 46,340 | |||||||||||||||||||||||||||||
| Net income on discontinued operations | — | — | — | 7,541 | — | 7,541 | |||||||||||||||||||||||||||||
| Net (loss) income | (25,785) | 67,332 | 19,569 | (7,235) | — | 53,881 | |||||||||||||||||||||||||||||
| Equity in net income (loss) of subsidiaries: | |||||||||||||||||||||||||||||||||||
| CFTC | 79,666 | — | — | — | (79,666) | — | |||||||||||||||||||||||||||||
| Guarantor Subsidiaries | — | 67,332 | — | — | (67,332) | — | |||||||||||||||||||||||||||||
| Non-Guarantor Subsidiaries | — | (7,235) | — | — | 7,235 | — | |||||||||||||||||||||||||||||
| Canada SPV | 19,569 | — | — | (19,569) | — | ||||||||||||||||||||||||||||||
| Net income (loss) attributable to CURO | $ | 53,881 | $ | 146,998 | $ | 19,569 | $ | (7,235) | $ | (159,332) | $ | 53,881 | |||||||||||||||||||||||
65
Condensed 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.
| Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | U.S. SPV | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||||||||||||||||||||
| Net cash provided by continuing operating activities | $ | 6,546 | $ | 146,503 | $ | 41,569 | $ | 39,603 | $ | 38,099 | $ | (1,520) | $ | 270,800 | |||||||||||||||||||||||||||
| Net cash used in discontinued operating activities | — | — | — | — | 1,714 | — | 1,714 | ||||||||||||||||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||||||||||||||||||||
| Purchase of property and equipment | — | (4,240) | — | — | (484) | — | (4,724) | ||||||||||||||||||||||||||||||||||
| Originations of loans, net | — | 31,591 | (56,789) | (14,746) | 8,123 | — | (31,821) | ||||||||||||||||||||||||||||||||||
| Acquisition of Ad Astra, net of acquiree's cash received | — | (14,418) | — | — | — | — | (14,418) | ||||||||||||||||||||||||||||||||||
| Net cash provided by (used in) continuing investing activities | — | 12,933 | (56,789) | (14,746) | 7,639 | — | (50,963) | ||||||||||||||||||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from Non-Recourse Canada SPV facility | — | — | — | 23,180 | — | — | 23,180 | ||||||||||||||||||||||||||||||||||
| Payments on Non-Recourse Canada SPV facility | — | — | — | (41,812) | — | — | (41,812) | ||||||||||||||||||||||||||||||||||
| Proceeds from Non-Recourse U.S. SPV facility | — | — | 35,206 | — | — | — | 35,206 | ||||||||||||||||||||||||||||||||||
| Proceeds from credit facilities | — | 60,000 | — | — | 9,778 | — | 69,778 | ||||||||||||||||||||||||||||||||||
| Payments on credit facilities | — | (60,000) | — | — | (9,778) | — | (69,778) | ||||||||||||||||||||||||||||||||||
| Payments to net share settle RSUs | (638) | — | — | — | — | — | (638) | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | — | 126 | — | — | — | — | 126 | ||||||||||||||||||||||||||||||||||
| Debt issuance costs paid | — | — | (3,531) | — | — | — | (3,531) | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (5,908) | — | — | — | — | — | (5,908) | ||||||||||||||||||||||||||||||||||
| Dividends paid to CURO Group Holdings Corp. | 4,500 | (4,500) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends paid to stockholders | (4,500) | — | — | — | — | — | (4,500) | ||||||||||||||||||||||||||||||||||
Net cash (used in) provided by financing activities (1) | (6,546) | (4,374) | 31,675 | (18,632) | — | — | 2,123 | ||||||||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | — | — | (859) | (1,740) | 1,520 | (1,079) | ||||||||||||||||||||||||||||||||||
| Net increase in cash, cash equivalents and restricted cash | — | 155,062 | 16,455 | 5,366 | 45,712 | — | 222,595 | ||||||||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | — | 59,685 | — | 17,427 | 32,909 | — | 110,021 | ||||||||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | — | $ | 214,747 | $ | 16,455 | $ | 22,793 | $ | 78,621 | $ | — | $ | 332,616 | |||||||||||||||||||||||||||
| Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | CURO | Subsidiary Guarantors | Canada SPV | Subsidiary Non-Guarantors | Eliminations | CURO Consolidated | ||||||||||||||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||
| Net cash provided by continuing operating activities | $ | 1,833 | $ | 204,323 | $ | 93,690 | $ | 10,929 | $ | 1,544 | $ | 312,319 | ||||||||||||||||||||||||||
| Net cash used in discontinued operating activities | — | — | — | (504) | — | (504) | ||||||||||||||||||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||
| Purchase of property and equipment | — | (4,998) | — | (1,166) | — | (6,164) | ||||||||||||||||||||||||||||||||
| Originations of loans, net | — | (142,871) | (71,101) | (3,227) | — | (217,199) | ||||||||||||||||||||||||||||||||
| Cash paid for Katapult investment | — | (4,368) | — | — | — | (4,368) | ||||||||||||||||||||||||||||||||
| Net cash used in continuing investing activities | — | (152,237) | (71,101) | (4,393) | — | (227,731) | ||||||||||||||||||||||||||||||||
| Net cash used in discontinued investing activities | — | — | — | (14,213) | — | (14,213) | ||||||||||||||||||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||||||||||||||||||||
| Proceeds from Non-Recourse Canada SPV facility | — | — | 3,750 | — | — | 3,750 | ||||||||||||||||||||||||||||||||
| Payments on Non-Recourse Canada SPV facility | — | — | (24,752) | — | — | (24,752) | ||||||||||||||||||||||||||||||||
| Proceeds from credit facilities | — | 30,000 | — | 38,002 | — | 68,002 | ||||||||||||||||||||||||||||||||
| Payments on credit facilities | — | (50,000) | — | (38,002) | — | (88,002) | ||||||||||||||||||||||||||||||||
| Payments on subordinated stockholder debt | — | — | — | (2,245) | — | (2,245) | ||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | (42) | 69 | — | — | — | 27 | ||||||||||||||||||||||||||||||||
| Debt issuance costs paid | (29) | — | (169) | — | — | (198) | ||||||||||||||||||||||||||||||||
| Repurchase of common stock | (1,762) | — | — | — | — | (1,762) | ||||||||||||||||||||||||||||||||
Net cash used in provided by financing activities (1) | (1,833) | (19,931) | (21,171) | (2,245) | — | (45,180) | ||||||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | — | 561 | 2,444 | (1,544) | 1,461 | ||||||||||||||||||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | — | 32,155 | 1,979 | (7,982) | — | 26,152 | ||||||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | — | 52,397 | 12,840 | 34,620 | — | 99,857 | ||||||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | — | $ | 84,552 | $ | 14,819 | $ | 26,638 | $ | — | $ | 126,009 | ||||||||||||||||||||||||||
| (1) Financing activities include continuing operations only and were not impacted by discontinued operations. | ||||||||||||||||||||||||||||||||||||||
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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, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Net cash provided by continuing operating activities | $ | 270,800 | $ | 312,319 | ||||||||||||||||
| Net cash used in continuing investing activities | (50,963) | (227,731) | ||||||||||||||||||
| Net cash provided by (used in) continuing financing activities | 2,123 | (45,180) | ||||||||||||||||||
| Six Months Ended June 30, | ||||||||
| (dollars in thousands) | 2019 | 2018 | ||||||
| Net cash provided by continuing operating activities | $ | 312,319 | $ | 246,733 | ||||
| Net cash used in continuing investing activities | (227,731 | ) | (198,551 | ) | ||||
| Net cash used in continuing financing activities | (45,180 | ) | (80,661 | ) | ||||
Continuing Operating Activities
Net cash provided by continuing operating activities for the six months ended June 30, 2020 was $270.8 million, primarily attributable to net income from continuing operations of $57.1 million, the effect of non-cash reconciling items of $192.1 million, which includes provision for loan losses of $164.2 million, and changes in our operating assets and liabilities which provided $21.6 million.
Net cash provided by continuing operating activities for the six months ended June 30, 2019 was $312.3 million, primarily attributable to net income from continuing operations of $46.3 million, the effect of non-cash reconciling items of $227.6 million, which includes provision for loan losses of $214.4 million, and changes in our operating assets and liabilities which provided $38.4 million.
Continuing Investing Activities
Net cash provided byused in continuing operatinginvesting activities for the six months ended June 30, 20182020 was $246.7$51.0 million, primarily attributable toreflecting the net income from continuing operationsorigination of $43.6loans of $31.8 million the effect of non-cash reconciling items, such as depreciation and amortization and the provisionacquisition of Ad Astra for loan losses for a total$14.4 million, net of $191.6 million, and changes in our operating assets and liabilities
Net cash used in continuing investing activities for the six months ended June 30, 2019 was $227.7 million, primarily reflecting the net origination of loans of $217.2 million. In addition, we used cash to purchase approximately $6.2 million of property and equipment, including software licenses and $4.4 million of additional investment in Zibby.Katapult.
Origination of loans will fluctuate from period-to-period, depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically occurs during the first quarter of the year and is driven by income tax refunds in the U.S. Typically, customers will use the proceeds from income tax refunds to pay outstanding loan balances, resulting in an increase in our net cash balances and a decrease in our consumer loans receivable balances. ConsumerYear-over-year comparisons were impacted by factors related to COVID-19, including lower consumer demand, increased or accelerated repayments as customers benefited from government stimulus programs and our decision to tighten credit which resulted in lower originations, as well as the runoff of California Installment loans receivable balances typically reflect growth during the remainder of the year.from regulatory changes effective January 1, 2020.
Continuing Financing Activities
Net cash provided by continuing financing activities for the six months ended June 30, 2020 was $2.1 million, primarily due to $35.2 million of proceeds on our Non-Recourse U.S. SPV Facility, partially offset by a net pay-down on our Non-Recourse Canada SPV Facility of $18.6 million, common stock repurchases of $5.9 million, cash dividends of $4.5 million and debt issuance costs of $3.5 million related to the Non-Recourse U.S. SPV facility.
Net cash used in continuing financing activities for the six months ended June 30, 2019 was $45.2 million. During the quarter, we made a $20.0 million payment on the Senior Revolver to reduce the outstanding balance to zero and made net repayments of $21.0 million on the Non-Recourse Canada SPV Facility.
Contractual Obligations
There have been no significant developments with respect to our contractual obligations since December 31, 2018,2019, as described in our 20182019 Form 10-K, except for the new Non-Recourse U.S. SPV Facility, entered into during April 2020. Refer to Note 5, "Debt" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details.
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Critical Accounting Policies and Estimates
Certain accounting policies that involve a higher degree of judgement and complexity are discussed further in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates, in our 2019 Form 10-K.
Goodwill. We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.
The U.S. and Canada operations are our two reporting units, as defined by FASB’s ASC 280 - Segment Reporting, for which we assess goodwill for impairment. As of the most recent annual goodwill impairment testing date (October 1, 2019), both reporting units' estimated fair valued exceeded its carrying value. As described in our 2019 Form 10-K, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit or economic outlook. These and other macroeconomic factors, in general, were considered when performing the annual test on October 1, 2019.
In the second quarter of 2020, we performed an interim qualitative assessment of goodwill on both reporting units to consider whether current events or circumstances, attributable to uncertainty caused by COVID-19, resulted in a more likely than not reduction in the fair value of the reporting units below their respective carrying values. We did not record any impairment losses during the six months ended June 30, 2020 as a result of our interim qualitative assessment on either reporting unit.
There continues to be uncertainty surrounding the macroeconomic factors for the U.S. andCanada reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment.
The following table summarizes the segment allocation of recorded goodwill on our unaudited Condensed Consolidated Balance Sheets as of June 30, 2020:
| (in thousands) | June 30, 2020 | Percent of Total | December 31, 2019 | Percent of Total | |||||||||||||
| U.S. | $ | 105,922 | 79.1 | % | $ | 91,131 | 75.6 | % | |||||||||
| Canada | 28,055 | 20.9 | % | 29,478 | 24.4 | % | |||||||||||
| Total Goodwill | $ | 133,977 | $ | 120,609 | |||||||||||||
Regulatory Environment and Compliance
There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2018,2019, as described in our 20182019 Form 10-K, except for the following:
On June 26,July 7, 2020, the CFPB issued its decision on the 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 referredProposed Rule. With respect to the Senate Appropriations Committee.2019 Proposed Rule, the CFBP rescinded the mandatory underwriting provisions of the 2017 Final CFPB Rule. However, the CFPB did not rescind or alter the payment provisions of the 2017 Final CFPB Rule. Furthermore, on July 7, 2020, the CFPB ratified prior regulatory actions which included the payments provisions of the 2017 Final CFPB Rule. The deadlineeffective date of the payment provisions of the 2017 Final CFPB Rule is currently unknown. The 2017 Final CFPB rule is currently stayed as a result of an industry legal challenge. The next status conference is scheduled for Assembly Bill 539September 11, 2020. In light of the industry challenge to pass both houses is September 13, 2019, and the deadline2017 Final CFPB Rule, we cannot predict when the 2017 Final CFPB Rule as it relates to be signed by the Governor and passedpayments will ultimately go 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 theeffect; nor can we quantify its potential effect on our results of operations andor financial condition as a result of this bill and alternatives available to service customers in the California market.condition.
California Consumer Privacy ActAct:
In 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020, and the California Attorney General has enforcement authority as of July 1, 2020. CCPA broadens
A ballot initiative, which would have additional impact, will be voted on in November 2020.
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Legal Proceedings
Subsequent to the California Supreme Court’s decision in De La Torre v. CashCall, which found that the interest rate on a consumer rights with respectloan of $2,500 or more can render the loans unconscionable under Cal. Fin. Code § 22303, a class action lawsuit entitled Delisle, et al. v. Speedy Cash was filed against Speedy Cash in the Southern District of California on August 31, 2018. The complaint alleges that Speedy Cash charges unconscionable interest rates, in violation of consumer protection statutes, and seeks restitution and public injunctive relief. A motion to their personal information, imposing expanded obligationscompel arbitration and stay proceedings was filed by Speedy Cash on October 30, 2018. A District Court order denying that motion was entered on June 10, 2019. On June 9, 2020, the Ninth Circuit Court of Appeals entered a memorandum vacating and remanding the District Court’s opinion, and directing the District Court to discloseconsider what effect, if any, California Financial Code § 22304.5(a) has on its analysis.
On January 1, 2020, during the categories and uses of personal information a business collects, providing consumers a right to access that information, a right to opt outcourse of the sale of personal informationDelisle proceedings, Cal. Fin. Code § 22304.5(a) took effect prohibiting finance lenders from issuing loans between $2,500 and $10,000 with charges over 36% calculated as an annual simple interest rate (plus the 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.prior month’s Federal Funds Rate).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 20182019 Form 10-K for the year ended December 31, 2018.10-K. There have been no material changes to the amounts presented therein.
LIBOR is used as a reference rate for certain of our financial instruments, such as our revolving credit facilities. LIBOR is set to be phased out at the end of 2021. We are currently reviewing how the LIBOR phase-out will affect the Company, but we do not expect the impact to be material.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as 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.
Limitation on the effectiveness of controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART 2.II. OTHER INFORMATION
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.
A change in the United States' presidential administration and/or composition of Congress in the upcoming 2020 election could result in new legislation, rules and regulatory and enforcement policies with an adverse impact on our business.
On June 29, 2020, in the Seila Law LLC v. CFPB case, the Supreme Court ruled that the single-director structure of the CFPB is unconstitutional. The Court noted the agency's structure vests too much power in the hands of one person, and that a president has broad constitutional authority to appoint and remove agency heads. This ruling, which gives a sitting president the ability to fire a CFPB director without cause, or “at-will,” could have far-reaching implications to our risk factors as describedbusiness in the event a president appoints a director who has a negative view of our 2018 Form 10-K forbusiness and/or industry.
The CFPB recently finalized a new rule that may affect the year ended December 31, 2018, except for the following:
On July 7, 2020, the CFPB issued its Final Rule on Payday, Vehicle Title, and results of operations.
mandatory underwriting requirements;
Item 2. Unregistered Sales of Equity Securities and usesUse 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.Proceeds
| 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. | ||||||||||
None.
None.
None.
Item 5. OTHER INFORMATIONOther Information
(a) Disclosure of Unreported 8-K Information
(b) Material Changes to Director Nominee Procedures
None.
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Item 6. Exhibits
| Exhibit no. | Exhibit Description | |||||||
| 10.1 | ||||||||
| 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, | |||||||
* Filed herewith.
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Signature
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 5, 20192020 CURO Group Holdings Corp.
| By: | /s/ Roger Dean | ||||||||||
| Roger Dean | |||||||||||
| Executive | |||||||||||
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