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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number 1-38315
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 90-0934597 |
(State or other jurisdiction Of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
3615 North Ridge Road, Wichita, KS | | 67205 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (316) 772-3801
Former name, former address and former fiscal year, if changed since last report: No Changes
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.001 par value per share | CURO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | | |
Smaller reporting company | ☐ | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of April 29, 2022 there were 40,349,079 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
FIRST QUARTER ENDED March 31, 2022
INDEX
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Item 1. | Financial Statements (unaudited) |
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| March 31, 2022 (unaudited) and December 31, 2021 | |
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| Three months ended March 31, 2022 and 2021 (unaudited) | |
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| Three months ended March 31, 2022 and 2021 (unaudited) | |
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| Three months ended March 31, 2022 and 2021 (unaudited) | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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PART I. FINANCIAL INFORMATION
GLOSSARY
Terms and abbreviations used throughout this report are defined below.
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Term or abbreviation | | Definition |
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2021 Form 10-K | | Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022 |
7.50% Senior Secured Notes | | 7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028 |
8.25% Senior Secured Notes | | 8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which we extinguished during the third quarter of 2021 |
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Adjusted EBITDA | | EBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details |
ALL | | Allowance for loan losses |
Allowance coverage | | Allowance for loan losses as a percentage of gross loans receivable |
AOCI | | Accumulated Other Comprehensive Income (Loss) |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Average gross loans receivable | | Utilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable |
BNPL | | Buy-Now-Pay-Later |
bps | | Basis points |
C$ | | Canadian dollar |
CAB | | Credit Access Business |
Canada SPV | | A four-year revolving credit facility with Waterfall Asset Management, LLC, with capacity up to C$400.0 million |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act enacted by the U.S. Federal government on March 27, 2020 in response to the COVID-19 pandemic |
Curo Canada Revolving Credit Facility | | C$10.0 million revolving credit facility (formerly known as Cash Money Revolving Credit Facility) with Royal Bank of Canada, maintained by CURO Canada |
CDOR | | Canadian Dollar Offered Rate |
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CFPB | | Consumer Financial Protection Bureau |
CFSA | | Community Financial Services Association |
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CODM | | Chief Operating Decision Maker |
Condensed Consolidated Financial Statements | | The condensed consolidated financial statements presented in this Form 10-Q |
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CSO | | Credit services organization |
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CURO Canada | | CURO Canada Corp, a wholly-owned Canadian subsidiary of the Company, formerly known as Cash Money Cheque Cashing Inc. |
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EBITDA | | Earnings Before Interest, Taxes, Depreciation and Amortization |
Exchange Act | | Securities Exchange Act of 1934, as amended |
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FASB | | Financial Accounting Standards Board |
FinServ | | FinServ Acquisition Corp., a publicly traded special purpose acquisition company (trading symbol FSRV) |
FinTech | | Financial Technology; the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or cryptocurrency |
Flexiti | | Flexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021 |
Flexiti SPE | | A revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$500.0 million |
Form 10-Q | | This report on Form 10-Q for the quarter March 31, 2022 |
Gross Combined Loans Receivable | | Gross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company |
Guaranteed by the Company | | Loans originated by third-party lenders through the CSO program which we guarantee but are not included in the unaudited Condensed Consolidated Financial Statements |
Heights Finance | | SouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of the Company, which we acquired on December 27, 2021 |
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Term or abbreviation | | Definition |
Heights Finance SPV | | A non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights Finance, with capacity up to $350.0 million |
Katapult | | Katapult Holdings, Inc. a lease-to-own platform for online platform for online, brick and mortar and omni-channel retailers. |
LFL | | LFL Group, Canada's largest home furnishings retailer. |
LIBOR | | London Inter-Bank Offered Rate |
MDR | | Merchant discount revenue |
NCO | | Net charge-off; total charge-offs less total recoveries |
NOL | | Net operating loss |
POS | | Point-of-sale |
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ROU | | Right of use |
RSU | | Restricted Stock Unit |
Runoff Portfolios | | Collectively, certain loans impacted by (i) regulatory changes, including California, effective January 1, 2020, Virginia effective January 1, 2021 and Illinois, effective March 23, 2021, and (ii) the discontinuation of Verge Credit in April 2021. |
SEC | | Securities and Exchange Commission |
Senior Revolver | | Senior Secured Revolving Loan Facility with borrowing capacity of $50.0 million |
Sequential | | The change from one quarter to the next quarter |
SOFR | | Secured Overnight Financing Rate |
SPAC | | Special Purpose Acquisition Company |
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SPE | | Special Purpose Entity |
SPV | | Special Purpose Vehicle |
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TDR | | Troubled Debt Restructuring. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties |
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UDAAP | | Unfair, deceptive, or abusive acts and practices |
U.S. | | United States of America |
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U.S. GAAP | | Generally Accepted Accounting Principles in the United States |
U.S. SPV | | An asset-backed revolving credit facility with Atalaya Capital Management with capacity up to $200.0 million if certain conditions are met |
Verge Credit loans | | Loans originated and funded by a third-party bank |
VIE | | Variable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries |
ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | | | | | | | | |
| March 31, 2022 (unaudited) | | December 31, 2021 |
| |
ASSETS |
Cash and cash equivalents | $ | 60,209 | | | $ | 63,179 | |
Restricted cash (includes restricted cash of consolidated VIEs of $64,141 and $57,155 as of March 31, 2022 and December 31, 2021, respectively) | 110,118 | | | 98,896 | |
Gross loans receivable (includes loans of consolidated VIEs of $1,394,957 and $1,294,706 as of March 31, 2022 and December 31, 2021, respectively) | 1,628,568 | | | 1,548,318 | |
Less: Allowance for loan losses (includes allowance for loan losses of consolidated VIEs of $77,014 and $66,618 as of March 31, 2022 and December 31, 2021, respectively) | (98,168) | | | (87,560) | |
Loans receivable, net | 1,530,400 | | | 1,460,758 | |
Income taxes receivable | 28,664 | | | 31,774 | |
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $4,781 and $— as of March 31, 2022 and December 31, 2021, respectively) | 40,112 | | | 42,038 | |
Property and equipment, net | 54,865 | | | 54,635 | |
Investments in Katapult | 29,484 | | | 27,900 | |
Right of use asset - operating leases | 114,305 | | | 116,300 | |
Deferred tax assets | 20,066 | | | 15,639 | |
Goodwill | 430,967 | | | 429,792 | |
Intangibles, net | 113,640 | | | 109,930 | |
Other assets | 9,535 | | | 9,755 | |
Total Assets | $ | 2,542,365 | | | $ | 2,460,596 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Liabilities | | | |
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $10,243 and $9,886 as of March 31, 2022 and December 31, 2021, respectively) | $ | 84,783 | | | $ | 121,434 | |
Deferred revenue | 24,265 | | | 21,649 | |
Lease liability - operating leases | 120,593 | | | 122,431 | |
Contingent consideration related to acquisition | 26,687 | | | 26,508 | |
Income taxes payable | — | | | 680 | |
Accrued interest (includes accrued interest of consolidated VIEs of $3,975 and $3,279 as of March 31, 2022 and December 31, 2021, respectively) | 16,481 | | | 34,974 | |
Liability for losses on CSO lender-owned consumer loans | 7,166 | | | 6,908 | |
Debt (includes debt and issuance costs of consolidated VIEs of $1,101,912 and $12,983 as of March 31, 2022 and $979,500 and $14,428 as of December 31, 2021, respectively) | 2,090,085 | | | 1,945,793 | |
Other long-term liabilities | 13,679 | | | 13,845 | |
Deferred tax liabilities | 5,839 | | | 6,044 | |
Total Liabilities | 2,389,578 | | | 2,300,266 | |
Commitments and contingencies (Note 11) | | | |
Stockholders' Equity | | | |
Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued | — | | | — | |
Common stock - $0.001 par value; 225,000,000 shares authorized; 50,046,895 and 49,684,080 shares issued; and 40,348,782 and 40,810,444 shares outstanding at the respective period ends | 23 | | | 23 | |
Treasury stock, at cost - 9,698,113 and 8,873,636 shares at the respective period ends | (136,832) | | | (124,302) | |
Paid-in capital | 115,329 | | | 113,520 | |
Retained earnings | 200,012 | | | 203,467 | |
Accumulated other comprehensive loss | (25,745) | | | (32,378) | |
Total Stockholders' Equity | 152,787 | | | 160,330 | |
Total Liabilities and Stockholders' Equity | $ | 2,542,365 | | | $ | 2,460,596 | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Revenue | | | | | | | |
Interest and fees revenue | $ | 264,956 | | | $ | 179,123 | | | | | |
Insurance premiums and commissions | 18,260 | | | 11,569 | | | | | |
Other revenue | 6,980 | | | 5,859 | | | | | |
Total revenue | 290,196 | | | 196,551 | | | | | |
Provision for losses | 97,531 | | | 36,145 | | | | | |
Net revenue | 192,665 | | | 160,406 | | | | | |
Operating Expenses | | | | | | | |
Salaries and benefits | 79,729 | | | 54,917 | | | | | |
Occupancy | 17,037 | | | 14,347 | | | | | |
Advertising | 10,500 | | | 8,084 | | | | | |
Direct operations | 20,274 | | | 11,969 | | | | | |
Depreciation and amortization | 9,814 | | | 4,965 | | | | | |
Other operating expense | 16,112 | | | 12,952 | | | | | |
Total operating expenses | 153,466 | | | 107,234 | | | | | |
Other expense (income) | | | | | | | |
Interest expense | 38,341 | | | 19,539 | | | | | |
Income from equity method investment | (1,584) | | | (546) | | | | | |
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Total other expense | 36,757 | | | 18,993 | | | | | |
Income before income taxes | 2,442 | | | 34,179 | | | | | |
Provision for income taxes | 1,106 | | | 8,444 | | | | | |
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Net income | $ | 1,336 | | | $ | 25,735 | | | | | |
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Earnings per share: | | | | | | | |
Basic earnings per share | $ | 0.03 | | | $ | 0.62 | | | | | |
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Diluted earnings per share | $ | 0.03 | | | $ | 0.59 | | | | | |
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Weighted average common shares outstanding: | | | | | | | |
Basic | 40,368 | | | 41,505 | | | | | |
Diluted | 41,308 | | | 43,596 | | | | | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
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| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Net income | $ | 1,336 | | | $ | 25,735 | | | | | |
Other comprehensive income: | | | | | | | |
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Foreign currency translation adjustment, net of tax | 6,633 | | | 3,855 | | | | | |
Other comprehensive income | 6,633 | | | 3,855 | | | | | |
Comprehensive income | $ | 7,969 | | | $ | 29,590 | | | | | |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
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| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income | $ | 1,336 | | | $ | 25,735 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 9,814 | | | 4,965 | |
Provision for losses | 97,531 | | | 36,145 | |
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Amortization of debt issuance costs and bond discount | 2,241 | | | 1,294 | |
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Deferred income tax (benefit) expense | (4,326) | | | (1,534) | |
(Gain) loss on disposal of property and equipment | 38 | | | (134) | |
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Income from equity method investment | (1,584) | | | (546) | |
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Change in fair value of contingent consideration | (264) | | | — | |
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Share-based compensation | 4,093 | | | 2,683 | |
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Changes in operating assets and liabilities: | | | |
Accrued interest on loans receivable | 28,491 | | | 38,908 | |
Prepaid expenses and other assets | 2,177 | | | 1,923 | |
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Accounts payable and accrued liabilities | (41,555) | | | 8,011 | |
Deferred revenue | 2,285 | | | 137 | |
Income taxes payable | (684) | | | 276 | |
Income taxes receivable | 3,114 | | | 7,992 | |
Accrued interest | (18,511) | | | (14,231) | |
Other long-term liabilities | (463) | | | (1,132) | |
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Net cash provided by operating activities | 83,733 | | | 110,492 | |
Cash flows from investing activities | | | |
Purchase of property, equipment and software | (11,375) | | | (2,789) | |
Loans receivable originated or acquired | (541,674) | | | (251,364) | |
Loans receivable repaid | 365,379 | | | 181,738 | |
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Acquisition of Flexiti, net of acquiree's cash received | — | | | (91,203) | |
Net cash used in investing activities | (187,670) | | | (163,618) | |
Cash flows from financing activities | | | |
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Proceeds from SPV and SPE facilities | 190,922 | | | 12,488 | |
Payments on SPV and SPE facilities | (79,718) | | | (8,565) | |
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Debt issuance costs paid | (276) | | | — | |
Proceeds from credit facilities | 87,560 | | | — | |
Payments on credit facilities | (67,560) | | | — | |
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Proceeds from exercise of stock options | — | | | 48 | |
Payments to net share settle equity awards | (2,284) | | | (1,668) | |
Repurchase of common stock | (13,531) | | | — | |
Dividends paid to stockholders | (4,791) | | | (2,368) | |
Net cash provided by (used in) financing activities | 110,322 | | | (65) | |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1,867 | | | 881 | |
Net increase in cash, cash equivalents and restricted cash | 8,252 | | | (52,310) | |
Cash, cash equivalents and restricted cash at beginning of period | 162,075 | | | 268,107 | |
Cash, cash equivalents and restricted cash at end of period | $ | 170,327 | | | $ | 215,797 | |
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See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and 2021 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):
| | | | | | | | | | | | | | |
| | March 31, |
| | 2022 | | 2021 |
Cash and cash equivalents | | $ | 60,209 | | | $ | 135,396 | |
Restricted cash (includes restricted cash of consolidated VIEs of $64,141 and $47,600 as of March 31, 2022 and March 31, 2021, respectively) | | 110,118 | | | 80,401 | |
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows | | $ | 170,327 | | | $ | 215,797 | |
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See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
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
The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its direct and indirect subsidiaries as a combined entity, except where otherwise stated.
The Company is a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and near-prime consumers in the U.S and non-prime and prime consumers in Canada.
Basis of Presentation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP and the accounting policies described in its 2021 Form 10-K. Interim results of operations are not necessarily indicative of results that might be expected for future interim periods or for the year ending December 31, 2022.
While certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented.
The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect 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. Beginning January 1, 2022, the Company started reporting "Interest and fees revenue," "Insurance premiums and commissions," and "Other revenue" in place of the previously reported "Revenue" line item in the unaudited Condensed Consolidated Statements of Operations as of March 31, 2022 and 2021. Prior period amounts have been reclassified to conform with current period presentation.
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements reflect the accounts of CURO and its direct and indirect subsidiaries, including Heights Finance, which was acquired on December 27, 2021, and Flexiti, which was acquired on March 10, 2021. Refer to Note 14, "Acquisitions" for further disclosures related to these acquisitions. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including 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. Some estimates may also affect the reported amounts of revenues and expenses during the periods presented. Significant estimates that the Company made in the accompanying unaudited Condensed Consolidated Financial Statements include ALL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, CSO liability for losses, estimated tax liabilities and the accounting for the Heights Finance and Flexiti acquisitions. Actual results may differ from those estimates.
Acquisitions
Heights Finance
On December 27, 2021, CURO closed its acquisition of Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products, in a transaction accounted for as a business combination. Refer to Note 14, "Acquisitions" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as the result of the acquisition.
Flexiti
On March 10, 2021, CURO closed its acquisition of Flexiti, a POS and BNPL provider, in a transaction accounted for as a business combination. Refer to Note 14, "Acquisitions" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the acquisition.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Continuing Impacts of COVID-19
The COVID-19 pandemic continues to cause significant uncertainty and impacts. Macroeconomic conditions, in general, and the Company's operations, specifically, have been significantly affected by COVID-19. Government responses to the pandemic, either through the form of mandated lockdowns or a variety of stimulus programs to mitigate the impact of the pandemic, suppressed loan demand in 2020 and into the first quarter of 2021. During the second quarter of 2021 through the first quarter of 2022, the runoff of additional federal stimulus programs in the U.S. resulted in the stabilization of the Company's U.S. loan portfolio and resulted in moderately higher NCO and past-due trends as customers return to pre-COVID-19 trends. For details regarding the effect COVID-19 had on the Company's operations in 2020 and 2021, the Company's response to mitigate the impact of the pandemic and the U.S. and Canadian federal and local responses to the pandemic, refer to the 2021 Form 10-K.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13 and subsequent amendments
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, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022. The amended standard 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. 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 2019-10 amended the mandatory effective date for ASU 2016-13. As a result, ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022 for entities that qualified as an smaller reporting company as of June 30, 2019, such as the Company. ASU 2016-13 and its amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. Early adoption is permitted. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 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. The Company deferred the adoption of ASU 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 financial statements.
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, eliminated the accounting guidance on TDRs for creditors and amended the guidance on vintage disclosures for financing receivables to require disclosure of current-period gross write-offs by year of origination. Additionally, the amendments in ASU 2022-02 require enhanced disclosures for creditors with respect to loan refinancing and restructuring for borrowers experiencing financial difficulty. ASU 2022-02 and its amendments should be applied on a prospective basis and are effective upon adoption of ASU 2016-13. The Company is currently assessing the impact that adoption of ASU 2022-02 will have on its financial statements.
ASU 2020-04 and subsequent amendments
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 U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the upcoming market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect to not 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 also can 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 FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021. It clarifies that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU 2020-04 and are effective in the same timeframe as ASU 2020-04. The Company anticipates transitioning applicable debt facilities from LIBOR to SOFR and currently does not expect the adoption of these ASUs to have a material impact on its financial statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect, if any, on its financial statements.
NOTE 2 - VARIABLE INTEREST ENTITIES
As of March 31, 2022, the Company had five credit facilities whereby certain loans receivable were sold to VIEs to collateralize debt incurred under each facility. See Note 5, "Debt" for additional details on each facility.
The Company has determined that it is the primary beneficiary of the VIEs and is required to consolidate them. The Company includes the assets and liabilities related to the VIEs in the unaudited Condensed Consolidated Financial Statements.
The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Assets | | | | |
Restricted cash | | $ | 64,141 | | | $ | 57,155 | |
Loans receivable, net | | 1,317,943 | | | 1,228,088 | |
Intercompany receivable(1) | | 245,389 | | | 48,333 | |
Prepaid expenses and other | | 4,781 | | | — | |
Deferred tax assets | | 107 | | | — | |
Total Assets | | $ | 1,632,361 | | | $ | 1,333,576 | |
Liabilities | | | | |
Accounts payable and accrued liabilities | | $ | 10,243 | | | $ | 9,886 | |
Deferred revenue | | 114 | | | 106 | |
Deferred tax liability | | — | | | 269 | |
Accrued interest | | 3,975 | | | 3,279 | |
Income taxes payable | | 1,826 | | | — | |
| | | | |
Debt | | 1,088,929 | | | 965,072 | |
Total Liabilities | | $ | 1,105,087 | | | $ | 978,612 | |
(1) Intercompany receivable VIE balances eliminate upon consolidation. |
NOTE 3 – LOANS RECEIVABLE AND REVENUE
The following table summarizes revenue by product (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Revolving LOC | | $ | 91,023 | | | $ | 62,735 | | | | | |
| | | | | | | | |
Unsecured Installment | | 121,329 | | | 76,394 | | | | | |
Secured Installment | | 26,307 | | | 15,027 | | | | | |
Single-Pay | | 26,297 | | | 24,967 | | | | | |
Total Installment | | 173,933 | | | 116,388 | | | | | |
| | | | | | | | |
Insurance revenue | | 18,260 | | | 11,601 | | | | | |
Other | | 6,980 | | | 5,827 | | | | | |
Total revenue(1) | | $ | 290,196 | | | $ | 196,551 | | | | | |
(1) Includes revenue from CSO programs of $49.0 million and $41.4 million for the three months ended March 31, 2022 and 2021, respectively. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay(1) | Total Installment - Company Owned | | Total |
Current loans receivable | | $ | 943,761 | | | $ | 348,487 | | $ | 111,483 | | $ | 40,389 | | $ | 500,359 | | | $ | 1,444,120 | |
Delinquent loans receivable | | 71,577 | | | 91,778 | | 21,093 | | — | | 112,871 | | | 184,448 | |
Total loans receivable | | 1,015,338 | | | 440,265 | | 132,576 | | 40,389 | | 613,230 | | | 1,628,568 | |
Less: allowance for losses | | (71,325) | | | (20,704) | | (3,363) | | (2,776) | | (26,843) | | | (98,168) | |
Loans receivable, net | | $ | 944,013 | | | $ | 419,561 | | $ | 129,213 | | $ | 37,613 | | $ | 586,387 | | | $ | 1,530,400 | |
(1) Of the $40.4 million of Single-Pay receivables, $11.1 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Total Installment - Company Owned | | Total |
Delinquent loans receivable | | | | | | | | |
1-30 days past-due | | $ | 31,959 | | | $ | 38,700 | | $ | 11,689 | | $ | 50,389 | | | $ | 82,348 | |
31-60 days past-due | | 16,616 | | | 13,898 | | 3,926 | | 17,824 | | | 34,440 | |
61-90 days past-due | | 14,684 | | | 13,763 | | 2,910 | | 16,673 | | | 31,357 | |
91 + days past-due | | 8,318 | | | 25,417 | | 2,568 | | 27,985 | | | 36,303 | |
Total delinquent loans receivable | | $ | 71,577 | | | $ | 91,778 | | $ | 21,093 | | $ | 112,871 | | | $ | 184,448 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay(1) | Total Installment - Company Owned | | Total |
Current loans receivable | | $ | 843,379 | | | $ | 359,512 | | $ | 110,232 | | $ | 42,463 | | $ | 512,207 | | | $ | 1,355,586 | |
Delinquent loans receivable | | 70,734 | | | 98,174 | | 23,824 | | — | | 121,998 | | | 192,732 | |
Total loans receivable | | 914,113 | | | 457,686 | | 134,056 | | 42,463 | | 634,205 | | | 1,548,318 | |
Less: allowance for losses | | (68,140) | | | (13,387) | | (3,327) | | (2,706) | | (19,420) | | | (87,560) | |
Loans receivable, net | | $ | 845,973 | | | $ | 444,299 | | $ | 130,729 | | $ | 39,757 | | $ | 614,785 | | | $ | 1,460,758 | |
(1) Of the $42.5 million of Single-Pay receivables, $11.3 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Total Installment - Company Owned | | Total |
Delinquent loans receivable | | | | | | | | |
1-30 days past-due | | $ | 35,657 | | | $ | 45,160 | | $ | 13,213 | | $ | 58,373 | | | $ | 94,030 | |
31-60 days past-due | | 15,452 | | | 16,646 | | 4,539 | | 21,185 | | | 36,637 | |
61-90 days past-due | | 13,397 | | | 13,933 | | 3,213 | | 17,146 | | | 30,543 | |
91 + days past-due | | 6,228 | | | 22,435 | | 2,859 | | 25,294 | | | 31,522 | |
Total delinquent loans receivable | | $ | 70,734 | | | $ | 98,174 | | $ | 23,824 | | $ | 121,998 | | | $ | 192,732 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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 (in thousands):
| | | | | | | | | | | | | | | | |
| | | March 31, 2022 |
| | | Unsecured Installment | Secured Installment | | Total Installment - Guaranteed by the Company |
Current loans receivable Guaranteed by the Company | | | $ | 35,180 | | $ | 1,009 | | | $ | 36,189 | |
Delinquent loans receivable Guaranteed by the Company | | | 7,986 | | 245 | | | 8,231 | |
Total loans receivable Guaranteed by the Company | | | 43,166 | | 1,254 | | | 44,420 | |
Less: Liability for losses on CSO lender-owned consumer loans | | | (7,118) | | (48) | | | (7,166) | |
Loans receivable Guaranteed by the Company, net | | | $ | 36,048 | | $ | 1,206 | | | $ | 37,254 | |
| | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
Delinquent loans receivable | | | | |
1-30 days past-due | | $ | 6,043 | | $ | 187 | | $ | 6,230 | |
31-60 days past-due | | 1,225 | | 12 | | 1,237 | |
61-90 days past-due | | 557 | | 36 | | 593 | |
91 + days past-due | | 161 | | 10 | | 171 | |
Total delinquent loans receivable | | $ | 7,986 | | $ | 245 | | $ | 8,231 | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | | Unsecured Installment | Secured Installment | | Total Installment - Guaranteed by the Company |
Current loans receivable Guaranteed by the Company | | | $ | 37,303 | | $ | 799 | | | $ | 38,102 | |
Delinquent loans receivable Guaranteed by the Company | | | 8,011 | | 204 | | | 8,215 | |
Total loans receivable Guaranteed by the Company | | | 45,314 | | 1,003 | | | 46,317 | |
Less: Liability for losses on CSO lender-owned consumer loans | | | (6,869) | | (39) | | | (6,908) | |
Loans receivable Guaranteed by the Company, net | | | $ | 38,445 | | $ | 964 | | | $ | 39,409 | |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
Delinquent loans receivable | | | | |
1-30 days past-due | | $ | 6,633 | | $ | 162 | | $ | 6,795 | |
31-60 days past-due | | 1,003 | | 28 | | 1,031 | |
61-90 days past-due | | 277 | | 8 | | 285 | |
91 + days past-due | | 98 | | 6 | | 104 | |
Total delinquent loans receivable | | $ | 8,011 | | $ | 204 | | $ | 8,215 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables summarize activity in the ALL and the liability for losses on CSO lender-owned consumer loans in total (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay | Total Installment | | Other | Total |
Allowance for loan losses: | | | | | | | | | |
Balance, beginning of period | $ | 68,140 | | | $ | 13,387 | | $ | 3,327 | | $ | 2,706 | | $ | 19,420 | | | $ | — | | $ | 87,560 | |
Charge-offs | (42,387) | | | (28,313) | | (6,783) | | (24,113) | | (59,209) | | | (1,813) | | (103,409) | |
Recoveries | 8,015 | | | 8,023 | | 3,146 | | 19,744 | | 30,913 | | | 553 | | 39,481 | |
Net charge-offs | (34,372) | | | (20,290) | | (3,637) | | (4,369) | | (28,296) | | | (1,260) | | (63,928) | |
Provision for losses | 37,447 | | | 27,603 | | 3,673 | | 4,409 | | 35,685 | | | 2,650 | | 75,782 | |
Effect of foreign currency translation | 110 | | | 4 | | — | | 30 | | 34 | | | — | | 144 | |
Balance, end of period | $ | 71,325 | | | $ | 20,704 | | $ | 3,363 | | $ | 2,776 | | $ | 26,843 | | | $ | 1,390 | | $ | 99,558 | |
| | | | | | | | | |
Liability for losses on CSO lender-owned consumer loans: | | | | | | | | | |
Balance, beginning of period | $ | — | | | $ | 6,869 | | $ | 39 | | $ | — | | $ | 6,908 | | | $ | — | | $ | 6,908 | |
Increase in liability | — | | | 249 | | 9 | | — | | 258 | | | — | | 258 | |
Balance, end of period | $ | — | | | $ | 7,118 | | $ | 48 | | $ | — | | $ | 7,166 | | | $ | — | | $ | 7,166 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay | Total Installment | | Other | Total |
Allowance for loan losses: | | | | | | | | | |
Balance, beginning of period | $ | 51,958 | | | |