UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20182019
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.) |
| | |
3527 North Ridge Road, Wichita, KS | | 67205 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (316) 425-1410772-3801
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.
|
| | | | |
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 ☒
At October 31, 2018November 1, 2019 there were 45,992,98341,486,965 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
THIRD QUARTER ENDED SEPTEMBER 30, 20182019
INDEX
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Item 1. | Financial Statements (unaudited) |
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| September 30, 20182019 and December 31, 20172018 | |
| | |
| Three and nine months ended September 30, 20182019 and 20172018 | |
| | |
| Three and nine months ended September 30, 20182019 and 20172018 | |
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| Nine months ended September 30, 20182019 and 20172018 | |
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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
ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | September 30, 2018 | | December 31, 2017 | September 30, 2019 | | December 31, 2018 |
| (Unaudited) | | | (unaudited) | |
ASSETS | Cash | $ | 153,361 |
| | $ | 162,374 |
| $ | 62,207 |
| | $ | 61,175 |
|
Restricted cash (includes restricted cash of consolidated VIEs of $19,107 and $6,871 as of September 30, 2018 and December 31, 2017, respectively) | 24,236 |
| | 12,117 |
| |
Gross loans receivable (includes loans of consolidated VIEs of $353,384 and $213,846 as of September 30, 2018 and December 31, 2017, respectively) | 567,675 |
| | 432,837 |
| |
Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $49,951 and $46,140 as of September 30, 2018 and December 31, 2017, respectively) | (76,068 | ) | | (69,568 | ) | |
Restricted cash (includes restricted cash of consolidated VIEs of $21,897 and $12,840 as of September 30, 2019 and December 31, 2018, respectively) | | 38,754 |
| | 25,439 |
|
Gross loans receivable (includes loans of consolidated VIEs of $231,533 and $148,876 as of September 30, 2019 and December 31, 2018, respectively) | | 657,615 |
| | 571,531 |
|
Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $25,375 and $12,688 as of September 30, 2019 and December 31, 2018, respectively) | | (108,385 | ) | | (73,997 | ) |
Loans receivable, net | 491,607 |
| | 363,269 |
| 549,230 |
| | 497,534 |
|
Right of use asset - operating leases (Note 1) | | 118,260 |
| | — |
|
Deferred income taxes | — |
| | 772 |
| 1,846 |
| | 1,534 |
|
Income taxes receivable | 16,363 |
| | 3,455 |
| 23,966 |
| | 16,741 |
|
Prepaid expenses and other | 40,109 |
| | 42,512 |
| 32,228 |
| | 43,588 |
|
Property and equipment, net | 79,790 |
| | 87,086 |
| 70,381 |
| | 76,750 |
|
Goodwill | 143,966 |
| | 145,607 |
| 120,110 |
| | 119,281 |
|
Other intangibles, net of accumulated amortization of $43,250 and $41,156 as of September 30, 2018 and December 31, 2017, respectively) | 33,208 |
| | 32,769 |
| |
Other intangibles, net of accumulated amortization | | 32,666 |
| | 29,784 |
|
Other | 13,090 |
| | 9,770 |
| 18,484 |
| | 12,930 |
|
Assets from discontinued operations (Note 15) | | — |
| | 34,861 |
|
Total Assets | $ | 995,730 |
| | $ | 859,731 |
| $ | 1,068,132 |
| | $ | 919,617 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | Accounts payable and accrued liabilities | $ | 52,853 |
| | $ | 55,792 |
| |
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $7,259 and $4,980 as of September 30, 2019 and December 31, 2018, respectively) | | $ | 63,685 |
| | $ | 49,146 |
|
Deferred revenue | 9,667 |
| | 11,984 |
| 9,052 |
| | 9,483 |
|
Lease liability - operating leases (Note 1) | | 126,048 |
| | — |
|
Income taxes payable | 338 |
| | 4,120 |
| — |
| | 1,579 |
|
Accrued interest (includes accrued interest of consolidated VIEs of $1,603 and $1,266 as of September 30, 2018 and December 31, 2017, respectively) | 7,391 |
| | 25,467 |
| |
Credit services organization guarantee liability | 13,243 |
| | 17,795 |
| |
Accrued interest (includes accrued interest of consolidated VIEs of $777 and $831 as of September 30, 2019 and December 31, 2018, respectively) | | 5,625 |
| | 20,904 |
|
Liability for losses on CSO lender-owned consumer loans | | 10,249 |
| | 12,007 |
|
Deferred rent | 11,288 |
| | 11,577 |
| — |
| | 10,851 |
|
Long-term debt (includes long-term debt and issuance costs of consolidated VIEs of $169,666 and $7,710 as of September 30, 2018 and $124,590 and $4,188 as of December 31, 2017, respectively) | 868,201 |
| | 706,225 |
| |
Debt (includes debt and issuance costs of consolidated VIEs of $105,742 and $3,259 as of September 30, 2019 and $111,335 and $3,856 as of December 31, 2018, respectively) | | 805,407 |
| | 804,140 |
|
Subordinated stockholder debt | 2,319 |
| | 2,381 |
| — |
| | 2,196 |
|
Other long-term liabilities | 6,949 |
| | 5,768 |
| 8,594 |
| | 5,800 |
|
Deferred tax liabilities | 13,617 |
| | 11,486 |
| 4,427 |
| | 13,730 |
|
Liabilities from discontinued operations (Note 15) | | — |
| | 8,882 |
|
Total Liabilities | 985,866 |
| | 852,595 |
| 1,033,087 |
| | 938,718 |
|
Commitments and contingencies |
|
| |
|
| |
Commitments and contingencies (Note 13) | |
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| |
|
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Stockholders' Equity |
|
| |
|
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|
| |
|
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Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued at either period end | — |
| | — |
| — |
| | — |
|
Class A common stock - $0.001 par value; 225,000,000 shares authorized; 45,992,983 and 44,561,419 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively) | 9 |
| | 8 |
| |
Common stock - $0.001 par value; 225,000,000 shares authorized; 46,503,406 and 46,412,231 shares issued as of September 30, 2019 and December 31, 2018, respectively; and 42,347,165 and 46,412,231 shares outstanding as of September 30, 2019 and December 31, 2018, respectively | | 9 |
| | 9 |
|
Treasury stock, at cost - 4,156,241 as of September 30, 2019 | | (53,064 | ) | | — |
|
Paid-in capital | 64,148 |
| | 46,079 |
| 67,579 |
| | 60,015 |
|
(Accumulated deficit) retained earnings | (3,767 | ) | | 3,988 |
| |
Retained earnings (accumulated deficit) | | 63,205 |
| | (18,065 | ) |
Accumulated other comprehensive loss | (50,526 | ) | | (42,939 | ) | (42,684 | ) | | (61,060 | ) |
Total Stockholders' Equity | 9,864 |
| | 7,136 |
| 35,045 |
| | (19,101 | ) |
Total Liabilities and Stockholders' Equity | $ | 995,730 |
| | $ | 859,731 |
| $ | 1,068,132 |
| | $ | 919,617 |
|
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOMEOPERATIONS
(in thousands, except per share data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Revenue | $ | 283,004 |
| | $ | 255,119 |
| | $ | 793,745 |
| | $ | 696,643 |
| $ | 297,264 |
| | $ | 269,482 |
| | $ | 839,503 |
| | $ | 757,494 |
|
Provision for losses | 134,523 |
| | 99,341 |
| | 307,540 |
| | 226,523 |
| 123,867 |
| | 127,692 |
| | 338,262 |
| | 290,922 |
|
Net revenue | 148,481 |
| | 155,778 |
| | 486,205 |
| | 470,120 |
| 173,397 |
| | 141,790 |
| | 501,241 |
| | 466,572 |
|
| | | | | | | | | | | | | | |
Cost of providing services | | | | | | | | | | | | | | |
Salaries and benefits | 26,515 |
| | 26,821 |
| | 80,341 |
| | 79,554 |
| 27,462 |
| | 26,515 |
| | 82,249 |
| | 80,341 |
|
Occupancy | 13,522 |
| | 13,815 |
| | 40,269 |
| | 41,421 |
| 14,036 |
| | 13,522 |
| | 42,205 |
| | 40,269 |
|
Office | 7,742 |
| | 5,715 |
| | 20,799 |
| | 15,519 |
| 5,993 |
| | 7,326 |
| | 16,563 |
| | 19,311 |
|
Other costs of providing services | 12,604 |
| | 12,991 |
| | 39,731 |
| | 40,954 |
| 12,843 |
| | 12,484 |
| | 39,917 |
| | 38,516 |
|
Advertising | 24,114 |
| | 16,270 |
| | 51,424 |
| | 35,599 |
| 16,424 |
| | 21,349 |
| | 36,990 |
| | 44,347 |
|
Total cost of providing services | 84,497 |
| | 75,612 |
| | 232,564 |
| | 213,047 |
| 76,758 |
| | 81,196 |
| | 217,924 |
| | 222,784 |
|
Gross margin | 63,984 |
| | 80,166 |
| | 253,641 |
| | 257,073 |
| 96,639 |
| | 60,594 |
| | 283,317 |
| | 243,788 |
|
| | | | | | | | | | | | | | |
Operating expense | | | | | | | | | | | | | | |
Corporate, district and other | 35,185 |
| | 34,247 |
| | 114,294 |
| | 103,797 |
| |
Corporate, district and other expenses | | 38,665 |
| | 27,495 |
| | 123,043 |
| | 95,904 |
|
Interest expense | 23,396 |
| | 18,844 |
| | 66,210 |
| | 60,694 |
| 17,364 |
| | 23,403 |
| | 52,077 |
| | 66,229 |
|
Loss on extinguishment of debt | 69,200 |
| | — |
| | 80,883 |
| | 12,458 |
| — |
| | 69,200 |
| | — |
| | 80,883 |
|
Restructuring costs | — |
| | 7,393 |
| | — |
| | 7,393 |
| |
Loss from equity method investment | | 1,384 |
| | — |
| | 5,132 |
| | — |
|
Total operating expense | 127,781 |
| | 60,484 |
| | 261,387 |
| | 184,342 |
| 57,413 |
| | 120,098 |
| | 180,252 |
| | 243,016 |
|
Net (loss) income before income taxes | (63,797 | ) | | 19,682 |
| | (7,746 | ) | | 72,731 |
| |
(Benefit) provision for income taxes | (16,775 | ) | | 9,920 |
| | 9 |
| | 29,988 |
| |
Net (loss) income | $ | (47,022 | ) | | $ | 9,762 |
| | $ | (7,755 | ) | | $ | 42,743 |
| |
Income (loss) from continuing operations before income taxes | | 39,226 |
| | (59,504 | ) | | 103,065 |
| | 772 |
|
Provision (benefit) for income taxes | | 11,239 |
| | (16,914 | ) | | 28,738 |
| | (269 | ) |
Net income (loss) from continuing operations | | 27,987 |
|
| (42,590 | ) | | 74,327 |
| | 1,041 |
|
Net loss from discontinued operations, before income tax | | — |
| | (4,293 | ) | | (39,048 | ) | | (8,518 | ) |
Income tax expense (benefit) related to disposition
| | $ | 598 |
| | $ | 139 |
| | $ | (45,991 | ) | | $ | 278 |
|
Net (loss) income from discontinued operations | | $ | (598 | ) | | $ | (4,432 | ) | | $ | 6,943 |
| | $ | (8,796 | ) |
Net income (loss) | | $ | 27,389 |
|
| $ | (47,022 | ) | | $ | 81,270 |
| | $ | (7,755 | ) |
| | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.63 |
| | $ | (0.93 | ) | | $ | 1.63 |
| | $ | 0.02 |
|
Discontinued operations | | (0.01 | ) | | (0.10 | ) | | 0.15 |
| | (0.19 | ) |
Basic earnings per share | | $ | 0.62 |
| | $ | (1.03 | ) | | $ | 1.78 |
| | $ | (0.17 | ) |
| | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.61 |
| | $ | (0.93 | ) | | $ | 1.59 |
| | $ | 0.03 |
|
Discontinued operations | | (0.01 | ) | | (0.10 | ) | | 0.15 |
| | (0.19 | ) |
Diluted earnings per share (1) | | $ | 0.60 |
| | $ | (1.03 | ) | | $ | 1.74 |
| | $ | (0.16 | ) |
| | | | | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | |
Basic | 45,853 |
| | 37,908 |
| | 45,674 |
| | 37,908 |
| 44,422 |
| | 45,853 |
| | 45,759 |
| | 45,674 |
|
Diluted | 48,352 |
| | 38,914 |
| | 48,061 |
| | 38,959 |
| |
Net income per common share: | | | | | | | | |
Basic earnings per share | $ | (1.03 | ) | | $ | 0.26 |
| | $ | (0.17 | ) | | $ | 1.13 |
| |
Diluted earnings per share: | $ | (0.97 | ) | | $ | 0.25 |
| | $ | (0.16 | ) | | $ | 1.10 |
| |
Diluted (1) | | 46,010 |
| | 45,853 |
| | 46,887 |
| | 48,061 |
|
(1) As of December 31, 2018, the Company made certain insignificant adjustments to previously-reported Earnings Per Share ("EPS") to correctly reflect the effect of anti-dilutive shares on diluted EPS calculations in accordance with ASC 260. These changes were immaterial to the overall EPS calculation. Diluted loss per share for the three months ended September 30, 2018 of $0.97 was corrected to $1.03. | | (1) As of December 31, 2018, the Company made certain insignificant adjustments to previously-reported Earnings Per Share ("EPS") to correctly reflect the effect of anti-dilutive shares on diluted EPS calculations in accordance with ASC 260. These changes were immaterial to the overall EPS calculation. Diluted loss per share for the three months ended September 30, 2018 of $0.97 was corrected to $1.03. |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net (loss) income | $ | (47,022 | ) | | $ | 9,762 |
| | $ | (7,755 | ) | | $ | 42,743 |
|
Other comprehensive income (loss): |
| |
| |
| |
|
Cash flow hedges, net of $0 tax in all periods | (187 | ) | | — |
| | (572 | ) | | 333 |
|
Foreign currency translation adjustment, net of $0 tax in all periods | 2,648 |
| | 8,397 |
| | (7,015 | ) | | 18,148 |
|
Other comprehensive income (loss) | 2,461 |
| | 8,397 |
| | (7,587 | ) | | 18,481 |
|
Comprehensive (loss) income | $ | (44,561 | ) | | $ | 18,159 |
| | $ | (15,342 | ) | | $ | 61,224 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income (loss) | $ | 27,389 |
| | $ | (47,022 | ) | | $ | 81,270 |
| | $ | (7,755 | ) |
Other comprehensive (loss) income: |
| |
| |
| |
|
Cash flow hedges, net of $0 tax in both periods | — |
| | (187 | ) | | — |
| | (572 | ) |
Foreign currency translation adjustment, net of $0 tax in both periods | (1,954 | ) | | 2,649 |
| | 18,376 |
| | (7,015 | ) |
Other comprehensive (loss) income | (1,954 | ) | | 2,462 |
| | 18,376 |
| | (7,587 | ) |
Comprehensive income (loss) | $ | 25,435 |
| | $ | (44,560 | ) | | $ | 99,646 |
| | $ | (15,342 | ) |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
(dollars in thousands, and unaudited)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
Cash flows from operating activities | | | |
Net (loss) income | $ | (7,755 | ) | | $ | 42,743 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 14,006 |
| | 14,120 |
|
Provision for loan losses | 307,540 |
| | 226,523 |
|
Restructuring costs | — |
| | 1,495 |
|
Amortization of debt issuance costs | 3,411 |
| | 2,637 |
|
Amortization of bond (premium)/discount | (488 | ) | | 809 |
|
Deferred income tax benefit | 3,005 |
| | (811 | ) |
Loss on disposal of property and equipment | 691 |
| | 403 |
|
Loss on extinguishment of debt | 80,883 |
| | 12,458 |
|
Increase in cash surrender value of life insurance | (2,458 | ) | | (1,045 | ) |
Share-based compensation expense | 6,112 |
| | 311 |
|
Changes in operating assets and liabilities: | | | |
Loans receivable | (444,350 | ) | | (295,127 | ) |
Accounts payable and accrued liabilities | (3,643 | ) | | 11,055 |
|
Income taxes payable | 326 |
| | 11,387 |
|
Income taxes receivable | (12,908 | ) | | 4,590 |
|
Other liabilities | (16,973 | ) | | (2,136 | ) |
Net cash (used in) provided by operating activities | (72,601 | ) | | 29,412 |
|
Cash flows from investing activities | | | |
Purchase of property, equipment and software | (8,200 | ) | | (7,917 | ) |
Cash paid for Cognical Holdings preferred shares | (958 | ) | | (4,975 | ) |
Changes in restricted cash | (12,284 | ) | | (3,360 | ) |
Net cash used in investing activities | (21,442 | ) | | (16,252 | ) |
Cash flows from financing activities | | | |
Net proceeds from issuance of common stock | 11,549 |
| | — |
|
Proceeds from exercise of stock options | 408 |
| | — |
|
Proceeds from Non-Recourse U.S. SPV facility | 17,000 |
| | 52,130 |
|
Payments on Non-Recourse U.S. SPV facility | (61,590 | ) | | (27,258 | ) |
Proceeds from Non-Recourse Canada SPV facility | 89,949 |
| | — |
|
Proceeds from issuance of 12.00% Senior Secured Notes | — |
| | 461,329 |
|
Payments on 10.75% Senior Secured Notes | — |
| | (414,882 | ) |
Payments on 12.00% Senior Secured Notes | (605,000 | ) | | — |
|
Proceeds from 8.25% Senior Secured Notes | 690,000 |
| | — |
|
Payments on 12.00% Senior Cash Pay Notes | — |
| | (125,000 | ) |
Debt issuance costs paid | (17,517 | ) | | (14,222 | ) |
Proceeds from credit facilities | 65,169 |
| | 33,028 |
|
Payments on credit facilities | (36,169 | ) | | (33,028 | ) |
Payments of call premiums from early debt extinguishments | (63,350 | ) | | (11,152 | ) |
Dividends paid to CURO Group Holdings Corp. | — |
| | (166,583 | ) |
Dividends received from CURO Group Holdings Corp. | — |
| | 166,583 |
|
Dividends paid to stockholders | — |
| | (36,500 | ) |
Net cash provided by (used in) financing activities | 90,449 |
| | (115,555 | ) |
Effect of exchange rate changes on cash | (5,419 | ) | | 4,415 |
|
Net decrease in cash | (9,013 | ) | | (97,980 | ) |
Cash at beginning of period | 162,374 |
| | 193,525 |
|
Cash at end of period | $ | 153,361 |
| | $ | 95,545 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Cash flows from operating activities | | | |
Net income from continuing operations | $ | 74,327 |
| | $ | 1,041 |
|
Adjustments to reconcile net income to net cash provided by continuing operating activities: | | | |
Depreciation and amortization | 14,180 |
| | 13,628 |
|
Provision for loan losses | 338,262 |
| | 290,922 |
|
Amortization of debt issuance costs and bond discount | 2,273 |
| | 2,923 |
|
Deferred income tax (benefit) expense | (3,147 | ) | | 3,005 |
|
Loss on disposal of property and equipment | 47 |
| | 640 |
|
Loss on extinguishment of debt | — |
| | 80,883 |
|
Loss from equity method investment | 5,132 |
| | — |
|
Share-based compensation | 7,587 |
| | 6,112 |
|
Changes in operating assets and liabilities: | | | |
Accrued interest on loans receivable | (11,446 | ) | | (5,986 | ) |
Prepaid expenses and other assets | 14,275 |
| | 2,695 |
|
Other assets | (8,439 | ) | | (2,458 | ) |
Accounts payable and accrued liabilities | 13,596 |
| | (4,862 | ) |
Deferred revenue | (533 | ) | | (1,984 | ) |
Income taxes payable | 25,117 |
| | 326 |
|
Income taxes receivable | 5,598 |
| | (12,908 | ) |
Accrued interest | (15,303 | ) | | (18,060 | ) |
Other liabilities | 2,767 |
| | 1,162 |
|
Net cash provided by continuing operating activities | 464,293 |
| | 357,079 |
|
Net cash (used in) provided by discontinued operating activities | (504 | ) | | 5,562 |
|
Net cash provided by operating activities | 463,789 |
| | 362,641 |
|
Cash flows from investing activities | | | |
Purchase of property, equipment and software | (8,667 | ) | | (8,030 | ) |
Loans receivable originated or acquired | (1,369,644 | ) | | (1,624,881 | ) |
Loans receivable repaid | 995,291 |
| | 1,212,446 |
|
Investments in Cognical Holdings, Inc. ("Zibby") | (8,168 | ) | | (958 | ) |
Net cash used in continuing investing activities | (391,188 | ) | | (421,423 | ) |
Net cash used in discontinued investing activities | (14,213 | ) | | (24,481 | ) |
Net cash used in investing activities | (405,401 | ) | | (445,904 | ) |
Cash flows from financing activities | | | |
Net proceeds from issuance of common stock | — |
| | 11,549 |
|
Proceeds from Non-Recourse U.S. SPV facility | — |
| | 17,000 |
|
Payments on Non-Recourse U.S. SPV facility | — |
| | (61,590 | ) |
Proceeds from Non-Recourse Canada SPV facility | 15,992 |
| | 89,949 |
|
Payments on Non-Recourse Canada SPV facility | (24,835 | ) | | — |
|
Payments on 12.00% Senior Secured Notes | — |
| | (605,000 | ) |
Proceeds from 8.25% Senior Secured Notes | — |
| | 690,000 |
|
Debt issuance costs paid | (198 | ) | | (17,517 | ) |
Proceeds from credit facilities | 179,811 |
| | 65,169 |
|
Payments on credit facilities | (174,811 | ) | | (36,169 | ) |
Payments on subordinated stockholder debt | (2,252 | ) | | — |
|
Payments of call premiums from early debt extinguishments | — |
| | (63,350 | ) |
Proceeds from exercise of stock options | 87 |
| | 408 |
|
Payments to net share settle restricted stock units vesting | (110 | ) | | — |
|
Repurchase of common stock | (52,172 | ) | | — |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
|
| | | | | | | |
Net cash (used in) provided by financing activities (1) | (58,488 | ) | | 90,449 |
|
Effect of exchange rate changes on cash and restricted cash | 1,204 |
| | (4,080 | ) |
Net increase in cash and restricted cash | 1,104 |
| | 3,106 |
|
Cash and restricted cash at beginning of period | 99,857 |
| | 174,491 |
|
Cash and restricted cash at end of period | 100,961 |
| | 177,597 |
|
Less: Cash and restricted cash of discontinued operations at end of period | — |
| | 11,303 |
|
Cash and restricted cash of continuing operations at end of period | $ | 100,961 |
| | $ | 166,294 |
|
(1) Financing activities include continuing operations only, and were not impacted by discontinued operations |
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations
CURO is a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the United States ("U.S."), Canada and, through February 25, 2019, the U.K.
U.K. Segment Placed into Administration
On February 25, 2019, the Company announced that a proposed Scheme of Arrangement ("SOA"), as described in the Company's Current Report on Form 8-K filed January 31, 2019, would not be implemented. In accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the boards of directors of the Company’s U.K. subsidiaries, Curo Transatlantic Limited and SRC Transatlantic Limited (collectively, “the U.K. Subsidiaries”), insolvency practitioners from KPMG were appointed as administrators (“Administrators”) for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place their management, affairs, business and property under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries as of February 25, 2019 and presented the U.K. Subsidiaries as Discontinued Operations for all periods presented in this Form 10-Q.
Basis of Presentation
The terms “CURO," "we,” “our,” “us,”“CURO" and the “Company,”“Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combinedconsolidated entity, except where otherwise stated. The term "CFTC" refers to CURO Financial Technologies Corp., oura wholly-owned subsidiary of the Company, and its directly and indirectly owned subsidiaries as a consolidated entity, except where otherwise stated.
We haveThe Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements ("Condensed Consolidated Financial Statements") in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the accounting policies described in our 2017its Annual Report on Form 10-K. 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the "SEC") on March 18, 2019 ("2018 Form 10-K"). Operating results for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ending December 31, 2019.
Certain information and note disclosures normally included in our annual financial statements prepared in accordance with US GAAP have been condensed or omitted, although we believethe Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, in September 2018, and subsequently expanded in June 2019, the SEC changed the definition of a smaller reporting company ("SRC"). The change in definition of an SRC allows more registrants to qualify to report under scaled disclosure requirements. Under these rules, CURO met the definition of an SRC as of June 30, 2019. Refer to "--FASB Definition of an SRC as related to the CECL standard and evaluation of the impact of the CECL standard" for information regarding the impact on the Company of meeting the definition of an SRC.
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 ourthe Company's results of operations, financial position and cash flows for the periods presented. The adjustments consist solelyOn February 25, 2019, the Company's United Kingdom ("U.K.") segment, as defined by ASC 280, was placed into administration, resulting in the treatment of normal recurring adjustments. You should readit as discontinued operations per ASC 205-20. Throughout this Quarterly Report on Form 10-Q ("Form 10-Q"), current and prior-period financial information presents the U.K. segment as discontinued operations as required. For further information about the placement of the segment into administration, refer to "--Nature of Operations" below.
The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in our 2017 Annual Report onthe 2018 Form 10-K. Interim results of operations are not necessarily indicative of results that may be expected for future interim periods or for the year ending December 31, 2018.
We completed our initial public offering ("IPO") in December 2017. Prior to our IPO, we effected a 36-for-1 split of our common stock. We have retroactively adjusted all share and per share data for all periods presented to reflect the stock split as if the stock split had occurred at the beginning of the earliest period presented.
After our IPO, we initially qualified as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). As an emerging growth company, we elected to take advantage of specified reduced reporting and other requirements that are otherwise generally required of public companies. In August 2018, we completed the issuance of $690.0 million of 8.25% Senior Secured Notes due 2025 ("2025 Notes"). See Note 5 - Long-Term Debt for further discussion of this issuance. This sale, along with the issuance of $605.0 million of 12.00% Senior Secured Notes due 2022 ("2022 Notes") during 2017 exceeded one of the required thresholds to retain emerging growth company status. Specifically, an emerging growth company loses this status on the date on which it has, during the previous three-year period, issued more than $1 billion in non-convertible debt, provided that none of certain other disqualifying conditions have been triggered. As a result of this change of status, we can no longer take advantage of the specified reduced reporting requirements and need to adopt certain recently issued accounting pronouncements for which we were previously allowed to defer. The impact to our accounting policy adoption practices are further described in Note 1. Additionally, the status change will require us to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).2019.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of CURO and its wholly-owned subsidiaries. We have eliminated intercompanyIntercompany transactions and balances have been eliminated in consolidation.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Equity Investment in Unconsolidated Entity
During the nine months ended September 30, 2019, the Company invested an additional $6.6 million in Cognical Holdings, Inc. ("Zibby"), offset by a $3.7 million carrying value adjustment as a result of the additional investment. As of September 30, 2019, the Company owned 42.3% of Zibby. See Note 8 - "Fair Value Measurements" for additional detail on Zibby's fair value considerations for the nine months ended September 30, 2019.
Use of Estimates
The preparation of Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported. Some of the significant estimates that we havethe Company made in the accompanying Condensed Consolidated Financial Statements include allowances for loan losses, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, Credit Services Organizationcredit services organization ("CSO") guarantee liability for losses, and estimated tax liabilities. Actual results may differ from those estimates.
Nature of OperationsOpen-End Loss Recognition
WeEffective January 1, 2019, the Company modified the timeframe for which it charges-off Open-End loans and made related refinements to its loss provisioning methodology. Prior to January 1, 2019, the Company deemed Open-End loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of the continued shift to Open-End loans in Canada and analysis of payment patterns on early-stage versus late-stage delinquencies, the Company revised its estimates and now considers Open-End loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-due Open-End loans and related accrued interest now remain in loans receivable for 90 days before being charged-off against the allowance for loan losses. All recoveries on charged-off loans are credited to the allowance for loan losses. Quarterly, the Company evaluates the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest.
The aforementioned change was treated as a growth-oriented, technology-enabled, highly-diversified consumer finance company servingchange in accounting estimate for accounting purposes and applied prospectively effective January 1, 2019.
The change affects comparability with prior periods as follows:
Gross combined loans receivable: balances as of September 30, 2019 include $46.1 million of Open-End loans that are up to 90 days past-due with related accrued interest, while such balances for periods prior to March 31, 2019 do not include any past-due loans.
Revenues: for the three and nine months ended September 30, 2019, gross revenues include interest earned on past-due loan balances of approximately $15 million and $35 million, respectively, while revenues in prior-year periods do not include comparable amounts.
Provision for Losses: prospectively, from January 1, 2019, past-due, unpaid balances plus related accrued interest charge-off on day 91. Provision expense is affected by total charge-offs less total recoveries ("NCOs") plus changes to the Allowance for loan losses. Because NCOs prospectively include unpaid principal and up to 90 days of related accrued interest, NCO amounts and rates are higher and the Open-End Allowance for loan losses as a wide rangepercentage of underbanked consumersOpen-End gross loans receivable is higher. The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable increased to 17.2% at September 30, 2019, compared to 9.8% in the United States ("U.S."), Canada,comparable prior-year period.
Correction of Immaterial Errors in Previously-Issued Financial Statements
During the year ended December 31, 2018, the Company corrected immaterial errors in its prior presentation of cash flows for loan originations and collections on principal. The Company determined that the United Kingdom ("U.K.").
historical presentation was in error by not conforming to US GAAP because it included outflows for loan originations and receipts on collections in Cash provided by operating activities rather than in Cash used in investing activities. Accordingly, the Company corrected previously filed financial statements by reclassifying cash outflows for loan originations and receipts on collections of principal of $412.4 million from net Cash provided by operating activities to net Cash used in investing activities for the nine months ended September 30, 2018. Total cash flows for each period presented did not change. The Company concluded that the errors were immaterial to the unaudited Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q for the three and nine months
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
ended September 30, 2018. The Company has revised its Condensed Consolidated Financial Statements for the nine months ended September 30, 2018 presented in this Form 10-Q. A summary of the correction follows (in thousands):
|
| | | | |
| | Nine Months Ended September 30, 2018 |
As Reported:(1) | | |
Net cash used in continuing operating activities | | $ | (55,356 | ) |
Net cash used in continuing investing activities | | (8,988 | ) |
| | |
As Corrected: | | |
Net cash provided by continuing operating activities | | 357,079 |
|
Net cash used in continuing investing activities | | (421,423 | ) |
(1) "As reported" balances include amounts from continuing operations historically presented within these captions. |
Recently Adopted Accounting Pronouncements
ASU 2016-02
In May 2017,February 2016, the Financial Accounting Standards Board ("FASB") issuedestablished Topic 842, Leases, by issuing ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). Under modification accounting, an entity is requiredNo. 2016-02, which requires lessees to re-value its equity awards each time there is a modification torecognize leases on the terms ofbalance sheet and disclose key information about leasing arrangements. The Company adopted the awards. The provisions in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to account for the effects of a modification, unless certain conditions are met. The amendments in this update were effective for all entities for annual periods, and interim periods therein, beginning after December 15, 2017. ASU 2017-09 was effective for all entities for annual periods, and interim periods therein,standard as of January 1, 2018.2019 using the alternative modified retrospective method, also known as the transition relief method, permitted under ASU 2018-11, which allows companies to not recast comparative periods in the period of adoption. The adoptionCompany elected the package of this amendmentpractical expedients permitted under the transition guidance which, among other things, permits companies to not reassess prior conclusions on lease identification, lease classification and initial direct costs. The Company also elected to combine lease and non-lease components and to exclude short-term leases, defined as having an initial term of 12 months or less, from the Condensed Consolidated Balance Sheets. The Company did not have a material impact on our Consolidated Financial Statements.elect the hindsight practical expedient.
InAs of September 30, 2019, the Company held right of use assets ("ROU assets") and operating lease liabilities ("lease liabilities") of $118.3 million and $126.0 million, respectively. Prepaid rent of $2.7 million and deferred liabilities of $10.9 million were included in ROU assets and lease liabilities, respectively, at the time of adoption. During the three months ended September 30, 2019, the Company reduced initial opening balances for ROU assets and lease liabilities recorded on January 2017, FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition1, 2019 by $18.0 million as a result of a Business ("ASU 2017-01"). ASU 2017-01 narrowsprevious misapplication of certain provisions of Topic 842. The impact of this misapplication on the definitionCompany's financial position, results of a businessoperations, and provides a framework that gives an entity a basiscash flows was not material.
See Note 14 - "Leases" for making reasonable judgments about whether a transaction involves an asset or a businessadditional information and provides a screen to determine when a set (an integrated set of assets and activities) is not a business. The screen requires a determination that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, ASU 2017-01 (i) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (ii) removes the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. ASU 2017-01 is effective prospectively for public companies for annual periods beginning after December 15, 2017, including interim periods therein. With our loss of emerging growth company status, we adopted this guidance during the current quarter. The adoption of ASU 2017-01 did not have a material impact on our Consolidated Financial Statements.disclosures required by Topic 842.
In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption should be applied using a retrospective transition method to each period presented. ASU 2016-18 is effective for public companies for fiscal years beginning after December 15, 2017 and interim periods therein. With our loss of emerging growth company status, we adopted this guidance during the current quarter. The adoption of ASU 2016-18 did not have a material impact on the presentation of our statement of cash flows in our Consolidated Financial Statements.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 provide guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees and beneficial interests in securitization transactions. ASU 2016-15 was effective for public companies for fiscal years beginning after December 15, 2017 and interim periods therein. With our loss of emerging growth company status, we adopted this guidance during the current quarter. The adoption of ASU 2016-15 did not have a material impact on our Consolidated Statement of Cash Flows as we have historically presented debt prepayment and extinguishment costs as outflows from financing activities and we had no other material cash flows impacted by the guidance.
In January 2016, FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) which requires (i) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 is currently effective for public companies. With our loss of emerging growth company status during 2018, we adopted this guidance during the current quarter. The adoption of ASU 2016-01 did not have a material impact on our Consolidated Financial Statements.
In November 2015, FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-07 eliminates the requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. ASU 2015-17 is currently effective for public companies. With our loss of emerging growth company
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
status during 2018, we adopted this guidance during the current quarter. The adoption of ASU 2015-17 did not have a material impact on our Consolidated Financial Statements.
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. In addition to ASU 2014-09, the FASB issued the following ASUs updating the topic:
In December 2016, ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
In May 2016, ASU No. 2016-12 , Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
In April 2016, ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
In March 2016, ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
In August 2015, ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
We adopted the provisions of Topic 606 during the quarter, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (Topic 605). Topic 606 requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Most of our revenue is generated from interest or through servicing of financial contracts, both of which are excluded from the scope of ASU 2014-09. As a result, the standard did not have a material impact on our Condensed Financial Statements and we have made no adjustments to retained earnings or prior comparative periods.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The provisions of ASU 2018-13 are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. We are currently assessing the impact adoption of ASU 2018-13 will have on our Consolidated Financial Statements.2018-02
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income ("ASU 2018-02"). Current US GAAP requires deferred, which permits the reclassification to retained earnings of disproportionate tax liabilities and assets to be adjusted for the effect of a changeeffects in tax laws or rates with the effect included in income from continuing operations in the period the change is enacted, including items ofaccumulated other comprehensive income for which the related tax effects are presented in other comprehensive income (“stranded tax effects”). ASU 2018-02 allows, but does not require, companies to reclassify stranded tax effects(loss) caused by the Tax Cuts and Jobs Act of 2017 (the "2017("2017 Tax Act") from accumulated other comprehensive income to retained earnings. Additionally,. The Company adopted ASU 2018-02 requires new disclosures by all companies, whether they opt to doas of January 1, 2019, which did not have a material impact on the reclassification or not. The provisions of ASU 2018-02 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. Companies should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 Tax Act is recognized. We are currently assessing the impact adoption of ASU 2018-02 will have on ourCondensed Consolidated Financial Statements.
In January 2017, FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplified the goodwill impairment test by eliminating Step 2 of the test which requires an entity to compute the implied fair value of goodwill. Instead, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, and is limitedRecently Issued Accounting Pronouncements Not Yet Adopted
Accounting Pronouncements Related to the amount of total goodwill allocated to that reporting unit. Under Current Expected Credit Loss ("CECL") Standard
ASU 2017-04, an entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The provisions of ASU 2017-04 are effective for a public entity's annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently assessing the impact adoption of ASU 2017-04 will have on our Consolidated Financial Statements.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 2016-13"). This2018-19 in November 2018, ASU modifies2019-04 in April 2019 and ASU 2019-05 in May 2019. The standard, as amended, changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the impairmentcurrent “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 utilize an expected loss methodology inrecord allowances rather than reduce the carrying amount, as they currently do under the
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
placeother-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 currently used incurred loss methodology, which will result indate 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. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the more timely recognitionsubtopic. As issued, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016‑13, including the fair value option. If the fair value option is not utilized, adoption of losses. 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 in "--FASB Definition of an SRC as related to the CECL standard and evaluation of the impact of the CECL standard", the Company expects to defer the adoption of ASU 2016-13 until at least January 1, 2021.
ASU 2019-05
In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326), which amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (i) were previously recorded at amortized cost and (ii) are within the scope of ASC 326-20 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 adjustment to the opening balance of retained earnings in the statement of financial position as 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 public companiesfiscal 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. The Company expects to elect the option to defer adoption to a later effective date, as further described below in "--FASB Definition of an SRC as related to the CECL standard and evaluation of the impact of the CECL standard." The Company is currently evaluating the methods and impact of adopting this new standard on the Condensed Consolidated Financial Statements.
ASU 2019-04
In May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. The ASU’s amendments apply to all entities within the scope of the affected guidance. Accrued interest - Amortized cost basis is defined in ASU 2016-13 as "the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange, and fair value hedge accounting adjustments." To address stakeholders’ concerns that the inclusion of accrued interest in the definition of amortized cost basis could make application of the credit loss guidance operationally burdensome, ASU 2019-04 provides certain alternatives for the measurement of the allowance for credit losses ("ALL") on accrued interest receivable ("AIR"). These measurement alternatives include (i) measuring an ALL on AIR separately, (ii) electing to provide separate disclosure of the AIR component of amortized cost as a practical expedient, and (iii) making accounting policy elections to simplify certain aspects of the presentation and measurement of such AIR. As issued, for entities that have adopted ASU 2016-13, the amendments in ASU 2019-04 related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, and interim periods therein. We anticipate thatASU 2019-04’s amendments should be applied "on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position as of the date an entity adopted the amendments in ASU 2016-13." Certain disclosures are also required. Due to the FASB's decision to allow a deferment option for SRCs applying ASU 2016-13, will impact our current process for measuring credit lossesthe Company expects to defer adoption of both ASU 2016-13 and are currently assessingASU 2019-04.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
FASB Definition of an SRC as related to the CECL standard and evaluation of the impact itof the CECL standard
On October 16, 2019, the FASB approved a proposal to defer required adoption of the CECL standard for SRCs until fiscal periods beginning after December 15, 2022. Under current SEC definitions, CURO met the definition of an SRC as of June 30, 2019. The FASB further confirmed that for CECL, a company makes an evaluation of SRC status in accordance with SEC rules at the time of standard effectiveness (i.e., as of June 30, 2019) and that status is effective for purposes of adopting the CECL standard regardless of future changes in SRC status. The FASB is expected to codify the approved proposal with issuance of a new ASU during the fourth quarter of 2019. The Company will havecontinue to monitor the standard-setting activities of the FASB and expects to elect to defer adoption of the CECL standard. The Company is currently evaluating the methods and impact of adopting the CECL standard on ourthe Condensed Consolidated Financial Statements.
SEC Disclosure Update
In February 2016, FASB issued its new lease accounting guidanceAugust 2018, the SEC adopted final rules under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that had become redundant, duplicative, overlapping, outdated or superseded. Other than the amendment's expanded disclosure requirement for interim financial statements to disclose both current and comparative quarter and year-to-date reconciliations of changes in ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged and lessees will no longer be provided with a source of off-balance sheet financing. In 2018, FASB released an additional transition method to adopt this new ASU. It allows companies to recognize a cumulative-effect adjustment in the period of adoption and tostockholders' equity, it did not restate prior periods. We will elect this transition method and it will be effective for us beginning January 1, 2019, with early adoption permitted. We plan, and are on schedule, to adopt the standard effective January 1, 2019. We expect ASU 2016-02 will have a material impact on our balance sheet with recognition of right-of-use assetsthe Company's Condensed Consolidated Financial Statements or Notes thereto for the three and lease liabilities for operating leases. However, we do not expect adoption willnine months ended September 30, 2019, nor is it expected to have a material impact on our income statement. We do not expect the new standard will have material impacts on our liquidityCompany's annual Consolidated Financial Statements or on our debt-covenant compliance under our current agreements.Notes thereto.
NOTE 2 - VARIABLE INTEREST ENTITIES
At September 30,In August 2018, we held two credit facilitiesthe Company closed the Non-Recourse Canada SPV facility, whereby we sell certain loan receivables were sold to wholly-owned, bankruptcy-remote special purpose subsidiaries which are considered variable interest entities ("VIEs"). We incur additional to collateralize debt throughincurred under the non-recourse facilities (See Note 5 - Long-Term Debt for further discussion) that is collateralized by these underlying loan receivables. We entered into the new Non-Recourse Canada SPV facility in August 2018. We extinguished the Non-Recourse U.S. SPV facility using the using the proceeds from the 8.25% Senior Secured Notes due September 1, 2025 ("8.25% Senior Secured Notes") in October 2018 (See Note 15 - Subsequent Events).facility.
We have determined that we areAs the Company is the primary beneficiary of the VIEs, and are required to consolidate them. We includeit includes the assets and liabilities related to the VIEs in ourits Condensed Consolidated Financial Statements and we account for them as secured borrowings. WeStatements. As required, the Company parenthetically disclosediscloses on ourthe Condensed Consolidated Balance Sheets the VIEs’ assets that can only be used to settle the VIEs' obligations and liabilities if the VIEs’ creditors have no recourse against ourthe Company's general credit.
The carrying amounts of the consolidated VIEs' assets and liabilities associated with our special purposethe VIE subsidiaries were as follows (September 30, 2018 includes balances for both the U.S. and Canada VIEs while the December 31, 2017 includes the U.S. VIE)(in thousands):
| | (in thousands) | September 30, 2018 | | December 31, 2017 | |
| | | September 30, 2019 | | December 31, 2018 |
Assets | | | | | | | |
Restricted cash | $ | 19,107 |
| | $ | 6,871 |
| | $ | 21,897 |
| | $ | 12,840 |
|
Loans receivable less allowance for loan losses | 303,433 |
| | 167,706 |
| |
Gross loans receivable less allowance for loan losses | | | 206,158 |
| | 136,187 |
|
Total Assets | $ | 322,540 |
| | $ | 174,577 |
| | $ | 228,055 |
| | $ | 149,027 |
|
Liabilities | | | | | | | |
Accounts payable and accrued liabilities | $ | 1,360 |
| | $ | 12 |
| | $ | 7,259 |
| | $ | 4,980 |
|
Deferred revenue | 149 |
| | — |
| | 44 |
| | 40 |
|
Accrued interest | 1,603 |
| | 1,266 |
| | 777 |
| | 831 |
|
Intercompany payable | | | 93,671 |
| | 44,330 |
|
Long-term debt | 161,956 |
| | 120,402 |
| | 102,483 |
| | 107,479 |
|
Total Liabilities | $ | 165,068 |
| | $ | 121,680 |
| | $ | 204,234 |
| | $ | 157,660 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 3 – LOANS RECEIVABLE AND REVENUE
The following table summarizes revenue by product for the periods indicated:indicated (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2018 | | 2017 | | 2018 | | 2017 | |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Unsecured Installment | $ | 148,591 |
| | $ | 128,785 |
| | $ | 405,010 |
| | $ | 343,365 |
| | $ | 137,233 |
| | $ | 137,660 |
| | $ | 395,119 |
| | $ | 377,976 |
|
Secured Installment | 28,562 |
| | 26,407 |
| | 81,195 |
| | 73,249 |
| | 28,270 |
| | 28,562 |
| | 81,823 |
| | 81,195 |
|
Open-End | 40,290 |
| | 18,630 |
| | 94,735 |
| | 52,342 |
| | 66,120 |
| | 40,290 |
| | 173,961 |
| | 94,735 |
|
Single-Pay | 53,205 |
| | 70,895 |
| | 178,512 |
| | 197,926 |
| | 49,312 |
| | 50,614 |
| | 141,605 |
| | 169,296 |
|
Ancillary | 12,356 |
| | 10,402 |
| | 34,293 |
| | 29,761 |
| | 16,329 |
| | 12,356 |
| | 46,995 |
| | 34,292 |
|
Total revenue | $ | 283,004 |
| | $ | 255,119 |
| | $ | 793,745 |
| | $ | 696,643 |
| | $ | 297,264 |
| | $ | 269,482 |
| | $ | 839,503 |
| | $ | 757,494 |
|
The following tables summarize Loans receivable by product and the related delinquent loans receivable at September 30, 2018:2019 (in thousands):
| | | | September 30, 2018 | | September 30, 2019 |
(in thousands) | | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total | |
| | | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total |
Current loans receivable | | $ | 80,867 |
| $ | 156,947 |
| $ | 74,017 |
| $ | 184,067 |
| $ | 495,898 |
| | $ | 78,039 |
| $ | 127,952 |
| $ | 72,866 |
| $ | 268,918 |
| $ | 547,775 |
|
Delinquent loans receivable | | — |
| 54,618 |
| 17,159 |
| — |
| 71,777 |
| | — |
| 46,537 |
| 17,250 |
| 46,053 |
| 109,840 |
|
Total loans receivable | | 80,867 |
| 211,565 |
| 91,176 |
| 184,067 |
| 567,675 |
| | 78,039 |
| 174,489 |
| 90,116 |
| 314,971 |
| 657,615 |
|
Less: allowance for losses | | (3,768 | ) | (43,066 | ) | (11,221 | ) | (18,013 | ) | (76,068 | ) | | (5,662 | ) | (38,127 | ) | (10,363 | ) | (54,233 | ) | (108,385 | ) |
Loans receivable, net | | $ | 77,099 |
| $ | 168,499 |
| $ | 79,955 |
| $ | 166,054 |
| $ | 491,607 |
| | $ | 72,377 |
| $ | 136,362 |
| $ | 79,753 |
| $ | 260,738 |
| $ | 549,230 |
|
| | | | September 30, 2018 | | September 30, 2019 |
(in thousands) | | Unsecured Installment | Secured Installment | Total | |
| | | Unsecured Installment | Secured Installment | Open-End | Total |
Delinquent loans receivable | | | | | | |
0-30 days past due | | $ | 21,374 |
| $ | 8,117 |
| $ | 29,491 |
| | $ | 17,187 |
| $ | 7,456 |
| $ | 18,734 |
| $ | 43,377 |
|
31-60 days past due | | 16,542 |
| 4,395 |
| 20,937 |
| | 13,890 |
| 4,711 |
| 13,283 |
| 31,884 |
|
61-90 days past due | | 16,702 |
| 4,647 |
| 21,349 |
| |
61 + days past due | | | 15,460 |
| 5,083 |
| 14,036 |
| 34,579 |
|
Total delinquent loans receivable | | $ | 54,618 |
| $ | 17,159 |
| $ | 71,777 |
| | $ | 46,537 |
| $ | 17,250 |
| $ | 46,053 |
| $ | 109,840 |
|
The following tables summarize Loans receivable by product and the related delinquent loans receivable at December 31, 2017:2018 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 |
(in thousands) | | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Total |
Current loans receivable | | $ | 99,400 |
| $ | 151,343 |
| $ | 73,165 |
| $ | 47,949 |
| $ | 371,857 |
|
Delinquent loans receivable | | — |
| 44,963 |
| 16,017 |
| — |
| 60,980 |
|
Total loans receivable | | 99,400 |
| 196,306 |
| 89,182 |
| 47,949 |
| 432,837 |
|
Less: allowance for losses | | (5,916 | ) | (43,754 | ) | (13,472 | ) | (6,426 | ) | (69,568 | ) |
Loans receivable, net | | $ | 93,484 |
| $ | 152,552 |
| $ | 75,710 |
| $ | 41,523 |
| $ | 363,269 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | |
| | December 31, 2017 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | |
|
|
0-30 days past due | | $ | 18,358 |
| $ | 8,116 |
| $ | 26,474 |
|
31-60 days past due | | 12,836 |
| 3,628 |
| 16,464 |
|
61-90 days past due | | 13,769 |
| 4,273 |
| 18,042 |
|
Total delinquent loans receivable | | $ | 44,963 |
| $ | 16,017 |
| $ | 60,980 |
|
The following tables summarize loans guaranteed by us under our CSO programs and the related delinquent receivables at September 30, 2018:
|
| | | | | | | | | | |
| | September 30, 2018 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 63,688 |
| $ | 2,425 |
| $ | 66,113 |
|
Delinquent loans receivable guaranteed by the Company | | 12,119 |
| 593 |
| 12,712 |
|
Total loans receivable guaranteed by the Company | | 75,807 |
| 3,018 |
| 78,825 |
|
Less: CSO guarantee liability | | (12,750 | ) | (493 | ) | (13,243 | ) |
Loans receivable guaranteed by the Company, net | | $ | 63,057 |
| $ | 2,525 |
| $ | 65,582 |
|
|
| | | | | | | | | | |
| | September 30, 2018 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | |
|
|
0-30 days past due | | $ | 10,419 |
| $ | 462 |
| $ | 10,881 |
|
31-60 days past due | | 1,077 |
| 65 |
| 1,142 |
|
61-90 days past due | | 623 |
| 66 |
| 689 |
|
Total delinquent loans receivable | | $ | 12,119 |
| $ | 593 |
| $ | 12,712 |
|
The following tables summarize loans guaranteed by us under our CSO programs and the related delinquent receivables at December 31, 2017:
|
| | | | | | | | | | |
| | December 31, 2017 |
(in thousands) | | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 62,676 |
| $ | 3,098 |
| $ | 65,774 |
|
Delinquent loans receivable guaranteed by the Company | | 12,480 |
| 537 |
| 13,017 |
|
Total loans receivable guaranteed by the Company | | 75,156 |
| 3,635 |
| 78,791 |
|
Less: CSO guarantee liability | | (17,073 | ) | (722 | ) | (17,795 | ) |
Loans receivable guaranteed by the Company, net | | $ | 58,083 |
| $ | 2,913 |
| $ | 60,996 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | 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 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | December 31, 2017 | | December 31, 2018 |
(in thousands) | | Unsecured Installment | Secured Installment | Total | |
| | | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | | |
|
|
0-30 days past due | | $ | 10,477 |
| $ | 459 |
| $ | 10,936 |
| | $ | 17,850 |
| $ | 7,870 |
| $ | 25,720 |
|
31-60 days past due | | 1,364 |
| 41 |
| 1,405 |
| | 14,705 |
| 4,725 |
| 19,430 |
|
61-90 days past due | | 639 |
| 37 |
| 676 |
| |
61 + days past due | | | 16,532 |
| 4,794 |
| 21,326 |
|
Total delinquent loans receivable | | $ | 12,480 |
| $ | 537 |
| $ | 13,017 |
| | $ | 49,087 |
| $ | 17,389 |
| $ | 66,476 |
|
The following tables summarize loans guaranteed by the Company under CSO programs and the related delinquent receivables at September 30, 2019 (in thousands):
|
| | | | | | | | | | |
| | September 30, 2019 |
| | Unsecured Installment | Secured Installment | Total |
Current loans receivable guaranteed by the Company | | $ | 58,862 |
| $ | 1,966 |
| $ | 60,828 |
|
Delinquent loans receivable guaranteed by the Company | | 11,842 |
| 396 |
| 12,238 |
|
Total loans receivable guaranteed by the Company | | 70,704 |
| 2,362 |
| 73,066 |
|
Less: Liability for losses on CSO lender-owned consumer loans | | (10,181 | ) | (68 | ) | (10,249 | ) |
Loans receivable guaranteed by the Company, net | | $ | 60,523 |
| $ | 2,294 |
| $ | 62,817 |
|
|
| | | | | | | | | | |
| | September 30, 2019 |
| | Unsecured Installment | Secured Installment | Total |
Delinquent loans receivable | | | |
|
|
0-30 days past due | | $ | 9,859 |
| $ | 330 |
| $ | 10,189 |
|
31-60 days past due | | 1,229 |
| 41 |
| 1,270 |
|
61+ days past due | | 754 |
| 25 |
| 779 |
|
Total delinquent loans receivable | | $ | 11,842 |
| $ | 396 |
| $ | 12,238 |
|
The following table summarizes activity intables summarize loans guaranteed by the allowance for loan losses duringCompany under CSO programs and the three months ended September 30, 2018:related delinquent receivables at December 31, 2018 (in thousands): |
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 4,372 |
| $ | 35,279 |
| $ | 10,386 |
| $ | 9,717 |
| $ | — |
| $ | 59,754 |
|
Charge-offs | (43,427 | ) | (37,151 | ) | (11,188 | ) | (32,770 | ) | (3,207 | ) | (127,743 | ) |
Recoveries | 29,500 |
| 5,748 |
| 2,325 |
| 9,191 |
| 2,646 |
| 49,410 |
|
Net charge-offs | (13,927 | ) | (31,403 | ) | (8,863 | ) | (23,579 | ) | (561 | ) | (78,333 | ) |
Provision for losses | 13,511 |
| 39,025 |
| 9,698 |
| 31,686 |
| 561 |
| 94,481 |
|
Effect of foreign currency translation | (188 | ) | 165 |
| — |
| 189 |
| — |
| 166 |
|
Balance, end of period | $ | 3,768 |
| $ | 43,066 |
| $ | 11,221 |
| $ | 18,013 |
| $ | — |
| $ | 76,068 |
|
Allowance for loan losses as a percentage of gross loan receivables | 4.7 | % | 20.4 | % | 12.3 | % | 9.8 | % | N/A |
| 13.4 | % |
The following table summarizes activity in the CSO guarantee liability during the three months ended September 30, 2018:
|
| | | | | | | | | |
| Three Months Ended September 30, 2018 |
(in thousands) | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 11,193 |
| $ | 426 |
| $ | 11,619 |
|
Charge-offs | (44,896 | ) | (1,087 | ) | (45,983 | ) |
Recoveries | 6,901 |
| 665 |
| 7,566 |
|
Net charge-offs | (37,995 | ) | (422 | ) | (38,417 | ) |
Provision for losses | 39,552 |
| 490 |
| 40,042 |
|
Balance, end of period | $ | 12,750 |
| $ | 493 |
| $ | 13,243 |
|
|
| | | | | | | | | | |
| | December 31, 2018 |
| | 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 |
|
The following table summarizes activity in the allowance for loan losses and the CSO guarantee liability, in total, during the three months ended September 30, 2018:
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 4,372 |
| $ | 46,472 |
| $ | 10,812 |
| $ | 9,717 |
| $ | — |
| $ | 71,373 |
|
Charge-offs | (43,427 | ) | (82,047 | ) | (12,275 | ) | (32,770 | ) | (3,207 | ) | (173,726 | ) |
Recoveries | 29,500 |
| 12,649 |
| 2,990 |
| 9,191 |
| 2,646 |
| 56,976 |
|
Net charge-offs | (13,927 | ) | (69,398 | ) | (9,285 | ) | (23,579 | ) | (561 | ) | (116,750 | ) |
Provision for losses | 13,511 |
| 78,577 |
| 10,188 |
| 31,686 |
| 561 |
| 134,523 |
|
Effect of foreign currency translation | (188 | ) | 165 |
| (1 | ) | 189 |
| — |
| 165 |
|
Balance, end of period | $ | 3,768 |
| $ | 55,816 |
| $ | 11,714 |
| $ | 18,013 |
| $ | — |
| $ | 89,311 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | |
| | December 31, 2018 |
| | 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 + days past due | | 769 |
| 29 |
| 798 |
|
Total delinquent loans receivable | | $ | 11,708 |
| $ | 446 |
| $ | 12,154 |
|
The following table summarizes activity in the allowance for loan losses during the three months ended September 30, 2017:2019 (in thousands):
| | | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,313 |
| $ | 41,406 |
| $ | 19,196 |
| $ | 4,523 |
| $ | — |
| $ | 70,438 |
| $ | 4,941 |
| $ | 35,223 |
| $ | 9,996 |
| $ | 51,717 |
| $ | — |
| $ | 101,877 |
|
Charge-offs | (51,709 | ) | (29,058 | ) | (8,985 | ) | (10,437 | ) | (1,446 | ) | (101,635 | ) | (40,512 | ) | (34,252 | ) | (10,592 | ) | (31,993 | ) | (1,382 | ) | (118,731 | ) |
Recoveries | 31,194 |
| 3,169 |
| 1,911 |
| 4,446 |
| 921 |
| 41,641 |
| 26,599 |
| 5,279 |
| 2,445 |
| 3,791 |
| 845 |
| 38,959 |
|
Net charge-offs | (20,515 | ) | (25,889 | ) | (7,074 | ) | (5,991 | ) | (525 | ) | (59,994 | ) | (13,913 | ) | (28,973 | ) | (8,147 | ) | (28,202 | ) | (537 | ) | (79,772 | ) |
Provision for losses | 20,632 |
| 31,110 |
| 1,989 |
| 6,348 |
| 525 |
| 60,604 |
| 14,736 |
| 31,891 |
| 8,514 |
| 31,220 |
| 537 |
| 86,898 |
|
Effect of foreign currency translation | (88 | ) | 311 |
| — |
| — |
| — |
| 223 |
| (102 | ) | (14 | ) | — |
| (502 | ) | — |
| (618 | ) |
Balance, end of period | $ | 5,342 |
| $ | 46,938 |
| $ | 14,111 |
| $ | 4,880 |
| $ | — |
| $ | 71,271 |
| $ | 5,662 |
| $ | 38,127 |
| $ | 10,363 |
| $ | 54,233 |
| $ | — |
| $ | 108,385 |
|
Allowance for loan losses as a percentage of gross loan receivables | 5.7 | % | 25.8 | % | 16.6 | % | 15.2 | % | N/A |
| 18.1 | % | 7.3 | % | 21.9 | % | 11.5 | % | 17.2 | % | N/A |
| 16.5 | % |
The following table summarizes activity in the liability for losses on CSO guarantee liabilitylender-owned consumer loans during the three months ended September 30, 2017:2019 (in thousands):
| | | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Total | |
| | Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | — |
| $ | 14,748 |
| $ | 834 |
| $ | 15,582 |
| $ | 9,433 |
| $ | 71 |
| $ | 9,504 |
|
Charge-offs | (235 | ) | (43,124 | ) | (1,487 | ) | (44,846 | ) | (43,072 | ) | (888 | ) | (43,960 | ) |
Recoveries | 233 |
| 6,326 |
| 858 |
| 7,417 |
| 7,156 |
| 580 |
| 7,736 |
|
Net charge-offs | (2 | ) | (36,798 | ) | (629 | ) | (37,429 | ) | (35,916 | ) | (308 | ) | (36,224 | ) |
Provision for losses | 2 |
| 38,106 |
| 629 |
| 38,737 |
| 36,664 |
| 305 |
| 36,969 |
|
Balance, end of period | $ | — |
| $ | 16,056 |
| $ | 834 |
| $ | 16,890 |
| $ | 10,181 |
| $ | 68 |
| $ | 10,249 |
|
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO guarantee liability,lender-owned consumer loans, in total, during the three months ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,313 |
| $ | 56,154 |
| $ | 20,030 |
| $ | 4,523 |
| $ | — |
| $ | 86,020 |
|
Charge-offs | (51,944 | ) | (72,182 | ) | (10,472 | ) | (10,437 | ) | (1,446 | ) | (146,481 | ) |
Recoveries | 31,427 |
| 9,495 |
| 2,769 |
| 4,446 |
| 921 |
| 49,058 |
|
Net charge-offs | (20,517 | ) | (62,687 | ) | (7,703 | ) | (5,991 | ) | (525 | ) | (97,423 | ) |
Provision for losses | 20,634 |
| 69,216 |
| 2,618 |
| 6,348 |
| 525 |
| 99,341 |
|
Effect of foreign currency translation | (88 | ) | 311 |
| — |
| — |
| — |
| 223 |
|
Balance, end of period | $ | 5,342 |
| $ | 62,994 |
| $ | 14,945 |
| $ | 4,880 |
| $ | — |
| $ | 88,161 |
|
2019 (in thousands):
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes activity in the allowance for loan losses during the nine months ended September 30, 2018: |
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,916 |
| $ | 43,754 |
| $ | 13,472 |
| $ | 6,426 |
| $ | — |
| $ | 69,568 |
|
Charge-offs | (135,951 | ) | (112,630 | ) | (33,755 | ) | (76,926 | ) | (4,475 | ) | (363,737 | ) |
Recoveries | 94,783 |
| 18,083 |
| 7,487 |
| 30,451 |
| 2,733 |
| 153,537 |
|
Net charge-offs | (41,168 | ) | (94,547 | ) | (26,268 | ) | (46,475 | ) | (1,742 | ) | (210,200 | ) |
Provision for losses | 39,340 |
| 93,936 |
| 24,017 |
| 57,962 |
| 1,742 |
| 216,997 |
|
Effect of foreign currency translation | (320 | ) | (77 | ) | — |
| 100 |
| — |
| (297 | ) |
Balance, end of period | $ | 3,768 |
| $ | 43,066 |
| $ | 11,221 |
| $ | 18,013 |
| $ | — |
| $ | 76,068 |
|
Allowance for loan losses as a percentage of gross loan receivables | 4.7 | % | 20.4 | % | 12.3 | % | 9.8 | % | N/A |
| 13.4 | % |
The following table summarizes activity in the CSO guarantee liability during the nine months ended September 30, 2018:
|
| |
| | Nine Months Ended September 30, 2018 | Three Months Ended September 30, 2019 |
(in thousands) | Unsecured Installment | Secured Installment | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 17,073 |
| $ | 722 |
| $ | 17,795 |
| $ | 4,941 |
| $ | 44,656 |
| $ | 10,067 |
| $ | 51,717 |
| $ | — |
| $ | 111,381 |
|
Charge-offs | (119,632 | ) | (3,299 | ) | (122,931 | ) | (40,512 | ) | (77,324 | ) | (11,480 | ) | (31,993 | ) | (1,382 | ) | (162,691 | ) |
Recoveries | 25,227 |
| 2,610 |
| 27,837 |
| 26,599 |
| 12,435 |
| 3,025 |
| 3,791 |
| 845 |
| 46,695 |
|
Net charge-offs | (94,405 | ) | (689 | ) | (95,094 | ) | (13,913 | ) | (64,889 | ) | (8,455 | ) | (28,202 | ) | (537 | ) | (115,996 | ) |
Provision for losses | 90,082 |
| 461 |
| 90,543 |
| 14,736 |
| 68,555 |
| 8,819 |
| 31,220 |
| 537 |
| 123,867 |
|
Effect of foreign currency translation | | (102 | ) | (14 | ) | — |
| (502 | ) | — |
| (618 | ) |
Balance, end of period | $ | 12,750 |
| $ | 493 |
| $ | 13,243 |
| $ | 5,662 |
| $ | 48,308 |
| $ | 10,431 |
| $ | 54,233 |
| $ | — |
| $ | 118,634 |
|
The following table summarizes activity in the allowance for loan losses and the CSO guarantee liability, in total, during the ninethree months ended September 30, 2018:2018 (in thousands):
| | | Nine Months Ended September 30, 2018 | Three Months Ended September 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,916 |
| $ | 60,827 |
| $ | 14,194 |
| $ | 6,426 |
| $ | — |
| $ | 87,363 |
| $ | 3,604 |
| $ | 30,291 |
| $ | 10,386 |
| $ | 9,717 |
| $ | — |
| $ | 53,998 |
|
Charge-offs | (135,951 | ) | (232,262 | ) | (37,054 | ) | (76,926 | ) | (4,475 | ) | (486,668 | ) | (40,753 | ) | (32,115 | ) | (11,188 | ) | (32,770 | ) | (1,494 | ) | (118,320 | ) |
Recoveries | 94,783 |
| 43,310 |
| 10,097 |
| 30,451 |
| 2,733 |
| 181,374 |
| 27,861 |
| 4,807 |
| 2,325 |
| 9,191 |
| 931 |
| 45,115 |
|
Net charge-offs | (41,168 | ) | (188,952 | ) | (26,957 | ) | (46,475 | ) | (1,742 | ) | (305,294 | ) | (12,892 | ) | (27,308 | ) | (8,863 | ) | (23,579 | ) | (563 | ) | (73,205 | ) |
Provision for losses | 39,340 |
| 184,018 |
| 24,478 |
| 57,962 |
| 1,742 |
| 307,540 |
| 12,757 |
| 32,946 |
| 9,698 |
| 31,686 |
| 563 |
| 87,650 |
|
Effect of foreign currency translation | (320 | ) | (77 | ) | (1 | ) | 100 |
| — |
| (298 | ) | (179 | ) | 231 |
| — |
| 189 |
| — |
| 241 |
|
Balance, end of period | $ | 3,768 |
| $ | 55,816 |
| $ | 11,714 |
| $ | 18,013 |
| $ | — |
| $ | 89,311 |
| $ | 3,290 |
| $ | 36,160 |
| $ | 11,221 |
| $ | 18,013 |
| $ | — |
| $ | 68,684 |
|
Allowance for loan losses as a percentage of gross loan receivables | | 4.3 | % | 19.5 | % | 12.3 | % | 9.8 | % | N/A |
| 12.8 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the three months ended September 30, 2018 (in thousands):
|
| | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 11,193 |
| $ | 426 |
| $ | 11,619 |
|
Charge-offs | (44,896 | ) | (1,088 | ) | (45,984 | ) |
Recoveries | 6,901 |
| 665 |
| 7,566 |
|
Net charge-offs | (37,995 | ) | (423 | ) | (38,418 | ) |
Provision for losses | 39,552 |
| 490 |
| 40,042 |
|
Balance, end of period | $ | 12,750 |
| $ | 493 |
| $ | 13,243 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, in total, during the ninethree months ended September 30, 2017:2018 (in thousands):
| | | Nine Months Ended September 30, 2017 | Three Months Ended September 30, 2018 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,501 |
| $ | 17,775 |
| $ | 10,737 |
| $ | 5,179 |
| $ | — |
| $ | 39,192 |
| $ | 3,604 |
| $ | 41,484 |
| $ | 10,812 |
| $ | 9,717 |
| $ | — |
| $ | 65,617 |
|
Charge-offs | (140,614 | ) | (53,632 | ) | (15,926 | ) | (28,113 | ) | (3,846 | ) | (242,131 | ) | (40,753 | ) | (77,011 | ) | (12,276 | ) | (32,770 | ) | (1,494 | ) | (164,304 | ) |
Recoveries | 94,535 |
| 13,803 |
| 6,726 |
| 13,903 |
| 2,450 |
| 131,417 |
| 27,861 |
| 11,708 |
| 2,990 |
| 9,191 |
| 931 |
| 52,681 |
|
Net charge-offs | (46,079 | ) | (39,829 | ) | (9,200 | ) | (14,210 | ) | (1,396 | ) | (110,714 | ) | (12,892 | ) | (65,303 | ) | (9,286 | ) | (23,579 | ) | (563 | ) | (111,623 | ) |
Provision for losses | 45,810 |
| 68,264 |
| 12,574 |
| 13,911 |
| 1,396 |
| 141,955 |
| 12,757 |
| 72,498 |
| 10,188 |
| 31,686 |
| 563 |
| 127,692 |
|
Effect of foreign currency translation | 110 |
| 728 |
| — |
| — |
| — |
| 838 |
| (179 | ) | 231 |
| — |
| 189 |
| — |
| 241 |
|
Balance, end of period | $ | 5,342 |
| $ | 46,938 |
| $ | 14,111 |
| $ | 4,880 |
| $ | — |
| $ | 71,271 |
| $ | 3,290 |
| $ | 48,910 |
| $ | 11,714 |
| $ | 18,013 |
| $ | — |
| $ | 81,927 |
|
Allowance for loan losses as a percentage of gross loan receivables | 5.7 | % | 25.8 | % | 16.6 | % | 15.2 | % | N/A |
| 18.1 | % | |
The following table summarizes activity in the CSO guarantee liabilityallowance for loan losses during the nine months ended September 30, 2017:2019 (in thousands):
| | | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 274 |
| $ | 15,630 |
| $ | 1,148 |
| $ | 17,052 |
| $ | 4,189 |
| $ | 37,716 |
| $ | 12,191 |
| $ | 19,901 |
| $ | — |
| $ | 73,997 |
|
Charge-offs | (2,121 | ) | (104,246 | ) | (6,790 | ) | (113,157 | ) | (112,792 | ) | (115,825 | ) | (33,558 | ) | (66,319 | ) | (4,075 | ) | (332,569 | ) |
Recoveries | 1,335 |
| 23,051 |
| 4,041 |
| 28,427 |
| 78,811 |
| 16,963 |
| 8,261 |
| 14,487 |
| 2,565 |
| 121,087 |
|
Net charge-offs | (786 | ) | (81,195 | ) | (2,749 | ) | (84,730 | ) | (33,981 | ) | (98,862 | ) | (25,297 | ) | (51,832 | ) | (1,510 | ) | (211,482 | ) |
Provision for losses | 512 |
| 81,621 |
| 2,435 |
| 84,568 |
| 35,450 |
| 99,250 |
| 23,469 |
| 85,910 |
| 1,510 |
| 245,589 |
|
Effect of foreign currency translation | | 4 |
| 23 |
| — |
| 254 |
| — |
| 281 |
|
Balance, end of period | $ | — |
| $ | 16,056 |
| $ | 834 |
| $ | 16,890 |
| $ | 5,662 |
| $ | 38,127 |
| $ | 10,363 |
| $ | 54,233 |
| $ | — |
| $ | 108,385 |
|
Allowance for loan losses as a percentage of gross loan receivables | | 7.3 | % | 21.9 | % | 11.5 | % | 17.2 | % | N/A |
| 16.5 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the nine months ended September 30, 2019 (in thousands):
|
| | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 11,582 |
| $ | 425 |
| $ | 12,007 |
|
Charge-offs | (118,617 | ) | (2,647 | ) | (121,264 | ) |
Recoveries | 24,794 |
| 2,039 |
| 26,833 |
|
Net charge-offs | (93,823 | ) | (608 | ) | (94,431 | ) |
Provision for losses | 92,422 |
| 251 |
| 92,673 |
|
Balance, end of period | $ | 10,181 |
| $ | 68 |
| $ | 10,249 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO guarantee liability,lender-owned consumer loans, in total, during the nine months ended September 30, 2017:2019 (in thousands):
| | | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2019 |
(in thousands) | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total | |
| | Single-Pay | Unsecured Installment | Secured Installment | Open-End | Other | Total |
Balance, beginning of period | $ | 5,775 |
| $ | 33,405 |
| $ | 11,885 |
| $ | 5,179 |
| $ | — |
| $ | 56,244 |
| $ | 4,189 |
| $ | 49,298 |
| $ | 12,616 |
| $ | 19,901 |
| $ | — |
| $ | 86,004 |
|
Charge-offs | (142,735 | ) | (157,878 | ) | (22,716 | ) | (28,113 | ) | (3,846 | ) | (355,288 | ) | (112,792 | ) | (234,442 | ) | (36,205 | ) | (66,319 | ) | (4,075 | ) | (453,833 | ) |
Recoveries | 95,870 |
| 36,854 |
| 10,767 |
| 13,903 |
| 2,450 |
| 159,844 |
| 78,811 |
| 41,757 |
| 10,300 |
| 14,487 |
| 2,565 |
| 147,920 |
|
Net charge-offs | (46,865 | ) | (121,024 | ) | (11,949 | ) | (14,210 | ) | (1,396 | ) | (195,444 | ) | (33,981 | ) | (192,685 | ) | (25,905 | ) | (51,832 | ) | (1,510 | ) | (305,913 | ) |
Provision for losses | 46,322 |
| 149,885 |
| 15,009 |
| 13,911 |
| 1,396 |
| 226,523 |
| 35,450 |
| 191,672 |
| 23,720 |
| 85,910 |
| 1,510 |
| 338,262 |
|
Effect of foreign currency translation | 110 |
| 728 |
| — |
| — |
| — |
| 838 |
| 4 |
| 23 |
| — |
| 254 |
| — |
| 281 |
|
Balance, end of period | $ | 5,342 |
| $ | 62,994 |
| $ | 14,945 |
| $ | 4,880 |
| $ | — |
| $ | 88,161 |
| $ | 5,662 |
| $ | 48,308 |
| $ | 10,431 |
| $ | 54,233 |
| $ | — |
| $ | 118,634 |
|
The following table summarizes activity in the allowance for loan losses during the nine months ended September 30, 2018 (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| 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 | (126,328 | ) | (98,946 | ) | (33,755 | ) | (76,926 | ) | (4,474 | ) | (340,429 | ) |
Recoveries | 88,945 |
| 15,110 |
| 7,487 |
| 30,451 |
| 2,728 |
| 144,721 |
|
Net charge-offs | (37,383 | ) | (83,836 | ) | (26,268 | ) | (46,475 | ) | (1,746 | ) | (195,708 | ) |
Provision for losses | 35,750 |
| 80,904 |
| 24,017 |
| 57,962 |
| 1,746 |
| 200,379 |
|
Effect of foreign currency translation | (281 | ) | 115 |
| — |
| 100 |
| — |
| (66 | ) |
Balance, end of period | $ | 3,290 |
| $ | 36,160 |
| $ | 11,221 |
| $ | 18,013 |
| $ | — |
| $ | 68,684 |
|
Allowance for loan losses as a percentage of gross loan receivables | 4.3 | % | 19.5 | % | 12.3 | % | 9.8 | % | N/A |
| 12.8 | % |
The following table summarizes activity in the liability for losses on CSO lender-owned consumer loans during the nine months ended September 30, 2018 (in thousands):
|
| | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Unsecured Installment | Secured Installment | Total |
Balance, beginning of period | $ | 17,073 |
| $ | 722 |
| $ | 17,795 |
|
Charge-offs | (119,632 | ) | (3,300 | ) | (122,932 | ) |
Recoveries | 25,227 |
| 2,610 |
| 27,837 |
|
Net charge-offs | (94,405 | ) | (690 | ) | (95,095 | ) |
Provision for losses | 90,082 |
| 461 |
| 90,543 |
|
Balance, end of period | $ | 12,750 |
| $ | 493 |
| $ | 13,243 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes activity in the allowance for loan losses and the liability for losses on CSO lender-owned consumer loans, in total, during the nine months ended September 30, 2018 (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| 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 | (126,328 | ) | (218,578 | ) | (37,055 | ) | (76,926 | ) | (4,474 | ) | (463,361 | ) |
Recoveries | 88,945 |
| 40,337 |
| 10,097 |
| 30,451 |
| 2,728 |
| 172,558 |
|
Net charge-offs | (37,383 | ) | (178,241 | ) | (26,958 | ) | (46,475 | ) | (1,746 | ) | (290,803 | ) |
Provision for losses | 35,750 |
| 170,986 |
| 24,478 |
| 57,962 |
| 1,746 |
| 290,922 |
|
Effect of foreign currency translation | (281 | ) | 115 |
| — |
| 100 |
| — |
| (66 | ) |
Balance, end of period | $ | 3,290 |
| $ | 48,910 |
| $ | 11,714 |
| $ | 18,013 |
| $ | — |
| $ | 81,927 |
|
NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivable amountsreceivables under our CSO programs were $13.7$13.4 million and $14.5$14.3 million at September 30, 20182019 and December 31, 2017,2018, respectively. As noted, we bearThe Company bears the risk of loss through ourits guarantee to purchase any defaultedspecific customer loans fromthat are in default with the lenders. The terms of these loans range from threeup to 18six months. See the 2018 Form 10-K for further details of the Company's accounting policy. As of September 30, 20182019 and December 31, 2017,2018, the maximum amount payable under all such guarantees was $65.9$60.4 million and $65.2$66.9 million, respectively. Our guaranteeIf the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover some or the entire amount from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the Allowance for loan losses, which it recognizes for its consumer loans. Liability for incurred losses on CSO loans Guaranteed by the Company was $13.2$10.2 million and $17.8$12.0 million at September 30, 20182019 and December 31, 2017,2018, respectively.
We haveThe Company placed $17.0$5.9 million and $17.9$17.2 million in collateral accounts for the benefit of lenders at September 30, 20182019 and December 31, 2017,2018, respectively, which is reflected in "Prepaid expenses and other" in the Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary based uponby lender, but are typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each such lender.
NOTE 5 – DEBT
Debt consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
8.25% Senior Secured Notes (due 2025) | | $ | 677,924 |
| | $ | 676,661 |
|
Non-Recourse Canada SPV Facility | | 102,483 |
| | 107,479 |
|
Senior Revolver | | 25,000 |
| | 20,000 |
|
Debt | | $ | 805,407 |
| | $ | 804,140 |
|
8.25% Senior Secured Notes
In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes which mature on September 1, 2025 ("8.25% Senior Secured Notes"). Interest on the notes is payable semiannually, in arrears, on March 1 and September 1. In connection with the 8.25% Senior Secured Notes, the balance of capitalized financing costs of $12.1 million, net of amortization, is included in the Condensed Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 8.25% Senior Secured Notes as a component of interest expense.
The proceeds of this issuance were used (i) to redeem the outstanding 12.00% Senior Secured Notes of CFTC, (ii) to repay a portion of the outstanding indebtedness under the five-year revolving credit facility of CURO Receivables Finance I, LLC, a wholly-
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
owned subsidiary, which consisted of the outstandinga term loan balances held by the lender. The percentage of outstanding loan balances requiredand revolving borrowing capacity, (iii) for collateral is negotiated between usgeneral corporate purposes and each such lender.(iv) to pay fees, expenses, premiums and accrued interest in connection therewith.
NOTE 5 – LONG-TERM DEBT
Long-term debt consisted of the following: |
| | | | | | | | |
(in thousands) | | September 30, 2018 | | December 31, 2017 |
8.25% Senior Secured Notes (due 2025) | | $ | 677,245 |
| | $ | — |
|
12.00% Senior Secured Notes (due 2022) | | — |
| | 585,823 |
|
Non-Recourse U.S. SPV Facility | | 76,614 |
| | 120,402 |
|
Non-Recourse Canada SPV Facility | | 85,342 |
| | — |
|
Senior Revolver | | 29,000 |
| | — |
|
Cash Money Revolving Credit Facility | | — |
| | — |
|
Long-term debt | | $ | 868,201 |
| | $ | 706,225 |
|
12.00% Senior Secured Notes
In February and November 2017, CFTC issued $470.0 million and $135.0 million, respectively, of 12.00% Senior Secured Notes due March 1, 2022 ("12.00% Senior Secured Notes"). The February issuance refinanced similar notes that were nearing maturity, and the extinguishment of the existing notes resulted in a pretax loss of $12.5 million during the nine months ended September 30, 2017.2022. In connection with these 12.00% Senior Secured Notes, wethe Company capitalized financing costs of approximately $18.3 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Long-term debt and ismillion. These costs were being amortized over the term of the 12.00% Senior Secured Notes and included as a component of interest expense.
On February 5,March 7, 2018, CFTC issued a notice of redemption forredeemed $77.5 million of its 12.00% Senior Secured Notes using a portion of the cash proceeds from our IPOthe Company's initial public offering, as required by the underlying indenture (the transaction whereby the 12.00% Senior Secured Notes were partially redeemed, the “Redemption”). The Redemption occurred on March 7, 2018, at a price equal to 112.00% of the principal amount of the 12.00% Senior Secured Notes redeemed, plus accrued and unpaid interest paid thereon, to the date of Redemption. The Redemption price and the amortization of a corresponding portion of the capitalized financing costs resulted in a loss on Redemption of $11.7 million.million for the three months ended March 31, 2018. Following the Redemption, $527.5 million of the original outstanding principal amount of the 12.00% Senior Secured Notes remainremained outstanding. CFTCThe Redemption was conducted the Redemption pursuant to the Indenture governing the 12.00% Senior Secured Notes (the “Indenture”), dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent.
On August 13, 2018, CGHC issued $690.0 millionThe remainder of 8.25%the 12.00% Senior Secured Notes duewere extinguished effective September 1, 2025 ("8.25% Senior Secured Notes"). The7, 2018 using proceeds from issuance of the 8.25% Senior Secured Notes were used to extinguishas described above. The early extinguishment of the February and November 2017 12.00% Senior Secured Notes due March 1, 2022 and resulted in a pretax loss of $69.2 million during the three monthsyear ended September 30,December 31, 2018. In connection with the 8.25% Senior Secured Notes, we capitalized financing costs of approximately $12.9 million, the balance of which is included in the Condensed Consolidated Balance Sheet as a component of Long-term debt and is being amortized over the term of the 8.25% Senior Secured Notes and included as a component of interest expense.
As of September 30, 2018, CGHC was in full compliance with the covenants and other provisions of the 8.25% Senior Secured Notes.
Non-Recourse U.S. SPV Facility
In November 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the “SPV Borrower”) and our wholly-owned subsidiary, entered into a five-year revolving credit facility that provides an $80.0 million term loan and $70.0 million revolving borrowing capacity that can expand over time (“Non-Recourse U.S. SPV Facility”). The loans bear interest at an annual rate of up to 12.00% plus the greater of (i) 1.0% per annum and (ii) the three-month LIBOR. The SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. During the quarter, we paid $3.9 million of interest. As of September 30, 2018, the SPV Borrower was in full compliance with the covenants and other provisions of the Non-Recourse U.S. SPV Facility. During the three months ended September 30, 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the revolver's balance of $42.4 million. In October 2018, we extinguished the remaining term loan balance of $80.0 million. We made the final termination payment of $2.7 million on October 26, 2018, resulting in a loss on the extinguishment of debt of $9.7 million in October 2018. See Note 15, "Subsequent Events" for additional details on the October extinguishment.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 oura wholly-owned subsidiary, entered into a four-year revolving credit facility with Waterfall Asset Management, LLC that providesprovided for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million ("Non-Recourse Canada SPV Facility"). The loans bear interest at an annual rate of 6.75% plus the three-month CDOR. The Canada SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. DuringIn April 2019, the quarter, we paid $0.4 million of interest cost. This facility matures in 2022. facility's maturity date was extended one year, to 2023.
As of September 30, 2018, the Canada SPV Borrower was in full compliance with the covenants and other provisions of2019, outstanding borrowings under the Non-Recourse Canada SPV Facility.Facility were $102.5 million, net of deferred financing costs of $3.3 million. For further information on the Non-Recourse Canada SPV, refer to Note 2, "Variable Interest Entities."
Senior Revolver
InOn September 1, 2017, CFTC and CURO Intermediate Holdings Corp., our wholly-owned subsidiary,the Company entered into a $25.0 million Senior Secured Revolving Loan Facility (the “Senior Revolver”). The terms of the Senior Revolver generally conform to the related provisions in the Indenture dated February 15, 2017 for ourthe 12.00% Senior Secured Notes and complements ourthe Company's other financing sources, while providing seasonal short-term liquidity. In February 2018, the Senior Revolver capacity was increased to $29.0 million as permitted by the Indenture to the 12.00% Senior Secured Notes, based upon consolidated tangible assets. Additionally, in November 2018, the Senior Revolver capacity was increased to $50.0 million, as permitted by the Indenture to the 8.25% Senior Secured Notes. The Senior Revolver is now syndicated with participation by a second bank.four banks.
ThereUnder the Senior Revolver, there is $29.0$50.0 million maximum availability, under the Senior Revolver, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. As of SeptemberThe current term expires June 30, 2018, CFTC2020. The Senior Revolver accrues interest at one-month LIBOR plus 5.00% (subject to a 5% overall minimum) and CURO Intermediate Holdings Corp. were in full compliance with the covenants and other provisionsis repayable on demand.
The terms of the Senior Revolver.Revolver require that its outstanding balance be zero for at least 30 consecutive days in each calendar year. The Senior Revolver was fully drawn asis 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 had an outstanding balance of $25.0 million at September 30, 2018.2019.
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.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., one of oura Canadian subsidiaries,subsidiary ("Cash Money"), maintains a C$7.310.0 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 ourthe Company's Canadian operations. Aggregate draws under thisthe revolving credit facility are limited to the lesser of: (i) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and (ii) C$7.310.0 million. As of December 31, 2017,September 30, 2019, the borrowing capacity under our revolving credit facilitythe Cash Money Revolving Credit Facility, which was reduced byC$9.7 million, net of C$0.3 million in 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 include,require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum)per annum at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at September 30, 20182019 and December 31, 2017.2018.
Subordinated Stockholder Debt
As part of the acquisition of Cash Money in 2011, the Company received indemnification for certain claims through issuance of an escrow note to the seller, bearing interest at 10.0% per annum with quarterly interest payments. This note matured and was paid during the second quarter of 2019.
Non-Recourse U.S. SPV Facility
In JulyNovember 2016, CURO Receivables Finance I, LLC and a wholly-owned subsidiary entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that provided for an $80.0 million term loan and $70.0 million revolving borrowing capacity that could expand over time (collectively, “Non-Recourse U.S. SPV Facility”). Borrowings under this facility bore interest at an annual rate of up to 12.00% plus the greater of (i) 1.0% per annum and (ii) the three-month LIBOR. The SPV Borrower also paid a 0.50% per annum fee on the unused portion of the commitments. In connection with this facility, the capitalized financing costs at the time of extinguishment, as discussed below, were $5.3 million, net of amortization. These capitalized financing costs were included in the Condensed Consolidated Balance Sheet as a component of "Debt" and were amortized over the term of the Non-Recourse U.S. SPV Facility.
On September 30, 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the revolver's balance of $42.4 million. In October 2018, the Cash Money Revolving Credit Facility capacity was increased from C$7.3Company extinguished the remaining term loan balance of $80.0 million to C$10.0 million.and made the final termination payment of $2.7 million, resulting in a loss on the extinguishment of debt of $9.7 million during the year ended December 31, 2018.
NOTE 6 – SHARE-BASED COMPENSATION
On November 8, 2017, our stockholders approved a new equity plan (“2017 Incentive Plan”). The Company's stockholder-approved 2017 Incentive Plan provides for the issuance of up to 5.0 million shares, subject to certain adjustment provisions, forwhich may be issued in the grantingform of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights, performance awards and other awards that may be settled in or based upon ouron common stock. Awards may be granted to certain of our officers, employees, consultants and directors. The 2017 Incentive Plan provides that shares of common stock subject to awards granted become available for issuancere-issuance if such awards expire, terminate, are canceled for any reason or are forfeited by the recipient.
Restricted Stock Units
Grants of time-based RSUs are typically valued at the date of grant based on the value of our common stock and are expensed using the straight-line method over the service period. These RSUs are subject to time-based vesting and typically vest over a three-year period.
Grants of market-based RSUs are valued using the Monte Carlo simulation pricing model. In March 2019, the Company awarded market-based RSUs designed to drive the performance of the management team toward achievement of key corporate objectives. The market-based RSUs vest after three years depending upon the Company's total stockholder return over the three-year performance period relative to other companies in its selected peer group. Expense recognition for the market-based awards occurs over the service period using the straight-line method.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Grants of RSUs do not confer full stockholder rights such as voting rights and cash dividends, but provide for additional dividend equivalent RSU awards in lieu of cash dividends. Unvested shares of RSUs may be forfeited upon termination of employment depending on the circumstances of the termination, or failure to achieve the required performance condition, if applicable.
A summary of the status of time-based and market-based RSUs as of September 30, 20182019 and changes during the nine months ended September 30, 2018 is2019 are presented in the following table:
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Units | | Weighted Average Grant Date Fair Value | Number of RSUs | | |
December 31, 2017 | 1,516,241 |
| | $ | 14.00 |
| |
| | Time-Based | Market-Based | | Weighted Average Grant Date Fair Value per Share |
December 31, 2018 | | 1,060,350 |
| — |
| | $ | 14.29 |
|
Granted | 90,372 |
| | 17.46 |
| 598,114 |
| 397,752 |
| | 10.08 |
|
Vested | (49,994 | ) | | 14.20 |
| (83,481 | ) | — |
| | 15.59 |
|
Forfeited | — |
| | — |
| (68,778 | ) | — |
| | 14.05 |
|
September 30, 2018 | 1,556,619 |
| | $ | 14.19 |
| |
September 30, 2019 | | 1,506,205 |
| 397,752 |
| | $ | 12.04 |
|
Share-based compensation expense duringfor the three months ended September 30, 20182019 and 2017,2018, which includes compensation costs from stock options and RSUs, was $2.1$2.8 million and $0.5$2.1 million, respectively, and during the nine months ended September 30, 2019 and 2018 and 2017 was $6.1$7.6 million and $1.8$6.1 million, respectively, and is included in the Condensed Consolidated Statements of IncomeOperations as a component of "Corporate, district and other" expense. The increased expense during the nine months ended September 30, 2018 is primarily due to grants of RSUs in December 2017, as further disclosed in our 2017 Annual Report on Form 10-K.other expenses."
As of September 30, 2018,2019, there was $16.5$16.0 million of total unrecognized compensation cost related to share-based awards,stock options and RSUs, of which we$12.9 million related to time-based RSUs and $2.8 million related to market-based RSUs. Total unrecognized compensation costs will recognizebe recognized over a weighted-average period of 2.21.7 years.
NOTE 7 – INCOME TAXES
OurThe Company's effective income tax rate was 26.3%27.9% and 50.4% during the three months ended September 30, 2018 and 2017, respectively. Our effective tax rate was (0.1)(34.8)% and 41.2% duringfor the nine months ended September 30, 20182019 and 2017,2018, respectively.
On December 22, 2017, the 2017 Tax Act became law, which enacted various changes toreduced the statutory U.S. corporate tax law. Some of the most significant provisions affecting us include a reduced U.S.Federal corporate income tax rate from 35% to 21% effective in 2018,, enacted a one-time “deemed repatriation” tax on unremitted earnings accumulated in non-U.S. jurisdictions and reported on the 2017 corporate income tax return, andimposed a 2018 and forwardnew minimum tax on global intangible low-taxed income ("GILTI"). At 2017 year-end, we recordedThe Company provided an estimated provisional deemed repatriation tax of $8.1 million. Subsequently, the IRS issued additional guidance regarding the calculationestimate of the deemed repatriation tax as of December 31, 2017, and wepursuant to further IRS guidance, the Company recorded an additional accrual of $1.2 million during the periodnine months ended March 31, 2018. Through September 30, 2018, we have2018. The Company recorded an estimated zero GILTI tax for 2018. Previously, through June, 2018, we had estimated $1.1of $0.5 million of GILTI tax annually and recorded approximately $0.6 million in the first quarter of 2018. Changes in estimates of foreign sourced income resulted in the reversal of the previously recorded $0.6 million during the threenine months ended September 30, 2018.2019 and 2018, respectively.
During the three months ended September 30, 2018 we recorded a tax benefit of $3.3 million for the fair market value impact of a 2010 plan that we modified in 2017 creating a taxable event. Additionally, we have not recorded a tax benefit for losses in the U.K. or in certain subsidiaries in Canada.
As of September 30, 2018, we estimated and provided $9.3 million for cumulative undistributed non-U.S. earnings as part of the 2017 repatriation tax provision and the 2018 GILTI tax in the 2017 Tax Act. We intendThe Company intends to reinvest our foreignCanada earnings indefinitely in our non-U.S.its Canadian operations and therefore havehas not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the earnings of $172.9$153.6 million were distributed to the U.S., wethe Company would be subject to estimated Canadian withholding taxes of approximately $8.6an estimated $7.7 million. In the event the earnings were distributed to the U.S., wethe Company would adjust ourthe income tax provision for the applicable period and would determine the amount of foreign tax credit that would be available.
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. We areThe 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 ourthe 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 usthe 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.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.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 ourthe Company's own judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. We developThe Company develops these inputs based on the best information available, including ourits own data.
Financial Assets and Liabilities Not MeasuredCarried at Fair Value
The table below presents the carrying amounts and estimated fair values of assets and liabilities that were not recordedcarried at fair value on the Condensed Consolidated Balance Sheets at September 30, 2018.2019 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
(dollars in thousands) | Carrying Value September 30, 2018 | Level 1 | Level 2 | Level 3 | September 30, 2018 |
Financial assets: | | | | | |
Cash | $ | 153,361 |
| $ | 153,361 |
| $ | — |
| $ | — |
| $ | 153,361 |
|
Restricted cash | 24,236 |
| 24,236 |
| — |
| — |
| 24,236 |
|
Loans receivable, net | 491,607 |
| — |
| — |
| 491,607 |
| 491,607 |
|
Investment in Cognical | 6,600 |
| — |
| — |
| 6,600 |
| 6,600 |
|
Financial liabilities: | | | | | |
Credit services organization guarantee liability | $ | 13,243 |
| $ | — |
| $ | — |
| $ | 13,243 |
| $ | 13,243 |
|
2018 Senior Secured Notes | 677,245 |
| — |
| — |
| 651,848 |
| 651,848 |
|
Non-Recourse U.S. SPV facility | 76,614 |
| — |
| — |
| 80,000 |
| 80,000 |
|
Non-Recourse Canada SPV facility | 85,342 |
| — |
| — |
| 89,666 |
| 89,666 |
|
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value September 30, 2019 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash Surrender Value of Life Insurance | $ | 5,799 |
| $ | 5,799 |
| $ | — |
| $ | — |
| $ | 5,799 |
|
Financial liabilities: | | | | | |
Non-qualified deferred compensation plan | $ | 4,333 |
| $ | 4,333 |
| $ | — |
| $ | — |
| $ | 4,333 |
|
The table below presents the carrying amounts and estimated fair values of assets and liabilities that were not recordedcarried at fair value on the Condensed Consolidated Balance Sheets at December 31, 2017.2018 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
(dollars in thousands) | Carrying Value December 31, 2017 | Level 1 | Level 2 | Level 3 | December 31, 2017 |
Financial assets: | | | | | |
Cash | $ | 162,374 |
| $ | 162,374 |
| $ | — |
| $ | — |
| $ | 162,374 |
|
Restricted cash | 12,117 |
| 12,117 |
| — |
| — |
| 12,117 |
|
Loans receivable, net | 363,269 |
| — |
| — |
| 363,269 |
| 363,269 |
|
Investment in Cognical | 5,600 |
| — |
| — |
| 5,600 |
| 5,600 |
|
Financial liabilities: | | | | | |
Credit services organization guarantee liability | $ | 17,795 |
| $ | — |
| $ | — |
| $ | 17,795 |
| $ | 17,795 |
|
2017 Senior Secured notes | 585,823 |
| — |
| — |
| 663,475 |
| 663,475 |
|
Non-Recourse U.S. SPV facility | 120,402 |
| — |
| — |
| 124,590 |
| 124,590 |
|
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31, 2018 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: (1) | | | | | |
Cash Surrender Value of Life Insurance | $ | 4,790 |
| $ | 4,790 |
| $ | — |
| $ | — |
| $ | 4,790 |
|
Financial liabilities: | | | | | |
Non-qualified deferred compensation plan | $ | 3,639 |
| $ | 3,639 |
| $ | — |
| $ | — |
| $ | 3,639 |
|
(1) Zibby was not included as of 12/31/18 as it was accounted for under the cost method. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 Condensed Consolidated Balance Sheets at September 30, 2019 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value September 30, 2019 | Level 1 | Level 2 | Level 3 | Total |
Financial assets: | | | | | |
Cash | $ | 62,207 |
| $ | 62,207 |
| $ | — |
| $ | — |
| $ | 62,207 |
|
Restricted cash | 38,754 |
| 38,754 |
| — |
| — |
| 38,754 |
|
Loans receivable, net | 549,230 |
| — |
| — |
| 549,230 |
| 549,230 |
|
Investment in Zibby | 11,231 |
| — |
| — |
| 11,231 |
| 11,231 |
|
Financial liabilities: | | | | | |
Liability for losses on CSO lender-owned consumer loans | $ | 10,249 |
| $ | — |
| $ | — |
| $ | 10,249 |
| $ | 10,249 |
|
8.25% Senior Secured Notes | 677,924 |
| — |
| 591,489 |
| — |
| 591,489 |
|
Non-Recourse Canada SPV facility | 102,483 |
| — |
| — |
| 105,742 |
| 105,742 |
|
Senior Revolver | 25,000 |
| — |
| — |
| 25,000 |
| 25,000 |
|
The table below presents the assets and liabilities that were not carried at fair value on the Condensed Consolidated Balance Sheets at December 31, 2018 (in thousands):
|
| | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| 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 Zibby | 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 Condensed Consolidated Balance Sheets net of the allowanceAllowance for estimated loan losses, which we calculate primarily based upon models that back-test subsequent collections history for each type of loan product.losses. The unobservable inputs used to calculate the carrying valuevalues include additional quantitative factors, such as current default trends and changes to the portfolio mix are alsotrends. Also considered in evaluating the accuracy of the models as well as additional qualitative factors such asare 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. Loans have terms ranging up to 60 months. The carrying value of loans receivable approximates thetheir fair value.
In connection with CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company is required to purchase from the lender defaulted loans that it has guaranteed.
During the second and third quarters of 2019, Zibby completed an equity raising round through which the Company increased its investment in Zibby to 42.3%, on a fully diluted basis, resulting in the accounting of the investment under the equity method as of September 30, 2019. This round included additional investments from existing shareholders and by new investors. As a result of the additional investment, the Company recognized a $3.7 million loss to adjust the Company's carrying value of Zibby.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The carrying value was further adjusted by the Company's pro rata share of Zibby's losses during the period in which the Company held a greater than 20% investment, typically considered the threshold for equity method accounting. During the three months ended September 30, 2019, this carrying value adjustment was $1.4 million.
In connection with our CSO programs, we guarantee consumer loan payment obligations to unrelated third-party lenders for loans that we arrange for consumers on the third-party lenders’ behalf. We are required to purchase from the lender defaulted loans we have guaranteed. The estimated8.25% Senior Secured Notes fair value of the guarantee liability relateddisclosure was transferred from Level 3, as previously reported, to CSO loans we have guaranteed was $13.2 million and $17.8 million as ofLevel 2 for September 30, 20182019 and December 31, 2017, respectively. We record the initial measurement of this guarantee liability at fair value using Level 3 inputs with subsequent measurement2018. Upon management's review of the liability measured as a contingent loss. The unobservable inputs, used to calculate fair value include the nature ofLevel 2 disclosure is appropriate given the loan products, the creditworthiness of the borrowerslimited trading activity in the customer base, our historical loan default history for similar loans, industry loan default history, historical collection rates on similar products, current default trends, past-due account roll rates, 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.
this public (observable) market. The fair value of our Senior Secured Notes was based on broker quotations. The fair valuevalues of the Non-Recourse U.S.Canada SPV facility wasand the Senior Revolver were based on the cash needed for their respective final settlement.settlements.
Derivative Financial Instrument
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
We seek to minimize risks from foreign currency rate fluctuations on anticipated transactions in the ordinary course of business through the use of cash flow hedges. During the nine months ended September 30, 2018, we entered into a series of cash flow hedges in which the hedging instruments were forwards to purchase £10.4 million. These contracts will complete in the three months ending December 31, 2018.
We performed an assessment that determined all critical terms of the hedging instrument and the hedged transaction match and, as such, have qualitatively concluded that changes in the hedge instrument’s intrinsic value will completely offset the change in the expected cash flows based on changes in the spot rate. Since the effectiveness of this hedge is assessed based on changes in the hedge instrument’s intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness. We recorded changes in the hedge instrument’s intrinsic value, to the extent that they were effective as a hedge, in "Other comprehensive income." As of September 30, 2018 we have recorded an unrealized loss of $0.6 million in "Other comprehensive income" associated with this hedge.
Foreign Currency Forward Contract
On June 29, 2018, we entered into a forward contract that is not designated to receive hedge accounting treatment. The purpose of this forward contract is to reduce income statement volatility resulting from our foreign currency denominated assets and liabilities in Canada and to protect the cash required to settle those items. The forward contract is recorded at fair value on the balance sheet with changes in the fair value being recorded in the income statement. As of September 30, 2018, the forward contract did not have a fair value and did not impact the Condensed Consolidated Financial Statements.
Purchase of Cognical Holdings Inc. Preferred Shares
During the three months ended March 31, 2018, we purchased 560,872 additional preferred shares of Cognical Holdings, Inc. ("Cognical") for $1.0 million. As a result of this transaction, along with share purchases during 2017, we currently own 10.4% of the equity of Cognical. We record these purchases in "Other assets" on our Consolidated Balance Sheets. No additional interest in Cognical was acquired through September 30, 2018.
NOTE 9 – STOCKHOLDERS' EQUITY
In connection with our IPOThe following table summarizes the changes in December 2017,stockholders' equity for the underwriters had a 30-day option to purchase up to an additional 1.0 million shares at the initial public offering price, less the underwriting discount to over-allotments, if any. The underwriters exercised this optionthree and purchased 1.0 million shares on January 5, 2018. The exercise of this option provided additional proceeds to us of $13.1 million.nine months ended September 30, 2018 and 2019 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in capital | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
| 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 (2) (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 |
|
Net loss from continuing operations | — |
| | — |
| | — |
| | (42,590 | ) | | — |
| | (42,590 | ) |
Net loss from discontinued operations | — |
| | — |
| | — |
| | (4,432 | ) | | — |
| | (4,432 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 2,649 |
| | 2,649 |
|
Cash flow hedge expiration
| — |
| | — |
| | — |
| | — |
| | (187 | ) | | (187 | ) |
Share based compensation expense | — |
| | — |
| | 2,792 |
| | — |
| | — |
| | 2,792 |
|
Proceeds from exercise of stock options | 222,432 |
| | — |
| | 369 |
| | — |
| | — |
| | 369 |
|
Initial Public Offering, Net Proceeds (underwriter shares) | — |
| | — |
| | (1,586 | ) | | — |
| | — |
| | (1,586 | ) |
Balance at September 30, 2018 | 46,042,977 |
| | $ | 9 |
| | $ | 64,148 |
| | $ | (3,767 | ) | | $ | (50,526 | ) | | $ | 9,864 |
|
(1) Accumulated other comprehensive income (loss)
|
(2) In connection with the Company's initial public offering in December 2017, the underwriters had a 30-day option to purchase up to an additional 1.0 million shares of the Company's common stock at the initial public offering price, less the underwriting discount for over-allotments, if any. The underwriters exercised this option and purchased 1.0 million shares on January 5, 2018. The exercise of this option provided additional proceeds of $13.1 million. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Paid-in capital | | Treasury Stock | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
| 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 |
| | $ | 64,790 |
| | $ | (2,507 | ) | | $ | 35,816 |
| | $ | (40,730 | ) | | $ | 57,378 |
|
Net income from continuing operations | — |
| | — |
| | — |
| | — |
| | 27,987 |
| | — |
| | 27,987 |
|
Net loss from discontinued operations | — |
| | — |
| | — |
| | — |
| | (598 | ) | | — |
| | (598 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (1,954 | ) | | (1,954 | ) |
Share based compensation expense | — |
| | — |
| | 2,771 |
| | — |
| | — |
| | — |
| | 2,771 |
|
Proceeds from exercise of stock options | 3,924 |
| | — |
| | 18 |
| | — |
| | — |
| | — |
| | 18 |
|
Repurchase of common stock (2) | (3,912,041 | ) | | — |
| | — |
| | (50,557 | ) | | — |
| | — |
| | (50,557 | ) |
Balances at September 30, 2019 | 42,347,165 |
| | $ | 9 |
| | $ | 67,579 |
| | $ | (53,064 | ) | | $ | 63,205 |
| | $ | (42,684 | ) | | $ | 35,045 |
|
(1) Accumulated other comprehensive income (loss) |
(2) Includes the repurchase of 2,000,000 shares of common stock from FFL for $13.55 per share. See Note 17 - "Share Repurchase Program" for additional information. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 10 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Basic: (1) | | | | | | | |
Net income | $ | (47,022 | ) | | $ | 9,762 |
| | $ | (7,755 | ) | | $ | 42,743 |
|
Weight average common shares | 45,853 |
| | 37,908 |
| | 45,674 |
| | 37,908 |
|
Basic earnings per share | $ | (1.03 | ) |
| $ | 0.26 |
|
| $ | (0.17 | ) | | $ | 1.13 |
|
(1) We have adjusted the share and per share information to reflect the 36-to-1 split of our common stock, which occurred In November 2017. |
The following computation reconciles the differences between the basic and diluted earnings per share presentations (in thousands, except per share amounts):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018(1) | | 2019 | | 2018 |
Diluted: (1) | | | | | | | | |
Net income | $ | (47,022 | ) | | $ | 9,762 |
| | $ | (7,755 | ) | | $ | 42,743 |
| |
Net income (loss) from continuing operations | | $ | 27,987 |
| | $ | (42,590 | ) | | $ | 74,327 |
| | $ | 1,041 |
|
Net (loss) income from discontinued operations, net of tax | | (598 | ) | | (4,432 | ) | | $ | 6,943 |
| | $ | (8,796 | ) |
Net income (loss) | | $ | 27,389 |
| | $ | (47,022 | ) | | $ | 81,270 |
| | $ | (7,755 | ) |
| | | | | | | | |
Weighted average common shares - basic | 45,853 |
| | 37,908 |
| | 45,674 |
| | 37,908 |
| 44,422 |
| | 45,853 |
| | 45,759 |
| | 45,674 |
|
Dilutive effect of stock options and restricted stock units | 2,499 |
| | 1,006 |
| | 2,387 |
| | 1,051 |
| 1,588 |
| | — |
| | 1,128 |
| | 2,387 |
|
Weighted average common shares - diluted | 48,352 |
| | 38,914 |
|
| 48,061 |
| | 38,959 |
| 46,010 |
| | 45,853 |
| | 46,887 |
| | 48,061 |
|
| | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.63 |
| | $ | (0.93 | ) | | $ | 1.63 |
| | $ | 0.02 |
|
Discontinued operations | | (0.01 | ) | | (0.10 | ) | | 0.15 |
| | (0.19 | ) |
Basic earnings per share | | $ | 0.62 |
|
| $ | (1.03 | ) |
| $ | 1.78 |
| | $ | (0.17 | ) |
| | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.61 |
| | $ | (0.93 | ) | | $ | 1.59 |
| | $ | 0.03 |
|
Discontinued operations | | (0.01 | ) | | (0.10 | ) | | 0.15 |
| | (0.19 | ) |
Diluted earnings per share | $ | (0.97 | ) |
| $ | 0.25 |
|
| $ | (0.16 | ) | | $ | 1.10 |
| $ | 0.60 |
| | $ | (1.03 | ) | | $ | 1.74 |
| | $ | (0.16 | ) |
(1) We have adjusted the share and per share information to reflect the 36-to-1 split of our common stock, which occurred in November 2017. | |
(1) As of December 31, 2018, the Company made certain insignificant adjustments to previously-reported Earnings Per Share ("EPS") to correctly reflect the effect of anti-dilutive shares on diluted EPS calculations in accordance with ASC 260. These changes were immaterial to the overall EPS calculation. Diluted loss per share for the three months ended September 30, 2018 of $0.97 was corrected to $1.03. | | (1) As of December 31, 2018, the Company made certain insignificant adjustments to previously-reported Earnings Per Share ("EPS") to correctly reflect the effect of anti-dilutive shares on diluted EPS calculations in accordance with ASC 260. These changes were immaterial to the overall EPS calculation. Diluted loss per share for the three months ended September 30, 2018 of $0.97 was corrected to $1.03. |
Potential shares of common sharesstock 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, we dothese shares are not include these sharesincluded in calculating "Diluted earnings per share." For the three and nine months ended September 30, 20182019and 2017, , there were no0.1 million and 0.3 million, respectively, of potential shares of common sharesstock excluded from the calculation of dilutedDiluted earnings per share because their effect was anti-dilutive. For the three months ended September 30, 2018, there were 2.5 million 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 nine months ended September 30, 2018.
The Company utilizes the "control number" concept in the computation of Diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing 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.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental cash flow information:information (in thousands):
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | | 2017 | |
| | 2019 | | 2018 |
Cash paid for: | | | | | | |
Interest | $ | 80,748 |
| | $ | 60,089 |
| $ | 65,627 |
| | $ | 80,748 |
|
Income taxes | 15,868 |
| | 16,650 |
| |
Income taxes, net of refunds | | 2,029 |
| | 15,868 |
|
Non-cash investing activities: | | | | | | |
Property and equipment accrued in accounts payable | $ | 1,240 |
| | $ | 208 |
| $ | 604 |
| | $ | 1,240 |
|
NOTE 12 – SEGMENT REPORTING
We prepare segmentSegment information is prepared on the same basis that our chief operating decision makerthe Company's Chief Operating Decision Maker ("CODM") reviews financial information for operational decision making purposes. We have threeDuring the first quarter of 2019, the U.K. Subsidiaries met discontinued operations criteria, resulting in two remaining reportable operating segments: the U.S., Canada and the U.K.Canada.
The segment performance measure below is based on gross margin. In management’sManagement’s evaluation of performance certain costs, such as corporate expenses, district expensesutilizes gross margin and operating profit before the allocation of interest expense are not allocated by segment. Accordingly theand professional services. The following reporting segment results do not include such allocated costs. There are no intersegment revenues,reflect this basis for evaluation and wewere determined the amounts below in accordance with the same accounting principles used in ourthe Condensed Consolidated Financial Statements.
The following table illustrates summarized financial information concerning reportable segments (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Revenues by segment: | | | | | | | | |
U.S. | | $ | 237,069 |
| | $ | 223,273 |
| | $ | 673,234 |
| | $ | 617,992 |
|
Canada | | 60,195 |
| | 46,209 |
| | 166,269 |
| | 139,502 |
|
Consolidated revenue | | $ | 297,264 |
| | $ | 269,482 |
| | $ | 839,503 |
| | $ | 757,494 |
|
Gross margin by segment: | | | | | | | | |
U.S. | | $ | 77,250 |
| | $ | 60,105 |
| | $ | 232,120 |
| | $ | 215,497 |
|
Canada | | 19,389 |
| | 489 |
| | 51,197 |
| | 28,291 |
|
Consolidated gross margin | | $ | 96,639 |
| | $ | 60,594 |
| | $ | 283,317 |
| | $ | 243,788 |
|
Segment operating income (loss): | | | | | | | | |
U.S. | | $ | 28,092 |
| | $ | (53,624 | ) | | $ | 76,316 |
| | $ | (11,430 | ) |
Canada | | 11,134 |
| | (5,880 | ) | | 26,749 |
| | 12,202 |
|
Consolidated operating profit | | $ | 39,226 |
| | $ | (59,504 | ) | | $ | 103,065 |
| | $ | 772 |
|
Expenditures for long-lived assets by segment: | | | | | | | | |
U.S. | | $ | 2,890 |
| | $ | 4,483 |
| | $ | 7,888 |
| | $ | 6,466 |
|
Canada | | 216 |
| | 590 |
| | 1,382 |
| | 1,564 |
|
Consolidated expenditures for long-lived assets | | $ | 3,106 |
| | $ | 5,073 |
| | $ | 9,270 |
| | $ | 8,030 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table illustrates summarized financial information concerning our reportable segments. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Revenues by segment: | | | | | | | |
U.S. | $ | 223,273 |
| | $ | 193,826 |
| | $ | 617,992 |
| | $ | 531,912 |
|
Canada | 46,209 |
| | 50,658 |
| | 139,502 |
| | 135,819 |
|
U.K. | 13,522 |
| | 10,635 |
| | 36,251 |
| | 28,912 |
|
Consolidated revenue | $ | 283,004 |
| | $ | 255,119 |
| | $ | 793,745 |
| | $ | 696,643 |
|
Gross margin by segment: | | | | | | | |
U.S. | $ | 60,105 |
| | $ | 61,103 |
| | $ | 215,497 |
| | $ | 201,354 |
|
Canada | 489 |
| | 15,649 |
| | 28,291 |
| | 45,911 |
|
U.K. | 3,390 |
| | 3,414 |
| | 9,853 |
| | 9,808 |
|
Consolidated gross margin | $ | 63,984 |
| | $ | 80,166 |
| | $ | 253,641 |
| | $ | 257,073 |
|
Expenditures for long-lived assets by segment: | | | | | | | |
U.S. | $ | 4,483 |
| | $ | 1,535 |
| | $ | 6,466 |
| | $ | 6,183 |
|
Canada | 590 |
| | 180 |
| | 1,564 |
| | 656 |
|
U.K. | 72 |
| | 250 |
| | 170 |
| | 1,078 |
|
Consolidated expenditures for long-lived assets | $ | 5,145 |
| | $ | 1,965 |
| | $ | 8,200 |
| | $ | 7,917 |
|
The following table provides the proportion of gross loans receivable by segment:segment (in thousands):
| | (dollars in thousands) | September 30, 2018 | | December 31, 2017 | |
| | | September 30, 2019 | | December 31, 2018 |
U.S. | $ | 344,182 |
| | $ | 308,696 |
| | $ | 370,967 |
| | $ | 361,473 |
|
Canada | 193,581 |
| | 104,551 |
| | 286,648 |
| | 210,058 |
|
U.K. | 29,912 |
| | 19,590 |
| |
Total gross loans receivable | $ | 567,675 |
| | $ | 432,837 |
| | $ | 657,615 |
| | $ | 571,531 |
|
The following table illustrates ourprovides net long-lived assets, comprised of property and equipment, by geographic region.segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located:located (in thousands):
| | (dollars in thousands) | September 30, 2018 | | December 31, 2017 | |
| | | September 30, 2019 | | December 31, 2018 |
U.S. | $ | 48,371 |
| | $ | 52,627 |
| | $ | 42,937 |
| | $ | 47,918 |
|
Canada | 30,133 |
| | 32,924 |
| | 27,444 |
| | 28,832 |
|
U.K. | 1,286 |
| | 1,535 |
| |
Total net long-lived assets | $ | 79,790 |
| | $ | 87,086 |
| | $ | 70,381 |
| | $ | 76,750 |
|
Our chief operating decision makerThe Company's CODM does not review total assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
NOTE 13 – CONTINGENT LIABILITIES
Reimbursement Offer; Possible ChangesSecurities Litigation
On December 5, 2018, a putative securities fraud class action lawsuit was filed against the Company and its chief executive officer, chief financial officer and chief operating officer in Payment Practicesthe United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662. On May 31, 2019, plaintiffs filed a consolidated complaint naming Doug Rippel, Chad Faulkner, Mike McKnight, Friedman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P., and FFL Parallel Fund II, L.P. as additional defendants. The complaint alleges that the Company and the individual defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and that certain defendants also violated Section 20(a) of the Exchange Act as "control persons" of CURO. Plaintiffs purport to bring these claims on behalf of a class of investors who purchased Company common stock between April 27, 2018 and October 24, 2018.
Plaintiffs allege generally that, during the putative class period, the Company made misleading statements and omitted material information regarding its efforts to transition the Canadian inventory of products from Single-Pay loans to Open-End loans. Plaintiffs assert that the Company and the individual defendants made these misstatements and omissions to keep the stock price high. Plaintiffs seek unspecified damages and other relief. The Company filed a motion to dismiss the lawsuit on August 15, 2019.
While the Company is vigorously contesting this lawsuit, it cannot determine the final resolution or when it might be resolved. In addition to the expenses incurred in defending this litigation and any damages that may be awarded in the event of an adverse ruling, management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcome, this litigation may have a material adverse impact on results because of defense costs, including costs related to indemnification obligations, diversion of resources and other factors.
During 2017, it was determined that a limited universethe first quarter of borrowers may have incurred bank overdraft or non-sufficient funds fees because2019, the Company received an inquiry from the SEC regarding the Company's public disclosures surrounding its efforts to transition the Canadian inventory of possible confusion about certain electronic payments we initiated on theirproducts from Single-Pay loans to Open-End loans. As a result, we decided to reimburse such fees through payments or credits against outstanding loan balances, subject to per-customer dollar limitations, upon receipt of (i) claims from potentially affected borrowers stating that they were in fact confused by our practices and (ii) bank statements from such borrowers showing that fees for which reimbursement is sought were incurred at a time that such borrowers might reasonably have been confused about our practices. As of September 30, 2018, net of payments made, we no longer have a liability for this matter.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Additionally, in June 2018, we discontinued the use of secondary payment cards for affected borrowers referenced above who did not explicitly reauthorize the use of secondary payment cards. For those borrowers, in the event we cannot obtain payment through the bank account or payment card listed on the borrower’s application, we will need to rely exclusively on other collection methods such as delinquency notices and/or collection calls. Our discontinuance of using secondary cards for affected borrowers will increase collections costs and reduce collections effectiveness.
City of Austin
We wereThe Company was cited onin July 5, 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 our Credit Access Businessthe Company's credit access bureau ("CAB") programs,program, including loan sizes and repayment terms. We believeThe Company believes that: (i) the Austin ordinance (like(similar to its counterparts elsewhere in the state)Texas) conflicts with Texas state law and (ii) our product in any event, the Company's product complies with the ordinance, when the ordinance is properly construed. The Austin Municipal Court agreed with ourthe Company's position that the ordinance conflicts with Texas law and, accordingly, did not address ourthe second argument. In September 2017, the Travis County Court reversed the Municipal Court’s decision and remanded the case for further proceedings. We doTo date, a hearing and trial on the merits have not been scheduled. The Company does not anticipate having a final determination of the lawfulness of ourits CAB program under the Austin ordinance (and similar ordinances in other Texas cities) in the near future. A final adverse decision could potentially
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
result in material monetary liability in Austin and elsewhere in Texas, and would force usthe Company to restructure the loans we originateit originates in Austin and elsewhere in Texas.
Other Legal Matters
We are alsoThe Company is a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these matters may be covered to an extent by insurance. In the opinion of management, based upon the advice of legal counsel, the likelihood is remote that the impact of any of these pending legal proceedings and claims,litigation matters, either individually or in the aggregate, would have a material adverse effect on our Consolidated Financial Statements.the Company's consolidated financial condition, results of operations or cash flows.
NOTE 14 – LEASES
The Company entered into operating leases for the buildings in which it operates that expire at various times through 2033. The Company determines if an arrangement is a lease at inception. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" in the Condensed Consolidated Balance Sheets.
ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. 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 lease.
The majority of the leases have an original term of five years with two five-year renewal options. 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 certain leases also require payment of 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 following table summarizes the operating lease costs for the three and nine months ended September 30, 2019 (in thousands):
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2019 |
Operating lease costs: | | | |
Third-Party | $ | 7,687 |
| | $ | 23,000 |
|
Related-Party | 865 |
| | 2,595 |
|
Total | $ | 8,552 |
| | $ | 25,595 |
|
During the nine months ended September 30, 2019, cash paid for amounts included in the measurement of the liabilities and the operating cash flows were $26.0 million. ROU assets obtained in exchange for lease liabilities were $11.1 million.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the aggregate operating lease maturities that the Company is contractually obligated to make under operating leases as of September 30, 2019 (in thousands):
|
| | | | | | | | | | | | |
| | Third-Party | | Related-Party | | Total |
Remainder of 2019 | | $ | 7,698 |
| | $ | 922 |
| | $ | 8,620 |
|
2020 | | 29,596 |
| | 3,752 |
| | 33,348 |
|
2021 | | 26,450 |
| | 3,772 |
| | 30,222 |
|
2022 | | 23,387 |
| | 3,669 |
| | 27,056 |
|
2023 | | 18,674 |
| | 1,313 |
| | 19,987 |
|
2024 | | 14,088 |
| | 963 |
| | 15,051 |
|
Thereafter | | 35,697 |
| | 3,414 |
| | 39,111 |
|
Total | | 155,590 |
| | 17,805 |
| | 173,395 |
|
Less: Imputed interest | | (42,920 | ) | | (4,427 | ) | | (47,347 | ) |
Operating lease liabilities | | $ | 112,670 |
| | $ | 13,378 |
| | $ | 126,048 |
|
In accordance with the prior guidance, ASC 840, Leases, the future minimum lease payments by fiscal year as determined prior to the adoption of ASC 842, Leases, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, were as follows (in thousands):
|
| | | | | | | | | | | | |
| | Third Party | | Related Party | | Total |
2019 | | $ | 24,211 |
| | $ | 3,330 |
| | $ | 27,541 |
|
2020 | | 20,547 |
| | 3,285 |
| | 23,832 |
|
2021 | | 17,301 |
| | 3,324 |
| | 20,625 |
|
2022 | | 14,558 |
| | 3,322 |
| | 17,880 |
|
2023 | | 10,269 |
| | 705 |
| | 10,974 |
|
Thereafter | | 13,446 |
| | 730 |
| | 14,176 |
|
Total (1) | | $ | 100,332 |
| | $ | 14,696 |
| | $ | 115,028 |
|
(1) Future minimum lease payments exclude the U.K. as all U.K. subsidiaries were placed into administration effective February 25, 2019. |
As of September 30, 2019, the weighted average remaining lease term was 6.3 years, and the weighted average operating discount rate used to determine the operating lease liability remained 10.3%.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 boards of directors of the U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as Administrators for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place their management, affairs, business and property of the U.K. Subsidiaries under the direct control of the Administrators. Accordingly, 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.
Revenue and expenses related to discontinued operations included activity prior to the deconsolidation of the U.K. Subsidiaries effective February 25, 2019. For the nine months ended September 30, 2019, "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. federal and state income tax benefit of $46.0 million, which will be available to offset the Company's future U.S. federal and state income tax obligations. During the three months ended September 30, 2019, the Company revised the estimate of the tax basis in the U.K. Subsidiaries, resulting in a $0.6 million reduction in the income tax benefit initially recorded in the first quarter of 2019.
The following table presents financial results 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 September 30, | | Nine Months Ended September 30, 2019 |
| | 2019 | | 2018 | | 2019(1) | | 2018 |
Revenue | | $ | — |
| | $ | 13,522 |
| | $ | 6,957 |
| | $ | 36,251 |
|
Provision for losses | | — |
| | 6,831 |
| | 1,703 |
| | 16,618 |
|
Net revenue | | — |
| | 6,691 |
| | 5,254 |
| | 19,633 |
|
| | | | | | | | |
Cost of providing services | | | | | | | | |
Office | | — |
| | 416 |
| | 246 |
| | 1,490 |
|
Other costs of providing services | | — |
| | 120 |
| | 61 |
| | 1,213 |
|
Advertising | | — |
| | 2,765 |
| | 775 |
| | 7,077 |
|
Total cost of providing services | | — |
| | 3,301 |
| | 1,082 |
| | 9,780 |
|
Gross margin | | — |
| | 3,390 |
| | 4,172 |
| | 9,853 |
|
Operating expense (income) | | | | | | | | |
Corporate, district and other expenses | | — |
| | 7,690 |
| | 3,810 |
| | 18,390 |
|
Interest income | | — |
| | (7 | ) | | (4 | ) | | (19 | ) |
Loss on disposition | | — |
| | — |
| | 39,414 |
| | — |
|
Total operating expense | | — |
| | 7,683 |
| | 43,220 |
| | 18,371 |
|
Pre-tax loss from operations of discontinued operations | | — |
| | (4,293 | ) | | (39,048 | ) | | (8,518 | ) |
Income tax expense (benefit) related to disposition | | 598 |
| | 139 |
| | (45,991 | ) | | 278 |
|
Net (loss) income from discontinued operations | | $ | (598 | ) | | $ | (4,432 | ) | �� | $ | 6,943 |
| | $ | (8,796 | ) |
(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)
The following table presents the aggregate carrying amounts of the assets and liabilities of the U.K. Subsidiaries (in thousands):
|
| | | | | | |
| September 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 (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019(1) | | 2018 |
Net cash (used in) provided by discontinued operating activities | $ | (504 | ) | | $ | 5,562 |
|
Net cash used in discontinued investing activities | (14,213 | ) | | (24,481 | ) |
Net cash used in discontinued financing activities | — |
| | — |
|
(1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. | | |
NOTE 1416 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In February 2017, CFTC issued $470.0 million aggregate principal amount 12.00% Senior Secured Notes, the proceeds of which were used together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of our wholly-owned subsidiary, CURO Intermediate, (ii) redeem the outstanding 12.00% Senior Cash Pay Notes due 2017 and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. CFTC sold the Senior Secured Notes to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”) or outside the U.S. to non-U.S. persons in compliance with Regulation S of the Securities Act.
In November 2017, CFTC issued $135.0 million aggregate principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act (the "Additional Notes Offering"). CFTC used the proceeds from the Additional Notes Offering, together with available cash, to (i) pay a cash dividend, in an amount of $140.0 million to us, CFTC’s sole stockholder, and ultimately our stockholders and (ii) pay fees, expenses, premiums and accrued interest in connection with the Additional Notes Offering. CFTC received the consent of the holders of a majority of the outstanding principal amount of the current Senior Secured Notes to a one-time waiver with respect to the restrictions contained in Section 5.07(a) of the indenture governing the 12.00% Senior Secured Notes to permit the dividend.
In March 2018, CFTC redeemed $77.5 million of the 12.00% Senior Secured Notes at a price equal to 112.00% of the principal amount plus accrued and unpaid interest to the date of redemption. The redemption was conducted pursuant to the indenture governing the 12.00% Senior Secured Notes, dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent. Consistent with the terms of the indenture, CFTC used a portion of the cash proceeds from our IPO, to redeem such 12.00% Senior Secured Notes.
In August 2018, CGHC issued $690.0 million of 8.25% Senior Secured Notes due September 1, 2025. The proceeds from issuance of the 8.25% Senior Secured Notes were used to extinguish the February and November 2017 12.00% Senior Secured Notes due March 1, 2022. The redemption was conducted pursuant to the indenture governing the 8.25% Senior Secured Notes. See Note 5, "Long-Term Debt," for additional details.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following condensed consolidating financingfinancial information which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial informationis presented separately for:
| |
(i) | The Company's subsidiary guarantors, which are comprised of its domestic subsidiaries, including CFTC as the issuer of the 12.00% Senior Secured Notes that were redeemed in August 2018, CURO Intermediate, and U.S. SPV as the issuer of the Non-Recourse U.S. SPV Facility that was extinguished in October 2018, and excluding Canada SPV (the “Subsidiary Guarantors”), on a consolidated basis, which are 100% owned by CURO, and which are guarantors of the 8.25% Senior Secured Notes issued in August 2018; |
| |
(ii) | The Company's other subsidiaries on a consolidated basis, which are not guarantors of the 8.25% Senior Secured Notes (the “Subsidiary Non-Guarantors”); |
| |
(iii) | The Non-recourse Canada SPV facility, a wholly-owned, bankruptcy-remote special purpose subsidiary; |
| |
(iv) | CURO as the issuer of the 8.25% Senior Secured Notes; |
| |
(ii) | CFTC as the issuer of the 12.00% Senior Secured Notes; |
| |
(iii) | CURO Intermediate as the issuer of the 10.75% senior secured notes that were redeemed in February 2017; |
| |
(iv) | Our subsidiary guarantors, which are comprised of our domestic subsidiaries, excluding CFTC, U.S. SPV, Canada SPV and CURO Intermediate (the “Subsidiary Guarantors”), on a consolidated basis, which are 100% owned by us, and which are guarantors of the 8.25% Senior Secured Notes issued in August 2018, 12.00% Senior Secured Notes issued in February 2017 and the 10.75% Senior Secured Notes redeemed in February 2017; |
| |
(v) | Our other subsidiaries on a consolidated basis, which are not guarantors of the Senior Secured Notes (the “Subsidiary Non-Guarantors”) |
| |
(vi) | Consolidating and eliminating entries representing adjustments to: |
| |
a. | eliminate intercompany transactions between or among us, the Subsidiary Guarantors and the Subsidiary Non-Guarantors; and |
| |
b. | eliminate the investments in our subsidiaries; |
| |
(vii)(vi) | UsThe Company and ourits subsidiaries on a consolidated basis. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Balance Sheets
| | | September 30, 2018 | September 30, 2019 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | US SPV | Canada SPV | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Assets: | | |
Cash | $ | — |
| $ | — |
| $ | 116,142 |
| $ | 37,219 |
| $ | — |
| $ | — |
| $ | — |
| $ | 153,361 |
| $ | — |
| $ | — |
| $ | 153,361 |
| $ | 40,683 |
| $ | 21,524 |
| $ | — |
| $ | — |
| $ | — |
| $ | 62,207 |
|
Restricted cash | — |
| — |
| 1,682 |
| 3,447 |
| 6,934 |
| 12,173 |
| — |
| 24,236 |
| — |
| — |
| 24,236 |
| 13,773 |
| 3,084 |
| 21,897 |
| — |
| — |
| 38,754 |
|
Loans receivable, net | — |
| — |
| 104,925 |
| 83,248 |
| 185,445 |
| 117,989 |
| — |
| 491,607 |
| — |
| — |
| 491,607 |
| 293,711 |
| 49,362 |
| 206,157 |
| — |
| — |
| 549,230 |
|
Right of use asset - operating leases | | 76,165 |
| 42,095 |
| — |
| — |
| — |
| 118,260 |
|
Deferred income taxes | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (9,086 | ) | — |
| — |
| 10,932 |
| — |
| 1,846 |
|
Income taxes receivable | 85,908 |
| (101,972 | ) | 26,129 |
| — |
| — |
| — |
| — |
| 10,065 |
| 6,298 |
| — |
| 16,363 |
| (960 | ) | 3,974 |
| — |
| 20,952 |
| — |
| 23,966 |
|
Prepaid expenses and other | — |
| — |
| 35,636 |
| 4,473 |
| — |
| — |
| — |
| 40,109 |
| — |
| — |
| 40,109 |
| 24,148 |
| 8,083 |
| (3 | ) | — |
| — |
| 32,228 |
|
Property and equipment, net | — |
| — |
| 48,371 |
| 31,419 |
| — |
| — |
| — |
| 79,790 |
| — |
| — |
| 79,790 |
| 42,937 |
| 27,444 |
| — |
| — |
| — |
| 70,381 |
|
Goodwill | — |
| — |
| 91,131 |
| 52,835 |
| — |
| — |
| — |
| 143,966 |
| — |
| — |
| 143,966 |
| 91,131 |
| 28,979 |
| — |
| — |
| — |
| 120,110 |
|
Other intangibles, net | 15 |
| — |
| 6,669 |
| 26,524 |
| — |
| — |
| — |
| 33,208 |
| — |
| — |
| 33,208 |
| 10,687 |
| 21,979 |
| — |
| — |
| — |
| 32,666 |
|
Intercompany receivable | — |
| 38,177 |
| 40,702 |
| (29,618 | ) | — |
| — |
| (49,261 | ) | — |
| — |
| — |
| — |
| 112,413 |
| — |
| — |
| — |
| (112,413 | ) | — |
|
Investment in subsidiaries | 77,725 |
| 1,046,983 |
| — |
| — |
| — |
| — |
| (1,124,708 | ) | — |
| (90,538 | ) | 90,538 |
| — |
| — |
| — |
| — |
| 37,131 |
| (37,131 | ) | — |
|
Other | 6,618 |
| — |
| 5,467 |
| 1,005 |
| — |
| — |
| — |
| 13,090 |
| — |
| — |
| 13,090 |
| 17,805 |
| 679 |
| — |
| — |
| — |
| 18,484 |
|
Total assets | $ | 170,266 |
| $ | 983,188 |
| $ | 476,854 |
| $ | 210,552 |
| $ | 192,379 |
| $ | 130,162 |
| $ | (1,173,969 | ) | $ | 989,432 |
| $ | (84,240 | ) | $ | 90,538 |
| $ | 995,730 |
| $ | 713,407 |
| $ | 207,203 |
| $ | 228,051 |
| $ | 69,015 |
| $ | (149,544 | ) | $ | 1,068,132 |
|
Liabilities and Stockholder's equity: | | |
Liabilities and Stockholders' equity: | | |
Accounts payable and accrued liabilities | $ | 904 |
| $ | 12 |
| $ | 31,749 |
| $ | 18,752 |
| $ | 40 |
| $ | 1,320 |
| $ | — |
| $ | 52,777 |
| $ | 76 |
| $ | — |
| $ | 52,853 |
| $ | 48,657 |
| $ | 6,773 |
| $ | 7,259 |
| $ | 996 |
| $ | — |
| $ | 63,685 |
|
Deferred revenue | — |
| — |
| 5,625 |
| 3,893 |
| 118 |
| 31 |
| — |
| 9,667 |
| — |
| — |
| 9,667 |
| 5,639 |
| 3,369 |
| 44 |
| — |
| — |
| 9,052 |
|
Lease liability - operating leases | | 83,891 |
| 42,157 |
| — |
| — |
| — |
| 126,048 |
|
Income taxes payable | — |
| — |
| — |
| 338 |
| — |
| — |
| — |
| 338 |
| — |
| — |
| 338 |
| (4,030 | ) | — |
| — |
| 4,030 |
| — |
| — |
|
Accrued interest | 108 |
| — |
| — |
| (13 | ) | 990 |
| 613 |
| — |
| 1,698 |
| 5,693 |
| — |
| 7,391 |
| 104 |
| — |
| 777 |
| 4,744 |
| — |
| 5,625 |
|
Payable to CURO Holdings Corp. | — |
| — |
| 776,988 |
| — |
| — |
| — |
| — |
| 776,988 |
| (776,988 | ) | — |
| — |
| 657,895 |
| — |
| — |
| (657,895 | ) | — |
| — |
|
CSO guarantee liability | — |
| — |
| 13,243 |
| — |
| — |
| — |
| — |
| 13,243 |
| — |
| — |
| 13,243 |
| |
Deferred rent | — |
| — |
| 9,670 |
| 1,618 |
| — |
| — |
| — |
| 11,288 |
| — |
| — |
| 11,288 |
| |
Long-term debt (excluding current maturities) | 29,000 |
| — |
| — |
| — |
| 76,614 |
| 85,342 |
| — |
| 190,956 |
| 677,245 |
| — |
| 868,201 |
| |
Subordinated shareholder debt | — |
| — |
| — |
| 2,319 |
| — |
| — |
| — |
| 2,319 |
| — |
| — |
| 2,319 |
| |
CSO liability for losses | | 10,249 |
| — |
| — |
| — |
| — |
| 10,249 |
|
Debt | | 25,000 |
| — |
| 102,483 |
| 677,924 |
| — |
| 805,407 |
|
Intercompany payable | 233,081 |
| 893,971 |
| (998,574 | ) | (7,180 | ) | (128,486 | ) | 56,449 |
| (49,261 | ) | — |
| — |
| — |
| — |
| — |
| 18,742 |
| 93,671 |
| — |
| (112,413 | ) | — |
|
Other long-term liabilities | — |
| — |
| 5,548 |
| 1,401 |
| — |
| — |
| — |
| 6,949 |
| — |
| — |
| 6,949 |
| |
Other liabilities | | 8,114 |
| 480 |
| — |
| — |
| — |
| 8,594 |
|
Deferred tax liabilities | (2,289 | ) | 11,480 |
| 3,952 |
| 604 |
| — |
| — |
| — |
| 13,747 |
| (130 | ) | — |
| 13,617 |
| (4,171 | ) | 4,427 |
| — |
| 4,171 |
| — |
| 4,427 |
|
Total liabilities | 260,804 |
| 905,463 |
| (151,799 | ) | 21,732 |
| (50,724 | ) | 143,755 |
| (49,261 | ) | 1,079,970 |
| (94,104 | ) | — |
| 985,866 |
| 831,348 |
| 75,948 |
| 204,234 |
| 33,970 |
| (112,413 | ) | 1,033,087 |
|
Stockholder’s equity | (90,538 | ) | 77,725 |
| 628,653 |
| 188,820 |
| 243,103 |
| (13,593 | ) | (1,124,708 | ) | (90,538 | ) | 9,864 |
| 90,538 |
| 9,864 |
| |
Total liabilities and stockholder’s equity | $ | 170,266 |
| $ | 983,188 |
| $ | 476,854 |
| $ | 210,552 |
| $ | 192,379 |
| $ | 130,162 |
| $ | (1,173,969 | ) | $ | 989,432 |
| $ | (84,240 | ) | $ | 90,538 |
| $ | 995,730 |
| |
Stockholders' equity | | (117,941 | ) | 131,255 |
| 23,817 |
| 35,045 |
| (37,131 | ) | 35,045 |
|
Total liabilities and stockholders' equity | | $ | 713,407 |
| $ | 207,203 |
| $ | 228,051 |
| $ | 69,015 |
| $ | (149,544 | ) | $ | 1,068,132 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | December 31, 2017 | December 31, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Assets: | | |
Cash | $ | — |
| $ | — |
| $ | 117,379 |
| $ | 44,915 |
| $ | — |
| $ | — |
| $ | 162,294 |
| $ | 80 |
| $ | — |
| $ | 162,374 |
| $ | 42,403 |
| $ | 18,772 |
| $ | — |
| $ | — |
| $ | — |
| $ | 61,175 |
|
Restricted cash | — |
| — |
| 1,677 |
| 3,569 |
| 6,871 |
| — |
| 12,117 |
| — |
| — |
| 12,117 |
| 9,993 |
| 2,606 |
| 12,840 |
| — |
| — |
| 25,439 |
|
Loans receivable, net | — |
| — |
| 84,912 |
| 110,651 |
| 167,706 |
| — |
| 363,269 |
| — |
| — |
| 363,269 |
| 304,542 |
| 56,805 |
| 136,187 |
| — |
| — |
| 497,534 |
|
Deferred income taxes | — |
| 2,154 |
| (4,646 | ) | 3,502 |
| — |
| — |
| 1,010 |
| (238 | ) | — |
| 772 |
| — |
| 1,534 |
| — |
| — |
| — |
| 1,534 |
|
Income taxes receivable | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 3,455 |
| — |
| 3,455 |
| 7,190 |
| — |
| — |
| 9,551 |
| — |
| 16,741 |
|
Prepaid expenses and other | — |
| — |
| 38,277 |
| 3,353 |
| — |
| — |
| 41,630 |
| 882 |
| — |
| 42,512 |
| 37,866 |
| 5,722 |
| — |
| — |
| — |
| 43,588 |
|
Property and equipment, net | — |
| — |
| 52,627 |
| 34,459 |
| — |
| — |
| 87,086 |
| — |
| — |
| 87,086 |
| 47,918 |
| 28,832 |
| — |
| — |
| — |
| 76,750 |
|
Goodwill | — |
| — |
| 91,131 |
| 54,476 |
| — |
| — |
| 145,607 |
| — |
| — |
| 145,607 |
| 91,131 |
| 28,150 |
| — |
| — |
| — |
| 119,281 |
|
Other intangibles, net | 16 |
| — |
| 5,418 |
| 27,335 |
| — |
| — |
| 32,769 |
| — |
| — |
| 32,769 |
| 8,418 |
| 21,366 |
| — |
| — |
| — |
| 29,784 |
|
Intercompany receivable | — |
| 37,877 |
| 33,062 |
| (30,588 | ) | — |
| (40,351 | ) | — |
| — |
| — |
| — |
| 77,009 |
| — |
| — |
| — |
| (77,009 | ) | — |
|
Investment in subsidiaries | (14,504 | ) | 899,371 |
| — |
| — |
| — |
| (884,867 | ) | — |
| (84,889 | ) | 84,889 |
| — |
| — |
| — |
| — |
| (101,665 | ) | 101,665 |
| — |
|
Other | 5,713 |
| — |
| 3,017 |
| 1,040 |
| — |
| — |
| 9,770 |
| — |
| — |
| 9,770 |
| 12,253 |
| 677 |
| — |
| — |
| — |
| 12,930 |
|
Assets from discontinued operations | | — |
| 2,406 |
| — |
| — |
| 32,455 |
| 34,861 |
|
Total assets | $ | (8,775 | ) | $ | 939,402 |
| $ | 422,854 |
| $ | 252,712 |
| $ | 174,577 |
| $ | (925,218 | ) | $ | 855,552 |
| $ | (80,710 | ) | $ | 84,889 |
| $ | 859,731 |
| $ | 638,723 |
| $ | 166,870 |
| $ | 149,027 |
| $ | (92,114 | ) | $ | 57,111 |
| $ | 919,617 |
|
Liabilities and Stockholder's equity: | | |
Accounts payable and accrued liabilities | $ | 2,606 |
| $ | 13 |
| $ | 35,753 |
| $ | 15,954 |
| $ | 12 |
| $ | — |
| $ | 54,338 |
| $ | 1,454 |
| $ | — |
| $ | 55,792 |
| $ | 38,240 |
| $ | 5,734 |
| $ | 4,980 |
| $ | 192 |
| $ | — |
| $ | 49,146 |
|
Deferred revenue | — |
| — |
| 6,529 |
| 5,455 |
| — |
| — |
| 11,984 |
| — |
| — |
| 11,984 |
| 5,981 |
| 3,462 |
| 40 |
| — |
| — |
| 9,483 |
|
Income taxes payable | (49,738 | ) | 70,231 |
| (18,450 | ) | 2,077 |
| — |
| — |
| 4,120 |
| — |
| — |
| 4,120 |
| — |
| 1,579 |
| — |
| — |
| — |
| 1,579 |
|
Accrued interest | 24,201 |
| — |
| — |
| — |
| 1,266 |
| — |
| 25,467 |
| — |
| — |
| 25,467 |
| 149 |
| — |
| 831 |
| 19,924 |
| — |
| 20,904 |
|
Payable to CURO Holdings Corp. | 184,348 |
| — |
| (95,048 | ) | — |
| — |
| — |
| 89,300 |
| (89,300 | ) | — |
| — |
| 768,345 |
| — |
| — |
| (768,345 | ) | — |
| — |
|
CSO guarantee liability | — |
| — |
| 17,795 |
| — |
| — |
| — |
| 17,795 |
| — |
| — |
| 17,795 |
| |
CSO liability for losses | | 12,007 |
| — |
| — |
| — |
| — |
| 12,007 |
|
Deferred rent | — |
| — |
| 9,896 |
| 1,681 |
| — |
| — |
| 11,577 |
| — |
| — |
| 11,577 |
| 9,559 |
| 1,292 |
| — |
| — |
| — |
| 10,851 |
|
Long-term debt | 585,823 |
| — |
| — |
| — |
| 120,402 |
| — |
| 706,225 |
| — |
| — |
| 706,225 |
| |
Debt | | 20,000 |
| — |
| 107,479 |
| 676,661 |
| — |
| 804,140 |
|
Subordinated shareholder debt | — |
| — |
| — |
| 2,381 |
| — |
| — |
| 2,381 |
| — |
| — |
| 2,381 |
| — |
| 2,196 |
| — |
| — |
| — |
| 2,196 |
|
Intercompany payable | (668,536 | ) | 876,869 |
| (124,332 | ) | 40,351 |
| (84,001 | ) | (40,351 | ) | — |
| — |
| — |
| — |
| — |
| 224 |
| 44,330 |
| — |
| (44,554 | ) | — |
|
Other long-term liabilities | — |
| — |
| 3,969 |
| 1,799 |
| — |
| — |
| 5,768 |
| — |
| — |
| 5,768 |
| |
Other liabilities | | 4,967 |
| 833 |
| — |
| — |
| — |
| 5,800 |
|
Deferred tax liabilities | (2,590 | ) | 6,793 |
| (143 | ) | 7,426 |
| — |
| — |
| 11,486 |
| — |
| — |
| 11,486 |
| 15,175 |
| — |
| — |
| (1,445 | ) | — |
| 13,730 |
|
Liabilities from discontinued operations | | — |
| 8,882 |
| — |
| — |
| — |
| 8,882 |
|
Total liabilities | 76,114 |
| 953,906 |
| (164,031 | ) | 77,124 |
| 37,679 |
| (40,351 | ) | 940,441 |
| (87,846 | ) | — |
| 852,595 |
| 874,423 |
| 24,202 |
| 157,660 |
| (73,013 | ) | (44,554 | ) | 938,718 |
|
Stockholder’s equity | (84,889 | ) | (14,504 | ) | 586,885 |
| 175,588 |
| 136,898 |
| (884,867 | ) | (84,889 | ) | 7,136 |
| 84,889 |
| 7,136 |
| |
Total liabilities and stockholder’s equity | $ | (8,775 | ) | $ | 939,402 |
| $ | 422,854 |
| $ | 252,712 |
| $ | 174,577 |
| $ | (925,218 | ) | $ | 855,552 |
| $ | (80,710 | ) | $ | 84,889 |
| $ | 859,731 |
| |
Stockholders' equity | | (235,700 | ) | 142,668 |
| (8,633 | ) | (19,101 | ) | 101,665 |
| (19,101 | ) |
Total liabilities and stockholders' equity | | $ | 638,723 |
| $ | 166,870 |
| $ | 149,027 |
| $ | (92,114 | ) | $ | 57,111 |
| $ | 919,617 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Statements of IncomeOperations | | | Three Months Ended September 30, 2018 | Three Months Ended September 30, 2019 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | US SPV | Canada SPV | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 141,384 |
| $ | 53,337 |
| $ | 81,889 |
| $ | 6,394 |
|
|
| $ | 283,004 |
| $ | — |
| $ | — |
| $ | 283,004 |
| $ | 237,069 |
| $ | 29,984 |
| $ | 30,211 |
| $ | — |
| $ | — |
| $ | 297,264 |
|
Provision for losses | — |
| — |
| 58,514 |
| 12,691 |
| 44,742 |
| 18,576 |
|
|
| 134,523 |
| — |
| — |
| 134,523 |
| 102,997 |
| 7,191 |
| 13,679 |
| — |
| — |
| 123,867 |
|
Net revenue | — |
| — |
| 82,870 |
| 40,646 |
| 37,147 |
| (12,182 | ) | — |
| 148,481 |
| — |
| — |
| 148,481 |
| 134,072 |
| 22,793 |
| 16,532 |
| — |
| — |
| 173,397 |
|
Cost of providing services: | |
|
| |
|
|
Salaries and benefits | — |
| — |
| 17,579 |
| 8,936 |
| — |
| — |
| — |
| 26,515 |
| — |
| — |
| 26,515 |
| 18,301 |
| 9,161 |
| — |
| — |
| — |
| 27,462 |
|
Occupancy | — |
| — |
| 7,875 |
| 5,647 |
| — |
| — |
| — |
| 13,522 |
| — |
| — |
| 13,522 |
| 8,249 |
| 5,787 |
| — |
| — |
| — |
| 14,036 |
|
Office | — |
| — |
| 5,586 |
| 2,156 |
| — |
| — |
| — |
| 7,742 |
| — |
| — |
| 7,742 |
| 4,611 |
| 1,382 |
| — |
| — |
| — |
| 5,993 |
|
Other costs of providing services | — |
| — |
| 10,650 |
| 1,364 |
| 590 |
| — |
| — |
| 12,604 |
| — |
| — |
| 12,604 |
| 11,475 |
| 1,368 |
| — |
| — |
| — |
| 12,843 |
|
Advertising | — |
| — |
| 17,632 |
| 6,482 |
| — |
| — |
| — |
| 24,114 |
| — |
| — |
| 24,114 |
| 14,186 |
| 2,238 |
| — |
| — |
| — |
| 16,424 |
|
Total cost of providing services | — |
| — |
| 59,322 |
| 24,585 |
| 590 |
| — |
| — |
| 84,497 |
| — |
| — |
| 84,497 |
| 56,822 |
| 19,936 |
| — |
| — |
| — |
| 76,758 |
|
Gross margin | — |
| — |
| 23,548 |
| 16,061 |
| 36,557 |
| (12,182 | ) | — |
| 63,984 |
| — |
| — |
| 63,984 |
| 77,250 |
| 2,857 |
| 16,532 |
| — |
| — |
| 96,639 |
|
Operating (income) expense: | |
|
| |
Corporate, district and other | (886 | ) | 48 |
| 20,663 |
| 12,824 |
| 59 |
| 1 |
| — |
| 32,709 |
| 2,476 |
| — |
| 35,185 |
| |
Operating expense (income) : | | |
|
|
Corporate, district and other expenses | | 29,930 |
| 5,296 |
| 472 |
| 2,967 |
| — |
| 38,665 |
|
Intercompany management fee | — |
| — |
| (7,259 | ) | 3,014 |
| 4,237 |
| 8 |
| — |
| — |
| — |
| — |
| — |
| (3,276 | ) | 3,268 |
| 8 |
| — |
| — |
| — |
|
Interest expense | 12,503 |
| — |
| (149 | ) | (45 | ) | 4,004 |
| 1,272 |
| — |
| 17,585 |
| 5,811 |
| — |
| 23,396 |
| 258 |
| 24 |
| 2,463 |
| 14,619 |
| — |
| 17,364 |
|
Loss on extinguishment of debt | 69,200 |
| — |
| — |
| — |
| — |
| — |
| — |
| 69,200 |
| — |
| — |
| 69,200 |
| |
Loss from equity method investment | | 1,384 |
| — |
| — |
| — |
| — |
| 1,384 |
|
Intercompany interest (income) expense | — |
| (916 | ) | (654 | ) | 1,570 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (1,462 | ) | 893 |
| 569 |
| — |
| — |
| — |
|
Total operating expense | 80,817 |
| (868 | ) | 12,601 |
| 17,363 |
| 8,300 |
| 1,281 |
| — |
| 119,494 |
| 8,287 |
| — |
| 127,781 |
| 26,834 |
| 9,481 |
| 3,512 |
| 17,586 |
| — |
| 57,413 |
|
Net (loss) income before income taxes | (80,817 | ) | 868 |
| 10,947 |
| (1,302 | ) | 28,257 |
| (13,463 | ) | — |
| (55,510 | ) | (8,287 | ) | — |
| (63,797 | ) | |
(Benefit) provision for income tax expense | (17,930 | ) | 6,942 |
| (2,177 | ) | (1,508 | ) | — |
| — |
| — |
| (14,673 | ) | (2,102 | ) | — |
| (16,775 | ) | |
Income (loss) from continuing operations before income taxes | | 50,416 |
| (6,624 | ) | 13,020 |
| (17,586 | ) | — |
| 39,226 |
|
Provision (benefit) for income tax expense | | 13,700 |
| 1,986 |
| — |
| (4,447 | ) | — |
| 11,239 |
|
Net income (loss) from continuing operations | | 36,716 |
| (8,610 | ) | 13,020 |
| (13,139 | ) | ��� |
| 27,987 |
|
Net loss on discontinued operations | | — |
| (598 | ) | — |
| — |
| — |
| (598 | ) |
Net (loss) income | (62,887 | ) | (6,074 | ) | 13,124 |
| 206 |
| 28,257 |
| (13,463 | ) | — |
| (40,837 | ) | (6,185 | ) | — |
| (47,022 | ) | 36,716 |
| (9,208 | ) | 13,020 |
| (13,139 | ) | — |
| 27,389 |
|
Equity in net income (loss) of subsidiaries: | |
|
| |
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (40,837 | ) | 40,837 |
| — |
| — |
| — |
| — |
| 40,528 |
| (40,528 | ) | — |
|
CURO Intermediate | (6,074 | ) | — |
| — |
| — |
| — |
| — |
| 6,074 |
| — |
| — |
| — |
| — |
| |
Guarantor Subsidiaries | 13,124 |
| — |
| — |
| — |
| — |
| — |
| (13,124 | ) | — |
| — |
| — |
| — |
| 36,716 |
| — |
| — |
| — |
| (36,716 | ) | — |
|
Non-Guarantor Subsidiaries | 206 |
| — |
| — |
| — |
| — |
| — |
| (206 | ) | — |
| — |
| — |
| — |
| (9,208 | ) | — |
| — |
| — |
| 9,208 |
| — |
|
SPV Subs | (13,463 | ) | — |
| — |
| — |
| — |
| — |
| 13,463 |
| — |
| — |
| — |
| — |
| 13,020 |
| — |
| — |
| — |
| (13,020 | ) | — |
|
Net (loss) income attributable to CURO | $ | (69,094 | ) | $ | (6,074 | ) | $ | 13,124 |
| $ | 206 |
| $ | 28,257 |
| $ | (13,463 | ) | $ | 6,207 |
| $ | (40,837 | ) | $ | (47,022 | ) | $ | 40,837 |
| $ | (47,022 | ) | |
Net income (loss) attributable to CURO | | $ | 77,244 |
| $ | (9,208 | ) | $ | 13,020 |
| $ | 27,389 |
| $ | (81,056 | ) | $ | 27,389 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 123,608 |
| $ | 61,293 |
| $ | 70,218 |
| $ | — |
| $ | 255,119 |
| $ | — |
| $ | — |
| $ | 255,119 |
| $ | — |
| $ | — |
| $ | 141,385 |
| $ | 39,814 |
| $ | 88,283 |
| $ | — |
| $ | 269,482 |
| $ | — |
| $ | — |
| $ | 269,482 |
|
Provision for losses | — |
| — |
| 53,906 |
| 19,835 |
| 25,600 |
| — |
| 99,341 |
| — |
| — |
| 99,341 |
| — |
| — |
| 58,514 |
| 5,860 |
| 63,318 |
| — |
| 127,692 |
| — |
| — |
| 127,692 |
|
Net revenue | — |
| — |
| 69,702 |
| 41,458 |
| 44,618 |
| — |
| 155,778 |
| — |
| — |
| 155,778 |
| — |
| — |
| 82,871 |
| 33,954 |
| 24,965 |
| — |
| 141,790 |
| — |
| — |
| 141,790 |
|
Cost of providing services: | |
|
| |
|
|
Salaries and benefits | — |
| — |
| 17,555 |
| 9,266 |
| — |
| — |
| 26,821 |
| — |
| — |
| 26,821 |
| — |
| — |
| 17,579 |
| 8,936 |
| — |
| — |
| 26,515 |
| — |
| — |
| 26,515 |
|
Occupancy | — |
| — |
| 7,849 |
| 5,966 |
| — |
| — |
| 13,815 |
| — |
| — |
| 13,815 |
| — |
| — |
| 7,875 |
| 5,647 |
| — |
| — |
| 13,522 |
| — |
| — |
| 13,522 |
|
Office | — |
| — |
| 4,682 |
| 1,123 |
| (90 | ) | — |
| 5,715 |
| — |
| — |
| 5,715 |
| — |
| — |
| 5,586 |
| 1,740 |
| — |
| — |
| 7,326 |
| — |
| — |
| 7,326 |
|
Other store operating expenses | — |
| — |
| 10,990 |
| 1,773 |
| 228 |
| — |
| 12,991 |
| — |
| — |
| 12,991 |
| — |
| — |
| 10,650 |
| 1,244 |
| 590 |
| — |
| 12,484 |
| — |
| — |
| 12,484 |
|
Advertising | — |
| — |
| 12,004 |
| 4,266 |
| — |
| — |
| 16,270 |
| — |
| — |
| 16,270 |
| — |
| — |
| 17,632 |
| 3,717 |
| — |
| — |
| 21,349 |
| — |
| — |
| 21,349 |
|
Total cost of providing services | — |
| — |
| 53,080 |
| 22,394 |
| 138 |
| — |
| 75,612 |
| — |
| — |
| 75,612 |
| — |
| — |
| 59,322 |
| 21,284 |
| 590 |
| — |
| 81,196 |
| — |
| — |
| 81,196 |
|
Gross Margin | — |
| — |
| 16,622 |
| 19,064 |
| 44,480 |
| — |
| 80,166 |
| — |
| — |
| 80,166 |
| — |
| — |
| 23,549 |
| 12,670 |
| 24,375 |
| — |
| 60,594 |
| — |
| — |
| 60,594 |
|
Operating (income) expense: | |
|
| |
|
|
Corporate, district and other | 327 |
| 15 |
| 28,142 |
| 8,993 |
| (3,861 | ) | — |
| 33,616 |
| 631 |
| — |
| 34,247 |
| |
Corporate, district and other expenses | | (886 | ) | 48 |
| 20,663 |
| 5,134 |
| 60 |
| — |
| 25,019 |
| 2,476 |
| — |
| 27,495 |
|
Intercompany management fee | — |
| — |
| (10,815 | ) | 4,200 |
| 6,615 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (6,761 | ) | 2,516 |
| 4,245 |
| — |
| — |
| — |
| — |
| — |
|
Interest expense | 15,305 |
| — |
| (98 | ) | 49 |
| 3,588 |
| — |
| 18,844 |
| — |
| — |
| 18,844 |
| 12,503 |
| — |
| (149 | ) | (38 | ) | 5,276 |
| — |
| 17,592 |
| 5,811 |
| — |
| 23,403 |
|
Intercompany interest (income) expense | — |
| (1,054 | ) | (173 | ) | 1,227 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (916 | ) | (455 | ) | 1,371 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Loss on extinguishment of debt | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 69,200 |
| — |
| — |
| — |
| — |
| — |
| 69,200 |
| — |
| — |
| 69,200 |
|
Restructuring costs | — |
| — |
| — |
| 7,393 |
| — |
| — |
| 7,393 |
| — |
| — |
| 7,393 |
| |
Total operating expense | 15,632 |
| (1,039 | ) | 17,056 |
| 21,862 |
| 6,342 |
| — |
| 59,853 |
| 631 |
| — |
| 60,484 |
| 80,817 |
| (868 | ) | 13,298 |
| 8,983 |
| 9,581 |
| — |
| 111,811 |
| 8,287 |
| — |
| 120,098 |
|
Net (loss) income before income taxes | (15,632 | ) | 1,039 |
| (434 | ) | (2,798 | ) | 38,138 |
| — |
| 20,313 |
| (631 | ) | — |
| 19,682 |
| |
(Loss) income from continuing operations before income taxes | | (80,817 | ) | 868 |
| 10,251 |
| 3,687 |
| 14,794 |
| — |
| (51,217 | ) | (8,287 | ) | — |
| (59,504 | ) |
(Benefit) provision for income tax expense | (7,507 | ) | 17,793 |
| (1,832 | ) | 1,833 |
| — |
| — |
| 10,287 |
| (367 | ) | — |
| 9,920 |
| (17,930 | ) | 6,803 |
| (2,177 | ) | (1,508 | ) | — |
| — |
| (14,812 | ) | (2,102 | ) | — |
| (16,914 | ) |
Net (loss) income from continuing operations | | (62,887 | ) | (5,935 | ) | 12,428 |
| 5,195 |
| 14,794 |
| — |
| (36,405 | ) | (6,185 | ) | — |
| (42,590 | ) |
Net loss from discontinued operations | | — |
| — |
| — |
| (4,432 | ) | — |
| — |
| (4,432 | ) | — |
| — |
| (4,432 | ) |
Net (loss) income | (8,125 | ) | (16,754 | ) | 1,398 |
| (4,631 | ) | 38,138 |
| — |
| 10,026 |
| (264 | ) | — |
| 9,762 |
| (62,887 | ) | (5,935 | ) | 12,428 |
| 763 |
| 14,794 |
| — |
| (40,837 | ) | (6,185 | ) | — |
| (47,022 | ) |
Equity in net income (loss) of subsidiaries: | |
|
| |
|
|
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 10,026 |
| (10,026 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (40,837 | ) | 40,837 |
| — |
|
CURO Intermediate | (16,754 | ) | — |
| — |
| — |
| — |
| 16,754 |
| — |
| — |
| — |
| — |
| (5,935 | ) | — |
| — |
| — |
| — |
| 5,935 |
| — |
| — |
| — |
| — |
|
Guarantor Subsidiaries | 1,398 |
| — |
| — |
| — |
| — |
| (1,398 | ) | — |
| — |
| — |
| — |
| 12,428 |
| — |
| — |
| — |
| — |
| (12,428 | ) | — |
| — |
| — |
| — |
|
Non-Guarantor Subsidiaries | (4,631 | ) | — |
| — |
| — |
| — |
| 4,631 |
| — |
| — |
| — |
| — |
| 763 |
| — |
| — |
| — |
| — |
| (763 | ) | — |
| — |
| — |
| — |
|
SPV Subs | 38,138 |
| — |
| — |
| — |
| — |
| (38,138 | ) | — |
| — |
| — |
| — |
| 14,794 |
| — |
| — |
| — |
| — |
| (14,794 | ) | — |
| — |
| — |
| — |
|
Net income (loss) attributable to CURO | $ | 10,026 |
| $ | (16,754 | ) | $ | 1,398 |
| $ | (4,631 | ) | $ | 38,138 |
| $ | (18,151 | ) | $ | 10,026 |
| $ | 9,762 |
| $ | (10,026 | ) | $ | 9,762 |
| |
Net (loss) income attributable to CURO | | $ | (40,837 | ) | $ | (5,935 | ) | $ | 12,428 |
| $ | 763 |
| $ | 14,794 |
| $ | (22,050 | ) | $ | (40,837 | ) | $ | (47,022 | ) | $ | 40,837 |
| $ | (47,022 | ) |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | US SPV | Canada SPV | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | Subsidiary Guarantors | Subsidiary Non-Guarantors | Canada SPV | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 387,826 |
| $ | 169,359 |
| $ | 230,166 |
| $ | 6,394 |
|
|
| $ | 793,745 |
| $ | — |
| $ | — |
| $ | 793,745 |
| $ | 673,234 |
| $ | 84,920 |
| $ | 81,349 |
| $ | — |
| $ | — |
| $ | 839,503 |
|
Provision for losses | — |
| — |
| 140,603 |
| 49,388 |
| 98,973 |
| 18,576 |
|
|
| 307,540 |
| — |
| — |
| 307,540 |
| 280,529 |
| 17,634 |
| 40,099 |
| — |
| — |
| 338,262 |
|
Net revenue | — |
| — |
| 247,223 |
| 119,971 |
| 131,193 |
| (12,182 | ) | — |
| 486,205 |
| — |
| — |
| 486,205 |
| 392,705 |
| 67,286 |
| 41,250 |
| — |
| — |
| 501,241 |
|
Cost of providing services: | | |
Salaries and benefits | — |
| — |
| 53,668 |
| 26,673 |
| — |
| — |
| — |
| 80,341 |
| — |
| — |
| 80,341 |
| 55,675 |
| 26,574 |
| — |
| — |
| — |
| 82,249 |
|
Occupancy | — |
| — |
| 23,164 |
| 17,105 |
| — |
| — |
| — |
| 40,269 |
| — |
| — |
| 40,269 |
| 24,292 |
| 17,913 |
| — |
| — |
| — |
| 42,205 |
|
Office | — |
| — |
| 15,416 |
| 5,383 |
| — |
| — |
| — |
| 20,799 |
| — |
| — |
| 20,799 |
| 12,504 |
| 4,059 |
| — |
| — |
| — |
| 16,563 |
|
Other costs of providing services | — |
| — |
| 33,934 |
| 4,260 |
| 1,537 |
| — |
| — |
| 39,731 |
| — |
| — |
| 39,731 |
| 36,395 |
| 3,522 |
| — |
| — |
| — |
| 39,917 |
|
Advertising | — |
| — |
| 35,200 |
| 16,224 |
| — |
| — |
| — |
| 51,424 |
| — |
| — |
| 51,424 |
| 31,719 |
| 5,271 |
| — |
| — |
| — |
| 36,990 |
|
Total cost of providing services | — |
| — |
| 161,382 |
| 69,645 |
| 1,537 |
| — |
| — |
| 232,564 |
| — |
| — |
| 232,564 |
| 160,585 |
| 57,339 |
| — |
| — |
| — |
| 217,924 |
|
Gross margin | — |
| — |
| 85,841 |
| 50,326 |
| 129,656 |
| (12,182 | ) | — |
| 253,641 |
| — |
| — |
| 253,641 |
| 232,120 |
| 9,947 |
| 41,250 |
| — |
| — |
| 283,317 |
|
Operating (income) expense: | | |
Corporate, district and other | 20 |
| 73 |
| 74,037 |
| 33,180 |
| 136 |
| 1 |
| — |
| 107,447 |
| 6,847 |
| — |
| 114,294 |
| |
Operating expense (income): | | |
Corporate, district and other expenses | | 98,486 |
| 16,900 |
| (283 | ) | 7,940 |
| — |
| 123,043 |
|
Intercompany management fee | — |
| — |
| (21,082 | ) | 9,789 |
| 11,285 |
| 8 |
| — |
| — |
| — |
| — |
| — |
| (9,576 | ) | 9,553 |
| 23 |
| — |
| — |
| — |
|
Interest expense | 47,410 |
| — |
| (321 | ) | 7 |
| 12,031 |
| 1,272 |
| — |
| 60,399 |
| 5,811 |
| — |
| 66,210 |
| 575 |
| 103 |
| 7,728 |
| 43,671 |
| — |
| 52,077 |
|
Loss on extinguishment of debt | 80,883 |
| — |
| — |
| — |
| — |
| — |
| — |
| 80,883 |
| — |
| — |
| 80,883 |
| |
Loss from equity method investment | | 5,132 |
| — |
| — |
| — |
| — |
| 5,132 |
|
Intercompany interest (income) expense | — |
| (2,700 | ) | (913 | ) | 3,613 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (3,855 | ) | 2,663 |
| 1,192 |
| — |
| — |
| — |
|
Total operating expense (income) | 128,313 |
| (2,627 | ) | 51,721 |
| 46,589 |
| 23,452 |
| 1,281 |
| — |
| 248,729 |
| 12,658 |
| — |
| 261,387 |
| |
Net (loss) income before income taxes | (128,313 | ) | 2,627 |
| 34,120 |
| 3,737 |
| 106,204 |
| (13,463 | ) | — |
| 4,912 |
| (12,658 | ) | — |
| (7,746 | ) | |
(Benefit) provision for income tax expense | (30,189 | ) | 39,107 |
| (8,220 | ) | 2,522 |
| — |
| — |
| — |
| 3,220 |
| (3,211 | ) | — |
| 9 |
| |
Net (loss) income | (98,124 | ) | (36,480 | ) | 42,340 |
| 1,215 |
| 106,204 |
| (13,463 | ) | — |
| 1,692 |
| (9,447 | ) | — |
| (7,755 | ) | |
Total operating expense | | 90,762 |
| 29,219 |
| 8,660 |
| 51,611 |
| — |
| 180,252 |
|
Income (loss) from continuing operations before income taxes | | 141,358 |
| (19,272 | ) | 32,590 |
| (51,611 | ) | — |
| 103,065 |
|
Provision (benefit) for income tax expense | | 37,309 |
| 4,115 |
| — |
| (12,686 | ) | — |
| 28,738 |
|
Net income (loss) from continuing operations | | 104,049 |
| (23,387 | ) | 32,590 |
| (38,925 | ) | — |
| 74,327 |
|
Net loss on discontinued operations | | — |
| 6,943 |
| — |
| — |
| — |
| 6,943 |
|
Net income (loss) | | 104,049 |
| (16,444 | ) | 32,590 |
| (38,925 | ) | — |
| 81,270 |
|
Equity in net income (loss) of subsidiaries: | | |
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,692 |
| (1,692 | ) | — |
| — |
| — |
| — |
| 120,195 |
| (120,195 | ) | — |
|
CURO Intermediate | (36,480 | ) | — |
| — |
| — |
| — |
| — |
| 36,480 |
| — |
| — |
| — |
| — |
| |
Guarantor Subsidiaries | 42,340 |
| — |
| — |
| — |
| — |
| — |
| (42,340 | ) | — |
| — |
| — |
| — |
| 104,049 |
| — |
| — |
| — |
| (104,049 | ) | — |
|
Non-Guarantor Subsidiaries | 1,215 |
| — |
| — |
| — |
| — |
| — |
| (1,215 | ) | — |
| — |
| — |
| — |
| (16,444 | ) | — |
| — |
| — |
| 16,444 |
| — |
|
SPV Subs | (13,463 | ) | — |
| — |
| — |
| — |
| — |
| 13,463 |
| — |
| — |
| — |
| — |
| 32,590 |
| — |
| — |
| — |
| (32,590 | ) | — |
|
Net income (loss) attributable to CURO | $ | (104,512 | ) | $ | (36,480 | ) | $ | 42,340 |
| $ | 1,215 |
| $ | 106,204 |
| $ | (13,463 | ) | $ | 6,388 |
| $ | 1,692 |
| $ | (7,755 | ) | $ | (1,692 | ) | $ | (7,755 | ) | $ | 224,244 |
| $ | (16,444 | ) | $ | 32,590 |
| $ | 81,270 |
| $ | (240,390 | ) | $ | 81,270 |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Revenue | $ | — |
| $ | — |
| $ | 337,920 |
| $ | 164,731 |
| $ | 193,992 |
| $ | — |
| $ | 696,643 |
| $ | — |
| $ | — |
| $ | 696,643 |
| $ | — |
| $ | — |
| $ | 387,827 |
| $ | 133,107 |
| $ | 236,560 |
| $ | — |
| $ | 757,494 |
| $ | — |
| $ | — |
| $ | 757,494 |
|
Provision for losses | — |
| — |
| 118,042 |
| 45,865 |
| 62,616 |
| — |
| 226,523 |
| — |
| — |
| 226,523 |
| — |
| — |
| 140,603 |
| 32,770 |
| 117,549 |
| — |
| 290,922 |
| — |
| — |
| 290,922 |
|
Net revenue | — |
| — |
| 219,878 |
| 118,866 |
| 131,376 |
| — |
| 470,120 |
| — |
| — |
| 470,120 |
| — |
| — |
| 247,224 |
| 100,337 |
| 119,011 |
| — |
| 466,572 |
| — |
| — |
| 466,572 |
|
Cost of providing services: | | |
Salaries and benefits | — |
| — |
| 53,144 |
| 26,410 |
| — |
| — |
| 79,554 |
| — |
| — |
| 79,554 |
| — |
| — |
| 53,667 |
| 26,674 |
| — |
| — |
| 80,341 |
| — |
| — |
| 80,341 |
|
Occupancy | — |
| — |
| 23,785 |
| 17,636 |
| — |
| — |
| 41,421 |
| — |
| — |
| 41,421 |
| — |
| — |
| 23,164 |
| 17,105 |
| — |
| — |
| 40,269 |
| — |
| — |
| 40,269 |
|
Office | — |
| — |
| 12,168 |
| 3,441 |
| (90 | ) | — |
| 15,519 |
| — |
| — |
| 15,519 |
| — |
| — |
| 15,416 |
| 3,895 |
| — |
| — |
| 19,311 |
| — |
| — |
| 19,311 |
|
Other store operating expenses | — |
| — |
| 36,005 |
| 4,657 |
| 292 |
| — |
| 40,954 |
| — |
| — |
| 40,954 |
| — |
| — |
| 33,934 |
| 3,045 |
| 1,537 |
| — |
| 38,516 |
| — |
| — |
| 38,516 |
|
Advertising | — |
| — |
| 24,596 |
| 11,003 |
| — |
| — |
| 35,599 |
| — |
| — |
| 35,599 |
| — |
| — |
| 35,200 |
| 9,147 |
| — |
| — |
| 44,347 |
| — |
| — |
| 44,347 |
|
Total cost of providing services | — |
| — |
| 149,698 |
| 63,147 |
| 202 |
| — |
| 213,047 |
| — |
| — |
| 213,047 |
| — |
| — |
| 161,381 |
| 59,866 |
| 1,537 |
| — |
| 222,784 |
| — |
| — |
| 222,784 |
|
Gross Margin | — |
| — |
| 70,180 |
| 55,719 |
| 131,174 |
| — |
| 257,073 |
| — |
| — |
| 257,073 |
| — |
| — |
| 85,843 |
| 40,471 |
| 117,474 |
| — |
| 243,788 |
| — |
| — |
| 243,788 |
|
Operating (income) expense: | | |
Corporate, district and other | 3,304 |
| (55 | ) | 71,929 |
| 25,500 |
| 320 |
| — |
| 100,998 |
| 2,799 |
| — |
| 103,797 |
| |
Operating expense (income): | | |
Corporate, district and other expenses | | 20 |
| 73 |
| 74,038 |
| 14,789 |
| 137 |
| — |
| 89,057 |
| 6,847 |
| — |
| 95,904 |
|
Intercompany management fee | — |
| — |
| (17,624 | ) | 11,009 |
| 6,615 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (19,718 | ) | 8,425 |
| 11,293 |
| — |
| — |
| — |
| — |
| — |
|
Interest expense | 37,761 |
| 9,613 |
| (97 | ) | 131 |
| 9,976 |
| — |
| 57,384 |
| 3,310 |
| — |
| 60,694 |
| 47,410 |
| — |
| (321 | ) | 26 |
| 13,303 |
| — |
| 60,418 |
| 5,811 |
| — |
| 66,229 |
|
Intercompany interest (income) expense | — |
| (3,244 | ) | (503 | ) | 3,747 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| (2,700 | ) | (526 | ) | 3,226 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Loss on extinguishment of debt | — |
| 11,884 |
| — |
| — |
| — |
| — |
| 11,884 |
| 574 |
| — |
| 12,458 |
| 80,883 |
| — |
| — |
| — |
| — |
| — |
| 80,883 |
| — |
| — |
| 80,883 |
|
Restructuring costs | — |
| — |
| — |
| 7,393 |
| — |
| — |
| 7,393 |
| — |
| — |
| 7,393 |
| |
Total operating expense | 41,065 |
| 18,198 |
| 53,705 |
| 47,780 |
| 16,911 |
| — |
| 177,659 |
| 6,683 |
| — |
| 184,342 |
| 128,313 |
| (2,627 | ) | 53,473 |
| 26,466 |
| 24,733 |
| — |
| 230,358 |
| 12,658 |
| — |
| 243,016 |
|
Net (loss) income before income taxes | (41,065 | ) | (18,198 | ) | 16,475 |
| 7,939 |
| 114,263 |
| — |
| 79,414 |
| (6,683 | ) | — |
| 72,731 |
| |
(Loss) income from continuing operations before income taxes | | (128,313 | ) | 2,627 |
| 32,370 |
| 14,005 |
| 92,741 |
| — |
| 13,430 |
| (12,658 | ) | — |
| 772 |
|
(Benefit) provision for income tax expense | (17,633 | ) | 51,964 |
| (7,879 | ) | 6,266 |
| — |
| — |
| 32,718 |
| (2,730 | ) | — |
| 29,988 |
| (30,189 | ) | 38,830 |
| (8,220 | ) | 2,521 |
| — |
| — |
| 2,942 |
| (3,211 | ) | — |
| (269 | ) |
Net (loss) income from continuing operations | | (98,124 | ) | (36,203 | ) | 40,590 |
| 11,484 |
| 92,741 |
| — |
| 10,488 |
| (9,447 | ) | — |
| 1,041 |
|
Net loss from discontinued operations | | — |
| — |
| — |
| (8,796 | ) | — |
| — |
| (8,796 | ) | — |
| — |
| (8,796 | ) |
Net (loss) income | (23,432 | ) | (70,162 | ) | 24,354 |
| 1,673 |
| 114,263 |
| — |
| 46,696 |
| (3,953 | ) | — |
| 42,743 |
| (98,124 | ) | (36,203 | ) | 40,590 |
| 2,688 |
| 92,741 |
| — |
| 1,692 |
| (9,447 | ) | — |
| (7,755 | ) |
Equity in net income (loss) of subsidiaries: | | |
Equity in net (loss) income of subsidiaries: | | |
CFTC | — |
| — |
| — |
| — |
| — |
| — |
| — |
| 46,696 |
| (46,696 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,692 |
| (1,692 | ) | — |
|
CURO Intermediate | (70,162 | ) | — |
| — |
| — |
| — |
| 70,162 |
| — |
| — |
| — |
| — |
| (36,203 | ) | — |
| — |
| — |
| — |
| 36,203 |
| — |
| — |
| — |
| — |
|
Guarantor Subsidiaries | 24,354 |
| — |
| — |
| — |
| — |
| (24,354 | ) | — |
| — |
| — |
| — |
| 40,590 |
| — |
| — |
| — |
| — |
| (40,590 | ) | — |
| — |
| — |
| — |
|
Non-Guarantor Subsidiaries | 1,673 |
| — |
| — |
| — |
| — |
| (1,673 | ) | — |
| — |
| — |
| — |
| 2,688 |
| — |
| — |
| — |
| — |
| (2,688 | ) | — |
| — |
| — |
| — |
|
SPV Subs | 114,263 |
| — |
| — |
| — |
| — |
| (114,263 | ) | — |
| — |
| — |
| — |
| 92,741 |
| — |
| — |
| — |
| — |
| (92,741 | ) | — |
| — |
| — |
| — |
|
Net income (loss) attributable to CURO | $ | 46,696 |
| $ | (70,162 | ) | $ | 24,354 |
| $ | 1,673 |
| $ | 114,263 |
| $ | (70,128 | ) | $ | 46,696 |
| $ | 42,743 |
| $ | (46,696 | ) | $ | 42,743 |
| $ | 1,692 |
| $ | (36,203 | ) | $ | 40,590 |
| $ | 2,688 |
| $ | 92,741 |
| $ | (99,816 | ) | $ | 1,692 |
| $ | (7,755 | ) | $ | (1,692 | ) | $ | (7,755 | ) |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Condensed Consolidating Statements of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | U.S. SPV | Canada SPV | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Cash flows from operating activities |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| | | |
Net cash provided (used) | $ | 628,468 |
| $ | — |
| $ | 5,234 |
| $ | (4,640 | ) | $ | 44,653 |
| $ | (73,278 | ) | $ | 4,169 |
| $ | 604,606 |
| $ | (677,207 | ) | $ | — |
| $ | (72,601 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| | |
|
|
Purchase of property, equipment and software | — |
| — |
| (6,466 | ) | (1,734 | ) |
| — |
| — |
| (8,200 | ) | — |
| — |
| (8,200 | ) |
Cash paid for Cognical Holdings preferred shares | (958 | ) | — |
| — |
| — |
|
|
| — |
| — |
| (958 | ) | — |
| — |
| (958 | ) |
Change in restricted cash | — |
| — |
| (5 | ) | (5 | ) | (63 | ) | (12,211 | ) | — |
| (12,284 | ) | — |
| — |
| (12,284 | ) |
Net cash used | (958 | ) | — |
| (6,471 | ) | (1,739 | ) | (63 | ) | (12,211 | ) | — |
| (21,442 | ) | — |
| — |
| (21,442 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
| | |
|
|
Proceeds from Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| 17,000 |
| — |
| — |
| 17,000 |
| — |
| — |
| 17,000 |
|
Payments on Non-Recourse U.S. SPV facility | — |
| — |
| — |
| — |
| (61,590 | ) | — |
| — |
| (61,590 | ) | — |
| — |
| (61,590 | ) |
Proceeds from Non0Recourse Canada SPV facility | — |
| — |
| — |
| — |
| — |
| 89,949 |
| — |
| 89,949 |
| — |
| — |
| 89,949 |
|
Proceeds from revolving credit facilities | 39,000 |
| — |
| — |
| 26,169 |
| — |
| — |
| — |
| 65,169 |
| — |
| — |
| 65,169 |
|
Payments on revolving credit facilities | (10,000 | ) | — |
| — |
| (26,169 | ) | — |
| — |
| — |
| (36,169 | ) | — |
| — |
| (36,169 | ) |
Proceeds from issuance of common stock | 11,549 |
| — |
| — |
| — |
|
| — |
| — |
| 11,549 |
| — |
| — |
| 11,549 |
|
Proceeds from exercise of stock options | 408 |
| — |
| — |
| — |
|
| — |
| — |
| 408 |
| — |
| — |
| 408 |
|
Payments on 12.00% Senior Secured Notes | (605,000 | ) | — |
| — |
| — |
|
| — |
| — |
| (605,000 | ) | — |
| — |
| (605,000 | ) |
Proceeds from 8.25% Senior Secured Notes | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 690,000 |
| — |
| 690,000 |
|
Payments of call premiums from early debt extinguishments | (63,350 | ) | — |
| — |
| — |
| — |
| — |
| — |
| (63,350 | ) | — |
| — |
| (63,350 | ) |
Debt issuance costs paid | (117 | ) | — |
| — |
| — |
|
| (4,527 | ) | — |
| (4,644 | ) | (12,873 | ) | — |
| (17,517 | ) |
Net cash provided (used) | (627,510 | ) | — |
| — |
| — |
| (44,590 | ) | 85,422 |
| — |
| (586,678 | ) | 677,127 |
| — |
| 90,449 |
|
Effect of exchange rate changes on cash | — |
| — |
| — |
| (1,317 | ) | — |
| 67 |
| (4,169 | ) | (5,419 | ) | — |
| — |
| (5,419 | ) |
Net increase (decrease) in cash | — |
| — |
| (1,237 | ) | (7,696 | ) | — |
| — |
| — |
| (8,933 | ) | (80 | ) | — |
| (9,013 | ) |
Cash at beginning of period | — |
| — |
| 117,379 |
| 44,915 |
| — |
| — |
| — |
| 162,294 |
| 80 |
| — |
| 162,374 |
|
Cash at end of period | $ | — |
| $ | — |
| $ | 116,142 |
| $ | 37,219 |
| $ | — |
| $ | — |
| $ | — |
| $ | 153,361 |
| $ | — |
| $ | — |
| $ | 153,361 |
|
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 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 continuing operating activities | $ | 273,564 |
| $ | 17,201 |
| $ | 119,898 |
| $ | 52,311 |
| $ | 1,319 |
| $ | 464,293 |
|
Net cash used in discontinued operating activities | — |
| (504 | ) | — |
| — |
| — |
| (504 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| | |
|
|
Purchase of property, equipment and software | (7,351 | ) | (1,316 | ) | — |
| — |
| — |
| (8,667 | ) |
Originations of loans, net | (261,073 | ) | (11,042 | ) | (102,238 | ) | — |
| — |
| (374,353 | ) |
Investment in Zibby | (8,168 | ) | — |
| — |
| — |
| — |
| (8,168 | ) |
Net cash used in continuing investing activities | (276,592 | ) | (12,358 | ) | (102,238 | ) | — |
| — |
| (391,188 | ) |
Net cash used in discontinued investing activities | — |
| (14,213 | ) | — |
| — |
| — |
| (14,213 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| | |
|
|
Proceeds from Non-Recourse Canada SPV facility | — |
| — |
| 15,992 |
| — |
| — |
| 15,992 |
|
Payments on Non-Recourse Canada SPV facility | — |
| — |
| (24,835 | ) | — |
| — |
| (24,835 | ) |
Proceeds from credit facilities | 120,000 |
| 59,811 |
| — |
| — |
| — |
| 179,811 |
|
Payments on credit facilities | (115,000 | ) | (59,811 | ) | — |
| — |
| — |
| (174,811 | ) |
Payments on subordinated stockholder debt | — |
| (2,252 | ) | — |
| — |
| — |
| (2,252 | ) |
Payments to net share settle RSUs | — |
| — |
| — |
| (110 | ) | — |
| (110 | ) |
Proceeds from exercise of stock options | 87 |
| — |
| — |
| — |
| — |
| 87 |
|
Debt issuance costs paid | — |
| — |
| (169 | ) | (29 | ) | — |
| (198 | ) |
Repurchase of common stock | — |
| — |
| — |
| (52,172 | ) | — |
| (52,172 | ) |
Net cash used in provided by financing activities (1) | 5,087 |
| (2,252 | ) | (9,012 | ) | (52,311 | ) | — |
| (58,488 | ) |
| | | | | | |
Effect of exchange rate changes on cash and restricted cash | — |
| 2,114 |
| 409 |
| — |
| (1,319 | ) | 1,204 |
|
Net increase (decrease) in cash and restricted cash | 2,059 |
| (10,012 | ) | 9,057 |
| — |
| — |
| 1,104 |
|
Cash and restricted cash at beginning of period | 52,397 |
| 34,620 |
| 12,840 |
| — |
| — |
| 99,857 |
|
Cash at end of period | $ | 54,456 |
| $ | 24,608 |
| $ | 21,897 |
| $ | — |
| $ | — |
| $ | 100,961 |
|
(1) Financing activities include continuing operations only and were not impacted by discontinued operations |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
(dollars in thousands) | CFTC | CURO Intermediate | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | Eliminations | CURO Consolidated |
Cash flows from operating activities | | | | | | | | | | |
Net cash (used) provided | $ | (275,549 | ) | $ | 423,621 |
| $ | (65,982 | ) | $ | (25,579 | ) | $ | (21,384 | ) | $ | (632 | ) | $ | 34,495 |
| $ | (5,083 | ) | $ | — |
| $ | 29,412 |
|
Cash flows from investing activities: | | | | | | | | | | |
Purchase of property, equipment and software | — |
| — |
| (6,183 | ) | (1,734 | ) | — |
| — |
| (7,917 | ) | — |
| — |
| (7,917 | ) |
Cash paid for Cognical investment | (4,975 | ) | — |
| — |
| — |
| — |
| — |
| (4,975 | ) | — |
| — |
| (4,975 | ) |
Change in restricted cash | — |
| 459 |
| (3,939 | ) | 120 |
| — |
| — |
| (3,360 | ) | — |
| — |
| (3,360 | ) |
Net cash (used) provided | (4,975 | ) | 459 |
| (10,122 | ) | (1,614 | ) | — |
| — |
| (16,252 | ) | — |
| — |
| (16,252 | ) |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from Non-Recourse U.S. SPV facility and ABL facility | — |
| — |
| — |
| — |
| 52,130 |
| — |
| 52,130 |
| — |
| — |
| 52,130 |
|
Payments on Non-Recourse U.S. SPV facility and ABL facility | — |
| — |
| — |
| — |
| (27,258 | ) | — |
| (27,258 | ) | — |
| — |
| (27,258 | ) |
Proceeds from issuance of 12.00% Senior Secured Notes | 461,329 |
| — |
| — |
| — |
| — |
| — |
| 461,329 |
| — |
| — |
| 461,329 |
|
Proceeds from revolving credit facilities | 25,000 |
| — |
| — |
| 8,028 |
| — |
| — |
| 33,028 |
| — |
| — |
| 33,028 |
|
Payments from revolving credit facilities | (25,000 | ) | — |
| — |
| (8,028 | ) | — |
| — |
| (33,028 | ) | — |
| — |
| (33,028 | ) |
Payments on 10.75% Senior Secured Notes | — |
| (414,882 | ) | — |
| — |
| — |
| — |
| (414,882 | ) | — |
| — |
| (414,882 | ) |
Payments on 12.00% Senior Cash Pay Notes | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (125,000 | ) | — |
| (125,000 | ) |
Payments of call premiums from early debt extinguishments | — |
| (11,152 | ) | — |
| — |
| — |
| — |
| (11,152 | ) | — |
| — |
| (11,152 | ) |
Dividends (paid) received | (166,583 | ) | — |
| — |
| — |
| — |
| — |
| (166,583 | ) | 130,083 |
| — |
| (36,500 | ) |
Debt issuance costs paid | (14,222 | ) | — |
| — |
| — |
| — |
| — |
| (14,222 | ) | — |
| — |
| (14,222 | ) |
Net cash provided (used) | 280,524 |
| (426,034 | ) | — |
| — |
| 24,872 |
| — |
| (120,638 | ) | 5,083 |
| — |
| (115,555 | ) |
Effect of exchange rate changes on cash | — |
| — |
| — |
| 3,783 |
| — |
| 632 |
| 4,415 |
| — |
| — |
| 4,415 |
|
Net (decrease) increase in cash | — |
| (1,954 | ) | (76,104 | ) | (23,410 | ) | 3,488 |
| — |
| (97,980 | ) | — |
| — |
| (97,980 | ) |
Cash at beginning of period | — |
| 1,954 |
| 124,942 |
| 63,779 |
| 2,770 |
| — |
| 193,445 |
| 80 |
| — |
| 193,525 |
|
Cash at end of period | $ | — |
| $ | — |
| $ | 48,838 |
| $ | 40,369 |
| $ | 6,258 |
| $ | — |
| $ | 95,465 |
| $ | 80 |
| $ | — |
| $ | 95,545 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
(dollars in thousands) | CFTC | Subsidiary Guarantors | Subsidiary Non-Guarantors | SPV Subs | Eliminations | CFTC Consolidated | CURO | CURO Consolidated |
Cash flows from operating activities: | | | | | | | | |
Net cash provided by (used in) continuing operating activities | $ | 628,468 |
| $ | 167,265 |
| $ | (5,013 | ) | $ | 221,222 |
| $ | 22,344 |
| $ | 1,034,286 |
| $ | (677,207 | ) | $ | 357,079 |
|
Net cash provided by (used in) discontinued operating activities | — |
| — |
| 23,737 |
| — |
| (18,175 | ) | 5,562 |
| — |
| 5,562 |
|
Net cash provided by (used in) operating activities | 628,468 |
| 167,265 |
| 18,724 |
| 221,222 |
| 4,169 |
| 1,039,848 |
| (677,207 | ) | 362,641 |
|
Cash flows from investing activities: | | | | | | | | |
Purchase of property, equipment and software | — |
| (6,466 | ) | (1,564 | ) | — |
| — |
| (8,030 | ) | — |
| (8,030 | ) |
Originations of loans, net | — |
| (162,031 | ) | (558 | ) | (249,846 | ) | — |
| (412,435 | ) | — |
| (412,435 | ) |
Investment in Zibby | (958 | ) | — |
| — |
| — |
| — |
| (958 | ) | — |
| (958 | ) |
Net cash used in continuing investing activities | (958 | ) | (168,497 | ) | (2,122 | ) | (249,846 | ) | — |
| (421,423 | ) | — |
| (421,423 | ) |
Net cash used in discontinued investing activities | — |
| — |
| (24,481 | ) | — |
| — |
| (24,481 | ) | — |
| (24,481 | ) |
Net cash used in investing activities | (958 | ) | (168,497 | ) | (26,603 | ) | (249,846 | ) | — |
| (445,904 | ) | — |
| (445,904 | ) |
Cash flows from financing activities: | | | | | | | | |
Proceeds from Non-Recourse U.S. and Canada SPV facilities | — |
| — |
| — |
| 106,949 |
| — |
| 106,949 |
| — |
| 106,949 |
|
Payments on Non-Recourse U.S. and Canada SPV facilities | — |
| — |
| — |
| (61,590 | ) | — |
| (61,590 | ) | — |
| (61,590 | ) |
Proceeds from credit facilities | 39,000 |
| — |
| 26,169 |
| — |
| — |
| 65,169 |
| — |
| 65,169 |
|
Payments on credit facilities | (10,000 | ) | — |
| (26,169 | ) | — |
| — |
| (36,169 | ) | — |
| (36,169 | ) |
Net proceeds from issuance of common stock | 11,549 |
| — |
| — |
| — |
| — |
| 11,549 |
| — |
| 11,549 |
|
Proceeds from exercise of stock options | 408 |
| — |
| — |
| — |
| — |
| 408 |
| — |
| 408 |
|
Payments on 12.00% Senior Secured Notes | (605,000 | ) | — |
| — |
| — |
| — |
| (605,000 | ) | — |
| (605,000 | ) |
Payments of call premiums from early debt extinguishments | (63,350 | ) | — |
| — |
| — |
| — |
| (63,350 | ) | — |
| (63,350 | ) |
Debt issuance costs paid | (117 | ) | — |
| — |
| (4,527 | ) | — |
| (4,644 | ) | (12,873 | ) | (17,517 | ) |
Net cash (used in) provided by financing activities (1) | (627,510 | ) | — |
| — |
| 40,832 |
| — |
| (586,678 | ) | 677,127 |
| 90,449 |
|
| | | | | | | | |
Effect of exchange rate changes on cash | — |
| — |
| 61 |
| 28 |
| (4,169 | ) | (4,080 | ) | — |
| (4,080 | ) |
Net (decrease) increase in cash and restricted cash | — |
| (1,232 | ) | (7,818 | ) | 12,236 |
| — |
| 3,186 |
| (80 | ) | 3,106 |
|
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 | — |
| 117,824 |
| 40,666 |
| 19,107 |
| — |
| 177,597 |
| — |
| 177,597 |
|
Less: Cash and restricted cash at end of period of Discontinued Operations | — |
| — |
| 11,303 |
| — |
| — |
| 11,303 |
| — |
| 11,303 |
|
Cash and restricted cash at end of period of Continuing Operations | $ | — |
| $ | 117,824 |
| $ | 29,363 |
| $ | 19,107 |
| $ | — |
| $ | 166,294 |
| $ | — |
| $ | 166,294 |
|
(1) Financing activities include continuing operations only and were not impacted by discontinued operations. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 17 – SHARE REPURCHASE PROGRAM
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 until completed or terminated. CURO expects the purchases to be made from time-to-time in the open market, in privately negotiated transactions, or both, at the Company's discretion and subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans or other corporate purposes.
Under this program, the Company repurchased 2,156,241 shares of common stock through September 30, 2019. The table below summarizes share repurchase activity during the three and nine months ended September 30, 2019 (in thousands, except for per share amounts and number of share amounts):
|
| | | | | | | |
| | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 |
Total number of shares repurchased | | 1,912,041 |
| 2,156,241 |
|
Average price paid per share | | $ | 12.27 |
| $ | 12.04 |
|
Total value of shares repurchased | | $ | 23,455 |
| $ | 25,962 |
|
| | | |
Total authorized repurchase amount for the period presented | | $ | 47,493 |
| $ | 50,000 |
|
Total value of shares repurchased | | 23,455 |
| 25,962 |
|
Total remaining authorized repurchase amount | | $ | 24,038 |
| $ | 24,038 |
|
Separately, in August 2019, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated investment funds (“FFL”), a related party to the Company. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. The purchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase program authorized in April 2019.
NOTE 1518 – SUBSEQUENT EVENTS
DuringShare Repurchase Program
The Company repurchased 868,100 shares from October 2018, CGHC extinguished the $80.0 million term portion1, 2019 through November 1, 2019 (in thousands, except per share amounts and number of the Non-Recourse U.S. SPV Facility using the proceeds from the issuance of the 8.25% Senior Secured Notes. We made the final termination payment of $2.7 million on October 26, 2018 which resulted in a total loss on extinguishment of debt of $9.7 million in October 2018. The $9.7 million loss on extinguishment of debt is comprised of a $4.5 million early termination fee, $3.4 million of net deferred financing costs and a $1.8 million make whole premium. We will classify the payments related to the extinguishment as a financing activity in our Consolidated Statement of Cash Flow for the year ended December 31, 2018.share amounts):
|
| | | | |
| | October 1 - November 1 |
| | 2019 |
Total number of shares repurchased | | 868,100 |
|
Average price paid per share | | $ | 13.03 |
|
Total value of shares repurchased | | $ | 11,311 |
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward LookingForward-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 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 the sections titled "Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in our 2017 Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commissions (the "SEC") on March 18, 2019 ("the "2018 Form 10-K") for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
We are a growth-oriented, technology-enabled, highly-diversified, multi-channel and multi-product consumer finance company serving a wide range of underbanked consumers in the United States ("U.S."), Canada and, through February 25, 2019, the United Kingdom ("U.K.") and are a market leader in our industry based on revenues..
History
The CURO business was founded in 1997 to meet the growing needs of underbanked consumers looking for access to credit. We set outWith more than 20 years of experience, we seek to offer a variety of convenient, easily-accessible financial and loan services and overin all of our 20 years of operations, expanded across the U.S., Canada and the U.K.markets.
CURO Financial Technologies Corp. ("CFTC") (then, previously known as Speedy Cash Holdings Corp. ("CFTC"), was incorporated in Delaware onin July 16, 2008. On September 10, 2008, our founders sold or otherwise contributed all of the outstanding equity of the various operating entities that comprised the CURO business to a wholly-owned subsidiary of CFTC in connection with an investment in CFTC by Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated funds. CURO Group Holdings Corp. (then, previously known as Speedy Group Holdings Corp.), was incorporated in Delaware on February 7,in 2013 as the parent company of CFTC. On May 11, 2016, we changedThe terms “CURO," "we,” “our,” “us” and the name of Speedy Group Holdings Corp.“Company” refer to CURO Group Holdings Corp. We similarly changed the names of some ofand its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated. The term "CFTC" refers to CURO Financial Technologies Corp., our subsidiaries.wholly-owned subsidiary, and its directly and indirectly owned subsidiaries as a consolidated entity, except where otherwise stated.
Our growth has been fueled by acquisitions in the U.S., and Canada, and the U.K., as well as organically, including the launch of new brands. Recent brand launches include the March 2016 launch of LendDirect, a primarily online Installment and Open-End brand in Alberta, Canada, that is now offered in four provinces, and the June 2017 launch of Avio Credit, an online Installment and Open-End Loan brand in the U.S. market that is currently available in 11 states.states, and the February 2019 launch of Revolve Finance, discussed below.
Recent Developments
Metabank.Share Repurchase Program. Our Board of Directors authorized a share repurchase program in April 2019 providing for the repurchase of up to $50.0 million of our common stock. The repurchase program, which commenced June 2019, will continue until completed or terminated. We expect the purchases to be made from time-to-time in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans and for other corporate purposes. Under this program, the Company repurchased 2,156,241 shares of common stock for total consideration of $26.0 million through September 30, 2019.
FFL Repurchase. In August 2019, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated investment funds (“FFL”), a related party. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. This transaction occurred outside of the share repurchase program authorized in April 2019.
Revolve Finance. In February 2019, we launched Revolve Finance, sponsored by Republic Bank of Chicago, which is being introduced across the Company's U.S. stores. This product provides customers a checking account solution, with FDIC-insured deposits, that combines a Visa-branded debit card, a number of technology-enabled tools and optional overdraft protection.
Bank Partnerships. In April 2018,September 2019, we announced that we expect to begin offering U.S. consumers a new line of credit product through a relationshipterminated the previously disclosed agreement with MetaBank® ("Meta"),MetaBank, a wholly-owned subsidiary of Meta Financial Group, Inc. CURO
California Assembly Bill 539: On September 13, 2019, the California legislature passed Assembly Bill 539 which imposes an interest rate cap on all consumer loans between $2,500 and Meta are currently developing$10,000 of 36%, plus the pilot launch. UnderFederal Funds Rate. On October 10, 2019, Governor Newsom signed the program partnership agreement, Meta may hold upbill into law and it is scheduled to $350.0 millionbecome effective on January 1, 2020. Revenue from California Unsecured and Secured Installment loans amounted to 13.0% of product receivables on its balance sheettotal revenue from continuing operations for the first three yearstrailing 12 months ended September 30, 2019. See "Regulatory Environment and Compliance" for additional details.
Credit Facilities. For recent developments related to our Senior Secured Notes, SPV facilities and other capital resources, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
U.K. Developments. On February 25, 2019, we announced that a proposed Scheme of Arrangement ("SOA"), as described in our Current Report on Form 8-K filed with the SEC on January 31, 2019, related to Curo Transatlantic Limited and SRC Transatlantic Limited (collectively the "U.K. Subsidiaries"), would not be implemented. We also announced that effective February 25, 2019, in accordance with the provisions of the relationship, although there can be no assuranceU.K. Insolvency Act 1986 and as approved by the boards of directors of our U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as administrators ("Administrators") for the U.K. Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place the levelmanagement, affairs, business and property of successthe U.K. Subsidiaries under the direct control of the Administrators. As a result, we deconsolidated the U.K. Subsidiaries as of February 25, 2019 and presented the U.K. Subsidiaries as Discontinued Operations in selling this credit product.Quarterly Report on Form 10-Q ("Form 10-Q").
Underwriter option. On May 21, 2018, certainIn our Current Report on Form 8-K filed with the SEC on January 31, 2019, our results of our stockholders sold sharesoperations included a $30.3 million expense comprised of our common stock(i) a proposed $23.6 million fund to settle historical redress claims and (ii) $6.7 million in advisory and other costs that would be required to execute the SOA. We subsequently concluded that pursuant to ASC 450, Contingencies, the SOA did not represent an underwritten public offering, atestimate of loss for the redress loss contingency but instead was offered in ongoing negotiation of a pricepotential compromised settlement with creditors. Therefore, the settlement offered through the SOA did not meet the recognition threshold pursuant to the publicASC 450 and should not have been accrued as a contingent liability for customer redress claims as of $23.00 per share. The underwriters subsequently exercised their option to purchase additional shares of our common stock from certain of these selling stockholders, which togetherDecember 31, 2018. Our Current Report on Form 8-K filed with the May offering, totaled more than 5.5SEC on March 1, 2019 appropriately included $4.6 million shares. We did not sell any sharesof fourth quarter 2018 redress costs and related charges which represented known claims as of December 31, 2018. See "Controls and Procedures" in the offering and did not receive any proceeds from the sale of the shares offered by the selling stockholders in the offering.our 2018 Form 10-K for further discussion.
Canada SPV Facility. On August 2, 2018, CURO Canada Receivables Limited Partnership, a newly created, bankruptcy-remote special purpose vehicle (the “Canada SPV Borrower”)Refer to the “Regulatory Environment and our wholly-owned subsidiary, entered into a four-year revolving credit facility with Waterfall Asset Management, LLC that provides for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million (“Non-Recourse Canada SPV Facility”). The Non-Recourse Canada SPV Facility is secured by a first lien against all assets of the Canada SPV Borrower, which is a special purpose vehicle into which certain eligible receivables originated by our operating entities in Canada are sold. As of September 30, 2018, the carrying amount of outstanding borrowings from the Non-Recourse Canada SPV Facility was $85.3 million.
Debt offering. On August 27, 2018, CURO Group Holdings Corp. issued $690.0 million 8.25% Senior Secured Notes due 2025. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year. The net proceeds from the sale of the notes were used, together with available cash, (i) to redeem the outstanding 12.00% Senior Secured Notes due 2022 of our wholly owned subsidiary, CURO Financial Technologies Corp., (ii) to repay the outstanding indebtedness under the CURO Receivables Finance I, LLC, our wholly-owned subsidiary, five-year revolving credit facility consisting of a term loan and revolving borrowing capacity, (iii) for general corporate purposes and (iv) to pay fees, expenses, premiums and accrued interest in connection therewith.
U.S. SPV Facility. During the three months ended September 30, 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the U.S. SPV Facility's revolver's balance of $42.4 million. In October 2018, we extinguished the remaining term loan balance of $80.0 million. We made the final termination payment of $2.7 million on October 26, 2018, resulting in a loss on the extinguishment of debt of $9.7 million for the quarter ending September 30, 2018. See Note 15, "Subsequent Events"Compliance” below for additional details on the October extinguishment.
U.K. Developments. The U.K. operations continued to experience an elevated level of legal settlement expenses related to customer redress claims. Refer to Results of Operations for further details on theinformation regarding recent regulatory developments that may impact of these claims to the U.K. operating results.our business.
Revenue by Product and Segment and Related Loan Portfolio Performance
Revenue by Product
Year-over-year comparisons for Open-End were affected by the Q1 2019 Open-End Loss Recognition Change. Additionally, throughout this release, we removed financial results of our former U.K. operations for all periods presented, as it was discontinued for accounting and reporting purposes in February 2019. See “Results of Discontinued Operations” within this release for additional information.
The following table summarizestables summarize revenue by product, including CSOcredit services organization ("CSO") fees, for the periods indicated:indicated (in thousands, unaudited):
| | | | For the Three Months Ended | | For the Three Months Ended |
| | September 30, 2018 | | September 30, 2017 | | September 30, 2019 | | September 30, 2018 |
(in thousands) | | U.S. | Canada | U.K. | Total | | U.S. | Canada | U.K. | Total | |
| | | U.S. | Canada | Total | | U.S. | Canada | Total |
Unsecured Installment | | $ | 135,028 |
| $ | 2,632 |
| $ | 10,931 |
| $ | 148,591 |
| | $ | 116,233 |
| $ | 5,601 |
| $ | 6,951 |
| $ | 128,785 |
| | $ | 135,541 |
| $ | 1,692 |
| $ | 137,233 |
| | $ | 135,028 |
| $ | 2,632 |
| $ | 137,660 |
|
Secured Installment | | 28,562 |
| — |
| — |
| 28,562 |
| | 26,407 |
| — |
| — |
| 26,407 |
| | 28,270 |
| — |
| 28,270 |
| | 28,562 |
| — |
| 28,562 |
|
Open-End | | 27,554 |
| 12,736 |
| — |
| 40,290 |
| | 18,630 |
| — |
| — |
| 18,630 |
| | 39,605 |
| 26,515 |
| 66,120 |
| | 27,554 |
| 12,736 |
| 40,290 |
|
Single-Pay | | 27,792 |
| 22,822 |
| 2,591 |
| 53,205 |
| | 27,753 |
| 39,550 |
| 3,592 |
| 70,895 |
| | 29,140 |
| 20,172 |
| 49,312 |
| | 27,792 |
| 22,822 |
| 50,614 |
|
Ancillary | | 4,337 |
| 8,019 |
| — |
| 12,356 |
| | 4,803 |
| 5,507 |
| 92 |
| 10,402 |
| | 4,513 |
| 11,816 |
| 16,329 |
| | 4,337 |
| 8,019 |
| 12,356 |
|
Total revenue | | $ | 223,273 |
| $ | 46,209 |
| $ | 13,522 |
| $ | 283,004 |
| | $ | 193,826 |
| $ | 50,658 |
| $ | 10,635 |
| $ | 255,119 |
| | $ | 237,069 |
| $ | 60,195 |
| $ | 297,264 |
| | $ | 223,273 |
| $ | 46,209 |
| $ | 269,482 |
|
During the three months ended September 30, 2018,2019, total lending revenue (excluding revenues from ancillary products) grew $25.9$27.8 million, or 10.6%10.3%, to $270.6$297.3 million, compared to the prior yearprior-year period, predominantly driven by growth in Installment and Open-End loans.loans in both countries. Geographically, total revenue in the U.S. and U.K.Canada grew 15.2%6.2% and 27.1%30.3%, respectively. Canada revenue declined 8.8% primarily due to the continued product mix shift from Single-Pay. From a product perspective, Unsecured Installment revenues rose 15.4% and0.4% in the U.S., offset by a decrease in Canada of 35.7% due to the continued transition to Open-End loans. Secured Installment revenues rose 8.2% driven byand related receivables were consistent year-over-year. Single-Pay loan growth.balances stabilized in Canada sequentially but year-over-year Single-Pay revenuesusage and product profitability were affected primarilyimpacted negatively by regulatory changes in Canada (rate changes in Alberta, Ontario effective July 1, 2018, and British Columbia) leading to a shiftour strategic transition of qualifying customers to Open-End loans as well as a continued general product shift from Single-Pay to Installment andduring the third quarter of 2018. Open-End loans in all countries. Open-End revenues rose 116.3% on organic growth inCanada grew $18.1 million, or 8.3%, sequentially (defined within this Form 10-Q as the U.S. and the introduction of Open-End products in Virginia and Canada. Open-End adoption in Canada accelerated this quarter as related loan balances grew $87.4 million sequentiallychange from the second quarter. Withquarter of 2019 to the acceleratedthird quarter of 2019, or comparable periods for 2018 sequential metrics). Open-End growth, Single-Pay balancesloans in Canada shrank sequentially by $11.2 million.grew $98.6 million, or 71.1%, from September 30, 2018, resulting in year-over-year revenue growth of $13.8 million, or 108.2%. U.S. Open-End revenue rose 43.7% on related loan growth of 71.2%. Ancillary revenues increased 18.8%32.2% versus the same quarter a year ago, primarily due to non-lending revenuethe sale of insurance products to Installment and Open-End loan customers in Canada.
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| | September 30, 2019 | | September 30, 2018 |
| | U.S. | Canada | Total | | U.S. | Canada | Total |
Unsecured Installment | | $ | 390,026 |
| $ | 5,093 |
| $ | 395,119 |
| | $ | 366,749 |
| $ | 11,227 |
| $ | 377,976 |
|
Secured Installment | | 81,823 |
| — |
| 81,823 |
| | 81,195 |
| — |
| 81,195 |
|
Open-End | | 104,516 |
| 69,445 |
| 173,961 |
| | 76,649 |
| 18,086 |
| 94,735 |
|
Single-Pay | | 82,733 |
| 58,872 |
| 141,605 |
| | 78,835 |
| 90,461 |
| 169,296 |
|
Ancillary | | 14,136 |
| 32,859 |
| 46,995 |
| | 14,565 |
| 19,727 |
| 34,292 |
|
Total revenue | | $ | 673,234 |
| $ | 166,269 |
| $ | 839,503 |
| | $ | 617,993 |
| $ | 139,501 |
| $ | 757,494 |
|
The following table summarizes revenue by product, including CSO fees, for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 |
(in thousands) | | U.S. | Canada | U.K. | Total | | U.S. | Canada | U.K. | Total |
Unsecured Installment | | $ | 366,748 |
| $ | 11,227 |
| $ | 27,035 |
| $ | 405,010 |
| | $ | 311,884 |
| $ | 13,244 |
| $ | 18,237 |
| $ | 343,365 |
|
Secured Installment | | 81,195 |
| — |
| — |
| 81,195 |
| | 73,249 |
| — |
| — |
| 73,249 |
|
Open-End | | 76,649 |
| 18,086 |
| — |
| 94,735 |
| | 52,342 |
| — |
| — |
| 52,342 |
|
Single-Pay | | 78,835 |
| 90,461 |
| 9,216 |
| 178,512 |
| | 78,961 |
| 108,676 |
| 10,289 |
| 197,926 |
|
Ancillary | | 14,565 |
| 19,728 |
| — |
| 34,293 |
| | 15,476 |
| 13,899 |
| 386 |
| 29,761 |
|
Total revenue | | $ | 617,992 |
| $ | 139,502 |
| $ | 36,251 |
| $ | 793,745 |
| | $ | 531,912 |
| $ | 135,819 |
| $ | 28,912 |
| $ | 696,643 |
|
DuringFor the nine months ended September 30, 2018,2019, total lending revenue (excluding revenues from ancillary products) grew $92.6$82.0 million, or 13.9%10.8%, to $759.5$839.5 million, compared to the prior yearprior-year period, predominantly driven by growth in InstallmentOpen-End loans in both countries. Geographically, total revenue in the U.S. and U.K.Canada grew 8.9% and Open-End loans in the U.S. and Canada. Geographically, revenue in the U.S., Canada and U.K. grew 16.2%, 2.7% and 25.4%19.2%, respectively. From a product perspective, Unsecured Installment revenues rose 18.0% and6.3% in the U.S., offset by a decrease in Canada of 54.6% due to the continued transition to Open-End loans. Secured Installment revenues rose 10.8% because of loan growth.and related receivables remained consistent year-over-year. Canadian Single-Pay revenuesusage and combined loans receivableproduct profitability were affected primarilyimpacted negatively year-over-year by regulatory changes in Canada (rate changes in Alberta, Ontario effective July 1, 2018, and British Columbia) leading to a shiftthe strategic transition of qualifying customers to Open-End loans as well as a continued general product shift from Single-Pay.loans. Open-End revenues rose 81.0%83.6% on organicrelated loan growth in the U.S. and the introduction of Open-End products in Virginia and Canada. As of September 30, 2018, loan balances for our Open-End product in Canada, which we began offering in the fourth quarter of 2017, grew to $138.7 million.both countries. Ancillary revenues increased 15.2%37.0% versus the same periodquarter a year ago, primarily due to non-lending revenuethe sale of insurance to Installment and Open-End loan customers in Canada.
The following charts present revenue composition, including CSO fees, of the products and services that we currently offer for the three months ended September 30, 2018 and 2017:periods indicated:
For the three months ended September 30, 20182019 and 2017,2018, revenue generated through our online channel was 47%46% and 39%44%, respectively, of consolidated revenue.
The following charts present revenue composition, including CSO fees, of the products and services that we currently offer for the nine months ended September 30, 2018 and 2017:
For the nine months ended September 30, 20182019 and 2017,2018, revenue generated through our online channel was 44%45% and 37%42%, respectively, of consolidated revenue.
Loan Volume and Portfolio Performance Analysis
Unsecured Installment Loans
Unsecured Installment revenue and gross combined loans receivable increaseddecreased from the prior yearcomparable prior-year quarter due to growththe continued mix shift to Open-End loans in the U.S., primarilyCanada and portfolio optimization in California and our CSO programs as well as growth in the U.K. Gross combinedto manage upcoming January 1, 2020 regulatory changes. Unsecured Installment loan balances grew $38.1gross combined loans receivable decreased $15.7 million, or 15.3%6.0%, compared to September 30, 2017, net of a decline in Canada of $30.2 million due to mix shift to Open-End. Excluding Canada, Gross2018. Unsecured Installment loan balances increased 34.1% year-over-year.loans Guaranteed by the Company declined $5.1 million year-over-year due to
Each
regulatory change in Ohio, which became effective in April 2019, and the subsequent conversion of the net charge-offOhio CSO volume to Company-Owned loans, partially offset by growth in Texas.
The NCO rate and past-due percentage for Company Owned Unsecured Installment gross loans receivables in the third quarter of 2019 increased approximately 125 bps from the third quarter of 2018 due to geographic mix shift from Canada to the U.S., and increases in U.S. NCO rates due to product and credit policy decisions. The NCO rate in the U.S. rose from 16.8% in the third quarter of 2018 increased approximately 300bps fromto 18.5% in the third quarter of 20172019, primarily due to geographic mix shift. Canadian unsecured installment balances were down $30.2 million compared to prior year due to Open-End migration. However, at the country level, unsecured net charge-off rates improved year-over-yearcredit limit increases. While credit limit increases generally result in all cases. The net charge-off rate for the U.S was 100 bps lower year-over-year and net charge-offmodestly higher NCO rates in Canada and the U.K. also declined compared torelated loan vintages, historically the same period last year. As Canadian unsecured installment balances declined fromgrowth in net revenue over the shift to Open-End and U.S. balances grew $46.7 million,life of such vintages has more than covered the U.S.higher NCO rates.
The Unsecured Installment Allowance for loan losses as a percentage of total Company Owned Unsecured Installment loan balances rosegross loans receivable ("allowance coverage") increased year-over-year from 66%19.5% as of September 30, 2018 to 79% year-over-year. Net charge-off rates in21.9% as of September 30, 2019, primarily as a result of related higher NCO rates. Past due receivables as a percentage of total Gross Receivables remained consistent with the U.S. are higher than Canada, so this geographic mix shift results in an overall increase in net charge-off rate even though each country’s rate declined. Provision exceeded NCOs for Unsecured Installment by $7.6 million.same quarter a year ago. Sequentially, the allowance coverage increased slightly, from 21.4% to 21.9% as of September 30, 2019.
Net charge-off
NCO rates for Unsecured Installment loans Guaranteed by the Company improved meaningfully from third quarter 2017 on underlying vintage improvement but also becausenearly 60 bps compared to the same quarter lasta year was affected by Hurricane Harvey. Net charge off ratesago. The CSO liability for this product were higher inlosses remained consistent sequentially from 14.5% to 14.4% for the third quarter of 2018 than the second quarter of 2018 following normal seasonal patterns.
Unsecured Installment Allowance coverage for loan losses increased sequentially on a consolidated basis due to the geographic mix shift described above, but remained consistent by geography as noted above. Allowance on Unsecured Installment loans Guaranteed by the Company remained consistent sequentially.2019.
| | | 2018 | | 2017 | 2019 | | 2018 |
(dollars in thousands, unaudited) | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter |
Unsecured Installment loans: | | | | | | |
Revenue - Company Owned | $ | 75,077 |
| $ | 63,404 |
| $ | 66,004 |
| | $ | 67,800 |
| $ | 61,653 |
| $ | 65,809 |
| $ | 59,814 |
| $ | 65,542 |
| | $ | 69,748 |
| $ | 64,146 |
|
Provision for losses - Company Owned (1) | 39,025 |
| 27,434 |
| 27,477 |
| | 29,967 |
| 31,110 |
| 31,891 |
| 33,514 |
| 33,845 |
| | 39,565 |
| 32,946 |
|
Net revenue - Company Owned | $ | 36,052 |
| $ | 35,970 |
| $ | 38,527 |
| | $ | 37,833 |
| $ | 30,543 |
| $ | 33,918 |
| $ | 26,300 |
| $ | 31,697 |
| | $ | 30,183 |
| $ | 31,200 |
|
Net charge-offs - Company Owned (1) | $ | 31,403 |
| $ | 29,734 |
| $ | 33,410 |
| | $ | 32,944 |
| $ | 25,889 |
| $ | 28,973 |
| $ | 31,970 |
| $ | 37,919 |
| | $ | 37,951 |
| $ | 27,308 |
|
Revenue - Guaranteed by the Company | $ | 73,514 |
| $ | 60,069 |
| $ | 66,942 |
| | $ | 69,078 |
| $ | 67,132 |
| $ | 71,424 |
| $ | 62,298 |
| $ | 70,236 |
| | $ | 75,559 |
| $ | 73,514 |
|
Provision for losses - Guaranteed by the Company (1) | 39,552 |
| 26,974 |
| 23,556 |
| | 34,001 |
| 38,106 |
| 36,664 |
| 28,336 |
| 27,422 |
| | 37,352 |
| 39,552 |
|
Net revenue - Guaranteed by the Company | $ | 33,962 |
| $ | 33,095 |
| $ | 43,386 |
| | $ | 35,077 |
| $ | 29,026 |
| $ | 34,760 |
| $ | 33,962 |
| $ | 42,814 |
| | $ | 38,207 |
| $ | 33,962 |
|
Net charge-offs - Guaranteed by the Company (1) | $ | 37,995 |
| $ | 25,667 |
| $ | 30,743 |
| | $ | 32,984 |
| $ | 36,798 |
| $ | 35,916 |
| $ | 27,486 |
| $ | 30,421 |
| | $ | 38,522 |
| $ | 37,995 |
|
Unsecured Installment gross combined loans receivable: | | | | | | |
Company Owned | $ | 211,565 |
| $ | 179,414 |
| $ | 171,432 |
| | $ | 196,306 |
| $ | 181,831 |
| $ | 174,489 |
| $ | 164,722 |
| $ | 161,716 |
| | $ | 190,403 |
| $ | 185,130 |
|
Guaranteed by the Company (3)(2) | 75,807 |
| 66,351 |
| 54,332 |
| | 75,156 |
| 67,438 |
| 70,704 |
| 65,055 |
| 59,740 |
| | 77,451 |
| 75,807 |
|
Unsecured Installment gross combined loans receivable(3)(2) | $ | 287,372 |
| $ | 245,765 |
| $ | 225,764 |
| | $ | 271,462 |
| $ | 249,269 |
| $ | 245,193 |
| $ | 229,777 |
| $ | 221,456 |
| | $ | 267,854 |
| $ | 260,937 |
|
| | | | |
Unsecured Installment Allowance for loan losses (4) | $ | 43,066 |
| $ | 35,277 |
| $ | 37,916 |
| | $ | 43,755 |
| $ | 46,938 |
| |
Unsecured Installment CSO guarantee liability (4) | $ | 12,750 |
| $ | 11,193 |
| $ | 9,886 |
| | $ | 17,072 |
| $ | 16,056 |
| |
Average gross loans receivable: | | | | |
Average Unsecured Installment gross loans receivable - Company Owned (3) | | $ | 169,606 |
| $ | 163,219 |
| $ | 176,060 |
| | $ | 187,767 |
| $ | 172,708 |
|
Average Unsecured Installment gross loans receivable - Guaranteed by the Company (3) | | $ | 67,880 |
| $ | 62,398 |
| $ | 68,596 |
| | $ | 76,629 |
| $ | 71,079 |
|
Allowance for loan losses and CSO liability for losses: | | | | |
Unsecured Installment Allowance for loan losses (3) | | $ | 38,127 |
| $ | 35,223 |
| $ | 33,666 |
| | $ | 37,716 |
| $ | 36,160 |
|
Unsecured Installment CSO liability for losses (3) | | $ | 10,181 |
| $ | 9,433 |
| $ | 8,584 |
| | $ | 11,582 |
| $ | 12,750 |
|
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable | 20.4 | % | 19.7 | % | 22.1 | % | | 22.3 | % | 25.8 | % | 21.9 | % | 21.4 | % | 20.8 | % | | 19.8 | % | 19.5 | % |
Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans guaranteed by the Company | 16.8 | % | 16.9 | % | 18.2 | % | | 22.7 | % | 23.8 | % | |
Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans guaranteed by the Company | | 14.4 | % | 14.5 | % | 14.4 | % | | 15.0 | % | 16.8 | % |
Unsecured Installment past-due balances: | | | | | | |
Unsecured Installment gross loans receivable | $ | 54,618 |
| $ | 40,272 |
| $ | 39,273 |
| | $ | 44,963 |
| $ | 41,353 |
| $ | 46,537 |
| $ | 38,037 |
| $ | 40,801 |
| | $ | 49,087 |
| $ | 49,637 |
|
Unsecured Installment gross loans guaranteed by the Company | $ | 12,120 |
| $ | 10,319 |
| $ | 8,410 |
| | $ | 12,480 |
| $ | 10,462 |
| $ | 11,842 |
| $ | 10,087 |
| $ | 7,967 |
| | $ | 11,708 |
| $ | 12,120 |
|
Past-due Unsecured Installment gross loans receivable -- percentage(2) | 25.8 | % | 22.4 | % | 22.9 | % | | 22.9 | % | 22.7 | % | 26.7 | % | 23.1 | % | 25.2 | % | | 25.8 | % | 26.8 | % |
Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage(2) | 16.0 | % | 15.6 | % | 15.5 | % | | 16.6 | % | 15.5 | % | 16.7 | % | 15.5 | % | 13.3 | % | | 15.1 | % | 16.0 | % |
Unsecured Installment other information: | | | | | | |
Originations - Company Owned | $ | 142,347 |
| $ | 128,146 |
| $ | 99,418 |
| | $ | 135,284 |
| $ | 137,618 |
| $ | 107,275 |
| $ | 102,792 |
| $ | 78,515 |
| | $ | 114,182 |
| $ | 121,415 |
|
Originations - Guaranteed by the Company (2) | $ | 91,828 |
| $ | 84,082 |
| $ | 60,593 |
| | $ | 82,326 |
| $ | 83,680 |
| |
Unsecured Installment other information: | | | | |
Originations - Guaranteed by the Company (1) | | $ | 89,644 |
| $ | 80,445 |
| $ | 68,899 |
| | $ | 89,319 |
| $ | 91,828 |
|
Unsecured Installment ratios: | | | | |
Provision as a percentage of gross loans receivable - Company Owned | 18.4 | % | 15.3 | % | 16.0 | % | | 15.3 | % | 17.1 | % | 18.3 | % | 20.3 | % | 20.9 | % | | 20.8 | % | 17.8 | % |
Provision as a percentage of gross loans receivable - Guaranteed by the Company | 52.2 | % | 40.7 | % | 43.4 | % | | 45.2 | % | 56.5 | % | 51.9 | % | 43.6 | % | 45.9 | % | | 48.2 | % | 52.2 | % |
(1) As part of improvements made to our financial reporting processes in 2018, we have reclassified certain provision expense and net charge-off activity to be consistent with current period presentation. We added approximately $2.0 million to third quarter 2017 Provision Expense and Net charge-offs for Company Owned loans and approximately $1.9 million and $1.1 million to third and fourth quarter 2017 Provision Expense and Net charge offs for loans Guaranteed by the Company, respectively. | |
(2) Includes loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements. | |
(3) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details. | |
(4) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets. | |
(1) Includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements. | | (1) Includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements. |
(2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." | | (2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." |
(3) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. | | (3) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. |
(4) 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. | | (4) 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. |
Secured Installment Loans
Secured Installment revenue and the related gross combined loans receivable balancesbalance as of September 30, 2018 increased by $5.5 million, or 6.2%, compared to September 30, 2017, primarily due to growth in Arizona, while related revenue grew 8.2%. Provision expense increased by $7.6 million in the third quarter of 2018 compared to the third quarter of 2017 primarily because of adjustments to the Allowance for loan loss coverage rate during the third quarter of 2017. Third quarter 2018 net charge-off rates for Secured Installment loans increased by 443 basis points from the same period in the prior year but declined 144 basis points from the second quarter of 2018.
2019 remained consistent year-over-year. Secured Installment Allowance for loan losses and CSO guarantee liability for losses as a percentage of Secured Installment gross combined loans receivable remained consistentdecreased year-over-year from 12.4% to 11.3% for the secondthird quarter at 12.4%. Forof 2019 and decreased sequentially from 11.5% to 11.3% during the three months ended September 30, 2018, net charge-offsthird quarter of $9.3 million were consistent with second quarter net charge-offs2019, primarily as a result of $9.0 million. First Pay Defaults ("FPDs") reflectan 80 bps improvement in the number of payments made by customers compared to the number of payments scheduled to be paid during a period. FPDs remained flat versus the same period last year.
NCO rate.
| | | 2018 | | 2017 | 2019 | | 2018 |
(dollars in thousands, unaudited) | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter |
Secured Installment loans: | | | | | | | | |
Revenue | $ | 28,562 |
| $ | 25,777 |
| $ | 26,856 |
| | $ | 27,732 |
| $ | 26,407 |
| $ | 28,270 |
| $ | 26,076 |
| $ | 27,477 |
| | $ | 29,482 |
| $ | 28,562 |
|
Provision for losses (1) | 10,188 |
| 7,650 |
| 6,640 |
| | 9,246 |
| 2,618 |
| 8,819 |
| 7,821 |
| 7,080 |
| | 12,035 |
| 10,188 |
|
Net revenue | $ | 18,374 |
| $ | 18,127 |
| $ | 20,216 |
| | $ | 18,486 |
| $ | 23,789 |
| $ | 19,451 |
| $ | 18,255 |
| $ | 20,397 |
| | $ | 17,447 |
| $ | 18,374 |
|
Net charge-offs (1) | $ | 9,285 |
| $ | 9,003 |
| $ | 8,669 |
| | $ | 9,997 |
| $ | 7,703 |
| $ | 8,455 |
| $ | 7,630 |
| $ | 9,822 |
| | $ | 11,132 |
| $ | 9,285 |
|
Secured Installment gross combined loan balances: | | | | | | |
Secured Installment gross combined loans receivable (3)(2) | $ | 94,194 |
| $ | 87,434 |
| $ | 82,534 |
| | $ | 92,817 |
| $ | 88,730 |
| $ | 92,478 |
| $ | 87,718 |
| $ | 83,087 |
| | $ | 95,922 |
| $ | 94,194 |
|
Secured Installment Allowance for loan losses and CSO guarantee liability (4) | $ | 11,714 |
| $ | 10,812 |
| $ | 12,165 |
| | $ | 14,194 |
| $ | 14,945 |
| |
Secured Installment Allowance for loan losses and CSO guarantee liability as a percentage of Secured Installment gross combined loans receivable | 12.4 | % | 12.4 | % | 14.7 | % | | 15.3 | % | 16.8 | % | |
Average Secured Installment gross combined loans receivable (3) | | $ | 90,098 |
| $ | 85,403 |
| $ | 89,505 |
| | $ | 95,058 |
| $ | 90,814 |
|
Secured Installment Allowance for loan losses and CSO liability for losses (2) | | $ | 10,431 |
| $ | 10,067 |
| $ | 9,874 |
| | $ | 12,616 |
| $ | 11,714 |
|
Secured Installment Allowance for loan losses and CSO liability for losses as a percentage of Secured Installment gross combined loans receivable | | 11.3 | % | 11.5 | % | 11.9 | % | | 13.2 | % | 12.4 | % |
Secured Installment past-due balances: | | | | | | |
Secured Installment past-due gross loans receivable and gross loans guaranteed by the Company | $ | 17,754 |
| $ | 15,246 |
| $ | 14,756 |
| | $ | 16,554 |
| $ | 15,265 |
| $ | 17,645 |
| $ | 14,570 |
| $ | 13,866 |
| | $ | 17,835 |
| $ | 17,754 |
|
Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (3) | 18.8 | % | 17.4 | % | 17.9 | % | | 17.8 | % | 17.2 | % | |
Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (1) | | 19.1 | % | 16.6 | % | 16.7 | % | | 18.6 | % | 18.8 | % |
Secured Installment other information: | | | | | | |
Originations (2) | $ | 51,742 |
| $ | 53,597 |
| $ | 34,750 |
| | $ | 48,577 |
| $ | 52,526 |
| |
Originations (4) | | $ | 45,990 |
| $ | 49,051 |
| $ | 33,490 |
| | $ | 49,217 |
| $ | 51,742 |
|
Secured Installment ratios: | | | | | | |
Provision as a percentage of gross combined loans receivable | 10.8 | % | 8.7 | % | 8.0 | % | | 10.0 | % | 3.0 | % | 9.5 | % | 8.9 | % | 8.5 | % | | 12.5 | % | 10.8 | % |
(1) As part of improvements made to our financial reporting process in 2018, we have reclassified certain provision expense and net charge-off activity to be consistent with current period presentation. We added approximately $3.9 million and $0.8 million from third and fourth quarter 2017 Provision Expense and Net charge-offs, respectively. | |
(2) Includes loans originated by third-party lenders through CSO programs, which are not included in the Consolidated Financial Statements. | |
(3) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details. | |
(4) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets. | |
(1) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." | | (1) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures." |
(2) 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. | | (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) Average gross loans receivable calculated as beginning of quarter and end of quarter gross loans receivable. | | (3) Average gross loans receivable calculated as beginning of quarter and end of quarter gross loans receivable. |
(4) Includes loans originated by third-party lenders through CSO programs, which are not included in the Condensed Consolidated Financial Statements. | | (4) 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 September 30, 20182019 increased by $151.9$130.9 million or 472.8%,when compared to September 30, 20172018, primarily due to the third quarter 2017 launchcontinued growth in Canada. The Q1 2019 Open-End Loss Recognition Change, discussed further below, impacted comparability as Canada included $19.2 million of past-due Open-End loans as of September 30, 2019 that would have been charged off under the former policy. Sequentially, Open-End balances in Canada as we transition from Single-Paygrew $18.1 million ($20.9 million on a constant currency basis) due to organic growth of the product and Installment loans as well as the introduction of Open-End loans in Virginia inBritish Columbia during the third quarter of 2017.2019. Remaining year-over-year loan growth was driven by the organic growth in seasoned U.S. markets, such as Tennessee and Kansas, and the relatively newer Virginia market. Similar to Canada, the Q1 2019 Open-End adoptionLoss Recognition Change affected comparability in the U.S., with the inclusion of $26.8 million of past-due Open-End loans as of September 30, 2019 that would have been charged off under the former policy.
The Open-End NCO rate during the third quarter of 2019 was 9.4%, compared to 17.1% in the same quarter in the prior year, as a result of a modest improvement in the U.S. and seasoning of the Canada portfolio. Sequentially, on a non-GAAP pro forma basis, as described below, NCO rates improved 130 bps, primarily on portfolio improvements in Canada.
Q1 2019 Open-End Loss Recognition Change
Effective January 1, 2019, we modified the timeframe in which we charge-off Open-End loans and made related refinements to our loss provisioning methodology. Prior to January 1, 2019, we deemed Open-End loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of our continuing shift to Open-End loans in Canada accelerated this quarterand 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.
The aforementioned change was treated as a change in accounting estimate for accounting purposes and applied prospectively beginning January 1, 2019.
The change affects comparability to prior periods as follows:
Gross combined loans receivable: balances as of September 30, 2019 include $46.1 million of Open-End loans that are up to 90 days past-due with related accrued interest, while such balances for periods prior to March 31, 2019 do not include any past-due loans.
Revenues: for the three and nine months ended September 30, 2019, gross revenues include interest earned on past-due loan balances grew $87.4of approximately $15 million sequentially from the second quarter.and $35 million, respectively, while revenues in prior-year periods do not include comparable amounts.
Provision for Losses: prospectively from January 1, 2019, past-due, unpaid balances plus related accrued interest charge-off on day 91. Provision expense is affected by NCOs (total charge-offs less total recoveries) plus changes to the Allowance for loan losses. Because NCOs prospectively include unpaid principal and up to 90 days of related accrued interest, NCO amounts and rates are higher and the Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable is higher. The Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable declined year-over-year and sequentially, primarily dueincreased to seasoning17.2% at September 30, 2019, compared to 9.8% in the comparable prior-year period.
The following table reports 2019 Open-End loan performance including the effect of the U.S. portfolio and a shift toQ1 2019 Open-End in Canada where losses and required allowance coverage is lower than the U.S. At September 30, 2018, Canadian Open-End gross loans receivable comprised 75.3% of the total Open-End product, compared to none at the end of the prior year quarter. The increase in the third quarter 2018 net charge-off rate is largely a result of significant new customer acquisitions associated with the transition to Open-End loans in Ontario. In addition, we relaxed underwriting selectively in two of our mature U.S. state markets to expand and improve net revenue.Loss Recognition Change:
| | | 2018 | | 2017 | 2019 | | 2018 |
(dollars in thousands, unaudited) | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter |
Open-End loans: | | | | | | |
Revenue | $ | 40,290 |
| $ | 27,222 |
| $ | 27,223 |
| | $ | 21,154 |
| $ | 18,630 |
| $ | 66,120 |
| $ | 54,972 |
| $ | 52,869 |
| | $ | 47,228 |
| $ | 40,290 |
|
Provision for losses | 31,686 |
| 14,848 |
| 11,428 |
| | 8,334 |
| 6,348 |
| 31,220 |
| 29,373 |
| 25,317 |
| | 28,337 |
| 31,686 |
|
Net revenue | $ | 8,604 |
| $ | 12,374 |
| $ | 15,795 |
| | $ | 12,820 |
| $ | 12,282 |
| $ | 34,900 |
| $ | 25,599 |
| $ | 27,552 |
| | $ | 18,891 |
| $ | 8,604 |
|
Net charge-offs(1) | $ | 23,579 |
| $ | 11,924 |
| $ | 10,972 |
| | $ | 6,799 |
| $ | 5,991 |
| $ | 28,202 |
| $ | 25,151 |
| $ | (1,521 | ) | | $ | 25,218 |
| $ | 23,579 |
|
Open-End gross loan balances: | | | | | | |
Open-End gross loans receivable | $ | 184,067 |
| $ | 91,033 |
| $ | 51,564 |
| | $ | 47,949 |
| $ | 32,133 |
| $ | 314,971 |
| $ | 283,311 |
| $ | 240,790 |
| | $ | 207,333 |
| $ | 184,067 |
|
Average Open-End gross loans receivable (1) | | $ | 299,141 |
| $ | 262,051 |
| $ | 224,062 |
| | $ | 195,700 |
| $ | 137,550 |
|
Open-End allowance for loan losses: | | | | |
Allowance for loan losses | $ | 18,013 |
| $ | 9,717 |
| $ | 6,846 |
| | $ | 6,426 |
| $ | 4,880 |
| $ | 54,233 |
| $ | 51,717 |
| $ | 46,963 |
| | $ | 19,901 |
| $ | 18,013 |
|
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable | 9.8 | % | 10.7 | % | 13.3 | % | | 13.4 | % | 15.2 | % | 17.2 | % | 18.3 | % | 19.5 | % | | 9.6 | % | 9.8 | % |
Open-End ratios: | | | | |
Provision as a percentage of gross loans receivable | 17.2 | % | 16.3 | % | 22.2 | % | | 17.4 | % | 19.8 | % | |
Open-End past-due balances: | | | | |
Open-End past-due gross loans receivable | | $ | 46,053 |
| $ | 35,395 |
| $ | 32,444 |
| | $ | — |
| $ | — |
|
Past-due Open-End gross loans receivable - percentage | | 14.6 | % | 12.5 | % | 13.5 | % | | — | % | — | % |
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. | | (1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. |
In addition, the following table illustrates, on a non-GAAP pro forma basis, the 2019 quarterly results as if the Q1 2019 Open-End Loss Recognition Change had been applied to our outstanding Open-End loan portfolio as of December 31, 2018. This table is illustrative of retrospective application to determine the NCOs that would have been incurred in each quarter of 2019 from the December 31, 2018 loan book. The primary purpose of this pro forma illustration is to provide a representative level of NCO rates from applying the Q1 2019 Open-End Loss Recognition Change.
|
| | | | | | | | | | |
Pro Forma | | 2019 |
(dollars in thousands, unaudited) | | Third Quarter | Second Quarter | First Quarter |
Open-End loans: | | | | |
Revenue | | $ | 66,120 |
| $ | 54,972 |
| $ | 52,869 |
|
Provision for losses | | 31,220 |
| 29,373 |
| 25,317 |
|
Net revenue | | $ | 34,900 |
| $ | 25,599 |
| $ | 27,552 |
|
Net charge-offs | | $ | 29,762 |
| $ | 29,648 |
| $ | 31,788 |
|
Open-End gross loan balances: | | | | |
Open-End gross loans receivable | | $ | 314,971 |
| $ | 283,311 |
| $ | 240,790 |
|
Average Open-End gross loans receivable (1) | | $ | 299,141 |
| $ | 262,051 |
| $ | 245,096 |
|
Net-charge offs as a percentage of average gross loans receivable | | 9.9 | % | 11.3 | % | 13.0 | % |
Open-End allowance for loan losses: | | | | |
Allowance for loan losses | | $ | 54,233 |
| $ | 51,717 |
| $ | 46,963 |
|
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable | | 17.2 | % | 18.3 | % | 19.5 | % |
Open-End past-due balances: | | | | |
Open-End past-due gross loans receivable | | $ | 46,053 |
| $ | 35,395 |
| $ | 32,444 |
|
Past-due Open-End gross loans receivable - percentage | | 14.6 | % | 12.5 | % | 13.5 | % |
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable.
|
Single-Pay
Single-Pay revenue and related loans receivable during the three months ended September 30, 2018 declined year-over-year2019 decreased compared to the three months ended September 30, 20172018, primarily due to regulatory changes in Canada (rate and product changes in Alberta, Ontario and British Columbia) andthat accelerated the accelerated shift to Open-End loans there, as well asproducts. U.S. Single-Pay receivables increased $1.7 million, or 4.1%, offset by a continued general product shift from Single-Pay to Installment and Open-End loans in all countries. Because of the aforementioned accelerated Open-End growthdecrease in Canada ($87.4receivables of $1.0 million, in the quarter),or 2.8%. Canada Single-Pay loan balances in Canada shrankwere stable sequentially by $11.2 million from the second to third quarter and have stabilized. Provision for losses and net charge-offs were consistent for the quarter andof 2019. The Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable remained consistent sequentially.increased sequentially from 6.5% to 7.3%, and the NCO rate increased 215 bps year-over-year, as a result of mandated extended payment options for certain Canada Single-Pay loans.
| | | 2018 | | 2017 | 2019 | | 2018 |
(dollars in thousands, unaudited) | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter | Third Quarter | Second Quarter | First Quarter | | Fourth Quarter | Third Quarter |
Single-pay loans: | | | | | | |
Revenue | $ | 53,205 |
| $ | 61,602 |
| $ | 63,705 |
| | $ | 70,868 |
| $ | 70,895 |
| $ | 49,312 |
| $ | 45,528 |
| $ | 46,761 |
| | $ | 49,696 |
| $ | 50,614 |
|
Provision for losses | 13,511 |
| 14,527 |
| 11,302 |
| | 17,952 |
| 20,632 |
| 14,736 |
| 12,446 |
| 8,268 |
| | 12,825 |
| 12,757 |
|
Net revenue | $ | 39,694 |
| $ | 47,075 |
| $ | 52,403 |
| | $ | 52,916 |
| $ | 50,263 |
| $ | 34,576 |
| $ | 33,082 |
| $ | 38,493 |
| | $ | 36,871 |
| $ | 37,857 |
|
Net charge-offs | $ | 13,927 |
| $ | 14,543 |
| $ | 12,698 |
| | $ | 17,362 |
| $ | 20,515 |
| $ | 13,913 |
| $ | 11,458 |
| $ | 8,610 |
| | $ | 11,838 |
| $ | 12,892 |
|
Single-Pay gross loan balances: | | | | | | |
Single-Pay gross loans receivable | $ | 80,867 |
| $ | 89,575 |
| $ | 87,075 |
| | $ | 99,400 |
| $ | 94,476 |
| $ | 78,039 |
| $ | 76,126 |
| $ | 69,753 |
| | $ | 80,823 |
| $ | 77,390 |
|
Average Single-Pay gross loans receivable (1) | | $ | 77,083 |
| $ | 72,940 |
| $ | 75,288 |
| | $ | 79,107 |
| $ | 81,028 |
|
Single-Pay Allowance for loan losses | $ | 3,768 |
| $ | 4,372 |
| $ | 4,485 |
| | $ | 5,915 |
| $ | 5,342 |
| $ | 5,662 |
| $ | 4,941 |
| $ | 3,897 |
| | $ | 4,189 |
| $ | 3,293 |
|
Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable | 4.7 | % | 4.9 | % | 5.2 | % | | 6.0 | % | 5.7 | % | 7.3 | % | 6.5 | % | 5.6 | % | | 5.2 | % | 4.3 | % |
(1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. | | (1) Average gross loans receivable calculated as average of beginning of quarter and end of quarter gross loans receivable. |
Gross Combined Loans Receivable
The following table summarizesreconciles Company Owned gross loans receivable, a GAAPGAAP-basis balance sheet measure, and reconciles it to grossGross combined loans receivable, a non-GAAP measure including(1). Gross combined loans receivables include loans originated by third-party lenders through CSO programs, which are not included in our Condensed Consolidated Financial Statements but from which we earn revenue and for which we provideby providing a guarantee to the lender. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
unaffiliated lender (in millions, unaudited):
| | | Three Months Ended | As of |
(in millions) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | |
| | September 30, 2019 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 |
Company Owned gross loans receivable | $ | 567.7 |
| $ | 444.6 |
| $ | 389.8 |
| $ | 432.8 |
| $ | 393.4 |
| $ | 657.6 |
| $ | 609.6 |
| $ | 553.2 |
| $ | 571.5 |
| $ | 537.8 |
|
Gross loans receivable Guaranteed by the Company | 78.8 |
| 69.2 |
| 57.1 |
| 78.8 |
| 71.2 |
| 73.1 |
| 67.3 |
| 61.9 |
| 80.4 |
| 78.8 |
|
Gross combined loans receivable(1) | $ | 646.5 |
| $ | 513.8 |
| $ | 446.9 |
| $ | 511.6 |
| $ | 464.6 |
| $ | 730.7 |
| $ | 676.9 |
| $ | 615.1 |
| $ | 651.9 |
| $ | 616.6 |
|
(1) See "Non-GAAP Financial Measures" below for definition and additional information. | | (1) See "Non-GAAP Financial Measures" below for definition and additional information. |
Gross combined loans receivable by product are presented below:below (year-over-year sequential comparisons for Open-End are affected by the Q1 2019 Open-End Loss Recognition Change):
Gross combined loans receivable increased $181.9$114.1 million, or 39.1%18.5%, to $646.5$730.7 million as of September 30, 2018 compared to $464.62019 from $616.6 million as of September 30, 2017.2018. Geographically, gross combined loans receivable grew 21.8%, 94.9%5.0% and 65.5%48.1%, respectively, in the U.S., and Canada, and U.K.explained further by product in the following sections.
Results of Operations - CURO Group Consolidated Operations
Condensed Consolidated Statements of IncomeOperations
(Unaudited)(in thousands, unaudited)
| | (in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, | |
2018 | 2017 | Change $ | Change % | | 2018 | 2017 | Change $ | Change % | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Revenue | $ | 283,004 |
| $ | 255,119 |
| $ | 27,885 |
| 10.9 | % | | $ | 793,745 |
| $ | 696,643 |
| $ | 97,102 |
| 13.9 | % | $ | 297,264 |
| $ | 269,482 |
| $ | 27,782 |
| 10.3 | % | | $ | 839,503 |
| $ | 757,494 |
| $ | 82,009 |
| 10.8 | % |
Provision for losses | 134,523 |
| 99,341 |
| 35,182 |
| 35.4 | % | | 307,540 |
| 226,523 |
| 81,017 |
| 35.8 | % | 123,867 |
| 127,692 |
| (3,825 | ) | (3.0 | )% | | 338,262 |
| 290,922 |
| 47,340 |
| 16.3 | % |
Net revenue | 148,481 |
| 155,778 |
| (7,297 | ) | (4.7 | )% | | 486,205 |
| 470,120 |
| 16,085 |
| 3.4 | % | 173,397 |
| 141,790 |
| 31,607 |
| 22.3 | % | | 501,241 |
| 466,572 |
| 34,669 |
| 7.4 | % |
Advertising costs | 24,114 |
| 16,270 |
| 7,844 |
| 48.2 | % | | 51,424 |
| 35,599 |
| 15,825 |
| 44.5 | % | 16,424 |
| 21,349 |
| (4,925 | ) | (23.1 | )% | | 36,990 |
| 44,347 |
| (7,357 | ) | (16.6 | )% |
Non-advertising costs of providing services | 60,383 |
| 59,342 |
| 1,041 |
| 1.8 | % | | 181,140 |
| 177,448 |
| 3,692 |
| 2.1 | % | 60,334 |
| 59,847 |
| 487 |
| 0.8 | % | | 180,934 |
| 178,437 |
| 2,497 |
| 1.4 | % |
Total cost of providing services | 84,497 |
| 75,612 |
| 8,885 |
| 11.8 | % | | 232,564 |
| 213,047 |
| 19,517 |
| 9.2 | % | 76,758 |
| 81,196 |
| (4,438 | ) | (5.5 | )% | | 217,924 |
| 222,784 |
| (4,860 | ) | (2.2 | )% |
Gross margin | 63,984 |
| 80,166 |
| (16,182 | ) | (20.2 | )% | | 253,641 |
| 257,073 |
| (3,432 | ) | (1.3 | )% | 96,639 |
| 60,594 |
| 36,045 |
| 59.5 | % | | 283,317 |
| 243,788 |
| 39,529 |
| 16.2 | % |
| | | | | | | | | | |
Operating expense | | | | | | | | | | |
Corporate, district and other | 35,185 |
| 34,247 |
| 938 |
| 2.7 | % | | 114,294 |
| 103,797 |
| 10,497 |
| 10.1 | % | |
Corporate, district and other expenses | | 38,665 |
| 27,495 |
| 11,170 |
| 40.6 | % | | 123,043 |
| 95,904 |
| 27,139 |
| 28.3 | % |
Interest expense | 23,396 |
| 18,844 |
| 4,552 |
| 24.2 | % | | 66,210 |
| 60,694 |
| 5,516 |
| 9.1 | % | 17,364 |
| 23,403 |
| (6,039 | ) | (25.8 | )% | | 52,077 |
| 66,229 |
| (14,152 | ) | (21.4 | )% |
Loss on extinguishment of debt | 69,200 |
| — |
| 69,200 |
| # |
| | 80,883 |
| 12,458 |
| 68,425 |
| # |
| — |
| 69,200 |
| (69,200 | ) | # |
| | — |
| 80,883 |
| (80,883 | ) | # |
|
Restructuring costs | — |
| 7,393 |
| (7,393 | ) | # |
| | — |
| 7,393 |
| (7,393 | ) | # |
| |
Loss from equity method investment | | 1,384 |
| — |
| 1,384 |
| # |
| | 5,132 |
| — |
| 5,132 |
| # |
|
Total operating expense | 127,781 |
| 60,484 |
| 67,297 |
| # |
| | 261,387 |
| 184,342 |
| 77,045 |
| 41.8 | % | 57,413 |
| 120,098 |
| (62,685 | ) | (52.2 | )% | | 180,252 |
| 243,016 |
| (62,764 | ) | (25.8 | )% |
Net (loss) income before income taxes | (63,797 | ) | 19,682 |
| (83,479 | ) | # |
| | (7,746 | ) | 72,731 |
| (80,477 | ) | # |
| |
(Benefit) provision for income taxes | (16,775 | ) | 9,920 |
| (26,695 | ) | # |
| | 9 |
| 29,988 |
| (29,979 | ) | # |
| |
Net (loss) income | $ | (47,022 | ) | $ | 9,762 |
| $ | (56,784 | ) | # |
| | $ | (7,755 | ) | $ | 42,743 |
| $ | (50,498 | ) | # |
| |
# - Variance greater than 100% or not meaningful. | |
Net income (loss) from continuing operations before income taxes | | 39,226 |
| (59,504 | ) | 98,730 |
| # |
| | 103,065 |
| 772 |
| 102,293 |
| # |
|
Provision (benefit) for income taxes | | 11,239 |
| (16,914 | ) | 28,153 |
| # |
| | 28,738 |
| (269 | ) | 29,007 |
| # |
|
Net income (loss) from continuing operations | | 27,987 |
| (42,590 | ) | 70,577 |
| # |
| | 74,327 |
| 1,041 |
| 73,286 |
| # |
|
Net (loss) income from discontinued operations, net of tax | | (598 | ) | (4,432 | ) | 3,834 |
| (86.5 | )% | | 6,943 |
| (8,796 | ) | 15,739 |
| # |
|
Net income (loss) | | $ | 27,389 |
| $ | (47,022 | ) | $ | 74,411 |
| # |
| | $ | 81,270 |
| $ | (7,755 | ) | $ | 89,025 |
| # |
|
# - Variance greater than 100% or not meaningful | | # - Variance greater than 100% or not meaningful |
For the three months ended September 30, 20182019 and 20172018
Revenue and Net Revenue
Revenue increased $27.9$27.8 million, or 10.9%10.3%, to $283.0$297.3 million for the three months ended September 30, 20182019, from $255.1$269.5 million for the three months ended September 30, 2017.2018. Revenue for the three months ended September 30, 2019 included interest earned on past-due Open-End loan balances of approximately $15 million from the Q1 2019 Open-End Loss Recognition Change. U.S. revenue increased 15.2% on6.2%, driven by volume growth. Canadian revenue decreased 8.8% primarily due toincreased 30.3% (31.6% on a constant currency basis), as volume growth offset yield compression from negative regulatory impacts on Single-Pay loan rates and the continuedsignificant product mix transitioning from Single-Pay and Installment Loansmix-shift to Open-End loans. U.K. revenue increased by 27.1%.
Provision for losses increased $35.2decreased $3.8 million, or 35.4%3.0%, to $134.5$123.9 million for the three months ended September 30, 20182019, from $99.3$127.7 million for the three months ended September 30, 2017. Refer2018. This decrease included incremental provision expense from the Q1 2019 Open-End Loss Recognition Change, consistent with the incremental revenue impact. Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, provision expense declined year-over-year, primarily due to "Segment Analysis" below for further explanations onlower sequential loan growth than in the provision for losses.
Cost of Providing Services
The total cost of providing services increased $8.9 million, or 11.8%, to $84.5 million inprior-year's quarter. For the three months ended September 30, 2018,2019, gross combined loans receivable grew sequentially by $53.7 million, or 7.9%, compared to $75.6 million in the three months ended September 30, 2017 primarily becausesequential growth of increased customer acquisition spend analyzed further in the segment discussions that follow.
Operating Expenses
Corporate, district and other expense increased $0.9$126.8 million, or 2.7%, primarily related to share-based compensation expense.
Provision for Income Taxes
The effective tax benefit rate25.9% for the three months ended September 30, 2018 was 26.3% compared to a tax expense rate 50.4% for the three months ended September 30, 2017. As a result of the 2017 Tax Act, the corporate income tax rate for the U.S. decreased from 35% to 21%, effective in 2018. No tax benefit is recognized for losses in the U.K. and certain other Canadian entities that we utilize to launch new products and brands. The lack of tax benefit in these entities was offset in the third quarter of 2018 by a $3.3 million benefit for the fair market value impact of a historic stock option plan that was modified in 2017 creating a taxable event, and by the reversal of $0.6 million of estimated GILTI ("Global Intangible Low-Taxed Income") originally recorded in the first quarter of 2018 based on a shift in the geographic composition of pre-tax income.
For the nine months ended September 30, 2018 and 2017
Revenue and Net Revenue
Revenue increased $97.1 million, or 13.9%, to $793.7 million for the nine months ended September 30, 2018 from $696.6 million for the nine months ended September 30, 2017. U.S. revenue increased 16.2% on volume growth. Canadian revenue increased 2.7% as volume growth offset regulatory impacts on rates and product mix. U.K. revenue increased by 25.4%.
Provision for losses increased $81.0 million, or 35.8%, to $307.5 million for the nine months ended September 30, 2018 from $226.5 million for the nine months ended September 30, 2017. Refer to “Segment Analysis” below for further explanations on the provision for losses.
Cost of Providing Services
The total cost of providing services increased $19.5decreased $4.4 million, or 9.2%5.5%, to $232.6$76.8 million in the three months ended September 30, 2019, compared to $81.2 million in the three months ended September 30, 2018, primarily because of lower advertising costs. The decline in advertising costs was primarily the result of repositioning our California Installment loan portfolio in advance of regulatory changes and mix-shift, and stability in our Canadian portfolio following the Ontario deployment of Open-End loans in the third quarter of 2018.
Operating Expenses
Excluding share-based compensation of $2.8 million, legal and related costs of $0.9 million and U.K. related costs of $0.3 million, corporate, district and other expenses increased $8.1 million, or 30.4%, primarily due to higher variable compensation tied to our financial performance.
Our investment in Cognical Holdings, Inc. ("Zibby") is accounted for under the equity method. We record our pro rata share of Zibby's income or losses in the income statement with a corresponding adjustment to the carrying value of our investment in "Other" on the Condensed Consolidated Balance Sheet. Estimated losses recorded in the three months ended September 30, 2019 was $1.4 million and represents our share of losses during the period in which we held a greater than 20% investment, typically considered the threshold for equity method accounting.
Interest Expense
Interest expense for the third quarter of 2019 decreased by $6.0 million compared to the prior-year period, primarily due to our refinancing activities in 2018. During the third quarter of 2018, we issued $690.0 million of 8.25% Senior Secured Notes and used the proceeds from the issuance to extinguish our $527.5 million 12.00% Senior Secured Notes and our Non-Recourse U.S. SPV Facility. In addition, we entered into a Non-Recourse Canada SPV Facility in the third quarter of 2018 with a lower interest rate than our previous Non-Recourse U.S. SPV Facility.
Provision for Income Taxes
The effective income tax rate for the three months ended September 30, 2019 was 28.7%, compared to 28.4% for the three months ended September 30, 2018. The third quarter 2019 effective income tax rate included unfavorable impacts from the non-tax deductible loss on our equity method investment and changes in state income apportionment and a mix shift in taxable income between the U.S. and Canada. Excluding the impact of the loss on equity method investment, the effective tax rate for the three months ended September 30, 2019 was 27.7%.
For the nine months ended September 30, 2019 and 2018
Revenue and Net Revenue
Revenue increased $82.0 million, or 10.8%, to $839.5 million for the nine months ended September 30, 2019 from $757.5 million for the nine months ended September 30, 2018. Revenue for the nine months ended September 30, 2019 included interest earned on past-due Open-End loan balances of approximately $35 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 8.9%, driven by volume growth. Canadian revenue increased 19.2% (23.1% on a constant currency basis), as volume growth more than offset yield compression from negative regulatory impacts on Single-Pay loan rates and the significant product mix-shift to Open-End loans.
Provision for losses increased $47.3 million, or 16.3%, to $338.3 million for the nine months ended September 30, 2019, from $290.9 million for the nine months ended September 30, 2018, primarily due to the Q1 2019 Open-End Loss Recognition Change. The nine months ended September 30, 2018 included $14.6 million of provision benefit from changes which included allowance coverage rates whereas the nine months ended 2019 included $5.1 million of benefit. Excluding the impact of the allowance coverage change, provision for losses increased $37.9 million, or 12.4%, because of the Q1 2019 Open-End Loss Recognition Change and increased earning asset volume year-over-year as further described in "Segment Analysis" below.
Cost of Providing Services
The total cost of providing services decreased $4.9 million, or 2.2%, to $217.9 million in the nine months ended September 30, 2019, compared to $222.8 million in the nine months ended September 30, 2018, comparedprimarily because of lower advertising costs, offset by increased loan servicing costs on higher volume. The decline in advertising costs was primarily the result of repositioning our California Installment loan portfolio in advance of regulatory changes and mix-shift, and stability in our Canadian portfolio following the Ontario deployment of Open-End loans in the third quarter of 2018.
Operating Expenses
Corporate, district and other expenses increased $27.1 million, or 28.3%, primarily as a result of $8.8 million for obtaining the consent of our holders of the 8.25% Senior Secured Notes and our bondholders associated with discontinuing our U.K. operations and other related U.K. separation costs, $2.0 million of legal and related costs as described above, $1.8 million of restructuring costs from our reduction-in-force implemented in January 2019 and $1.5 million of additional share-based compensation. Excluding these aforementioned costs, corporate, district and other expenses increased by $13.0 million, or 14.3%, primarily due to $213.0 millionhigher professional fees associated with our second year-end for full compliance with Sarbanes-Oxley and higher variable compensation tied to our financial performance.
Our investment in Zibby is accounted for under the equity method. We record our pro rata share of Zibby's income or losses in the income statement with a corresponding adjustment to the carrying value of our investment in "Other" on the Condensed Consolidated Balance Sheet. Our share of estimated losses for the nine months ended September 30, 2017 primarily because2019 was $5.1 million, which includes a $3.7 million loss to adjust the Company's carrying value of higher customer acquisition spend.Zibby. The carrying value was further adjusted by the Company's pro rata share of Zibby's losses during the period in which the Company held a greater than 20% investment, typically considered the threshold for equity method accounting.
Operating ExpensesInterest Expense
Corporate, district and other
Interest expense increased $10.5decreased by $14.2 million or 10.1%,compared to the prior-year period, primarily due to $6.9our refinancing activities in 2018. During the third quarter of 2018, we issued $690.0 million of costs related8.25% Senior Secured Notes and used the proceeds from the issuance to customer redress pursuant toextinguish our $527.5 million 12.00% Senior Secured Notes and our Non-Recourse U.S. SPV Facility. In addition, we entered into a complaint resolution process for all lendersNon-Recourse Canada SPV Facility in the U.K, $4.4 millionthird quarter of year-over-year incremental share-based compensation expense and $1.2 million in year-over-year additional compensation expense related to increased collections activity, online customer support and technology headcount.2018 with a lower interest rate than our previous Non-Recourse U.S. SPV Facility.
Provision for Income Taxes
The effective income tax benefit rate for the nine months ended September 30, 2019 was 27.9%, compared to (34.8%) for the nine months ended September 30, 2018. Excluding the non-tax-deductible loss from our equity method investment, the effective income tax rate from continuing operations for the nine months ended September 30, 2019 was 26.6%. Excluding non-GAAP adjustments to Net income related to the 2017 Tax Act as presented in the reconciliation of Net Income to Adjusted Net Income, the effective income tax rate from continuing operations for the nine months ended September 30, 2018 was (0.1)% compared to a tax expense rate of 41.2% for the nine months ended September 30, 2017. As a result of the 2017 Tax Act, the federal corporate income tax rate for the U.S. decreased from 35% to 21%, effective in 2018. The provision for income tax as of September 30, 2018 includes an additional accrual of $1.2 million for adjustments to estimates of the tax on prior years' foreign repatriation as the result of additional interpretative guidance from the IRS issued during the first quarter of 2018 and the above mentioned impacts of loss entities with no tax benefits and the benefits from stock option exercise.
24.1%.
Segment Analysis
We report financial results for threetwo reportable segments: the U.S., Canada and the U.K.Canada. Following is a recapsummary of results of operations for the segment and period indicated:
indicated (in thousands, unaudited):
| | U.S. Segment Results | Three Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % | |
| | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Revenue | $ | 223,273 |
| $ | 193,826 |
| $ | 29,447 |
| 15.2 | % | $ | 237,069 |
| $ | 223,273 |
| $ | 13,796 |
| 6.2 | % | | $ | 673,234 |
| $ | 617,992 |
| $ | 55,242 |
| 8.9 | % |
Provision for losses | 103,256 |
| 79,506 |
| 23,750 |
| 29.9 | % | 102,997 |
| 103,256 |
| (259 | ) | (0.3 | )% | | 280,529 |
| 239,576 |
| 40,953 |
| 17.1 | % |
Net revenue | 120,017 |
| 114,320 |
| 5,697 |
| 5.0 | % | 134,072 |
| 120,017 |
| 14,055 |
| 11.7 | % | | 392,705 |
| 378,416 |
| 14,289 |
| 3.8 | % |
Advertising costs | 17,632 |
| 12,005 |
| 5,627 |
| 46.9 | % | 14,186 |
| 17,632 |
| (3,446 | ) | (19.5 | )% | | 31,719 |
| 35,200 |
| (3,481 | ) | (9.9 | )% |
Non-advertising costs of providing services | 42,280 |
| 41,213 |
| 1,067 |
| 2.6 | % | 42,636 |
| 42,280 |
| 356 |
| 0.8 | % | | 128,866 |
| 127,719 |
| 1,147 |
| 0.9 | % |
Total cost of providing services | 59,912 |
| 53,218 |
| 6,694 |
| 12.6 | % | 56,822 |
| 59,912 |
| (3,090 | ) | (5.2 | )% | | 160,585 |
| 162,919 |
| (2,334 | ) | (1.4 | )% |
Gross margin | 60,105 |
| 61,102 |
| (997 | ) | (1.6 | )% | 77,250 |
| 60,105 |
| 17,145 |
| 28.5 | % | | 232,120 |
| 215,497 |
| 16,623 |
| 7.7 | % |
Corporate, district and other | 22,360 |
| 25,257 |
| (2,897 | ) | (11.5 | )% | |
Corporate, district and other expenses | | 32,897 |
| 22,360 |
| 10,537 |
| 47.1 | % | | 106,426 |
| 81,113 |
| 25,313 |
| 31.2 | % |
Interest expense | 22,169 |
| 18,795 |
| 3,374 |
| 18.0 | % | 14,877 |
| 22,169 |
| (7,292 | ) | (32.9 | )% | | 44,246 |
| 64,931 |
| (20,685 | ) | (31.9 | )% |
Loss on extinguishment of debt | 69,200 |
| — |
| 69,200 |
| # |
| — |
| 69,200 |
| (69,200 | ) | # |
| | — |
| 80,883 |
| (80,883 | ) | # |
|
Loss from equity method investment | | 1,384 |
| — |
| 1,384 |
| # |
| | 5,132 |
| — |
| 5,132 |
| # |
|
Total operating expense | 113,729 |
| 44,052 |
| 69,677 |
| # |
| 49,158 |
| 113,729 |
| (64,571 | ) | (56.8 | )% | | 155,804 |
| 226,927 |
| (71,123 | ) | (31.3 | )% |
Segment operating (loss) income | (53,624 | ) | 17,050 |
| (70,674 | ) | # |
| |
Segment operating income (loss) | | 28,092 |
| (53,624 | ) | 81,716 |
| # |
| | 76,316 |
| (11,430 | ) | 87,746 |
| # |
|
Interest expense | 22,169 |
| 18,795 |
| 3,374 |
| 18.0 | % | 14,877 |
| 22,169 |
| (7,292 | ) | (32.9 | )% | | 44,246 |
| 64,931 |
| (20,685 | ) | (31.9 | )% |
Depreciation and amortization | 3,536 |
| 3,447 |
| 89 |
| 2.6 | % | 3,390 |
| 3,536 |
| (146 | ) | (4.1 | )% | | 10,553 |
| 10,322 |
| 231 |
| 2.2 | % |
EBITDA | (27,919 | ) | 39,292 |
| (67,211 | ) | # |
| 46,359 |
| (27,919 | ) | 74,278 |
| # |
| | 131,115 |
| 63,823 |
| 67,292 |
| # |
|
Loss on extinguishment of debt | 69,200 |
| — |
| 69,200 |
| | — |
| 69,200 |
| (69,200 | ) | | | — |
| 80,883 |
| (80,883 | ) | |
Legal settlements | (1,297 | ) | 361 |
| (1,658 | ) | | |
Restructuring costs | | — |
| — |
| — |
| | | 1,617 |
| — |
| 1,617 |
| |
Legal and related costs | | 870 |
| (1,297 | ) | 2,167 |
| | | 870 |
| (1,297 | ) | 2,167 |
| |
Other adjustments | (99 | ) | (27 | ) | (72 | ) | | 42 |
| (99 | ) | 141 |
| | | (206 | ) | (224 | ) | 18 |
| |
Transaction related costs | — |
| 123 |
| (123 | ) | | |
Share-based cash and non-cash compensation | 2,089 |
| 454 |
| 1,635 |
| | |
U.K. related costs | | 348 |
| — |
| 348 |
| | | 8,844 |
| — |
| 8,844 |
| |
Share-based compensation | | 2,771 |
| 2,089 |
| 682 |
| | | 7,587 |
| 6,112 |
| 1,475 |
| |
Loss from equity method investment | | 1,384 |
| — |
| 1,384 |
| | | 5,132 |
| — |
| 5,132 |
| |
Adjusted EBITDA | $ | 41,974 |
| $ | 40,203 |
| $ | 1,771 |
| 4.4 | % | $ | 51,774 |
| $ | 41,974 |
| $ | 9,800 |
| 23.3 | % | | $ | 154,959 |
| $ | 149,297 |
| $ | 5,662 |
| 3.8 | % |
# - Variance greater than 100% or not meaningful | |
# - Variance greater than 100% or not meaningful. | | # - Variance greater than 100% or not meaningful. | | | |
U.S. Segment Results - For the three months ended September 30, 20182019 and 20172018
Third quarter 2019 U.S. revenues increased by $29.4$13.8 million, or 15.2%6.2%, to $223.3 million.
U.S$237.1 million, compared to the prior-year period. U.S. revenue growth was driven by a $75.8$21.0 million, or 21.8%5.0%, increase in gross combined loans receivable to $444.0 million at
September 30, 2019, compared to $423.0 million at September 30, 2018 compared to $347.2 million at2018. Additionally, U.S. revenue for the three months ended September 30, 2017. We experienced volume2019 included interest earned on past-due Open-End loan balances of approximately $13 million from the Q1 2019 Open-End Loss Recognition Change.
The provision for losses was consistent year-over-year despite the increase in loan receivables. The year-over-year provision change included incremental provision expense from the Q1 2019 Open-End Loss Recognition Change, consistent with the incremental revenue impact. Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, provision expense declined year-over-year due to lower sequential growth primarily from Unsecured Installment receivables, which increased year-over-year $55.1 million, or 29.4%, while Open-End receivables increased $13.2 million, or 41.2%,in gross loans receivable compared to the prior year, period. Open-End receivables growth was drivenoffset by the 2017aforementioned NCO rate increases. U.S. gross combined loans receivable grew $35.7 million, or 8.7%, sequentially during the third quarter introduction of Open-End in Virginia, organic growth in Tennessee of 11.3% and growth in Kansas of 13.2%. Secured Installment receivables increased from the prior year period by $5.5 million, or 6.2%.
The increase of $23.8 million, or 29.9%, in provision for losses was primarily driven by2019, compared to sequential loan growth of $55.3 million, or 15.0%. U.S. Company-Owned Unsecured Installment and Secured Installment net charge-offs rates rose modestly year-over-year while net charge-off rates for Unsecured Installment loans Guaranteed by, during the Company and Single-Pay loans improved from third quarter 2017. Net charge-off rates for Open-End loans increased because we relaxed underwriting selectively in two of our mature state markets to expand and improve net revenue.prior-year period.
U.S. cost of providing services for the three months ended September 30, 20182019 was $59.9$56.8 million, an increasea decrease of $6.7$3.1 million, or 12.6%5.2%, compared to $53.2$59.9 million for the three months ended September 30, 2017. The increase was2018, primarily due to $5.6 million, or 46.9%, higherlower advertising costs. Advertising for the U.S. online channel comprised $5.0 millioncosts associated with repositioning our California Installment loan portfolio in advance of the year-over-year increase, $1.8 million of which related to our new Avio installment and Open-End loans. U.S. store advertising rose 11.2% year-over-year. Advertising as a percentage of revenue was 7.9% compared to 6.5% in the prior quarter, and in the range we expected given the ramping of Avio, the mix shift to online and seasonality.regulatory changes.
Corporate, district and other operating expenses decreased $2.9increased $10.5 million, or 47.1%, compared to the same period in the prior year, primarily due to adjustments to$5.3 million of higher performance-based variable compensation cost assumptions, lower professional fees and a $1.3costs, $0.9 million net reduction of our liabilities related to certain litigation matters offset by $1.6and $0.7 million of additional share-based compensation expense.compensation.
U.S. Interestinterest expense for the third quarter of 2018 increased2019 decreased by $3.4$7.3 million compared to the sameprior-year period, prior year and was affected byprimarily due to our refinancing activities in 2018. During the related refinancing transactions. Wethird quarter of 2018, we issued $690.0 million of 8.25% Senior Secured Notes due 2025 on August 27,
2018. We subsequentlyand used the proceeds of thisfrom the issuance to extinguish the remainingour $527.5 million 2017 12.00% Senior Secured Notes on September 7, 2018 and the Non-Recourse U.S. SPV Facility on October 11, 2018. We incurred additional interest during the third quarter of 2018 of $3.0 million during the time between the issuance of the Senior Secured Notes due 2025 and the extinguishment of the other existing debt facilities.
|
| | | | | | | | | | | |
U.S. Segment Results | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % |
Revenue | $ | 617,992 |
| $ | 531,912 |
| $ | 86,080 |
| 16.2 | % |
Provision for losses | 239,576 |
| 180,658 |
| 58,918 |
| 32.6 | % |
Net revenue | 378,416 |
| 351,254 |
| 27,162 |
| 7.7 | % |
Advertising costs | 35,200 |
| 24,596 |
| 10,604 |
| 43.1 | % |
Non-advertising costs of providing services | 127,719 |
| 125,304 |
| 2,415 |
| 1.9 | % |
Total cost of providing services | 162,919 |
| 149,900 |
| 13,019 |
| 8.7 | % |
Gross margin | 215,497 |
| 201,354 |
| 14,143 |
| 7.0 | % |
Corporate, district and other | 81,113 |
| 78,299 |
| 2,814 |
| 3.6 | % |
Interest expense | 64,931 |
| 60,563 |
| 4,368 |
| 7.2 | % |
Loss on extinguishment of debt | 80,883 |
| 12,458 |
| 68,425 |
| # |
|
Total operating expense | 226,927 |
| 151,320 |
| 75,607 |
| 50.0 | % |
Segment operating (loss) income | (11,430 | ) | 50,034 |
| (61,464 | ) | # |
|
Interest expense | 64,931 |
| 60,563 |
| 4,368 |
| 7.2 | % |
Depreciation and amortization | 10,322 |
| 10,200 |
| 122 |
| 1.2 | % |
EBITDA | 63,823 |
| 120,797 |
| (56,974 | ) | (47.2 | )% |
Loss on extinguishment of debt | 80,883 |
| 12,458 |
| 68,425 |
| |
Restructuring costs | — |
| 2,523 |
| (2,523 | ) | |
Legal settlements | (1,297 | ) | 2,311 |
| (3,608 | ) | |
Other adjustments | (224 | ) | (47 | ) | (177 | ) | |
Share-based cash and non-cash compensation | 6,112 |
| 1,756 |
| 4,356 |
| |
Adjusted EBITDA | $ | 149,297 |
| $ | 139,798 |
| $ | 9,499 |
| 6.8 | % |
# - Variance greater than 100% or not meaningful | | | | |
facility.
U.S. Segment Results - For the nine months ended September 30, 20182019 and 20172018
For the nine months ended September 30, 2019, U.S. revenues increased by $86.1$55.2 million, or 16.2%8.9%, to $618.0$673.2 million. U.S. revenue growth was driven by a $21.0 million, or 5.0%, increase in gross combined loans receivable, to $444.0 million at September 30, 2019, compared to $423.0 million at September 30, 2018. Additionally, U.S. revenue for the nine months ended September 30, 2019 included interest earned on past-due Open-End loan balances of approximately $30 million from the Q1 2019 Open-End Loss Recognition Change, offset by related higher provision rate and higher provision for losses.
The provision for losses' increase of $41.0 million, or 17.1%, was primarily due to changes in allowance coverage in the prior year. The nine months ended September 30, 2018 included $12.5 million of provision benefit from changes in allowance coverage rates, whereas the nine months ended September 30, 2019 included $1.7 million of incremental expense. Excluding the impact of the allowance coverage change, provision for losses increased $30.1 million, or 12.0%, because of the Q1 2019 Open-End Loss Recognition Change.
U.S. cost of providing services for the nine months ended September 30, 2019 was $160.6 million, a decrease of $2.3 million, or 1.4%, compared to $162.9 million for the nine months ended September 30, 2018.
U.S revenue growth was driven by a $75.8 million, or 21.8%, increase in gross combined loans receivable to $423.0 million at September 30, 2018, compared to $347.2 million at September 30, 2017. We experienced volume growth primarily from Unsecured Installment receivables, which increased year-over-year $55.1 million, or 29.4%, while Open-End receivables increased $13.2 million, or 41.2%, compared to the prior year period. Open-End receivables growth was driven by the 2017 third quarter introduction of Open-End in Virginia, organic growth in Tennessee of 11.3% and growth in Kansas of 13.2%. Secured Installment receivables increased from the prior year period by $5.5 million, or 6.2%.
The increase of $58.9 million, or 32.6%, in provision for losses was primarily driven by the increase in combined loans receivable as previously discussed.
U.S. cost of providing services were $162.9 million, an increase of $13.0 million, or 8.7%, compared to $149.9 million for the nine months ended September 30, 2017. The increase is primarily due to $10.6 million, or 43.1%, higherlower advertising costs. Advertising for the U.S. online channel comprised $8.5 millioncosts associated with repositioning our California Installment loan portfolio in advance of the year-over-year increase, $4.4 million of which related to our new Avio installment and Open-End loans which launched in the third quarter of 2017. U.S. store advertising rose 15.0% year-over-year. Advertising as a percentage of revenue was 5.7% compared to 4.5% in the prior year, and in the range we expected given the ramping of Avio, the mix shift to online and seasonality.regulatory changes.
The $2.8 million increase of corporate,Corporate, district and other operating expenses includes $4.4increased $25.3 million, or 31.2%, compared to the same period in the prior year, primarily due to $8.8 million of additional share-basedU.K. disposition-related costs, $7.7 million higher performance-based variable compensation costs, $3.1 million higher professional fees and $1.6 million of restructuring costs.
U.S. interest expense offsetfor the first nine months of 2019 decreased by a $1.3$20.7 million net reductioncompared to the prior-year period, primarily due to our refinancing activities in liabilities for certain litigation matters.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 and our U.S. SPV facility.
| | Canada Segment Results | Three Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % | |
| | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Revenue | $ | 46,209 |
| $ | 50,658 |
| $ | (4,449 | ) | (8.8 | )% | $ | 60,195 |
| $ | 46,209 |
| $ | 13,986 |
| 30.3 | % | | $ | 166,269 |
| $ | 139,502 |
| $ | 26,767 |
| 19.2 | % |
Provision for losses | 24,436 |
| 15,718 |
| 8,718 |
| 55.5 | % | 20,870 |
| 24,436 |
| (3,566 | ) | (14.6 | )% | | 57,733 |
| 51,346 |
| 6,387 |
| 12.4 | % |
Net revenue | 21,773 |
| 34,940 |
| (13,167 | ) | (37.7 | )% | 39,325 |
| 21,773 |
| 17,552 |
| 80.6 | % | | 108,536 |
| 88,156 |
| 20,380 |
| 23.1 | % |
Advertising costs | 3,717 |
| 2,899 |
| 818 |
| 28.2 | % | 2,238 |
| 3,717 |
| (1,479 | ) | (39.8 | )% | | 5,271 |
| 9,147 |
| (3,876 | ) | (42.4 | )% |
Non-advertising costs of providing services | 17,567 |
| 16,392 |
| 1,175 |
| 7.2 | % | 17,698 |
| 17,567 |
| 131 |
| 0.7 | % | | 52,068 |
| 50,718 |
| 1,350 |
| 2.7 | % |
Total cost of providing services | 21,284 |
| 19,291 |
| 1,993 |
| 10.3 | % | 19,936 |
| 21,284 |
| (1,348 | ) | (6.3 | )% | | 57,339 |
| 59,865 |
| (2,526 | ) | (4.2 | )% |
Gross margin | 489 |
| 15,649 |
| (15,160 | ) | (96.9 | )% | 19,389 |
| 489 |
| 18,900 |
| # |
| | 51,197 |
| 28,291 |
| 22,906 |
| 81.0 | % |
Corporate, district and other | 5,135 |
| 4,660 |
| 475 |
| 10.2 | % | |
Corporate, district and other expenses | | 5,768 |
| 5,135 |
| 633 |
| 12.3 | % | | 16,617 |
| 14,791 |
| 1,826 |
| 12.3 | % |
Interest expense | 1,234 |
| 60 |
| 1,174 |
| # |
| 2,487 |
| 1,234 |
| 1,253 |
| # |
| | 7,831 |
| 1,298 |
| 6,533 |
| # |
|
Total operating expense | 6,369 |
| 4,720 |
| 1,649 |
| 34.9 | % | 8,255 |
| 6,369 |
| 1,886 |
| 29.6 | % | | 24,448 |
| 16,089 |
| 8,359 |
| 52.0 | % |
Segment operating (loss) income | (5,880 | ) | 10,929 |
| (16,809 | ) | # |
| |
Segment operating income (loss) | | 11,134 |
| (5,880 | ) | 17,014 |
| # |
| | 26,749 |
| 12,202 |
| 14,547 |
| # |
|
Interest expense | 1,234 |
| 60 |
| 1,174 |
| # |
| 2,487 |
| 1,234 |
| 1,253 |
| # |
| | 7,831 |
| 1,298 |
| 6,533 |
| # |
|
Depreciation and amortization | 1,087 |
| 1,170 |
| (83 | ) | (7.1 | )% | 1,219 |
| 1,087 |
| 132 |
| 12.1 | % | | 3,627 |
| 3,306 |
| 321 |
| 9.7 | % |
EBITDA | (3,559 | ) | 12,159 |
| (15,718 | ) | # |
| 14,840 |
| (3,559 | ) | 18,399 |
| # |
| | 38,207 |
| 16,806 |
| 21,401 |
| # |
|
Legal settlements | 119 |
| — |
| 119 |
|
|
| |
Restructuring costs | | — |
| — |
| — |
|
|
| | 135 |
| — |
| 135 |
| |
Legal and related costs | | — |
| 119 |
| (119 | ) |
|
| | — |
| 119 |
| (119 | ) |
|
|
Other adjustments | 50 |
| (182 | ) | 232 |
| | 441 |
| 50 |
| 391 |
| | | 297 |
| 223 |
| 74 |
| |
Adjusted EBITDA | $ | (3,390 | ) | $ | 11,977 |
| $ | (15,367 | ) | # |
| $ | 15,281 |
| $ | (3,390 | ) | $ | 18,671 |
| # |
| | $ | 38,639 |
| $ | 17,148 |
| $ | 21,491 |
| # |
|
# - Variance greater than 100% or not meaningful. | | | |
# - Change greater than 100% or not meaningful. | | # - Change greater than 100% or not meaningful. | | | | | |
Canada Segment Results - For the three months ended September 30, 20182019 and 20172018
Canada revenue decreased $4.4increased $14.0 million, or 8.8%30.3%, to $46.2$60.2 million for the three months ended September 30, 20182019, from $50.7$46.2 million in the prior yearprior-year period. On a constant currency basis, revenue decreased $2.5increased $14.6 million, or 4.9%31.6%. Revenue growth in Canada was impacted favorably by the acceleratedsignificant asset growth and the product transition from Single-Pay and Unsecured Installment loans to Open-End loans and by regulatory rate changes in Alberta, Ontario and British Columbia.loans. Additionally, Canada revenue for the three months ended September 30, 2019 included interest earned on past-due Open-End loan balances of approximately $2 million from the Q1 2019 Open-End Loss Recognition Change.
Single-Pay revenue decreased $16.7$2.7 million, or 42.3%11.6%, to $22.8$20.2 million for the three months ended September 30, 20182019, and Single-Pay ending receivables decreased $14.2$1.0 million, or 28.3%2.8%, to $36.1$35.1 million from $50.4$36.1 million in the prior year. The decreasedecreases in Single-Pay revenue and receivables waswere 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 lowerlowered Single Pay pricing year-over-year.
CanadianCanada non-Single-Pay revenue increased $12.3$16.6 million, or 110.5%71.1%, to $23.4$40.0 million compared to $11.1$23.4 million the same quarter a year ago, on $108.5growth of $94.1 million, or 221.6%59.8%, in related loan balances. The increase was primarily related to the launch of Open-End products in Alberta and Ontario in the fourth quarter of 2017, and significant expansion of the Open-End product in Ontario in late 2018. Additionally, as a result of the increase in Open-End loans, ancillary revenue increased $3.8 million versus the same quarter a year ago, primarily driven by an increase in sales of insurance to Open-End loan customers.
The provision for losses decreased $3.6 million, or 14.6%, to $20.9 million for the three months ended September 30, 2019, compared to $24.4 million in the prior-year period. This decrease included incremental provision expense from the Q1 2019 Open-End Loss Recognition Change, consistent with the incremental revenue impact. Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, provision expense declined year-over-year because of lower sequential gross receivable growth and seasoning of the Open-End loans. Total Open-End and Installment loans grew $18.0 million sequentially during the third quarter of 2019, compared to sequential growth of $82.7 million during the same prior-year period. Total Canada NCO rates improved 425 bps year-over-year due to the seasoning of Open-End loans. On a constant currency basis, provision for losses decreased by $3.4 million, or 13.8%, compared to the prior-year period.
Canada cost of providing services for the three months ended September 30, 2019 was $19.9 million, a decrease of $1.3 million, or 6.3%, compared to $21.3 million for the three months ended September 30, 2019, primarily due to lower advertising costs from mix-shift and stability in our Canadian portfolio following the Ontario deployment of Open-End loans in the third quarter of 2018. There was no material impact on the cost of providing services from exchange rate changes.
Canada operating expenses increased $1.9 million, or 29.6%, to $8.3 million in the three months ended September 30, 2019 from $6.4 million in the prior-year period, primarily due to interest expense on the Non-Recourse Canada SPV Facility that began in August 2018.
Canada Segment Results - For the nine months ended September 30, 2019 and 2018
Canada revenue increased $26.8 million, or 19.2%, to $166.3 million for the nine months ended September 30, 2019 from $139.5 million in the prior-year period. On a constant currency basis, revenue increased $32.2 million, or 23.1%. Revenue growth in Canada was impacted favorably by the significant asset growth and product transition from Single-Pay and Unsecured Installment loans to Open-End loans that have a lower yield. Additionally, Canada revenues for the nine months ended September 30, 2019 included interest earned on past-due Open-End loan balances of approximately $5 million from the Q1 2019 Open-End Loss Recognition Change, offset by higher provision rate and higher provision for losses.
Single-Pay revenue decreased $31.6 million, or 34.9%, to $58.9 million for the nine months ended September 30, 2019, and Single-Pay receivables decreased $1.0 million, or 2.8%, to $35.1 million from $36.1 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.
Canada non-Single-Pay revenue increased $58.4 million, or 119.0%, to $107.4 million compared to $49.0 million for the prior-year period, on $94.1 million, or 59.8%, growth in related loan balances. The increase was primarily related to the launch of Open-End products in Alberta and Ontario in the fourth quarter of 2017, and significant expansion of the Open-End product in Ontario in late 2018. As a result of the third quarterincrease in Open-End loans, ancillary revenue increased $13.1 million versus the same period a year ago, primarily driven by an increase in sales of 2018.insurance to Open-End loan customers.
The provision for losses increased $8.7$6.4 million, or 55.5%12.4%, to $24.4$57.7 million for the threenine months ended September 30, 20182019 compared to $15.7$51.3 million in the prior yearprior-year period because of upfrontprimarily due to provisioning on Open-End loan volumesloans and mix shift from Single-Pay loans and Unsecured Installment to Open-End loans. Total Open-End and Installment loans grew by $82.7$18.1 million sequentially during the third quarter of 2019, compared to $6.1sequential growth of $87.4 million in the third quarter of 2017.2018. On a constant currency basis, provision for losses increased by $9.8$8.3 million, or 62.2%.16.1%, compared to the prior-year period.
The total cost of providing services in Canada increased $2.0decreased $2.5 million, or 10.3%4.2%, to $21.3 million for the three months ended September 30, 2018, compared to $19.3 million in the prior year period. Advertising costs rose $0.8 million, or 28.2%, due to increased spend for online and stores to support the ramp up of our LendDirect brand. The increase in non-advertising cost of providing services was due primarily to loan servicing costs resulting from Canada’s significantly increased loan portfolio. On a constant currency basis, cost of providing services increased $2.9 million, or 15.0%.
Canada operating expenses increased to $6.4 million in the three months ended September 30, 2018 from $4.7 million in the prior year period primarily due to increased interest expense resulting from the Non-Recourse Canada SPV Facility entered into during August 2018.
|
| | | | | | | | | | | |
Canada Segment Results | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % |
Revenue | $ | 139,502 |
| $ | 135,819 |
| $ | 3,683 |
| 2.7 | % |
Provision for losses | 51,346 |
| 36,246 |
| 15,100 |
| 41.7 | % |
Net revenue | 88,156 |
| 99,573 |
| (11,417 | ) | (11.5 | )% |
Advertising costs | 9,147 |
| 6,944 |
| 2,203 |
| 31.7 | % |
Non-advertising costs of providing services | 50,718 |
| 46,718 |
| 4,000 |
| 8.6 | % |
Total cost of providing services | 59,865 |
| 53,662 |
| 6,203 |
| 11.6 | % |
Gross margin | 28,291 |
| 45,911 |
| (17,620 | ) | (38.4 | )% |
Corporate, district and other | 14,791 |
| 12,407 |
| 2,384 |
| 19.2 | % |
Interest expense | 1,298 |
| 142 |
| 1,156 |
| # |
|
Total operating expense | 16,089 |
| 12,549 |
| 3,540 |
| 28.2 | % |
Segment operating income | 12,202 |
| 33,362 |
| (21,160 | ) | (63.4 | )% |
Interest expense | 1,298 |
| 142 |
| 1,156 |
| # |
|
Depreciation and amortization | 3,306 |
| 3,389 |
| (83 | ) | (2.4 | )% |
EBITDA | 16,806 |
| 36,893 |
| (20,087 | ) | (54.4 | )% |
Legal settlements | 119 |
| — |
| 119 |
|
|
|
Other adjustments | 223 |
| (654 | ) | 877 |
| |
Adjusted EBITDA | $ | 17,148 |
| $ | 36,239 |
| $ | (19,091 | ) | (52.7 | )% |
# - Variance greater than 100% or not meaningful. | | | | |
Canada Segment Results - For the nine months ended September 30, 2018 and 2017
Canada revenue improved $3.7 million, or 2.7%, to $139.5$57.3 million for the nine months ended September 30, 2018 from $135.82019 compared to $59.9 million in the prior yearprior-year period. On a constant currency basis, revenue was up $1.7Advertising costs decreased by $3.9 million, or 1.2%. Revenue growth42.4%, primarily from mix-shift and stability in Canada was impacted byour Canadian portfolio following the accelerated product transition from Single-Pay and Unsecured Installment loans to Open-End loans and by regulatory rate changes in Alberta, Ontario and British Columbia.
Single-Pay revenue decreased $18.2 million, or 16.8%, to $90.5 million for the nine months ended September 30, 2018 and Single-Pay ending receivables decrease of $14.2 million, or 28.3%, to $36.1 million from $50.4 million in the prior year. The decrease in Single-Pay revenue and receivables was due to product mix shift in Canada from Single-Pay loans to Open-End loans and by regulatory changes that lower pricing year-over-year.
Canadian non-Single-Pay revenue increased $21.9 million, or 80.7%, to $49.0 million compared to $27.1 million the same period a year ago on $108.5 million, or 221.6%, growth in related loan balances. The increase was primarily related to the launchdeployment of Open-End products in Alberta and Ontario in the fourth quarter of 2017 and significant expansion of the Open-End product in Ontarioloans in the third quarter of 2018.
The provision for losses increased $15.1 million, or 41.7%, to $51.3 million for the nine months ended September 30, 2018, compared to $36.2 millionpartially offset by an increase in the prior year period because of loan volumes and mix shift from Single-Pay loans to Unsecured Installment and Open-End loans. On a constant currency basis, provision for losses increased $14.5 million, or 40.1%.
Thenon-advertising cost of providing services in Canada increased $6.2 million, or 11.6%, to $59.9 million forof $1.4 million. There was no material impact on the nine months ended September 30, 2018, compared to $53.7 million in the prior year period. The increase was due primarily to $4.0 million, or 8.6%, higher non-advertising costs of providing services compared to the prior year due to $1.6 million of loan servicing costs resulting from Canada's increased loan portfolio and $1.4 million of additional salary expense related to an increase in headcount. The remaining increase is primarily related to occupancy expenses from higher store counts as we have opened seven LendDirect stores since the third quarter of 2017. On a constant currency basis, cost of providing services from exchange rate changes.
Canada operating expenses increased $5.4$8.4 million, or 10.0%.
Operating expenses increased $3.5 million, or 28.2%52.0%, to $16.1$24.4 million in the nine months ended September 30, 2018,2019 from $12.5$16.1 million in the prior year period. Corporate, district and other expenses increased by $2.4 millionprior-year period primarily due to increased collections and customer support payroll expenses from seasonality, increased volumes, expansion of the LendDirect business and product shifts from Single-Pay and Unsecured Installment to Open-End loans. Additionally, interest expense increased by $1.2 million due toon the Non-Recourse Canada SPV Facility entered into duringthat began in August 2018. On a constant currency basis, operating expenses increased $3.3 million, or 26.6%.
|
| | | | | | | | | | | |
U.K. Segment Results | Three Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % |
Revenue | $ | 13,522 |
| $ | 10,635 |
| $ | 2,887 |
| 27.1 | % |
Provision for losses | 6,831 |
| 4,117 |
| 2,714 |
| 65.9 | % |
Net revenue | 6,691 |
| 6,518 |
| 173 |
| 2.7 | % |
Advertising costs | 2,765 |
| 1,367 |
| 1,398 |
| # |
|
Non-advertising costs of providing services | 536 |
| 1,737 |
| (1,201 | ) | (69.1 | )% |
Total cost of providing services | 3,301 |
| 3,104 |
| 197 |
| 6.3 | % |
Gross margin | 3,390 |
| 3,414 |
| (24 | ) | (0.7 | )% |
Corporate, district and other | 7,690 |
| 4,330 |
| 3,360 |
| 77.6 | % |
Interest income | (7 | ) | (12 | ) | (5 | ) | 41.7 | % |
Restructuring costs | — |
| 7,393 |
| (7,393 | ) | # |
|
Total operating expense | 7,683 |
| 11,711 |
| (4,028 | ) | (34.4 | )% |
Segment operating loss | (4,293 | ) | (8,297 | ) | 4,004 |
| 48.3 | % |
Interest income | (7 | ) | (12 | ) | (5 | ) | 41.7 | % |
Depreciation and amortization | 124 |
| 174 |
| (50 | ) | (28.7 | )% |
EBITDA | (4,176 | ) | (8,135 | ) | 3,959 |
| 48.7 | % |
Legal settlements | 3,952 |
| — |
| 3,952 |
| |
Other adjustments | (6 | ) | (10 | ) | 4 |
| |
Restructuring costs | — |
| 7,393 |
| (7,393 | ) |
|
|
Adjusted EBITDA | $ | (230 | ) | $ | (752 | ) | $ | 522 |
| 69.4 | % |
# - Variance greater than 100% or not meaningful |
U.K. Segment Results - For the three months ended September 30, 2018 and 2017
U.K. revenue improved $2.9 million, or 27.1%, to $13.5 million for the three months ended September 30, 2018 compared to $10.6 million in the prior year period. Provision for losses increased $2.7 million, or 65.9%, due to upfront provisioning on volume growth, high percentage of new customers in the origination mix, and the product mix from Single-Pay to Installment loans. Installment loans in the U.K. grew sequentially by $7.3 million in the third quarter compared to $1.0 million in the third quarter of 2017. Currency translation for the period did not have a significant impact on net revenue compared to prior year.
The cost of providing services in the U.K. increased $0.2 million, or 6.3%, for the three months ended September 30, 2018 compared to prior year period.
Corporate, district and other expenses increased $3.4 million, or 77.6%, to $7.7 million for the three months ended September 30, 2018 compared to the prior year period. This increase includes costs related to customer redress pursuant to a complaint resolution process for all lenders in the U.K. The cost in the third quarter of 2018 to administer the complaint resolution process and the direct customer redress paid or accrued totaled $4.0 million, an increase of $3.3 million compared to the prior year period.
As we have previously disclosed, our U.K. operating results have experienced an elevated level of legal settlement expenses related to customer redress pursuant to a complaint resolution process for all lenders in the U.K. During the quarter ended September 30, 2018, these costs totaled $4.0 million. After careful consideration, we do not believe that, given the scale of our U.K. operations, we can sustain claims at this level and may not be able to continue viable U.K. business operations without action by the U.K. business to reduce the risk of claims relating to historic lending. We have been in ongoing discussions with relevant regulators, including the Financial Conduct Authority (“FCA”) and the Financial Ombudsman Service with regard to our alternatives. While these discussions are ongoing, the FCA has provided a Final Requirement Notice of a limited-scope review of the options being considered, to be conducted by a Skilled Person under section 166 of the (U.K.) Financial Services and Markets Act 2000. We have formally engaged a Skilled Person and have begun the review. We are evaluating, and are discussing with the FCA, several potential courses of action including potential solutions to allow the firm to finally resolve liabilities associated with historic lending. The potential alternatives under consideration may require approval of the FCA, consent under certain of our debt facilities and court approval in the U.K. We have not determined to pursue any specific alternative at this time and are continuing to evaluate our options.
|
| | | | | | | | | | | |
U.K. Segment Results | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | Change $ | Change % |
Revenue | $ | 36,251 |
| $ | 28,912 |
| $ | 7,339 |
| 25.4 | % |
Provision for losses | 16,618 |
| 9,619 |
| 6,999 |
| 72.8 | % |
Net revenue | 19,633 |
| 19,293 |
| 340 |
| 1.8 | % |
Advertising costs | 7,077 |
| 4,059 |
| 3,018 |
| 74.4 | % |
Non-advertising costs of providing services | 2,703 |
| 5,426 |
| (2,723 | ) | (50.2 | )% |
Total cost of providing services | 9,780 |
| 9,485 |
| 295 |
| 3.1 | % |
Gross margin | 9,853 |
| 9,808 |
| 45 |
| 0.5 | % |
Corporate, district and other | 18,390 |
| 13,091 |
| 5,299 |
| 40.5 | % |
Interest income | (19 | ) | (11 | ) | 8 |
| (72.7 | )% |
Restructuring costs | — |
| 7,393 |
| (7,393 | ) | # |
|
Total operating expense | 18,371 |
| 20,473 |
| (2,102 | ) | (10.3 | )% |
Segment operating loss | (8,518 | ) | (10,665 | ) | 2,147 |
| (20.1 | )% |
Interest income | (19 | ) | (11 | ) | 8 |
| (72.7 | )% |
Depreciation and amortization | 378 |
| 531 |
| (153 | ) | (28.8 | )% |
EBITDA | (8,159 | ) | (10,145 | ) | 1,986 |
| (19.6 | )% |
Legal settlements | 3,952 |
| — |
| 3,952 |
| |
Other adjustments | (48 | ) | (28 | ) | (20 | ) | |
Restructuring costs | — |
| 7,393 |
| (7,393 | ) |
|
|
Adjusted EBITDA | $ | (4,255 | ) | $ | (2,780 | ) | $ | (1,475 | ) | 53.1 | % |
# - Variance greater than 100% or not meaningful |
U.K. Segment Results - For the nine months ended September 30, 2018 and 2017
U.K. revenue improved $7.3 million, or 25.4%, to $36.3 million for the nine months ended September 30, 2018 compared to $28.9 million in the prior year period. On a constant currency basis, revenue was up $5.4 million, or 18.8%. Provision for losses increased $7.0 million, and, on a constant currency basis, increased $6.1 million, or 63.9%, due to volume growth.
The cost of providing services in the U.K. increased $0.3 million, or 3.1%, for the nine months ended September 30, 2018 compared to prior year period. On a constant currency basis, the cost of providing services decreased $0.3 million, or 2.8%.
Corporate, district and other expenses increased $5.3 million, or 40.5%, to $18.4 million for the nine months ended September 30, 2018 compared to the prior year period. This increase includes costs related to customer redress pursuant to a complaint resolution process for all lenders in the U.K. The cost in the nine months ended September 30, 2018 to administer the complaint resolution process and the direct customer redress paid or accrued totaled $6.9 million, an increase of $5.3 million compared to the prior year period. On a constant currency basis, corporate, district and other expenses increased $4.4 million, or 33.5%.
Supplemental Non-GAAP Financial Information
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity with U.S. GAAP, we provide certain “non-GAAP financial measures” as defined under SEC rules,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, certain legal and related costs, loss from equity method investment, goodwill and intangible asset impairments, certain costs related to the disposition of U.K., transaction-related costs, share-based compensation, intangible asset amortization and cumulative tax effect of adjustments, on a total and per share basis);
EBITDA (earnings before interest, income taxes, depreciation and amortization);
Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items); and
Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in our Condensed Consolidated Financial Statements).
We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of ourthe Company's operations. We believe that these non-GAAP financial measures reflect an additionaloffer another way of viewingto view aspects of our business that, when viewed with itsour 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. 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. GAAP, we provide Gross Combined Loans Receivable consisting of owned loans receivable plus loans originated by third-party lenders through the CSO programs, which we guarantee but do not include in the Condensed Consolidated Financial Statements. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
We provide non-GAAP financial information for informational purposes and to enhance understanding of our U.S. GAAP Condensed Consolidated Financial Statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities or any other liquidity measure derived in accordance with U.S. GAAP. Rather, these measuresReaders should be consideredconsider the information in addition to, resultsbut not instead of or superior to, the financial statements prepared in accordance with U.S. GAAP, but should not be considered a substitute for, or superior to, U.S. GAAP results.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 Measures,per Share, EBITDA and Adjusted EBITDA measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our income or cash flows as reported under U.S. GAAP. Some of these limitations are:
they do not include our cash expenditures or future requirements for capital expenditures or contractual commitments;
they do not include changes in, or cash requirements for, our working capital needs;
they do not include the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
depreciation and amortization are non-cash expense items reported in ourthe 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 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 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 Condensed Consolidated Financial Statements but from which we earn revenue and for which we provide a guarantee to the lender. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
We evaluate our stores based on revenue per store, net charge-offsprovision for losses at each store and store-level EBITDA, per store, with consideration given to the length of time a store has been open and its geographic location. We monitor newer stores for their progress to profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate our ability to incur and service debt and the capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. The computation of Adjusted EBITDA as presented in this releaseForm 10-Q may differ from the computation of similarly-titled measures provided by other companies.
Reconciliation of Net Incomeincome 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 September 30, | | Nine Months Ended September 30, |
(in thousands except per share data) | 2018 | 2017 | | Change $ | Change % | | 2018 | 2017 | | Change $ | Change % |
Net income | $ | (47,022 | ) | $ | 9,762 |
| | $ | (56,784 | ) | # |
| | $ | (7,755 | ) | $ | 42,743 |
| | $ | (50,498 | ) | # |
|
Adjustments: | | | | | | | | | | | |
Loss on extinguishment of debt and related costs (1) | 72,165 |
| — |
| | | | | 83,848 |
| 12,458 |
| | | |
Restructuring costs (2) | — |
| 7,393 |
| | | | | — |
| 7,393 |
| | | |
Legal settlements (3) | 2,774 |
| 361 |
| | | | | 2,774 |
| 2,311 |
| | | |
Transaction-related costs (4) | — |
| 123 |
| | | | | — |
| 2,523 |
| | | |
Share-based cash and non-cash compensation (5) | 2,089 |
| 454 |
| | | | | 6,112 |
| 1,760 |
| | | |
Intangible asset amortization | 728 |
| 634 |
| | | | | 2,059 |
| 1,807 |
| | | |
Impact of tax law changes (6) | (600 | ) | — |
| | | | | 1,200 |
| — |
| | | |
Cumulative tax effect of adjustments | (19,185 | ) | (4,518 | ) | | | | | (23,586 | ) | (11,623 | ) | | | |
Adjusted Net Income | $ | 10,949 |
| $ | 14,209 |
| | $ | (3,260 | ) | (22.9 | )% | | $ | 64,652 |
| $ | 59,372 |
| | $ | 5,280 |
| 8.9 | % |
| | | | | | | | | | | |
Net income | $ | (47,022 | ) | $ | 9,762 |
| | | | | $ | (7,755 | ) | $ | 42,743 |
| | | |
Diluted Weighted Average Shares Outstanding (7) | 48,352 |
| 38,914 |
| | | | | 48,061 |
| 38,959 |
| | | |
Diluted Earnings per Share (7) | $ | (0.97 | ) | $ | 0.25 |
| | $ | (1.22 | ) | # |
| | $ | (0.16 | ) | $ | 1.10 |
| | $ | (1.26 | ) | # |
|
Per Share impact of adjustments to Net Income (7) | 1.20 |
| 0.11 |
| | | | | 1.51 |
| 0.43 |
| | | |
Adjusted Diluted Earnings per Share (7) | $ | 0.23 |
| $ | 0.36 |
| | $ | (0.13 | ) | (36.1 | )% | | $ | 1.35 |
| $ | 1.53 |
| | $ | (0.18 | ) | (11.8 | )% |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Net income (loss) from continuing operations | $ | 27,987 |
| $ | (42,590 | ) | $ | 70,577 |
| # | | $ | 74,327 |
| $ | 1,041 |
| $ | 73,286 |
| # |
|
Adjustments: | | | |
| | | | |
|
|
Loss on extinguishment of debt (1) | — |
| 72,165 |
| |
| | — |
| 83,848 |
| |
|
|
Restructuring costs (2) | — |
| — |
| |
| | 1,752 |
| — |
| |
|
|
Legal and related costs (3) | 870 |
| (1,178 | ) | |
| | 870 |
| (1,178 | ) | |
|
|
U.K. related costs (4) | 348 |
| — |
| |
| | 8,844 |
| — |
| |
|
|
Loss from equity method investment (5) | 1,384 |
| — |
| |
| | 5,132 |
| — |
| |
|
|
Share-based compensation (6) | 2,771 |
| 2,089 |
| |
| | 7,587 |
| 6,112 |
| |
|
|
Intangible asset amortization | 751 |
| 714 |
| |
| | 2,308 |
| 2,017 |
| |
|
|
Impact of tax law changes (7) | — |
| (600 | ) | |
| | — |
| 1,200 |
| |
|
|
Cumulative tax effect of adjustments | (1,232 | ) | (19,185 | ) | |
| | (5,554 | ) | (23,579 | ) | |
|
|
Adjusted Net Income | $ | 32,879 |
| $ | 11,415 |
| $ | 21,464 |
| # | | $ | 95,266 |
| $ | 69,461 |
| $ | 25,805 |
| 37.2 | % |
| | | |
| | | | |
|
|
Net income (loss) from continuing operations | $ | 27,987 |
| $ | (42,590 | ) | |
| | $ | 74,327 |
| $ | 1,041 |
| |
|
|
Diluted Weighted Average Shares Outstanding | 46,010 |
| 45,853 |
| |
| | 46,887 |
| 48,061 |
| |
|
|
Adjusted Diluted Average Shares Outstanding | 46,010 |
| 48,352 |
| |
| | 46,887 |
| 48,061 |
| |
|
|
Diluted Earnings per Share from continuing operations | $ | 0.61 |
| $ | (0.93 | ) | $ | 1.54 |
| # | | $ | 1.59 |
| $ | 0.03 |
| $ | 1.56 |
| # |
|
Per Share impact of adjustments to Net Income | 0.10 |
| 1.17 |
| |
| | 0.44 |
| 1.42 |
| |
|
|
Adjusted Diluted Earnings per Share | $ | 0.71 |
| $ | 0.24 |
| $ | 0.47 |
| # | | $ | 2.03 |
| $ | 1.45 |
| $ | 0.58 |
| 40.0 | % |
Reconciliation of Net income (loss) from continuing operations to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
| |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(dollars in thousands) | 2018 | 2017 | | Change $ | Change % | | 2018 | 2017 | | Change $ | Change % | |
Net income | $ | (47,022 | ) | $ | 9,762 |
| | $ | (56,784 | ) | # |
| | $ | (7,755 | ) | $ | 42,743 |
| | $ | (50,498 | ) | # |
| |
| | 2019 | 2018 | Change $ | Change % | | 2019 | 2018 | Change $ | Change % |
Net income (loss) from continuing operations | | $ | 27,987 |
| $ | (42,590 | ) | $ | 70,577 |
| # |
| | $ | 74,327 |
| $ | 1,041 |
| $ | 73,286 |
| # |
|
Provision for income taxes | (16,775 | ) | 9,920 |
| | (26,695 | ) | # |
| | 9 |
| 29,988 |
| | (29,979 | ) | (100.0 | )% | 11,239 |
| (16,914 | ) | 28,153 |
| # |
| | 28,738 |
| (269 | ) | 29,007 |
| # |
|
Interest expense | 23,396 |
| 18,844 |
| | 4,552 |
| 24.2 | % | | 66,210 |
| 60,694 |
| | 5,516 |
| 9.1 | % | 17,364 |
| 23,403 |
| (6,039 | ) | (25.8 | )% | | 52,077 |
| 66,229 |
| (14,152 | ) | (21.4 | )% |
Depreciation and amortization | 4,747 |
| 4,790 |
| | (43 | ) | (0.9 | )% | | 14,006 |
| 14,120 |
| | (114 | ) | (0.8 | )% | 4,609 |
| 4,623 |
| (14 | ) | (0.3 | )% | | 14,180 |
| 13,628 |
| 552 |
| 4.1 | % |
EBITDA | (35,654 | ) | 43,316 |
| | $ | (78,970 | ) | # |
| | 72,470 |
| 147,545 |
| | $ | (75,075 | ) | (50.9 | )% | 61,199 |
| (31,478 | ) | 92,677 |
| # |
| | 169,322 |
| 80,629 |
| 88,693 |
| # |
|
Loss on extinguishment of debt (1) | 69,200 |
| — |
| | | | | 80,883 |
| 12,458 |
| | | | — |
| 69,200 |
| |
|
| | — |
| 80,883 |
| |
|
|
Restructuring costs (2) | — |
| 7,393 |
| | | | | — |
| 7,393 |
| | | | — |
| — |
| |
|
| | 1,752 |
| — |
| |
|
|
Legal Settlements (3) | 2,774 |
| 361 |
| | | | | 2,774 |
| 2,311 |
| | | | |
Transaction related costs (4) | — |
| 123 |
| | | | | — |
| 2,523 |
| | | | |
Share-based cash and non-cash compensation (5) | 2,089 |
| 454 |
| | | | | 6,112 |
| 1,760 |
| | | | |
Legal and related costs (3) | | 870 |
| (1,178 | ) | |
|
| | 870 |
| (1,178 | ) | |
|
|
U.K. related costs (4) | | 348 |
| — |
| |
|
| | 8,844 |
| — |
| |
|
|
Loss from equity method investment (5) | | 1,384 |
| — |
| |
|
| | 5,132 |
| — |
| |
|
|
Share-based compensation (6) | | 2,771 |
| 2,089 |
| |
|
| | 7,587 |
| 6,112 |
| |
|
|
Other adjustments (8) | (55 | ) | (218 | ) | | | | | (49 | ) | (733 | ) | | | | 483 |
| (49 | ) | |
|
| | 91 |
| (1 | ) | |
|
|
Adjusted EBITDA | 38,354 |
| 51,429 |
| | (13,075 | ) | (25.4 | )% | | 162,190 |
| 173,257 |
| | (11,067 | ) | (6.4 | )% | $ | 67,055 |
| $ | 38,584 |
| $ | 28,471 |
| 73.8 | % | | $ | 193,598 |
| $ | 166,445 |
| $ | 27,153 |
| 16.3 | % |
Adjusted EBITDA Margin | 13.6 | % | 20.2 | % | | | | | 20.4 | % | 24.9 | % | | | | 22.6 | % | 14.3 | % | | | | 23.1 | % | 22.0 | % | | |
# - Variance greater than 100% or not meaningful | |
|
| |
(1) | For the nine months ended September 30, 2018, the $80.9 million of loss on extinguishment of debt is comprised of (a)(i) $11.7 million incurred in the first quarter of 2018 for the redemption of $77.5 million of the CURO Financial Technologies Corp.'s ("CFTC") 12.00% Senior Secured Notes due 2022 and (b)(ii) $69.2 million incurred in the third quarter of 2018 for the redemption of the remaining $525.7 million of these notes. The $69.2 million of third quarter loss on extinguishment of debt is comprised of a $54.0 million make whole premium and $15.2 million of deferred financing costs, net of premium/discounts. An additional $3.0 million is included in related costs for the three and nine months ended September 30, 2018 for duplicative interest paid through September 30, 2018 prior to repayment of the remaining 12.00% Senior Secured Notes and the Non-Recourse U.S. SPV Facility.
For
|
(2) | Restructuring costs of $1.8 million for the nine months ended September 30, 2017, the $12.5 million loss from the extinguishment of debt was2019 were due to eliminating 121 positions in North America. The store employee reductions help better align store staffing with in-store customer traffic and volume patterns, as more of our growth comes from online channels and as store customers require less time in stores as they conduct more of the redemptionfollow-up activities online. The elimination of CURO Intermediate Holding Corp.'s ("CURO Intermediate") 10.75% Senior Secured Notes due 2018certain corporate positions relate to efficiency initiatives and has allowed the 12.00% Senior Cash Pay Notes due 2017.Company to reallocate investment to strategic growth activities. |
(2)(3) | RestructuringLegal and related costs of $7.4 million for the three and nine months ended September 30, 2017 were due2019 include costs related to certain securities litigation and related matters of $0.6 million and legal and advisory costs of $0.3 million related to the closurerepurchase of the remaining 13 U.K. stores. |
(3) | shares from FFL. Legal settlementsand related costs for the three and nine months ended September 30, 2018 includes (a) $4.0 million of customer redress costs in the U.K., (b)(i) a $1.8 million reduction of the liability related to our offer to reimburse certain bank overdraft or non-sufficient funds fees because of possible borrower confusion about certain electronic payments we initiated on their loans and (c)(ii) settlement of certain matters in California and Canada. Legal settlements for the three and nine months ended September 30, 2017 includes $2.3 million for the settlement of the Harrison, et al v. Principal Investment, Inc. et al. For more information, see Note 18 - "Contingent Liabilities" of the Notes to Consolidated Financial Statements included in the Company'sour Form 10-K filed with the SEC on March 13, 2018.18, 2019. |
(4) | Transaction-relatedU.K. related costs include professional fees paid in connection with potential transactions andof $8.8 million for the original issuancenine months ended September 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 $470.0 million ofthe 8.25% Senior Secured Notes due 2022 into deconsolidate the firstU.K. Segment and $1.2 million for other costs. |
(5) | The Loss from equity method investment for the nine months ended September 30, 2019 of $5.1 million includes (i) our share of the estimated GAAP net loss of Zibby and (ii) a $3.7 million loss recognized during the second quarter of 2017.2019. From April through July of 2019, Zibby completed an equity raising round at a value per share less than the value per share raised in prior raises. As of September 30, 2019, we owned 42.3% of the outstanding shares of Zibby on a fully diluted basis. |
(5)(6) | 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. |
(6)(7) | As a result of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), which became law on December 22, 2017, we provided an estimate of the new repatriation tax as of December 31, 2017. Subsequent to further guidance published in the first quarter of 2018, we booked additional tax expense of $1.2 million for the 2017 repatriation tax. Additionally, the 2017 Tax Act provided for a new GILTIGlobal Intangible Low-Taxed Income tax starting in 2018 and we estimated and provided tax expense of $0.6 million in the first quarter of 2018. This2018.We revised this expense was reversed in the third quarter of 2018 based on changes in theour geographic mix of income. |
(7) | The share and per share information have been adjusted to give effect to the 36-to-1 split of the Company's common stock that occurred during the fourth quarter of 2017. |
(8) | Other adjustments include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense. Rent expense is recognized ratably on a straight-line basis over the lease term. |
Currency Information
We operate in the U.S., and Canada and the U.K. and report 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. AllWe translate all balance sheet accounts are translated into U.S. dollars at the currency exchange rate in effect at the end of each period. The incomeWe translate the statement is translatedof operations at the average rates of exchange for the period. CurrencyWe record currency translation adjustments are recorded as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.
Constant Currency Analysis
We have operations in the U.S. and Canada. In the three months ended September 30, 2019 and 2018, 20.2% and 2017, approximately 21.1% and 24.0%17.1%, respectively, of our revenues from continuing operations were originated in currencies other than the U.S. Dollar.Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar and the British Pound Sterling.Dollar.
Three Months Ended September 30, 20182019 and 20172018
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Three Months Ended September 30, | | Change |
| 2018 | 2017 | | $ | % |
Canadian Dollar | $ | 0.7652 |
| $ | 0.7978 |
| |
| ($0.0326 | ) | (4.1 | )% |
British Pound Sterling | $ | 1.3028 |
| $ | 1.3089 |
| |
| ($0.0061 | ) | (0.5 | )% |
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Three Months Ended September 30, | | Change |
| 2019 | 2018 | | $ | % |
Canadian Dollar | $ | 0.7576 |
| $ | 0.7652 |
| |
| ($0.0076 | ) | (1.0 | )% |
Nine Months Ended September 30, 20182019 and 20172018
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Nine Months Ended September 30, | | Change |
| 2018 | 2017 | | $ | % |
Canadian Dollar | $ | 0.7771 |
| $ | 0.7656 |
| |
| $0.0115 |
| 1.5 | % |
British Pound Sterling | $ | 1.3518 |
| $ | 1.2754 |
| |
| $0.0764 |
| 6.0 | % |
|
| | | | | | | | | | | | |
| Average Exchange Rates | | |
| Nine Months Ended September 30, | | Change |
| 2019 | 2018 | | $ | % |
Canadian Dollar | $ | 0.7526 |
| $ | 0.7771 |
| |
| ($0.0245 | ) | (3.2 | )% |
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 one of the applicable foreign currencies.Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
The revenues and gross margin below during the three months ended September 30, 20182019 were calculated using the actual average exchange rate during the three months ended September 30, 2017.2018 (in thousands, unaudited).
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change |
(dollars in thousands) | | 2018 | | 2017 | | $ | | % | |
Revenues – constant currency basis: | | | | | | | | | |
Canada | | $ | 48,176 |
| | $ | 50,658 |
| | $ | (2,482 | ) | | (4.9 | )% | |
United Kingdom | | 13,590 |
| | 10,635 |
| | 2,955 |
| | 27.8 | % | |
Gross margin - constant currency basis: | | | | | | | | | |
Canada | | 495 |
| | 15,649 |
| | (15,154 | ) | | (96.8 | )% | |
United Kingdom | | 3,412 |
| | 3,414 |
| | (2 | ) | | (0.1 | )% | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change |
| | 2019 | | 2018 | | $ | | % |
Canada – constant currency basis: | | | | | | | | |
Revenues | | $ | 60,805 |
| | $ | 46,209 |
| | $ | 14,596 |
| | 31.6 | % |
Gross Margin | | 19,597 |
| | 489 |
| | 19,108 |
| | # |
|
# - variance greater than 100% or not meaningful |
The revenues and gross margin below during the nine months ended September 30, 20182019 were calculated using the actual average exchange rate during the nine months ended September 30, 2017.2018 (in thousands, unaudited).
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change |
(dollars in thousands) | | 2018 | | 2017 | | $ | | % | |
Revenues – constant currency basis: | | | | | | | | | |
Canada | | $ | 137,494 |
| | $ | 135,819 |
| | $ | 1,675 |
| | 1.2 | % | |
United Kingdom | | 34,337 |
| | 28,912 |
| | 5,425 |
| | 18.8 | % | |
Gross margin - constant currency basis: | | | | | | | | | |
Canada | | 27,676 |
| | 45,911 |
| | (18,235 | ) | | (39.7 | )% | |
United Kingdom | | 9,350 |
| | 9,808 |
| | (458 | ) | | (4.7 | )% | |
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change |
| | 2019 | | 2018 | | $ | | % | |
Canada – constant currency basis: | | | | | | | | | |
Revenues | | $ | 171,664 |
| | $ | 139,502 |
| | $ | 32,162 |
| | 23.1 | % | |
Gross Margin | | 52,861 |
| | 28,291 |
| | 24,570 |
| | 86.8 | % | |
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 partythird-party lenders under our CSO programs, our Non-Recourse U.S. SPV Facility and our Non-Recourse Canada SPV Facility (defined below). During August 2018, we issued our$690.0 million 8.25% Senior Secured Notes due September 2025 ("8.25% Senior Secured Notes") to (i) to redeem the outstanding 12.00% Senior Secured Notes due 2022 of the Company’s wholly owned subsidiary, CURO Financial Technologies Corp.,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, five-year revolving credit facility consistingwhich 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 therewith. As ofwith the foregoing.
As of September 30, 2018,2019, 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.obligations, and fund our share repurchase program. Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loans receivable.
Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers which would reduce cash outflow requirements while increasing cash inflows through loan repayments to the extent we experience any short-term or long-term funding shortfalls. We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements and reduce our capital spending in order to generate additional liquidity. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.
Borrowings
Our long-term debt consisted of the following as of September 30, 20182019 and December 31, 20172018 (net of deferred financing costs) (in thousands):
|
| | | | | | |
| September 30, | December 31, |
(dollars in thousands) | 2018 | 2017 |
8.25% Senior Secured Notes (due 2025) | $ | 677,245 |
| $ | — |
|
12.00% Senior Secured Notes (due 2022) | — |
| 585,823 |
|
Non-Recourse U.S. SPV Facility | 76,614 |
| 120,402 |
|
Non-Recourse Canada SPV Facility | 85,342 |
| — |
|
Senior Revolver | 29,000 |
| — |
|
Cash Money Revolving Credit Facility | — |
| — |
|
Long-term debt | $ | 868,201 |
| $ | 706,225 |
|
|
| | | | | | |
| September 30, | December 31, |
| 2019 | 2018 |
8.25% Senior Secured Notes (due 2025) | $ | 677,924 |
| $ | 676,661 |
|
Non-Recourse Canada SPV Facility | 102,483 |
| 107,479 |
|
Senior Revolver | 25,000 |
| 20,000 |
|
Debt | $ | 805,407 |
| $ | 804,140 |
|
Available Credit Facilities and Other Resources
8.25% Senior Secured Notes
As noted above, we issued our 8.25% Senior Secured Notes in August 2018. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year. In connection with the 8.25% Senior Secured Notes, we capitalized financing costs of approximately $12.9 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Long-Term Debt, and is being amortized over the term of the 8.25% Senior Secured Notes and included as a component of interest expense.
The extinguishment of the 12.00% Senior Secured Notes due 2022 resulted in a pretax loss of $69.2 million during the three months ended September 30, 2018.
12.00% Senior Secured Notes
In February and November 2017, CFTC issued $470.0 million and $135.0 million, respectively, of 12.00% Senior Secured Notes ("12.00% Senior Secured Notes"). Interest on the 12.00% Senior Secured Notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The February 2017 issuance refinanced similar notes that were nearing maturity. The extinguishment of the existing notes resulted in a pretax loss of $12.5$80.9 million during the nine months ended September 30, 2017.2018. In connection with these 2017 debt issuances we capitalized financing costs of approximately $18.3 million, the balance of which is included in the Condensed Consolidated Balance Sheets as a component of Long-Term Debt, and is being amortized over the term of the 12.00% Senior Secured Notes and included as a component of interest expense.
On March 7, 2018, CFTC redeemed $77.5 million of its 12.00% Senior Secured Notes using a portion of the proceeds from our IPOinitial public offering as required by the underlying indentures (the transaction whereby the 12.00% Senior Secured Notes were partially redeemed, the “Redemption”) at a price equal to 112.00% of the principal amount of the 12.00% Senior Secured Notes redeemed, plus accrued and unpaid interest paid thereon to the date of Redemption. Following the Redemption, $527.5 million of the original outstanding principal amount of the 12.00% Senior Secured Notes remain outstanding. The Redemption was conducted pursuant to the Indenture governing the 12.00% Senior Secured Notes (the “Indenture”), dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent.
The remainder of the 12.00% Senior Secured Notes were extinguished effective September 7, 2018 as a result of the issuance of the 8.25% Senior Secured Notes as described above.
Non-Recourse U.S. SPV Facility
In November 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the “SPV Borrower”) and a wholly-owned subsidiary, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that providesprovided for an $80.0 million term loan and $70.0 million of revolving borrowing capacity that cancould expand over time (“Non-Recourse U.S. SPV Facility”). The loans bearbore interest at an annual rate of up to 12.00% plus the greater of (x)(i) 1.0% per annum and (y) the(ii) three-month LIBOR. The SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. In connection with this facility, wethe capitalized financing costs at the time of approximatelyextinguishment, as discussed below, were $5.3 million, the balancenet of which isamortization. These capitalized financing costs were included in the Condensed ConsolidatingConsolidated Balance SheetsSheet as a component of Long-term debt"Debt" and is beingwere amortized over the term of the Non-Recourse U.S. SPV Facility. During the three months ended September 30, 2018, a portion of the proceeds from the 8.25% Senior Secured Notes were used to extinguish the revolver's balance of $42.4 million.
On October 11, 2018, we extinguished the remaining term loan balance of $80.0 million. We made the final termination payment of $2.7 million on October 26, 2018, resulting in a loss on the extinguishment of debt of $9.7 million for the quarter endingended December 31, 2018.
Non-Recourse Canada SPV Facility
On August 2, 2018, CURO Canada Receivables Limited Partnership, a newly created, bankruptcy-remote special purpose vehicle (the “Canada SPV Borrower”) and a wholly-owned subsidiary, entered into a four-year revolving credit facility with Waterfall Asset Management, LLC that provides for C$175.0 million of initial borrowing capacity and the ability to expand such capacity up to C$250.0 million (“Non-Recourse Canada SPV Facility”). The loans bear interest at an annual rate of 6.75% plus the three-month CDOR. As of September 30, 2018, the carrying amount of2019, outstanding borrowings fromunder the Non-Recourse Canada SPV Facility was $85.3were $102.5 million, net of deferred financing costs of $3.3 million.
Senior Revolver
InOn September 1, 2017, we closed on a $25.0 million Senior Secured Revolving Loan Facility (the "Senior Revolver"). In February 2018, the Senior Revolver capacity was increased to $29.0 million. In November 2018, the Senior Revolver capacity was increased to $50.0 million as permitted by the Indenture to the Senior Secured Notes based upon consolidated tangible assets.Notes. The Senior Revolver is now syndicated with participation by a second bank.four banks. The negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for our 8.25% Senior Secured Notes. We believe this facility complements our other financing sources, while providing seasonal short-term liquidity. Under the Senior Revolver, there is $29.0$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 5.00%5% per annum and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be reduced to $0zero for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries of CUROour subsidiaries that guarantee our 8.25% Senior Secured Notes and is secured by a lien on substantially all assets of CUROour assets and the guarantor subsidiaries that is senior to the lien securing our 8.25% Senior Secured Notes. The Senior Revolver was fully drawn ashad an outstanding balance of $25.0 million at September 30, 2018.2019.
In connection with this facility we capitalized financing costs of $0.1 million, the balance of which we included in the Condensed Consolidated Balance Sheets as a component of “Other assets,” and are being amortized over the term of the facility and included as a component of interest expense.
Cash Money Revolving Credit Facility
Cash Money Cheque Cashing, Inc., one of our Canadian subsidiaries, maintains a C$7.310 million revolving credit facility with Royal Bank of Canada. The Cash Money Revolving Credit Facility provides short-term liquidity required to meet the working capital needs of our Canadian operations. Aggregate draws under the revolving credit facility are limited to the lesser of: (i) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and (ii) C$7.310 million. As of September 30, 2019 and December 31, 2017,2018, the borrowing capacity under our revolving credit facility was reduced by C$0.3 million in stand-by-letters of credit.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Money’s assets and contains various covenants that include, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at September 30, 20182019 and December 31, 2017.2018.
Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated:indicated (in thousands):
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(dollars in thousands) | | 2018 | | 2017 |
Net cash (used in) provided by operating activities | | $ | (72,601 | ) | | $ | 29,412 |
|
Net cash used in investing activities | | (21,442 | ) | | (16,252 | ) |
Net cash provided by (used in) financing activities | | 90,449 |
| | (115,555 | ) |
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
Net cash provided by continuing operating activities | | $ | 464,293 |
| | $ | 357,079 |
|
Net cash used in continuing investing activities | | (391,188 | ) | | (421,423 | ) |
Net cash (used in) provided by continuing financing activities | | (58,488 | ) | | 90,449 |
|
Continuing Operating activitiesActivities
Net cash usedprovided by continuing operating activities for the nine months ended September 30, 2019 was $464.3 million, primarily attributable to net income from continuing operations of $74.3 million, the effect of non-cash reconciling items of $364.3 million, which includes provision for loan losses of $338.3 million, and changes in our operating assets and liabilities which provided $25.6 million.
Net cash provided by continuing operating activities for the nine months ended September 30, 2018 was $72.6$357.1 million. Contributing to current year net cash used inprovided by continuing operating activities were net loss of $7.8 million and expenses, primarily non-cash of $412.7 million. Major components of non-cash expenses includereconciling items, such as depreciation and amortization, provision for loan losses and loss on extinguishment of debt extinguishment and share-based compensation expense.for a total of $398.1 million. Contributions from net loss and non-cash expensesreconciling items were offset by changes in our operating assets and liabilities of $477.5$42.1 million. Our loans receivable change represented $444.4 million of the total change in operating assets and liabilities.
Continuing Investing Activities
Net cash provided by operatingused in continuing investing activities for the nine months ended September 30, 20172019 was $17.0$391.2 million, primarily reflecting the net origination of loans of $374.4 million. ContributingIn addition, we used cash to net cash provided by operating activities were net incomepurchase $8.7 million of $42.7property and equipment, including software licenses and $8.2 million and non-cash expenses, such as depreciation and amortization and the provision for loan losses for a total of $244.4 million, partially offset by changesadditional investment in our operating assets and liabilities of $270.2 million. The most significant change within operating assets and liabilities was a $295.1 million increase in loans receivable, net of provision for losses.Zibby.
Loans receivableNet cash used in continuing investing activities for the nine months ended September 30, 2018 was $421.4 million, primarily reflecting the net origination of loans of $412.4 million. In addition, we used cash to purchase $8.0 million of property and equipment, including software licenses, and to purchase $1.0 million of Zibby preferred shares.
Origination of loans will fluctuate from period to periodperiod-to-period, depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically takes placeoccurs during the first quarter of the year and is driven by income tax refunds in the United States.U.S. Typically, customers will use the proceeds from income tax refunds to pay outstanding loan balances, resulting in an increase ofin our net cash balances and a decrease ofin our consumer loans receivable balances. Consumer loans receivable balances typically reflect growth during the remainder of the year.
Investing activitiesContinuing Financing Activities
Net cash used in investingcontinuing financing activities for the nine months ended September 30, 20182019 was $21.4 million. We used cash$58.5 million, primarily due to purchase approximately $8.2(i) $27.1 million of propertycash used to repurchase 2,000,000 shares of our common stock, at a price of $13.55 per share, owned by FFL and equipment, including software licenses, and to purchase $1.0(ii) $25.1 million of Cognical Holdings preferred shares. Additionally,cash used to repurchase 2,089,644 shares of our common stock under the increase in restricted cash of $12.3 million was primarily attributable to our Non-Recourse U.S. SPV Facility and our Non-Recourse Canada SPV Facility entered intoshare repurchase program which began during the three months ended September 30, 2018.
Net cash used in investing activities for the nine months ended September 30, 2017 was $16.3 million. Restricted cash increased by approximately $3.4 million primarily attributable to our Non-Recourse U.S. SPV Facility. Additionally, we purchased approximately $7.9 millionsecond quarter of property and equipment, including software licenses, and $5.0 million of Cognical Holdings preferred shares.
Financing activities2019.
Net cash provided by continuing financing activities for the nine months ended September 30, 2018 was $90.4 million. During the quarter, we extinguished $527.5 million of our 12.00% Senior Secured Notes from the issuance of our 8.25% Senior Secured BondsNotes of $690.0 million. As part of the extinguishment, we paid a $63.4 million of call premium. We also entered into a Non-Recourse Canada SPV facility during the quarter, which provided $89.9 million of proceeds and was offset by net payments on our U.S. SPV Facilityfacility of $44.6 million. Net proceeds from the issuance of common stock and proceeds from the exercise of stock options were $12.0 million as of September 30, 2018.
Net cash used in financing activities for the nine months ended September 30, 2017 was $103.1 million. During this period, CFTC extinguished its 10.75% Senior Secured Notes for $426.0 million (which included $8.9 million of call premium) and extinguished our Senior Cash Pay Notes for $130.1 million. These payments were partially financed by proceeds of $447.6 million (net of $14.0 million of debt issuance costs and $8.5 million of discount on notes issued) from the issuance of our 12.00% Senior Secured
Notes due 2022. We had net borrowings of $24.9 million from our U.S. SPV Facility and our ABL Facility. We also paid a dividend of $36.5 million to our stockholders.
Contractual Obligations
There have been no significant developments with respect to our contractual obligations since December 31, 2017,2018, as described in our Annual Report on2018 Form 10-K, other than the financing transactions entered into and noted in Liquidity and Capital Resources - Borrowings.10-K.
Regulatory Environment and Compliance
There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2017,2018, as described in our Annual Report on2018 Form 10-K other thanexcept for the following:
Recent developments regarding the CFPB RuleCalifornia Assembly Bill 539
The CFPB adopted a new rule applicable to payday, vehicle title, and certain high-cost installment loans in November 2017 (the "CFPB Rule"), with most provisions currently scheduled to become effective in August 2019. On April 9, 2018, the Community Financial Services Association of America ("CFSA") and the Consumer Service Alliance of Texas ("CSAT") filed a lawsuit against the CFPB in the U.S. District Court for the Western District of Texas, Austin Division, seeking to invalidate the CFPB Rule. The lawsuit alleges that the CFPB Rule violates the Administrative Procedure Act because it exceeds the CFPB's statutory authority and is arbitrary, capricious and unsupported by substantial evidence. The lawsuit also argues that the CFPB’s structure is unconstitutional under the Constitution’s separation of powers because the agency’s powers are concentrated in a single, unchecked Director who is improperly insulated from both presidential supervision and congressional appropriation, and hence unaccountable to the American people. On May 31, 2018, CFSA, together with CSAT and CFPB filed a joint motion to effectively stay the litigation between the parties and stay the compliance date of the CFPB Rule. On June 12, 2018, the judge granted the motion to stay the litigation but denied the motion to stay the compliance date of the CFPB Rule. On June 22, 2018, CFSA and CSAT filed a motion for reconsideration to stay the compliance date of the CFPB Rule. In early August 2018, the court denied the motion for reconsideration to stay the compliance date of the CFPB Rule. On September 14, 2018, CFSA and CSAT filed a motion for preliminary injunction, asking the court to enjoin enforcement of the CFPB Rule, and on September 17, 2018, the CFPB filed a motion seeking an extension of time to respond to the motion for a preliminary injunction. On October 4, 2018, the court held a status conference and asked both parties to speak on why the court’s intervention is necessary.
On October 26, 2018, the CFPB announced that it expects to issue a Notice of Proposed Rulemaking in January13, 2019, that will reconsider the CFPB Rule and address the CFPB Rule's compliance date. In this recent announcement, the CFPB stated that it expects to make final decisions regarding the scope of the proposal closer to the issuance of the proposed rulemaking, and that it currently plans to propose revisiting only the ability-to-repay provisions and not the payments provisions of the CFPB Rule.
At present, we cannot predict whether and when the CFPB Rule will go into effect and, if so, whether and how it might be modified.
California legislative and judicial activity
During the 2018 session, three bills were introduced in the California Assembly which would have directly impacted the products currently offered by us.legislature passed Assembly Bill 2500 as introduced would have imposed a 36% APR539 which imposes an interest rate cap on all consumer loans between $2,500 and $5,000 and a 24% APR cap on all consumer loans between $5,000 and $10,000. Assembly Bill 2953 would have imposed a$10,000 of 36% APR cap on all auto title loans. Assembly Bill 3010 as introduced would have limited borrowers to one outstanding payday loan at a time across all lenders using a common database to enforce, plus the one loan restriction.
Assembly Bill 2500 did not pass out of the Assembly by the May 31, 2018 deadline. Assembly Bills 2953 and 3010 advanced to the Senate but did not pass out of the Senate Banking and Insurance Committee by the June 30, 2018 deadline. As a result, activity for all three bills has concluded for this legislative session.
In the case of De La Torre v. CashCall, Inc., in 2017, the Ninth Circuit Court certified the following question to the California Supreme Court: “Can a 96% interest rate on consumer loans of $2500 or more governed by California Finance Code § 22303, render the loans unconscionable under California Finance Code § 22302?” In August of 2018, the California Supreme Court answered the certified question in the affirmative (i.e., the interest rate on a consumer loan of $2,500 or more can render the loans unconscionable under Cal. Fin. Code § 22303). However, the court did not find the loans to be unconscionable. The court stressed that in order to find that an interest rate is unconscionable, courts must conduct an individual analysis of whether "under the circumstances of the case, taking into account the bargaining process and prevailing market conditions" a "particular rate
was 'overly harsh,' 'unduly oppressive,' or 'so one-sided as to shock the conscience.'" This analysis is "highly dependent on context" and "flexible," according to the court. The court warned that lower courts should be wary of and must avoid remedies that amount to an "across-the-board imposition of a cap on interest rates."
In September 2018, a putative class action lawsuit was filed against the Company in the Southern District of California alleging that certain loans made by the Company in excess of $2,500 are unconscionable and therefore a violation of California law. The Company filed its answer and motion to compel arbitration onFederal Funds Rate. On October 30, 2018.
Ohio legislative activity
House Bill 123 was first introduced in March of 2017. As initially introduced, the bill would significantly limit the permissible fees and charges on short term loans and eliminate the CSO arrangement. In late July 2018, the Ohio legislature passed House Bill 123 and the10, 2019, Governor Newsom signed the bill into law and it is scheduled to become effective on July 30, 2018. The bill is effective in 90 daysJanuary 1, 2020. Revenue from California Unsecured and certain sections applySecured Installment loans amounted to loans made 180 calendar days after the effective date. As a result, loan product changes will occur on or near April 27, 2019.
Ohio11.8% and 13.0% of total revenue from continuing operations for the trailing three and 12 months ended, respectively, September 30, 2019. As of September 30, 2019, California Unsecured and Secured Installment gross loans receivable were $86.4 million and $41.4 million, respectively. While we continue to optimize our installment loan portfolio in California as a result of this bill, we continue to evaluate the effect on our results of operations and financial condition and alternatives available to service customers in the California market. Refer to “Risk Factors” in Item 1A. of Part II of this Form 10-Q for additional information regarding the impact of this bill to our business.
California Consumer Privacy Act
In 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020. CCPA broadens consumer rights with respect to personal information, imposing expanded obligations to disclose the categories and uses of personal information a business collects, providing consumers a right to access that information, a right to opt out of the sale of personal information and the right to request that a business delete personal information about the consumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the costs of data breach litigation. CCPA has been subject to a handful of amendments, of which AB25 is most impactful to us. Although AB25 sunsets January 2021, it narrows the definition of who constitutes a consumer, thereby excluding employees from CCPA rights other than notice and a private right of action for data breach. The State Attorney General has proposed regulations to help interpret the CCPA; final adoption is expected in February 2020. A potential ballot initiative may have additional impact should it make it to the polls in November 2020. Despite amendments and regulations, the CCPA remains ambiguous in many regards, and we anticipate further amendments both for CCPA and specifically addressing employee data next year. Other states and possibly the federal government may adopt laws similar to the CCPA. While it is too early to know its full impact, these developments could ultimately result in the imposition of requirements on CURO and other consumer financial service providers that could increases costs or otherwise adversely affect our business.
British Columbia Business Practices and Consumer Amendment Act
Effective January 1, 2017, the British Columbia Ministry of Public Safety and Solicitor General (the "Ministry") reduced the total cost of borrowing from C$23 per C$100 lent to C$17 per C$100 lent. A further reduction to C$15 per C$100 lent came into effect on September 1, 2018. On February 26, 2019, the Minister of Public Safety and Solicitor General introduced in Parliament Bill 7 titled “Business Practices and Consumer Amendment Act." This bill received Royal Assent on May 16, 2019 and became law. There are no material changes to our current operations as a result of this legislation. The bill primarily allows the Ministry to (i) define a high cost credit product and (ii) require licensing and consumer protection oversight. It also authorizes the Ministry to prescribe regulations regarding high cost credit products including a cooling off period between loans, cost/optional services disclosure requirements, and prohibition of concurrent loan products. It is too early to predict the outcome of the regulations setting process and its impact on our operations.
CFPB Rulemaking Update
In February 2019, the CFPB issued two notices of proposed rulemaking proposing (i) to delay the August 19, 2019 compliance date for the so-called "Mandatory Underwriting Provisions" of the 2017 Final Payday, Vehicle Title, and Certain High-Cost Installment Loans (the "2017 Final Rule") Rule to November 19, 2020 and (ii) to rescind such Mandatory Underwriting Provisions (the “2019 Proposed Rule”). The CFPB issued a final rule on June 30, 2018,6, 2019 delaying the compliance date for the Mandatory Underwriting Provisions of the 2017 Final Rule to November 19, 2020. The Mandatory Underwriting Provisions which the 2019 Proposed Rule would rescind, which are still under consideration include: (i) a provision that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including our payday and vehicle title loans with a term of 45 days or less, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) a provision that prescribes mandatory underwriting requirements for making this ability-to-repay determination; (iii) a provision that exempts certain loans from the mandatory underwriting requirements; and (iv) a provision that establishes related definitions, reporting, and recordkeeping requirements. The 2017 Final Rule is stayed, however, based on an order entered August 6, 2019 by the Western District of Texas, Austin Division (the "Court Order"). The parties in the litigation are required to file a Joint Status Report with the court no later than December 6, 2019.
The compliance date for the "Payment Provision" of the 2017 Final Rule was $20.1 million. After lossAugust 19, 2019, but is also currently stayed pursuant to the Court Order. Under the proposed "Payment Provisions":
If two consecutive attempts to collect money from a particular account of the borrower, made through any channel (e.g., paper check, ACH, prepaid card) are returned for insufficient funds, the lender cannot make any further attempts to collect from such account unless the borrower has provided a new and specific authorization for additional payment transfers. The 2017 Final Rule contains specific requirements and conditions for the authorization. While the CFPB has explained that these provisions are designed to limit bank penalty fees to which consumers may be subject, and direct costs, state-level contributionwhile banks do not charge penalty fees on debit card authorization requests, the 2017 Final Rule nevertheless treats card authorization requests as payment attempts subject to these limitations.
A lender generally must give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumer’s checking, savings, or prepaid account. The notice must include information such as the date of the payment request, payment channel and payment amount (broken down by principal, interest, fees, and other charges), as well as additional information for “unusual attempts,” such as when the payment is for a different amount than the regular payment, initiated on a date other than the date of a regularly scheduled payment or initiated in a different channel that the immediately preceding payment attempt. A lender must also provide the borrower with a "consumer rights notice" in a prescribed form after two consecutive failed payment attempts.
The CFPB has indicated it has received a formal request to revisit the treatment of debit cards under the Payment Provisions and intends to examine the Payment Provisions further. If the CFPB determines that further action is warranted, it may commence a separate rulemaking initiative.
CFPB Supervision and Examination: The CFPB has supervisory powers over many providers of consumer financial products and services, including explicit authority to examine (and require registration) of payday lenders. The CFPB released its Supervision and Examination Manual, which includes a section on Short-Term, Small-Dollar Lending Procedures, and began field examinations of industry participants in 2012. The CFPB commenced its first supervisory examination of us in October 2014. The scope of the CFPB’s examination included a review of our Compliance Management System, our Short-Term Small Dollar lending procedures, and our compliance with Federal consumer financial protection laws. The 2014 examination had no material impact on our financial condition or results of operations, and we received the final CFPB Examination Report in September 2015.
The CFPB commenced its second examination of us in February 2017 and completed the related field work in June 2017. The scope of the 2017 examination included a review of our Compliance Management System, our substantive compliance with applicable federal laws, and matters requiring attention. The 2017 examination had no material impact on our financial condition or results of operations, and we received the final CFPB Examination Report in February 2018.
The CFPB commenced its third examination of us on October 7, 2019. This examination is a limited scope review to ensure continued compliance. While we do not expect that matters arising from Ohio was immaterial.this examination will have a material impact on us, we have made in recent years and are continuing to make, at least in part to meet CFPB expectations, certain enhancements to our compliance procedures and consumer disclosures.
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 2017 Annual Report on2018 Form 10-K.10-K for the year ended December 31, 2018. There have been no material changes to the amounts presented therein except for the following:therein.
Foreign Currency Exchange Rate Risk
As foreign currency exchange rates change, translation of the financial results of the U.K. and Canadian operations into U.S. Dollars will be impacted. Our operations in Canada and the U.K. representLIBOR is used as a significant portionreference rate for certain of our total operations, and as a result, a material change in foreign currency exchange rates in either country could have a significant impact on our consolidated financial position, results of operations or cash flows. From time-to-time, we may elect to purchase financial instruments, such as hedges against foreign exchange rate risks withour revolving credit facilities. LIBOR is set to be phased out at the objectiveend of protecting our results of operations in2021. We are currently reviewing how the U.K. and/or Canada against foreign currency fluctuations. We typically hedge anticipated cash flows between our foreign subsidiaries and domestic subsidiaries.
DuringLIBOR phase-out will affect the nine months ended September 30, 2018,Company, but we entered into a series of cash flow hedges in whichdo not expect the hedging instruments were forwardsimpact to purchase GBP 10.4 million. These contracts will complete during the three months ended December 31, 2018.
We performed an assessment that determined all critical terms of the hedging instrument and the hedged transaction match and, as such, have qualitatively concluded that changes in the hedge instrument’s intrinsic value will completely offset the change in the expected cash flows based on changes in the spot rate. Since the effectiveness of this hedge is assessed based on changes in the hedge instrument’s intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness. We recorded changes in the hedge instrument’s intrinsic value, to the extent that they were effective as a hedge, in "Other comprehensive income."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.
Based on an evaluation of our disclosure controls and procedures as disclosed in Item 9A of our 2018 Form 10-K, our management concluded that our internal control over financial reporting was not effective at December 31, 2018 because 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 of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Remediation and changes in internal control over financial reporting
We are taking actions to improve our internal control over financial reporting, including implementing plans as identified in Item 9A of our 2018 Form 10-K, to address our material weakness. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed in 2019.
Except as noted above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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. Based on an evaluationA
control system also can be circumvented by collusion or improper management override. Because of oursuch limitations, disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive
Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of September 30, 2018.
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) undercannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the Exchange Act) duringfinancial reporting process, therefore, it is possible to design into the three months ended September 30, 2018, that have materially affected, or are reasonably likelyprocess safeguards to materially affect, our internal control over financial reporting.reduce, though not eliminate, this risk.
PART II. OTHER INFORMATION
PART 2. OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
ITEMItem 1A. RISK FACTORSRisk Factors
There were no material changes to our risk factors as described in our Annual Report on2018 Form 10-K for the year ended December 31, 2017 other than2018, except for the following:
The CFPB promulgated new rules applicable to our loans thatOur industry is strictly regulated everywhere we operate, and these regulations could have a material adverse effect on our business and results of operations.
We are subject to substantial regulation everywhere we operate. In the U.S. and Canada, our business is subject to a variety of statutes and regulations enacted by government entities at the federal, state or provincial, and municipal levels. These regulations affect our business in many ways, and include regulations relating to:
the amount we may charge in interest rates and fees;
the terms of our loans (such as maximum and minimum durations), repayment requirements and limitations, number and frequency of loans, maximum loan amounts, renewals and extensions, required repayment plans and reporting and use of state-wide databases;
underwriting requirements;
collection and servicing activity, including initiation of payments from consumer accounts;
the establishment and operation of CSOs or CABs;
licensing, reporting and document retention;
unfair, deceptive and abusive acts and practices;
discrimination;
disclosures, notices, advertising and marketing;
loans to members of the military and their dependents;
requirements governing electronic payments, transactions, signatures and disclosures;
check cashing;
money transmission;
currency and suspicious activity recording and reporting;
privacy and use of personally identifiable information and consumer data, including credit reports;
anti-money laundering and counter-terrorist financing requirements, including currency and suspicious transaction recording and reporting;
posting of fees and charges; and
repossession practices in certain jurisdictions where we operate as a title lender, including requirements regarding notices and prompt remittance of excess proceeds for the sale of repossessed automobiles.
For a more detailed description of the regulations to which we are subject and the regulatory environment in the jurisdictions in which we operate see “Regulatory Environment and Compliance” in our 2018 Form 10-K and in this Form 10-Q.
These regulations, outside of our control, affect our business in many ways, including affecting the loans and other products we can offer, the prices we can charge, the other terms of our loans and other products, the customers to whom we are allowed to lend, how we obtain our customers, how we communicate with our customers, how we pursue repayment of our loans and many others. Consequently, these restrictions adversely affect our loan volume, revenues, delinquencies and other aspects of our business, including our results of operations.
For example, in June 2018, we discontinued the use of secondary payment cards for affected borrowers who do not explicitly reauthorize the use of secondary payment cards. For these borrowers, in the event we cannot obtain payment through the bank account or payment card listed on the borrower’s application and as authorized by the borrower, we must rely exclusively on other collection methods, such as delinquency notices and/or collection calls. The discontinuation for affected borrowers of our current use of secondary cards which have not been reauthorized by the borrower will increase collections costs and reduce collections effectiveness. Even in advance of the effective date of the 2017 Final CFPB adoptedRule (and even if the 2017 Final CFPB Rule does not become effective), it is possible that we will make further changes to our payment practices in a new rule applicable to payday, vehicle title,manner that will increase costs and/or reduce revenues.
In addition, on September 13, 2019, the California legislature passed Assembly Bill 539 which imposes an interest rate cap on all consumer loans between $2,500 and certain high-cost installment loans in November 2017 (the "CFPB Rule"), with most provisions currently$10,000 of 36% plus the Federal Funds Rate. On October 10, 2019, Governor Newsom
signed the bill into law and it is scheduled to become effective in August 2019. On April 9, 2018, the Community Financial Services Associationon January 1, 2020. Revenue from California Unsecured and Secured Installment loans amounted to 11.8% and 13.0% of America ("CFSA") and the Consumer Service Alliance of Texas ("CSAT") filed a lawsuit against the CFPB in the U.S. District Courttotal revenue from continuing operations for the Western District of Texas, Austin Division, seeking to invalidatetrailing three and 12 months, respectively, for the CFPB Rule. The lawsuit alleges that the CFPB Rule violates the Administrative Procedure Act because it exceeds the CFPB's statutory authority and is arbitrary, capricious and unsupported by substantial evidence. The lawsuit also argues that the CFPB’s structure is unconstitutional under the Constitution’s separation of powers because the agency’s powers are concentrated in a single, unchecked Director who is improperly insulated from both presidential supervision and congressional appropriation, and hence unaccountable to the American people. On May 31, 2018, CFSA, together with CSAT and CFPB filed a joint motion to effectively stay the litigation between the parties and stay the compliance date of the CFPB Rule. On June 12, 2018, the judge granted the motion to stay the litigation but denied the motion to stay the compliance date of the CFPB Rule. On June 22, 2018, CFSA and CSAT filed a motion for reconsideration to stay the compliance date of the CFPB Rule. In early August 2018, the court denied the motion for reconsideration to stay the compliance date of the CFPB Rule. On September 14, 2018, CFSA and CSAT filed a motion for preliminary injunction, asking the court to enjoin enforcement of the CFPB Rule, and on September 17, 2018, the CFPB filed a motion seeking an extension of time to respond to the motion for a preliminary injunction. On October 4, 2018, the court held a status conference and asked both parties to speak on why the court’s intervention is necessary.
On October 26, 2018 the CFPB announced that it expects to issue a Notice of Proposed Rulemaking in January 2019 that will reconsider the CFPB Rule and address the CFPB Rule's compliance date. In this recent announcement, the CFPB stated that it expects to make final decisions regarding the scope of the proposal closer to the issuance of the proposed rulemaking, and that it currently plans to propose revisiting only the ability-to-repay provisions and not the payments provisions of the CFPB Rule.
At present, we cannot predict whether and when the CFPB Rule will go into effect and, if so, whether and how it might be modified.
We have experienced elevated levels of legal settlement expenses related to customer redress complaints in the U.K.
Our U.K. operating results have experienced an elevated level of legal settlement expenses related to customer redress pursuant to a complaint resolution process for all lenders in the U.K. During the quarterperiod ended September 30, 2018, these costs totaled $4.0 million. After careful consideration,2019. As of September 30, 2019, California Unsecured and Secured Installment gross loans receivable were $86.4 million and $41.4 million, respectively. We continue to evaluate the effect on our results of operations and financial condition as a result of this bill and alternatives available to service customers in the California market. If we do not believe that, givenare unsuccessful in managing the scaletransition of our U.K.California business and operations we can sustain claims at this levelfrom affected installment loans to existing and may not be ablealternative products, Assembly Bill 539 could have a material adverse effect on our business and results of operations.
Further, during 2018, the California Consumer Privacy Act (“CCPA”) was passed into law, effective January 1, 2020. CCPA broadens consumer rights with respect to continue viable U.K.their personal information, imposing expanded obligations to disclose the categories and uses of personal information a business operations without action bycollects, providing consumers a right to access that information, a right to opt out of the U.K. business to reduce the risksale of claims relating to historic lending. We have been in ongoing discussions with relevant regulators, including the Financial Conduct Authority (“FCA”)personal information and the Financial Ombudsman Service with regardright to our alternatives. While these discussions are ongoing,request that a business delete personal information about the FCA has providedconsumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a Final Requirement Notice of a limited-scope review of the options being considered, to be conducted by a Skilled Person under section 166 of the (U.K.) Financial Services and Markets Act 2000. We have formally engaged a Skilled Person and have begun the review. We are evaluating, and are discussing with the FCA, several potential coursesprivate right of action includingfor data breaches, which may increase the costs of data breach litigation. CCPA has been subject to a handful of amendments, of whichAB25 is the most impactful to us. Although AB25 sunsets January 2021, it narrows the definition of who constitutes a consumer, thereby excluding employees from CCPA rights other than notice and a private right of action for data breach. The State Attorney General has proposed regulations to help interpret the CCPA; final adoption is expected in February 2020. A potential solutionsballot initiative may have additional impact should it make it to allow the firmpolls in November 2020. Despite amendments and regulations, the CCPA remains ambiguous in many regards, and we anticipate further amendments both for CCPA and specifically addressing employee data next year. Other states and possibly the federal government may adopt laws similar to finally resolve liabilities associated with historic lending. The potential alternatives
under consideration may require approval of the FCA, consent under certain of our debt facilities and court approvalCCPA. While it is too early to know its full impact, these developments could ultimately result in the U.K. We have not determined to pursue any specific alternative at this timeimposition of requirements on CURO and are continuing to evaluateother consumer financial service providers that could increases costs or otherwise adversely affect our options.
business.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
None.The 2017 Incentive Plan permits the netting of common stock upon vesting of restricted stock units to satisfy individual tax withholding requirements. During the quarter ended September 30, 2019, we did not reacquire any shares of common stock related to such tax withholdings.
In April 2019, our Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of our common stock. The repurchase program, which began June 2019, will continue until completed or terminated. We expect the purchases to be made from time-to-time in the open market, in privately negotiated transactions, or both, at our discretion and subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans or other corporate purposes.
Separately, in August 2019, the Company entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with FFL, a related party to the Company. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of Common Stock. The purchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase program authorized in April 2019.
The following table provides information with respect to purchases we made of our common stock during the quarter ended September 30, 2019.
|
| | | | | | | | | | |
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that may yet be Purchased under the Plans or Programs(1) (In millions)
|
July 2019 | 907,500 |
| $ | 10.68 |
| 907,500 |
| $ | 37.8 |
|
August 2019 | 611,694 |
| 13.33 |
| 611,694 |
| 29.6 |
|
September 2019 | 392,847 |
| 14.28 |
| 392,847 |
| 24.0 |
|
Total | 1,912,041 |
| $ | 12.27 |
| 1,912,041 |
| $ | 24.0 |
|
(1) As of the end of the period. |
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities
None.
ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
None.
ITEMItem 5. OTHER INFORMATIONOther Information
(a) Disclosure of Unreported 8-K Information
None.
(b) Material Changes to Director Nominee Procedures
None.
ITEMItem 6. EXHIBITSExhibits
|
| | |
Exhibit no. | | Exhibit Description |
3.1 | | |
3.2 | | |
4.110.1 | | Indenture, |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
10.1* | | Credit Agreement, dated as of August 2, 2018, among CURO Canada Receivables Limited Partnership, by its General Partner, CURO Canada Receivables GP Inc., WF Marlie 2018-1, Ltd., as Lender, Waterfall Asset Management, LLC, as Administrative Agent, and the other Lenders party thereto (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 8, 2018). |
10.2* | | Guaranty, dated as of August 2, 2018 among CURO Group Holdings Corp., LendDirect Corp., Cash Money Cheque Cashing Inc., CURO Canada Receivables Limited Partnership, CURO Canada Receivables GP Inc., WF Marlie 2018-1, Ltd. and Waterfall Asset Management, LLC. (previously filed as Exhibit 10.2 to the Current Report on Form 8-K filed on August 8, 2018). |
10.3* | | |
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
10.8 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101 | | The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2018,2019, filed with the SEC on November 1, 2018,4, 2019, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at September 30, 20182019 and December 31, 2017,2018, (ii) Condensed Consolidated Statements of IncomeOperations for the quarter ended September 30, 20182019 and 2017,2018, (iii) Condensed Consolidated Statements of Comprehensive Income for the quarter ended September 30, 20182019 and 2017,2018, (iv) Condensed Consolidated Statements of Cash Flows for the quarter ended September 30, 20182019 and 2017,2018, and (v) Notes to Condensed Consolidated Financial Statements** |
| | |
* | | The Company has been granted confidential treatment with respect to portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Those portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. |
** | | Filed herewith. |
*** | | Furnished herewith. |
* Filed herewith.
+ Indicates management contract or compensatory plan, contract or arrangement.
Signature
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: November 1, 20184, 2019 CURO Group Holdings Corp.
|
| | | |
| By: | /s/ ROGER DEANRoger Dean | |
| | Roger Dean | |
| | Executive Vice-President and Chief Financial Officer |