Earnings call transcript Q1 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to the CURO Group Holdings First Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. [indiscernible], CURO’s Vice President of Investor Relations. ahead. go Please

Unidentified Company Representative

of good Officer, XXXX and along CURO its Officer, are Investors released supplemental me Dawood. ir.curo.com. Thank today's Izzy Clark; on before morning, and the quarter call section the on results are Chief which website market first at information With Executive you, CURO's available everyone. our Doug open with Financial today, Chief

it. the will business based environment contain currently we discussion Today's on see forward-looking as statements

and uncertainties. such, includes it important risks As certain

Please assumptions press Form in update as obligation or today, for undertake discussion. cause specific our to no revise refer Form new result more our described that matters we or of results today's forward-looking on Any this on factors the morning in to differ and to this statements made events. issued information release the materially on of XX-Q statements as could XX-K and actual these future risk a from our call information based are

U.S. to present of these not materials materials. financial accepted GAAP we addition performance. these understanding non-GAAP measures between and In included are our appendix measures the to supplemental enhance accounting the do Reconciliation to generally non-GAAP the measures conform We GAAP in certain in believe that the principles. reporting, supplemental

With that, the to like call turn over I would to Doug.

Doug Clark

today Thanks, [Juan] [ph]. first our on us earnings you everyone quarter and joining Good morning, for call. thank

our on our successfully During on that plan, first call. laid executed priorities the capital executing with earnings business key we our prior we focused laser roadmap. on remain consistent stated We quarter, out

option an distant in efforts hope in have the not to we discussions, previous for Consistent update with our progress to to our find and strategic Flexiti too future. a continue

favorable current navigated and headwinds guidance our also We expectations. results relative delivered to macro

transformation an our leadership have Lastly, talented team energized execute our and extremely strategy. to and we completed during QX,

details can you X, see funding capacity. strengthen of position liquidity we and Slide how On our

million new into and our we Of or million was the approximately facility. over million Canadian a First commitments million commitments debt that following our in in XXX challenging pleased Loan for XXX entered very Secured liquidity of amidst are of gross amount, Term C$XXX arrangements form We quarter-end. environment, SPV Senior capital for USDXX Lien this for

is The expected close shortly. transaction to

model We in which to whom opportunity underlying lending strong funding support in believe our our of continued business. this are confident profitability our partners our over all is markets business capital growth also access the and strong It plan key all capital, long-term. provides to executing the step to a demonstrates from identified and

to We the growth as strengthen responsible now the a position and U.S. further sheet Canada. consumer have runway the drive in balance and opportunity lender on leading both our capitalize to

Canadian drive further with opportunity our facility, business. and SPV which the Canadian As us growth we borrowing noted capacity, provides to for expanded expand

see a to Canada Lending continue attractive anticipated our in an relative believe U.S. We significant CURO opportunity point Canadian Direct even business differentiation for to with of and regulatory peers. our changes in

relatively flat deck. and Turning in uncertain we balances, growth quarter cautious on environment. our a significantly responsible tightened gross quarter nearly given on entered with were first X more lending the of X.X standards loan billion underwriting with the to increasingly Slide already sequential total our Consistent We basis. receivable had the approach, macro

U.S. engaged platform. robust We branches, the in conversion single marketing technology QX while we also back on a were moving pulled as to in systems our at

mid-XXXX. systems certain conversion we anticipate allow by completing time marketing During conversion. the suspended branches focus this transition, appropriate the on to to We activities

servicing, monitoring. it optimize and to conversion loan the enhancing loan allows to cost The should our our while benefit system origination, of a performance longer-term management as single branches growth, efficiency us

underwriting, XXXX capabilities, efforts including credit automated omnichannel and scalable lending and and direct Our CURO’s acquisition, collections. in on ensuring focused centralized will be servicing

selected through availability growth even driving in on focused new customers. tools for remain expand application fraud former new current improved branch secured expansion, to and the product credit offerings product also and of will We

We current secured will Canadian later our mix secured suite, continue gradual introducing Lending our our product Direct by shift for auto products new also this while year lending to U.S. versus more unsecured and branches. leveraging

Importantly, will resilient sheet quality credit over an through we balance prioritize uncertain growth, macro environment. always particularly

Currently, While to macroeconomic not not do Canadian we is U.S., impact our and unexpected the trends relative seeing almost U.S. vice Canada the and the to specific both same picture our in supportive typical that U.S. customer remains generally Canada. our portfolio degree evenly impact employment particularly customers customers the between split necessarily and factors our versa. base, as are

that general industry-wide and lower a quality products to could However, savings demand macro which lead personal in impact an and we acknowledge lending credit decline stress. in ultimately uptick headwinds, rates for including consumers, inflation

to Lending Slide Direct net Direct Lending by X, declined Canada, credit which last the in to policy that pleased signs we are our Total Turning charge-off to to continues show business changes of discussed we call. quality XX our million, charge-off driven stability. primarily on in the earnings sequentially

sequentially, our to you QX by side a sequential in quarter. to on prior the pace they can the XX XXXX In On of a geography. policy Direct a U.S. change did XXX in charge-offs right the slower days charge-offs Lending charge-off Canada, from charge-offs see due page, increased days. basis at declined than

still policy charge-offs in slightly charge-offs charge-off been been change credit Canada would encouraging had been be sequentially implemented, Direct have net would trends would and down sequentially. Even total have in if as flat the Lending not

during million plus flat in at X, XXXX XXXX. QX in Lending, Slide leading XXX and indicator delinquency trends, versus Total QX you see a stabilized delinquency of that are million XX charge-offs million relatively XXX to Moving remaining net Direct future encouraging. QX can XX also

due to change charge-offs with status the the opportunity rolls customer. an In to charge-off our to increased us delinquencies primarily which gives and Canada, policy, in delinquency back work

been up total for sequentially In XX quarter million the modestly have delinquencies would would declined in row. versus have quarter. delinquencies U.S. Excluding plus in QX to the in policy change, second delinquencies prior this and declined Direct Canada a sequential XXXX Lending the XX

to and portfolio. see maturity growth that Canadian due Turning the to you X, Slide overall charge-offs of sale of and increased can point delinquencies

While we normalization, in made Canada improved process credit are changes to drive and Lending believe charge-offs collection U.S. over we not regions our to should we lower across the and recoveries continued Direct servicing our industry-wide and time. immune

we Specifically, XXXX. more XXXX remix NCOs in QX new tools centralized underwriting XXXX, should continuing the collections the as QX in deployed which U.S., established began team portfolio noted lower result tightening in gradually credit in a to later secured XXXX, we debt in mitigation lending in earlier, forward. towards anticipate Moreover, going and

in discussed also platforms, we changed replicate to mitigation XXXX. deployment in Canada, credit new later our tools, debt and also our Canada, capabilities traditional lending platform U.S. In consumer we in charge-off servicing XXXX, the earlier. credit as capabilities anticipate underwriting of In new and policy updated deployed tightened fraud replicating

framework, providing path from provide XX, a quarter. want you you us detail with growth profitability. strategy including you with pillars to in laid a puts three a out the with ranges framework we Slide this his that Izzy for we KPIs On on highlight few takeaways to are section, align I will more believe last that for that we but

business, well good long-term a sense our our the of vision understanding of in for driving an the opportunity as growth. we believe framework strategic First, as strong embedded underlying provides profitable

receivables business opportunity to and with revenue. confident very and remain we the model grow our Second,

Third, operating we improvement signs And the stability management. strong actions we are see given the at by opportunity efficiency of for encouraged an through continue early cost to credit took. CURO fourth, we

of Canadian rate interest. recently proposed end little more context bit by cap, the providing a proposed the includes regarding me Let allowable reduce legislation rate to maximum which

closely to monitor level focused on adjusted serve our while our business risk returns. managing an customers appropriate continue and We to remain developments maintaining of

exclude substantial from the portion access of to it could credit. proposal note However, to hardworking borrowers a is ultimately important that Canadian

impact that portfolio Our current is similar cap on credit over of in based with our new falls new XX% currently change. rate experiences with is our above written draft the the rate. XXXX originations of U.S. how consistent budget legislative Currently, line the understanding would the

also overall our increasing returns. Correspondingly, credit sufficiently anticipate single tightening. will post manage of credit utilization paid following we our implementation, to adjusted We tighten the risk would box product

we efficiency servicing focused our Lastly, this secured also year on will and cost later loan introducing a product be efforts. and will remain

Izzy I more and you thoughts. QX with over to some then turn to will results I'll final details give on our close it now

Izzy Dawood

Thanks, Doug, and good morning everyone.

in As Doug mentioned evidenced by to relative start QX earlier, our XXXX to results CURO favorable being good a is off expectations. our

billion towards guidance. First quarter quarter X.X loan of of prior our the were gross relatively receivables the unchanged versus high-end and

products. to million, for expectations. product by quarter. the our was strategic results XXX towards mix was but and X% longer-term modest Revenue of the yielding, our risk the sequential continued X with lower credit mainly shift driven high-end decline decline a lower Slide in-line The shift shows summary

XX%. indicator flat post-charge-offs, at margin our assets on our interest net Our adjusted a key risk of remained return sequentially

Net for loan sequentially, provision as expense the slower million, provision pace. up primarily loss by impacted of Interest in though lower expense by be rate continues expense revenue rising quarter. our declined post net-charge-off to rates benchmark at XXX a XX% a driven

to first XX increased interest quarter, For sequentially. expense the from million XX million

of a reductions through store QX, decreases X% Canada. were than recognized decreased we headcount and million from the which sequentially reduction part operating expenses indicated XXX in expense closures as by of charges restructuring Operating more in XXX U.S. little in driven million, and

from expense to operating improved ratio XX% Our XX% sequentially.

sequentially Heritage Katapult XXX charge-off by of of losses. change gain represent million, First in XX was Direct in Canada, of credit performance. charge-off Net X and and from net rate earn-out policy XX.X%. of our basis a million on primarily charge-offs charge-off to points improved Flexiti standardization million, improved sequentially business XX expenses decreased driven Other This policies Lending adjustment and our sale

higher Excluding change, been this million in charge-offs have would XX or QX. net million policy $XX

with $XX Net $X.XX have valuation on to net asset, was to responsible noted credit diluted a items policy $XX million drive million for on XX million post collections provision tax allowance was million. stable should taken including per pre-tax loss continue actions the our a our or on expense, the related Doug earlier, share, quality. along As focus loss charge-off and asset our the growth we deferred quarter $XX restructuring impact

as highlighted quarter the metric impairment million going driven last quarter, of a loss compared in being XX prior the mainly us charge goodwill million we XQ to by key $XXX quarter, which XXX XXXX. forward, in income, was this for Pre-provision million

to segment XX. on Turning our results Slide

cohesively, business which last being, Lending our the but quarter, run of the manage As we discussed Direct the side difference consumer lives. practical border only and we

this our U.S. As and net a Direct one Canada into reporting such, external our combined also have and and Lending adjusted segment, Lending Direct Lending presentation income. realigned we of with Direct perspective removed

modeling we We going provide believe of also performance forward. to the process this will continue forward, by simplifies company Going the detail geography.

on On Slide allowance. XX, you can see our more detail

the This Including CECL we accounting cautious reminder, allowance million allowance is X, opening earnings. along which XXX driven on in increase in of January in resulted policy adoption, rates. that our our a by change and Lending we with in on to non-cash unemployment in view environment quarter. adjustment largely view charge-off this the our our macroeconomic adopted Canada, CECL increased As our recognize retained the Direct a business net our

XX, post well Slide lower net due revenue rates. due change expense, increased the This by during offset to to to rising to mix, income as the increase partially Turning due benchmark interest policy charge-off modestly as charge-off an was interest sequentially, quarter. product to

noted versus post margin flat As our interest quarter. at charge-offs last net earlier, remained XX%

Slide expenses. on bit operating to more turn XX detail Let's for a

from by called includes page, stock XXX On restructuring and decline consolidated our based on the the compensation. this basis as restructuring we expenses QX, driven left quarter a benefit as during can in million The a reported primarily sequential lower side that earlier. from decline of operating was versus see expenses million to charges out QX million XX lower sequentially well you XXX of

page, of On point hand and improve. of by our ratio sale continue Lending ratio you side expense operating the expense Positively both business. in to businesses our see operating right Direct the trends can Canada

Going continue to operating will us. forward, for maintaining a efficiency priority top be

on on opportunities lowering continue We will we for improvement. where will expenses remain our identifying focused work can intensely and

processes streamlining to continue efficiency some our further established rightsizing and team done enhance is business the an our diligently improving headcount We third-party on eye with spend. to already working procurement and outlook of given have newly

As and we growth continue team, are find to we in executing capacity future opportunities new profitability to well. to invest with to as improve lower provide the expenses

to card Restricted leverage due by leverage QX, capacity products growth. and reinsurance. XX and an cash to bank increase portfolio offset summary. a adjusted declined in restricted On slide liquidity Net due increased our funding cash associated see with in increase Total can decrease cash sequentially, income. associated increased SPV’s a XX million our pretax to you XX, sequential by our due the in million, declined while with of and

year-end of cash we capital This over and of Pro a foundation borrowing in our XXX for capital it a to XXX we forma including capacity, use provides expect XXX can cash as in that total million million have transactions, unrestricted growth support available will growth in in to cash. XXX million XXXX, purposes. Direct million By Lending business. announced we solid unrestricted have we the for

the our second quarter Slide outlook for Moving XX. to on

expect to charge-offs to the is be X.X of XXXX, XXX be to we to between billion in the XXX QX to receivables for of be in Net For million. XX%. billion, range to expected XX% range and X.X million revenue

basis. $XXX $XXX the to in Our operating on million expected range expense of is a be and reported million

framework. give some on strategic Doug XX, on me let more growth KPIs. I Slide will spend you on detail bit strategy the and drivers time provided a Finally, our

guidance, how see profitability Grow and path to believe drive not provide time, responsibly. a to does growth this of of consolidated Over view this. plan opportunities to can X% a sustainable XX%. deleveraging. We achieve While receivables is reasonable we to create it do we multiple we

We growth with changes. for scale even regulatory opportunity plan in see great where we to Canada anticipated

improve in mix and target also lending, U.S., expand the loan We secured large geographies. to including our product our intend new small and offering, selectively

to a of Lending We net to of XX%, of also interest post post Direct XX% interest reach net charge-offs can charge-off XX%. believe we margin XX% margin inclusive

sources and as Our securitizations, these an factoring ranges. net margins efficient rate funding we also benefit will into time benefit over should interest and charge-offs from are not such more improving currently though from environment gross that improving we

expenses XX% Execute we by reach leverage manage to plan and can time. and operating efficiency our with further operations over continue automating effectively procurement operating to consolidated programs. OpEx through the excellence, outlook business will improve to We our expenses our continuing improve our of to believe we align a XX% ratio new centralizing with and

to to dates liquidity reach To maturity recourse five of strengthen liquidity position new in minimum that out. our establishing leverage can also Recall our debt. notes manage our Xx we we enhance a and and general Xx our level, plan foundation, we while net robust recourse years mind, a successfully ultimately to capacity. that With believe have refinance

To X start you we of help billion. progression, we can approach we achieve these ranges balances gauge nearly to believe as loan

cap available final an these the update on ranges will provide also with We you on once language is rate Canadian situation.

for I turn some back it that, will to comments. final Doug With over

Doug Clark

Thanks, me accomplished which Izzy. The bit CURO We long-term a our quite base. team opportunity. our quarter, this makes very enthusiastic capital about strengthened

business diligently direction. laid and path growth, Our in right plan. are and trends new experienced moving execute leader a will highly are to energized We detailed our for long-term team work out profitable the reasonable

like to would for I that, Operator? open the up With call Q&A.

Operator

Hecht first the ahead. question come with [Operator from Instructions] go Jefferies. John And will Please

John Hecht

the my detail Good for and questions morning, the here. very guys. Thanks taking for and all presentation thanks

growth the certainly it number mature leverage way? be loan, and that sort The about Xx, your XX% should receivables should number just X or before to first decline targeting target is is just like that leverage X, in there and to the a a down and net this the thinking so along different a pivot linear about points framework seems getting maturity strategy the and be we level, the to is X% Xx growth of one of thinking your within of accurate;

Izzy Dawood

to part laid be target to hit is Hey, we If over and the to X% before like that And effectively we to performance, through pull cycle. we it's opportunity to out, we tight hit the they on feel XX% the little a the then take – that But about I'll what we're John. are for drive question. we date, things reason growth. the the or we accelerator see there, to try trying that push if goal. talk mature the back. the may Doug getting it, is it that may but Thanks don't to are I'll doing going will mechanical turn yes,

believe linear. tough will Doug is model attainable. talk as So, it's it that about, to pretty But growth we

Doug Clark

Izzy. with I Yes. Yes, agree Hey John. would

levers product with responsible branch to and we're we still we sufficient expansion. growth, lot that think credit We fraud our capabilities that diversification to new have of opportunity everything working drive to campaigns even marketing have from a and that

So, the of look lot continue I a enhance impact, have think we to again, think notwithstanding that the as macroeconomic we deliver we growth can drive that and we levers long-term. over to

John Hecht

you it the Lending. see mix change Direct guys DQ can of this? that Okay. favorable call That's And versus overall, did to then mean, just unpack conditions Maybe I guys Thanks. the borrowers? your do in how tightening helpful. the versus you you much attribute overall trends

Izzy Dawood

of in pieces. Let that kind deconstruct me

U.S. So, with the which if the we greatest you saw delinquency, first improvement. start is where

think to takes we improvement encouraging our And trends. portfolio. have I in work that most earnings the for of to its while we It taken call we I a way the were some the would say, seeing that attributable secured underwriting. on signaled element through QX is actions

that's of So, long-term a more play.

actions took underwriting So, most in centralized is and of recently we it on more collections. delinquencies year the our on last

as as and as on So, macroeconomic the far focused monitoring goes, the we're consumer obviously, hyper it. mentioned,

our bifurcate insurance consumer. And U.S. not of get sell layoffs insurance And demand, we also to through claims the what's basically the kind any, feedback date, about see we on to from in developing. we seeing to that on read it's we're time going U.S. rates consumer. still consumer on tech real continue trends through We unemployment with important payment business alarming always the solid the model. really Canadian isn't really But affecting the

closely. to we'll good So far it so on but that, continue monitor

John Hecht

I [ALL] that Is talk want – fluctuate about any for macro to CECL post that about seasonally, is [ph] of the then mean that there? modeling in from of And kind is target just, much. anything a to sort perspective? of overlay a good you does think us very that, Thanks there Okay. XX.X%,

Doug Clark

and part a I'd our lot look one based rely it's factors. had We in The macro X% the of good number how no to allowance. Fed up model. on sort any up-tick last the terms on had we really macro answer overlay I'll informed Yes, seasonality. forecast at John, the primarily say is unemployment we a of kicking that the first. over CECL last so There's

John Hecht

Thanks Great. much guys. very

Izzy Dawood

Thanks John.

Operator

ahead. John next The go from come Please Janney. Rowan question will with

John Rowan

called Canadian or I guys. morning, you cap me what above it get Canadian your it was? that Good rate proposed Can what your above the recap the remind remarks, prepared is In you portfolio of a write out to didn't percent is. down.

Doug Clark

It was XX%, rate currently is cap, over that John.

John Rowan

listed Okay. you into that several other introduce to would subject the looking products rate the presumably be market, cap? which not you were to But

Doug Clark

it wouldn't I wouldn't cap. say, rate to Well, the be subject

in customers much product, lower secured think product. us interest carries as would particular charge-off move which into I rate net maintain a the allow to that margins we lending

to So, we're product be going introducing year. later this that

John Rowan

pro have do tax Okay. for Izzy, you a rate quarter? forma the

Izzy Dawood

let John, performance me the rate. follow-up you have Hey, tax offline. don't with I

John Rowan

I’m an you trying adjusted offline relative want. if earnings. get Yes, prior apples-to-apples just to to

comp, forma that intangible if So, figure amortization could tax rate, and stock pro based get would you be me? to helpful

Izzy Dawood

you'll that's comp amortization, of laid Stock out. appendix see type based and the in

tax I'll you. the get for get I'll So, rate a

John Rowan

Can just mentioned just plan remind refinancing last Izzy, if me refinancing question Okay. a there's for And non-recourse non-recourse separate then you debt? and have debt me, any you recourse if you specifically for debt.

Izzy Dawood

must effectively debt non-recourse debt our we all debt, I that the are all apologize to non-recourse SPVs into terminology. our funded so by The get No, assets. again, the

It are we a comes up a comes expanded we're that that is that senior on X-year we’ve a refinanced that's debt sure normal that refinance really to maturity XXXX. making just focused able that when to is we maturity as recourse right. have or time So, X-year

John Rowan

Thank you. All Okay. right.

Operator

as conference concludes [Operator Thank our call you Instructions] as question-and-answer This well attending session, for today. for our presentation. today's

disconnect. now may You

CURO (CUROQ) 10 May 232023 Q1 Earnings call transcript