CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the
“Company”), a market leader in providing short-term credit to
underbanked consumers, today announced financial results for its
fourth quarter and full year ended December 31, 2018 and issued its
outlook for 2019.
“We are pleased to report fourth quarter and full-year earnings
results at or near the high-end of our revised guidance,” said Don
Gayhardt, President and Chief Executive Officer. “Consolidated
revenue rose 12.6% for the quarter from a year ago on 32.4%
year-over-year growth in loan balances. Canada adjusted EBITDA
rebounded strongly after the third quarter product transition from
Single-Pay to Open-End loans in Ontario and the U.S. posted solid
year-over-year loan and revenue growth for the quarter of 14.0% and
14.3%, respectively. In the U.K., we have proposed a solution to
cap the potential exposure for historical redress claims and expect
to have a set course of action for our U.K. business in the near
future.”
Consolidated Summary Results
For the Three Months Ended For
the Year Ended (in thousands, except per share data)
12/31/2018 12/31/2017 Variance
12/31/2018 12/31/2017 Variance Revenue $ 300,566
$ 266,990 12.6 % $ 1,094,311 $ 963,633
13.6 % Gross Margin 87,256 92,164 (5.3 )% 340,897 349,237 (2.4 )%
Gross Loans Receivable 596,787 432,837 37.9 % 596,787 432,837 37.9
% Net (Loss) Income (40,012 ) 6,410 (724.2 )% (47,767 ) 49,153
(197.2 )% Adjusted Net Income (1) 24,871 19,706 26.2 % 89,523
79,074 13.2 % Diluted (Loss) Earnings per Share $ (0.84 ) $ 0.16
(625.0 )% $ (1.00 ) $ 1.25 (180.0 )% Adjusted Diluted Earnings per
Share (1) $ 0.52 $ 0.48 8.3 % $ 1.86 $ 2.01 (7.5 )% EBITDA (1)
(14,967 ) 45,705 (132.7 )% 57,503 193,250 (70.2 )% Adjusted EBITDA
(1) 55,600 58,958 (5.7 )% 217,790 232,215 (6.2 )% Weighted Average
Shares - diluted 47,773 40,524 47,965 39,277 (1) Non-GAAP Metric;
see "Results of Operations - CURO Group Consolidated Operations"
for reconciliation to nearest GAAP metric
Fourth quarter 2018 financial developments included:
- Revenue of $300.6 million, an increase
of 12.6% over the prior year period, driven primarily by solid loan
growth in all three countries.
- Year-over-year Company Owned loan
growth of 37.9%; Gross combined loans receivables grew 32.4%
year-over-year and $30.7 million from the third quarter of
2018.
- Consolidated Net charge-offs ("NCOs")
as a percentage of average gross combined receivables improved 60
bps from the same quarter a year ago and 10bps sequentially,(1)
driven primarily by Canada.
- Gross margin and Adjusted EBITDA
declined year-over-year due to our strategic mix shift from
Single-Pay to Open-End products in Canada and the reduction of
Canada Single-Pay yields resulting from regulatory change. The U.S.
and U.K. businesses both experienced strong growth in Adjusted
EBITDA year-over-year.
- On January 17, 2019, management
completed a reduction in force which eliminated 121 positions in
North America. The reduction included 82 positions across the
Company’s 213 U.S. branches (5% of the U.S. store workforce) and 39
corporate support positions in the U.S. and Canada (8% of the U.S.
and Canada corporate support workforce). The 121 affected positions
represented 2.8% of our global headcount as of December 31, 2018.
The store employee reductions will 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 their follow-up
activities online. The elimination of certain corporate positions
relate to efficiency initiatives and will allow us to reallocate
investment to strategic growth activities.
- The Company has consulted with the
Financial Conduct Authority (“FCA”) in the U.K. regarding a
proposed Scheme of Arrangement ("SOA") to substantially settle the
liability for historical redress claims for a fixed amount of cash
subject to court approval. We anticipate receiving feedback from
the FCA in the near future as to whether or not the FCA has
objections to the proposed SOA. As a result of the proposed SOA,
the Company recognized total redress and related settlement
proposal charges for our U.K. business in the fourth quarter of
2018 of $57.4 million comprised of (a) $22.5 million of non-cash
goodwill impairment charges, (b) $4.6 million of fourth quarter
redress claims and related costs, (c) a $23.6 million fund to
settle historical redress claims and (d) $6.7 million in advisory
and other costs that will be required to execute the SOA. The SOA
will require consent of bondholders holding a majority in aggregate
principal amount of our outstanding 8.25% Notes due 2025.
- Completed the full repayment and
termination of our Non-Recourse U.S. SPV Facility on October 11,
2018, resulting in a $10.0 million loss on debt extinguishment and
related costs, and repaid $9.0 million on our Senior Revolver,
leaving a balance of $20.0 million for the year ended December 31,
2018.
(1) The terms "sequential" or "sequentially" within this release
refers to comparisons of the fourth quarter of 2018 to the third
quarter of 2018.
Full year 2018 financial developments included:
- Revenue of $1,094.3 million, an
increase of 13.6% over the prior year period, driven primarily by
solid loan growth in all three countries.
- Gross margin and earnings declined
year-over-year due to our strategic mix shift from Single-Pay and
Installment to Open-End products in Canada, concentrated in the
third quarter of 2018 when we began offering Open-End loans
throughout Ontario.
- In August, completed the issuance of
$690.0 million principal amount of 8.25% Senior Secured Notes due
2025 and used a portion of the net proceeds to (a) redeem remaining
$527.5 million of our 12.00% Senior Secured Notes due 2022 and (b)
fully extinguish the $122.4 million Non-Recourse U.S. SPV Facility.
This refinancing extended maturities and lowered related borrowing
costs for a total of $24.5 million of like-for-like annual interest
expense savings.
- Entered into a four-year revolving
Canadian-dollar-denominated credit facility (the "Canada SPV
Facility") with a C$175.0 million initial borrowing capacity.
- Executed an agreement with MetaBank® to
ultimately provide U.S. consumers an innovative and flexible line
of credit product, which we do not expect to contribute to
financial results until 2020.
2019 Outlook
The Company is initiating its full-year 2019 adjusted earnings
guidance, a non-GAAP measure(1), as follows:
- Revenue in the range of $1.215
billion to $1.240 billion, an increase from 2018 revenue
of $1.094 billion of approximately $120 million, or 11% to $145
million, or 13%
- Adjusted Net Income in the range
of $120.0 million to $135.0 million, an increase
from 2018 adjustment net income of $89.5 million of approximately
$30 million, or 34%, to $45 million, or 50%
- Adjusted EBITDA in the range
of $250.0 million to $270.0 million, an increase
from 2018 Adjusted EBITDA of $218 million of approximately $32
million, or 15%, to $52 million, or 24%
- Estimated tax rate in the range of 25%
to 27%
- Adjusted Diluted Earnings per Share in
the range of $2.50 to $2.80, an increase from 2018
Adjusted Diluted Earnings per Share of $1.86 of $0.64 per share, or
34% to $0.94 per share, or 50%
(1) See a description of Non-GAAP Financial Measures at the end
of this release for a reconciliation to nearest GAAP metric and for
more information.
Consolidated Revenue Summary
Three Months Ended December 31,
2018
The following table summarizes revenue by product, including
credit services organization ("CSO") fees, for the periods
indicated:
For the Three Months Ended
December 31, 2018 December 31,
2017 (in thousands, unaudited) U.S. Canada
U.K. Total U.S. Canada U.K.
Total Unsecured Installment $ 143,135 $ 2,172
$ 11,404 $ 156,711 $ 123,861 $ 5,769 $ 7,248
$ 136,878 Secured Installment 29,482 — — 29,482 27,732 — —
27,732 Open-End 29,580 17,647 — 47,227 20,966 188 — 21,154
Single-Pay 28,710 20,986 1,583 51,279 28,592 38,941 3,335 70,868
Ancillary 4,241 11,626 —
15,867 4,666 5,692 —
10,358 Total revenue $ 235,148
$ 52,431 $ 12,987 $ 300,566
$ 205,817 $ 50,590
$ 10,583 $ 266,990
During the three months ended December 31, 2018, total
lending revenue (excluding revenues from ancillary products) grew
$28.1 million, or 10.9%, to $284.7 million, compared to the prior
year period, predominantly driven by growth in Installment and
Open-End loans from strong customer demand and product
introductions in new markets. Geographically, revenue in the U.S.
and U.K. grew 14.3% and 22.7%, respectively. Canada revenue
increased slightly, at 3.6%, despite being affected negatively by
product mix shift from Single-Pay to Open-End loans that carry a
lower yield. From a product perspective, Unsecured Installment
revenues rose 14.5% and Secured Installment revenues rose 6.3%,
driven by related loan growth. Single-Pay revenues were affected
negatively by regulatory changes in Canada (rate changes in Ontario
and British Columbia). In addition, Single-Pay usage changes
imposed in Ontario effective July 1, 2018 and, on a global basis,
customer preference for non-Single-Pay, instead of Single-Pay,
loans, has led to a shift to Open-End loans in Canada, as well as a
continued general product shift from Single-Pay to Installment and
Open-End loans in all countries. Open-End revenues rose 123.3% on
organic growth in legacy states in the U.S. and the introduction of
Open-End products in Virginia and Canada predominately in the
fourth quarter of 2017. After their introduction in Ontario in the
third quarter of 2018, Open-End loans in Canada grew at a more
normalized rate in the fourth quarter - balances grew $19.4
million, or 14.0%, sequentially from the third quarter of 2018.
After the rapid transition of qualifying Single-Pay customers to
Open-End loans in Ontario in the third quarter of 2018, Single-Pay
balances stabilized in Canada. Ancillary revenues increased 53.2%
versus the same quarter a year ago, primarily due to revenue from
the sale of insurance to Installment and Open-End loan customers in
Canada.
Year Ended December 31,
2018
The following table summarizes revenue by product, including CSO
fees, for the periods indicated:
For the Year Ended
December 31, 2018 December 31, 2017 (in
thousands, unaudited) U.S. Canada U.K. Total
U.S. Canada U.K. Total Unsecured
Installment $ 509,883 $ 13,399 $ 38,439 $
561,721 $ 435,745 $ 19,013 $ 25,485 $ 480,243
Secured Installment 110,677 — — 110,677 100,981 — — 100,981
Open-End 106,229 35,733 — 141,962 73,308 188 — 73,496 Single-Pay
107,545 111,447 10,799 229,791 107,553 147,617 13,624 268,794
Ancillary 18,806 31,354 —
50,160 20,142 19,591 386
40,119 Total revenue $ 853,140
$ 191,933 $ 49,238 $ 1,094,311
$ 737,729 $ 186,409
$ 39,495 $ 963,633
During the year ended December 31, 2018, total lending
revenue (excluding revenues from ancillary products) grew $120.6
million, or 13.1%, to $1,044.2 million, compared to the prior year,
predominantly driven by growth in Installment loans in the U.S. and
U.K. and Open-End loans in the U.S. and Canada. Geographically,
revenue in the U.S., Canada and U.K. grew 15.6%, 3.0% and 24.7%,
respectively, with Canada being affected negatively by product mix
shift away from Single-Pay loans. From a product perspective,
Unsecured Installment revenues rose 17.0% and Secured Installment
revenues rose 9.6% because of loan growth. Single-Pay revenues were
affected by regulatory changes in Canada (rate changes in Ontario
and British Columbia) leading to a shift to Open-End loans as well
as a continued general product shift away from Single-Pay. Open-End
revenues rose 93.2% on the introduction of Open-End products in
Canada and Virginia and on organic growth in the U.S. Open-End loan
balances in Canada, where we began offering the product in the
fourth quarter of 2017, grew $150.9 million year-over-year.
Ancillary revenues increased 25.0% versus the prior year primarily
due to non-lending revenue in Canada.
The following table presents revenue composition, including CSO
fees, of the products and services that we currently offer:
Three Months EndedDecember 31,
Year Ended December 31,
2018 2017 2018
2017 Installment 61.9 % 61.7 % 61.4 % 60.3 %
Canada Single-Pay 7.0 % 14.6 % 10.2 % 15.3 % U.S. Single-Pay 9.6 %
10.7 % 9.8 % 11.2 % U.K. Single-Pay 0.5 % 1.2 % 1.0 % 1.4 %
Open-End 15.7 % 7.9 % 13.0 % 7.6 % Ancillary 5.3 % 3.9 %
4.6 % 4.2 % Total 100.0 %
100.0 % 100.0 % 100.0 %
For the three months ended December 31, 2018 and 2017,
revenue generated through the online channel as a percentage of
consolidated revenue was 47% and 41%, respectively. For the years
ended December 31, 2018 and 2017, revenue generated through
the online channel was 45% and 38%, respectively, of consolidated
revenue.
Loan Volume and Portfolio Performance
Analysis
The following table summarizes Company Owned gross loans
receivable, a GAAP balance sheet measure, and reconciles it to
gross combined loans receivable, a non-GAAP measure(1) including
loans originated by third-party lenders through CSO programs, which
are not included in the consolidated financial statements but from
which we earn revenue and for which we provide a guarantee to the
lender:
For the Period Ended (in millions,
unaudited) December 31,2018 September
30,2018 June 30,2018 March 31,2018 December
31,2017 Company Owned gross loans receivable $ 596.8 $ 567.7
$ 444.6 $ 389.8 $ 432.8 Gross loans receivable
Guaranteed by the Company 80.4 78.8
69.2 57.1 78.8 Gross combined loans
receivable (1) $ 677.2 $ 646.5
$ 513.8 $ 446.9 $ 511.6
(1) See a description of non-GAAP
Financial Measures at the end of this release for more
information.
Gross combined loans receivable by product are presented
below:
For the Period Ended (in millions,
unaudited) December 31,2018 September
30,2018 June 30,2018 March 31,2018 December
31,2017 Unsecured Installment $ 214.1 $ 211.6 $ 179.4
$ 171.4 $ 196.3 Secured Installment 93.0 91.2 84.6
79.8 89.2 Single-Pay 82.4 80.8 89.6 87.1 99.4 Open-End 207.3 184.1
91.0 51.5 47.9 CSO 80.4 78.8 69.2
57.1 78.8 Total $
677.2 $ 646.5 $ 513.8 $
446.9 $ 511.6
Gross combined loans receivable increased $165.6 million, or
32.4%, to $677.2 million as of December 31, 2018 compared to
$511.6 million as of December 31, 2017. Geographically, gross
combined loans receivable grew 14.0%, 100.9% and 28.9%,
respectively, in the U.S., Canada and U.K., explained further by
product in the following sections.
Unsecured Installment Loans
Unsecured Installment revenue and gross combined loans
receivable increased from the prior year quarter due to growth in
the U.S., primarily in California and our CSO programs, as well as
growth in the U.K. Gross combined Unsecured Installment loan
balances grew $20.1 million, or 7.4%, compared to December 31,
2017, despite a decline in Canada of $29.3 million due to mix shift
to Open-End. Excluding Canada, gross combined Unsecured Installment
loan balances increased 21.8% year-over-year. Canada was negatively
impacted by the growth and customer preference of Open-End during
2018, as further discussed below. In Canada, total Unsecured
Installment loan originations declined $22.4 million, or 72.3%,
from the fourth quarter of 2017 also due to mix shift; U.S.
originations were up $19.4 million, or 11.0%, versus the prior-year
quarter.
The NCO rate for Company Owned Unsecured Installment loans in
the fourth quarter of 2018 increased approximately 350 bps from the
fourth quarter of 2017, primarily due to geographic mix shift from
Canada to the U.S. and U.K. Canada Unsecured Installment balances
were down $29.3 million compared to the prior year due to shifting
customer preference from that product to Open-End, while U.S.
balances grew $38.1 million due to customer demand and greater
advertising spend. As a result, the U.S. percentage mix of total
Company Owned Unsecured Installment loan balances rose from 69.7%
to 81.7% year-over-year. The level of NCO rates in the U.S. and
U.K. is higher than Canada, so the relative growth in the U.S.
balances resulted in an overall increase in the consolidated NCO
rate. The NCO rate for the U.S also increased (approximately 160
bps) year-over-year due to broader qualifications for credit limit
increases ("CLI"). While CLIs generally result in modestly higher
NCO rates in the related loan vintages, the growth in net revenue
over the life of such vintages more than covers the higher NCO
rates. In addition, fourth quarter of 2017 NCO rates were lowered
by the pattern of monthly growth in that quarter.
The required Unsecured Installment Allowance for loan losses as
a percentage of Gross Company Owned Unsecured Installment loans
receivable ("allowance coverage") remained consistent sequentially
on a consolidated basis. Although NCO rates increased sequentially,
consistent with normal seasonal trends, the past-due rate was flat
and evaluation of collection experience, including recovery trends
that also affect the allowance, required allowance coverage at a
level similar to the level in the third quarter 2018.
NCO rates for Unsecured Installment loans Guaranteed by the
Company increased 400 bps compared to the same quarter in 2017.
Approximately half of the increase was due to broader qualification
for CLIs. As described above, NCO rates increase as a result of
CLIs but growth in net revenue more than covers the increased NCO
rates. The remainder of the increase is due to the timing of loan
growth in the fourth quarter of 2017, which occurred sequentially
from November to December and distorted the relationship between
NCO dollars and quarterly average loan balances. NCO rates and
past-due rates for Unsecured Installment loans Guaranteed by the
Company improved sequentially by 320 bps and 90 bps, respectively,
resulting in the required CSO guarantee liability allowance
coverage to decrease from 16.8% to 15.0% in the fourth quarter of
2018.
2018 2017 (dollars in
thousands, unaudited) Fourth Quarter
Third Quarter Second Quarter First Quarter
Fourth Quarter
Unsecured Installment loans:
Revenue - Company Owned $ 81,152 $ 75,077 $
63,404 $ 66,004 $ 67,800 Provision for losses - Company Owned (1)
44,484 39,025 27,434
27,477 29,967 Net revenue - Company Owned $ 36,668
$ 36,052 $ 35,970 $
38,527 $ 37,833 Net charge-offs - Company Owned (1) $
44,455 $ 31,403 $ 29,734 $ 33,410 $ 32,944 Revenue - Guaranteed by
the Company $ 75,559 $ 73,514 $ 60,069 $ 66,942 $ 69,078 Provision
for losses - Guaranteed by the Company (1) 37,352
39,552 26,974 23,556 34,001
Net revenue - Guaranteed by the Company $ 38,207
$ 33,962 $ 33,095 $ 43,386
$ 35,077 Net charge-offs - Guaranteed by the Company
(1) $ 38,522 $ 37,995 $ 25,667 $ 30,743 $ 32,984
Unsecured
Installment gross combined loans receivable: Company Owned $
214,107 $ 211,565 $ 179,414 $ 171,432 $ 196,306 Guaranteed by the
Company (2)(3) 77,451 75,807 66,351
54,332 75,156 Unsecured Installment
gross combined loans receivable(2)(3) $ 291,558 $
287,372 $ 245,765 $ 225,764 $
271,462 Unsecured Installment Allowance for loan
losses (4) $ 42,873 $ 43,066 $ 35,277 $ 37,916 $ 43,755 Unsecured
Installment CSO guarantee liability (4) $ 11,582 $ 12,750 $ 11,193
$ 9,886 $ 17,072 Unsecured Installment Allowance for loan losses as
a percentage of Unsecured Installment gross loans receivable 20.0 %
20.4 % 19.7 % 22.1 % 22.3 % Unsecured Installment CSO guarantee
liability as a percentage of Unsecured Installment gross loans
guaranteed by the Company 15.0 % 16.8 % 16.9 % 18.2 % 22.7 %
Unsecured Installment past-due balances: Unsecured
Installment gross loans receivable $ 57,050 $ 54,618 $ 40,272 $
39,273 $ 44,963 Unsecured Installment gross loans guaranteed by the
Company $ 11,708 $ 12,120 $ 10,319 $ 8,410 $ 12,480 Past-due
Unsecured Installment gross loans receivable -- percentage (3) 26.6
% 25.8 % 22.4 % 22.9 % 22.9 % Past-due Unsecured Installment gross
loans guaranteed by the Company -- percentage (3) 15.1 % 16.0 %
15.6 % 15.5 % 16.6 %
Unsecured Installment other
information:
Originations - Company Owned
$ 131,754 $ 142,347 $ 128,146 $ 99,418 $ 135,284 Originations -
Guaranteed by the Company (2) $ 89,319 $ 91,828 $ 84,082 $ 60,593 $
82,326
Unsecured Installment ratios: Provision as a
percentage of gross loans receivable - Company Owned 20.8 % 18.4 %
15.3 % 16.0 % 15.3 % Provision as a percentage of gross loans
receivable - Guaranteed by the Company 48.2 %
52.2 % 40.7 % 43.4 % 45.2 %
(1)
As part of improvements made to our
financial reporting processes in 2018, we reclassified certain
provision expense and NCO activity in fourth quarter 2017 to be
consistent with current period presentation. We added approximately
$1.1 million to the fourth quarter 2017 Provision Expense and Net
charge offs for loans Guaranteed by the Company.
(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.
Secured Installment Loans
Secured Installment gross combined loans receivable balances as
of December 31, 2018 increased by $3.1 million, or 3.3%,
compared to December 31, 2017, primarily due to growth in
Arizona, while related Secured Installment revenue grew 6.3%
because of the related loan growth. Allowance for loan losses and
CSO guarantee liability as a percentage of Secured Installment
gross combined loans receivable increased sequentially from 12.4%
to 13.2%, primarily driven by an increase in NCO rates during the
fourth quarter of 2018 because Arizona's loans tend to have
relatively higher yields and loss rates.
2018 2017 (dollars in
thousands, unaudited) Fourth Quarter
Third Quarter Second Quarter First Quarter
Fourth Quarter
Secured Installment loans:
Revenue $ 29,482 $ 28,562 $ 25,777 $ 26,856 $ 27,732
Provision for losses (1) 12,035 10,188
7,650 6,640 9,246 Net revenue $ 17,447
$ 18,374 $ 18,127 $
20,216 $ 18,486 Net charge-offs (1) $ 11,132 $ 9,285
$ 9,003 $ 8,669 $ 9,997
Secured Installment gross combined loan
balances: Secured Installment gross combined loans receivable
(2)(3) $ 95,922 $ 94,194 $ 87,434 $ 82,534 $ 92,817 Secured
Installment Allowance for loan losses and CSO guarantee liability
(4) $ 12,616 $ 11,714 $ 10,812 $ 12,165 $ 14,194 Secured
Installment Allowance for loan losses and CSO guarantee liability
as a percentage of Secured Installment gross combined loans
receivable 13.2 % 12.4 % 12.4 % 14.7 % 15.3 %
Secured
Installment past-due balances: Secured Installment past-due
gross loans receivable and gross loans guaranteed by the Company $
17,835 $ 17,754 $ 15,246 $ 14,756 $ 16,554 Past-due Secured
Installment gross loans receivable and gross loans guaranteed by
the Company -- percentage(3) 18.6 % 18.8 % 17.4 % 17.9 % 17.8 %
Secured Installment other information: Originations (2) $
49,217 $ 51,742 $ 53,597 $ 34,750 $ 48,577
Secured Installment
ratios: Provision as a percentage of gross combined loans
receivable 12.5 % 10.8 % 8.7 %
8.0 % 10.0 %
(1)
As part of improvements made to our
financial reporting process in 2018, we reclassified certain
provision expense and net charge-off activity in fourth quarter
2017 to be consistent with current period presentation. We removed
approximately $0.8 million from the fourth quarter 2017 Provision
Expense and Net-charge offs.
(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.
Open-End Loans
Open-End loan balances as of December 31, 2018 increased by
$159.4 million, or 332.4%, compared to December 31, 2017,
primarily due to the aforementioned launch of Open-End in Canada,
which amounted to $150.9 million of the total loan growth. Open-End
balances in Canada grew $19.4 million sequentially from the third
quarter of 2018 ($28.2 million on a constant currency basis).
Remaining year-over-year loan growth was driven by the introduction
of Open-End loans in Virginia in the third quarter of 2017 and
growth in seasoned markets, such as Tennessee and Kansas.
The Open-End Allowance for loan losses as a percentage of
Open-End gross loans receivable was flat sequentially and declined
year-over-year primarily due to geographic mix shift, Open-End
loans in Canada require lower allowance coverage than Open-End
loans in the U.S. At December 31, 2018, Canadian Open-End gross
loans receivable comprised 76.2% of the total Open-End product,
compared to 15.0% at December 31, 2017, as a result of the
product's launch in Canada. In addition, the allowance for loan
losses as a percentage of Open-End gross loans receivable declined
modestly in the U.S. because of a 330 bps sequential improvement in
NCO rates from continued seasoning of the U.S. portfolio,
particularly in Virginia and Tennessee. Additionally, in Canada,
run-rate growth is stabilizing after the Ontario launch and net
charge-offs as a percentage of gross loans receivable improved
sequentially in the fourth quarter of 2018 by nearly 280 bps.
2018 2017 (dollars in
thousands, unaudited) Fourth Quarter
Third Quarter Second Quarter First Quarter
Fourth Quarter
Open-End loans:
Revenue $ 47,228 $ 40,290 $ 27,222 $ 27,223 $ 21,154 Provision for
losses 28,337 31,686 14,848
11,428 8,334 Net revenue $ 18,891
$ 8,604 $ 12,374 $ 15,795
$ 12,820 Net charge-offs $ 25,218 $ 23,579 $ 11,924 $ 10,972
$ 6,799
Open-End gross loan balances: Open-End gross loans
receivable $ 207,333 $ 184,067 $ 91,033 $ 51,564 $ 47,949 Allowance
for loan losses $ 19,901 $ 18,013 $ 9,717 $ 6,846 $ 6,426 Open-End
Allowance for loan losses as a percentage of Open-End gross loans
receivable 9.6 % 9.8 % 10.7 % 13.3 % 13.4 %
Open-End ratios:
Provision as a percentage of gross loans receivable
13.7 % 17.2 % 16.3 % 22.2 %
17.4 %
Single-Pay
Single-Pay revenue and related loans receivable during the three
months ended December 31, 2018 declined year-over-year
compared to the three months ended December 31, 2017 primarily
due to regulatory changes in Canada (rate changes in Ontario and
British Columbia) that accelerated the shift to Open-End loans, as
well as a continued general product shift away from Single-Pay to
Installment and Open-End loans in all three countries. The
aforementioned Open-End growth in Canada ($150.9 million
year-over-year) in part came at the expense of Single-Pay loan
balances, which shrank year-over-year by $16.0 million. Single-Pay
Allowance for loan losses as a percentage of gross loans receivable
increased from 4.3% to 6.4%, sequentially, primarily as a result of
new rules in certain provinces in Canada requiring an extended
payment plan structure for customers taking multiple loans within a
condensed period of time.
2018 2017 (dollars in
thousands, unaudited) Fourth Quarter
Third Quarter Second Quarter First Quarter
Fourth Quarter
Single-Pay loans:
Revenue $ 51,279 $ 53,205 $ 61,602 $ 63,705 $ 70,868 Provision for
losses 12,923 13,511 14,527
11,302 17,952 Net revenue $ 38,356
$ 39,694 $ 47,075 $ 52,403
$ 52,916 Net charge-offs $ 12,173 $ 13,927 $ 14,543 $
12,698 $ 17,362
Single-Pay gross loan balances: Single-Pay
gross loans receivable $ 82,375 $ 80,867 $ 89,575 $ 87,075 $ 99,400
Single-Pay Allowance for loan losses $ 4,419 $ 3,768 $ 4,372 $
4,485 $ 5,915 Single-Pay Allowance for loan losses as a percentage
of Single-Pay gross loans receivable 5.4 %
4.7 % 4.9 % 5.2 % 6.0 %
Results of Operations - CURO Group Consolidated
Operations
Condensed Consolidated Statements of
Income
(Unaudited)
(in thousands, unaudited) Three Months Ended
December 31, Year Ended December 31,
2018 2017 Change $ Change %
2018 2017 Change $ Change % Revenue $
300,566 $ 266,990 $ 33,576 12.6 % $ 1,094,311
$ 963,633 $ 130,678 13.6 % Provision for
losses 135,692 99,703 35,989
36.1 % 443,232 326,226 117,006
35.9 %
Net revenue 164,874 167,287
(2,413 ) (1.4 )% 651,079 637,407
13,672 2.1 % Advertising costs 16,909 16,459 450 2.7 %
68,333 52,058 16,275 31.3 % Non-advertising costs of providing
services 60,709 58,664 2,045 3.5
% 241,849 236,112 5,737 2.4 %
Total cost of providing services 77,618 75,123
2,495 3.3 % 310,182 288,170
22,012 7.6 %
Gross margin 87,256 92,164 (4,908
) (5.3 )% 340,897 349,237 (8,340 ) (2.4 )%
Operating
expense Corporate, district and other 97,369 51,176 46,193 90.3
% 211,663 154,973 56,690 36.6 % Interest expense 18,146 21,990
(3,844 ) (17.5 )% 84,356 82,684 1,672 2.0 % Loss on extinguishment
of debt 9,686 — 9,686 # 90,569 12,458 78,111 # Restructuring costs
— — — # — 7,393
(7,393 ) # Total operating expense 125,201
73,166 52,035 71.1 % 386,588
257,508 129,080 50.1 %
Net income
before income taxes (37,945 ) 18,998 (56,943 ) # (45,691 )
91,729 (137,420 ) # Provision for income taxes 2,067
12,588 (10,521 ) (83.6 )% 2,076 42,576
(40,500 ) (95.1 )%
Net income
$ (40,012 ) $ 6,410 $ (46,422 )
# $ (47,767 ) $ 49,153 $ (96,920
) # # - Change greater than 100% or not meaningful.
Reconciliation of Net Income and
Diluted Earnings per Share to Adjusted Net Income and Adjusted
Diluted Earnings per share, non-GAAP measures
(in thousands, except per share data, unaudited)
Three Months Ended December 31, Year Ended
December 31, 2018 2017 Change $
Change % 2018 2017 Change $
Change %
Net (loss) income $ (40,012 ) $ 6,410
$ (46,422 ) # $ (47,767 ) $ 49,153 $
(96,920 ) # Adjustments: Loss on extinguishment of debt and
related costs (1) 9,982 — 93,830 12,458 Restructuring costs (2) — —
— 7,393 U.K. redress and related costs (3) 57,403 — 61,355 — Legal
settlements (4) 889 2,000 (289 ) 4,311 Transaction-related costs
(5) — 3,050 — 5,573 Share-based cash and non-cash compensation (6)
2,098 8,690 8,210 10,446 Intangible asset amortization 746 695
2,805 2,502 Impact of tax law changes (7) (2,810 ) 4,635 (1,610 )
4,635 Cumulative tax effect of adjustments (3,425 ) (5,774 )
(27,011 ) (17,397 )
Adjusted
Net Income $ 24,871 $ 19,706 $ 5,165 26.2 % $ 89,523 $ 79,074 $
10,449 13.2 % Net income $ (40,012 ) $ 6,410 $ (47,767 ) $
49,153 Diluted Weighted Average Shares Outstanding (8) 47,773
40,524 47,965 39,277
Diluted (Loss) Earnings per Share
(8) $ (0.84 ) $ 0.16 $ (1 ) # $ (1.00 ) $ 1.25 $ (2.25 ) #
Per Share impact of adjustments to Net Income (8) 1.36
0.33 2.86 0.76
Adjusted Diluted Earnings per Share (8)
$ 0.52 $ 0.49 $
0.03 6.1 % $ 1.86 $ 2.01
$ (0.15 ) (7.5 )% # - Change greater than 100%
or not meaningful.
Reconciliation of Net Income to EBITDA
and Adjusted EBITDA, non-GAAP measures
Three Months Ended December 31,
Year Ended December 31, (in thousands, except per share data,
unaudited) 2018 2017 Change $
Change % 2018 2017 Change $
Change % Net income $ (40,012 ) $ 6,410 $
(46,422 ) # $ (47,767 ) $ 49,153 $ (96,920 )
# Provision for income taxes 2,067 12,588 (10,521 ) (83.6 )%
2,076 42,576 (40,500 ) (95.1 )% Interest expense 18,146 21,990
(3,844 ) (17.5 )% 84,356 82,684 1,672 2.0 % Depreciation and
amortization 4,832 4,717 115 2.4
% 18,838 18,837 1 — % EBITDA
(14,967 ) 45,705 (60,672 ) # 57,503 193,250 (135,747 ) (70.2 )%
Loss on extinguishment of debt (1) 9,686 — 90,569 12,458
Restructuring costs (2) — — — 7,393 U.K. redress and related costs
(3) 57,403 — 61,355 — Legal settlements (4) 889 2,000 (289 ) 4,311
Transaction-related costs(5) — 3,050 — 5,573 Share-based cash and
non-cash compensation(6) 2,098 8,690 8,210 10,446 Other
adjustments(9) 491 (487 ) 442
(1,216 ) Adjusted EBITDA $ 55,600
$ 58,958 $ (3,358 ) (5.7 )% $ 217,790
$ 232,215 $ (14,425 ) (6.2 )% Adjusted EBITDA
Margin 18.5 % 22.1 %
19.9 % 24.1 %
# - Change greater than 100% or not meaningful.
(1)
For the year ended December 31, 2018, the
$90.6 million of loss on extinguishment of debt was comprised of
(a) $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, (b) $69.2
million incurred in the third quarter of 2018 for the redemption of
the remaining $525.7 million of these notes and (c) $9.7 million
incurred in the fourth quarter of 2018 for the redemption of the
Non-Recourse U.S. SPV Facility. The $69.2 million of loss on
extinguishment incurred in the third quarter was comprised of a
$54.0 million make whole premium and $15.2 million of deferred
financing costs, net of premium/discounts. An additional $3.3
million is included in related costs for the year ended December
31, 2018 for duplicative interest paid through October 11, 2018
prior to repayment of the remaining 12.00% Senior Secured Notes and
the Non-Recourse U.S. SPV Facility.
For the year ended December 31, 2017, the
$12.5 million loss from the extinguishment of debt was due to the
redemption of CURO Intermediate Holding Corp.'s ("CURO
Intermediate") 10.75% Senior Secured Notes due 2018 and the 12.00%
Senior Cash Pay Notes due 2017.
(2) Restructuring costs of $7.4 million for the year ended December
31, 2017 were due to the closure of the remaining 13 U.K. stores.
(3)
U.K. redress and SOA related costs of
$61.4 million for the year ended December 31, 2018 includes (a)
$8.6 million of customer redress claims and related costs, (b)
$30.3 million of proposed cash settlement and (c) $22.5 million of
goodwill impairment cost. Refer to "Segment Analysis" for further
explanation of redress related costs.
(4) Legal settlements for the year ended December 31, 2018 includes
(a) 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, (b) a securities class action
lawsuit and (c) settlement of certain matters in California and
Canada. Legal settlements for the year ended December 31, 2017
includes $2.3 million for the settlement of the Harrison, et al v.
Principal Investment, Inc. et al., and $2.0 million for 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. For more information, see
Note 18 - "Contingent Liabilities" of the Notes to Consolidated
Financial Statements included in the Company's Form 10-K filed with
the SEC on March 13, 2018. (5) Transaction-related costs include
professional fees paid in connection with potential transactions,
expenses related to the Company's initial public offering on
December 7, 2017, expenses related to the issuance of $135.0
million additional Senior Secured Notes due 2022 in the fourth
quarter of 2017 and the original issuance of $470.0 million of
Senior Secured Notes due 2022 in the first quarter of 2017. (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. (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; based upon additional interpretations and finalization of our
2017 income tax returns, the total repatriation tax was further
adjusted in the fourth quarter of 2018, producing a tax benefit of
$2.8 million in the fourth quarter. This resulted in a net tax
benefit of $1.6 million for the full year. (8) 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. (9) 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.
For the three months ended December 31,
2018 and 2017
Revenue and Net Revenue
Revenue increased $33.6 million, or 12.6%, to $300.6 million for
the three months ended December 31, 2018 from $267.0 million for
the three months ended December 31, 2017. U.S. revenue increased
14.3% driven by volume growth. Canadian revenue increased 3.6%
(7.9% on a constant currency basis) as volume growth offset yield
compression from regulatory impacts on Single-Pay loan rates and
the significant product mix-shift to Open-End loans. U.K. revenue
increased by 22.7% because of strong loan growth.
Provision for losses increased $36.0 million, or 36.1%, to
$135.7 million for the three months ended December 31, 2018 from
$99.7 million for the three months ended December 31, 2017. As
further described in "Segment Analysis" below, the increase in the
provision was greater than the revenue growth, primarily as a
result of sequential loan growth, upfront provisioning on Open-End
loan volumes, and mix shift from away from Single-Pay loans.
Cost of Providing Services
The total cost of providing services increased $2.5 million, or
3.3%, to $77.6 million in the three months ended December 31, 2018,
compared to $75.1 million in the three months ended December 31,
2017, primarily because of increased loan servicing costs on
volume, as analyzed further in "Segment Analysis" below.
Operating Expenses
Corporate, district and other expenses increased $46.2 million,
or 90.3%, primarily related to $57.4 million of U.K. redress and
SOA related costs, analyzed further in the segment discussions that
follow, offset by lower year-over-year share-based cash and
non-cash compensation, transaction costs and legal settlement
costs. As presented further in the table above, transaction costs
decreased for the year ended December 31, 2018. The lower cost was
largely due to professional fees associated with potential
transactions in 2017, expenses related to the Company's Initial
Public Offering on December 7, 2017, and expenses related to debt
issuances in 2017. Legal settlement costs for the year ended
December 31, 2018 decreased, primarily due to the recognition of
two settlements in 2017, one of which was reduced in 2018.
On January 17, 2019, management completed a reduction in force,
which eliminated 121 positions in North America. The reduction
included 82 positions across the Company’s 213 U.S. branches (5% of
the U.S. store workforce) and 39 corporate support positions in the
U.S. and Canada (8% of the U.S. and Canada corporate support
workforce). The 121 affected positions represented 2.8% of the
global headcount as of December 31, 2018. The store employee
reductions will 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 follow-up activities online. The
elimination of certain corporate positions relate to efficiency
initiatives and will allow the Company to reallocate investment to
strategic growth activities.
In connection with the reduction, the Company incurred severance
and related costs of approximately $2.0 million, which we will
recognize in our results of operations in the first quarter of
2019.
Provision for Income Taxes
The effective income tax benefit rate for the three months ended
December 31, 2018 was (5.4)% compared to an income tax expense rate
66.3% for the three months ended December 31, 2017 as a result of
the geographic mix of income and changes in applicable income tax
rates. As a result of the 2017 Tax Act, the corporate income tax
rate for the U.S. decreased from 35% in 2017 to 21%, effective in
2018. During the fourth quarter of 2018, the liability for the
deemed repatriation provision of the 2017 Tax Act was reduced by
$2.8 million as a result of clarifications of implementation and
finalization of the Company's 2017 U.S. federal income tax return.
Excluding this benefit from income tax expense and excluding the
U.K. redress and SOA related costs described above, the effective
income tax rate for the fourth quarter of 2018 would have been
25.1%, based on a comparably calculated annualized rate of
23.5%.
For the year ended December 31, 2018
and 2017
Revenue and Net Revenue
Revenue increased $130.7 million, or 13.6%, to $1,094.3 million
for the year ended December 31, 2018 from $963.6 million for the
year ended December 31, 2017. U.S. revenue increased 15.6% driven
by volume growth. Canada revenue increased 3.0%, as volume growth
offset yield compression from regulatory impacts on Single-Pay loan
rates and significant product mix-shift to Open-End loans. U.K.
revenue increased by 24.7%.
Provision for losses increased $117.0 million, or 35.9%, to
$443.2 million for the year ended December 31, 2018 from $326.2
million for the year ended December 31, 2017. As further described
in "Segment Analysis" below, the increase in the provision was
greater than the revenue growth, primarily as a result of loan
growth, upfront provisioning on Open-End loan volumes, and mix
shift from away from Single-Pay loans.
Cost of Providing Services
The total cost of providing services increased $22.0 million, or
7.6%, to $310.2 million for the year ended December 31, 2018,
compared to $288.2 million for the year ended December 31, 2017,
primarily because of higher advertising costs.
Operating Expenses
Corporate, district and other expenses increased $56.7 million,
or 36.6%, primarily due to $61.4 million of costs related to
customer redress pursuant to a complaint resolution process for all
lenders in the U.K. and SOA related costs, offset by lower
year-over-year share-based cash and non-cash compensation,
transaction costs and legal settlements as described above. Refer
to "Segment Analysis" below for further explanations on the
customer redress costs.
Provision for Income Taxes
The effective tax benefit rate for the year ended December 31,
2018 was (4.5)% compared to a tax expense rate of 46.4% for the
year ended December 31, 2017. As a result of the 2017 Tax Act, the
federal corporate income tax rate for the U.S. decreased from 35%
in 2017 to 21%, effective in 2018. The provision for income tax as
of December 31, 2018 includes a net accrual reduction of $1.6
million for adjustments to estimates of the tax on prior years'
foreign repatriation as the result of additional interpretative
guidance from the IRS issued throughout 2018. Excluding this
benefit from tax expense and excluding the U.K. redress and SOA
related costs described above, the effective tax rate for the full
year 2018 was 23.5%.
Segment Analysis
We report financial results for three reportable segments: the
U.S., Canada and the U.K. Following is a summary of results of
operations for the segment and period indicated:
U.S. Segment Results Three
Months Ended December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change %
Revenue $ 235,149 $ 205,817 $ 29,332 14.3 %
Provision for losses 109,035 86,833
22,202 25.6 %
Net revenue 126,114 118,984 7,130 6.0 %
Advertising costs 13,632 11,552 2,080 18.0 % Non-advertising costs
of providing services 43,151 41,571
1,580 3.8 % Total cost of providing services 56,783
53,123 3,660 6.9 %
Gross margin
69,331 65,861 3,470 5.3 % Corporate, district and other 31,648
42,504 (10,856 ) (25.5 )% Interest expense 15,450 21,932 (6,482 )
(29.6 )% Loss on extinguishment of debt 9,686 —
9,686 # Total operating expense 56,784
64,436 (7,652 ) (11.9 )%
Segment operating
income 12,547 1,425 11,122 # Interest expense 15,450 21,932
(6,482 ) (29.6 )% Depreciation and amortization 3,501
3,443 58 1.7 %
EBITDA 31,498 26,800
4,698 17.5 % Loss on extinguishment of debt 9,686 — 9,686 Legal
settlements 889 2,000 (1,111 ) Other adjustments 443 (63 ) 506
Transaction related costs — 3,050 (3,050 ) Share-based cash and
non-cash compensation 2,098 8,534
(6,436 )
Adjusted EBITDA $ 44,614
$ 40,321 $ 4,293 10.6 % #
- Change greater than 100% or not meaningful
U.S. Segment Results - For the three
months ended December 31, 2018 and 2017
Fourth quarter U.S. revenues increased by $29.3 million, or
14.3%, to $235.1 million. U.S. revenue growth was driven by a $54.4
million, or 14.0%, increase in gross combined loans receivable to
$441.9 million at December 31, 2018, compared to $387.5 million at
December 31, 2017. Unsecured Installment receivables increased
year-over-year $40.4 million, or 19.1%. Open-End receivables
increased $8.5 million, or 20.9% year-over-year primarily because
of the 2017 third quarter introduction of Open-End in Virginia, and
organic growth in Tennessee and Kansas. Secured Installment gross
combined receivables increased from the prior year period by $3.1
million, or 3.3%, while Unsecured Installment CSO and Single-Pay
receivables grew 3.1% and 5.6%, respectively.
The increase of $22.2 million, or 25.6%, in provision for losses
was primarily driven by sequential loan growth of $18.9 million, or
4.5%, and higher net charge-offs as a percentage of average gross
loans receivable. The provision for loan losses and related loan
portfolio performance is further analyzed under "Consolidated
Revenue Summary--Loan Volume and Performance Analysis" above.
U.S. cost of providing services for the three months ended
December 31, 2018 was $56.8 million, an increase of $3.7 million,
or 6.9%, compared to $53.1 million for the three months ended
December 31, 2017. The increase was primarily due to $2.1 million,
or 18.0%, higher advertising costs, largely online, and $1.2
million of loan servicing costs on higher volume. Advertising as a
percentage of revenue was 5.8% for the three months ended December
31, 2018 consistent with the prior-year period of 5.6%.
Corporate, district and other operating expenses decreased $10.9
million, or 25.5%, compared to the same period in the prior year,
primarily due to $6.4 million lower share-based compensation
expense, lower variable compensation costs for financial
performance and lower professional fees.
U.S. interest expense for the fourth quarter of 2018 decreased
by $6.5 million compared to the same period prior year due to the
refinancing transactions. During the third quarter of 2018 we
issued $690.0 million of 8.25% Senior Secured Notes and
subsequently used the proceeds of this issuance to extinguish the
remaining $527.5 million 12.00% Senior Secured Notes and the
Non-Recourse U.S. SPV Facility.
U.S. Segment Results Year Ended
December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change % Revenue $ 853,141
$ 737,729 $ 115,412 15.6 % Provision for
losses 348,611 267,491 81,120
30.3 %
Net revenue 504,530 470,238 34,292 7.3 % Advertising
costs 48,832 36,148 12,684 35.1 % Non-advertising costs of
providing services 170,870 166,875
3,995 2.4 % Total cost of providing services 219,702
203,023 16,679 8.2 %
Gross
margin 284,828 267,215 17,613 6.6 % Corporate, district and
other 112,761 120,803 (8,042 ) (6.7 )% Interest expense 80,381
82,495 (2,114 ) (2.6 )% Loss on extinguishment of debt 90,569
12,458 78,111 # Total operating
expense 283,711 215,756 67,955
31.5 %
Segment operating income 1,117 51,459 (50,342 ) (97.8
)% Interest expense 80,381 82,495 (2,114 ) (2.6 )% Depreciation and
amortization 13,823 13,643 180
1.3 %
EBITDA 95,321 147,597 (52,276 ) (35.4 )% Loss on
extinguishment of debt 90,569 12,458 78,111 Legal settlements (408
) 4,311 (4,719 ) Other adjustments 219 (110 ) 329 Transaction
related costs — 5,573 (5,573 ) Share-based cash and non-cash
compensation 8,210 10,290 (2,080 )
Adjusted EBITDA $ 193,911
$ 180,119 $ 13,792 7.7 % # - Change
greater than 100% or not meaningful
U.S. Segment Results - For the year
ended December 31, 2018 and 2017
U.S. revenues increased by $115.4 million, or 15.6%, to $853.1
million for the year ended December 31, 2018.
U.S revenue growth was driven by a $54.4 million, or 14.0%,
increase in gross combined loans receivable to $441.9 million at
December 31, 2018, compared to $387.5 million at December 31, 2017.
Unsecured Installment receivables increased year-over-year $40.4
million, or 19.1%. Open-End receivables increased $8.5 million, or
20.9%, compared to the prior year period, primarily driven by the
2017 third quarter introduction of Open-End in Virginia and organic
growth in Tennessee and Kansas. Secured Installment Loan
receivables increased from the prior year period by $3.1 million or
3.3%, while CSO and Single-Pay receivables grew 3.1% and 5.6%,
respectively.
The increase of $81.1 million, or 30.3%, in provision for losses
was driven in part by the 14.0% increase in gross combined loans
receivable of $54.4 million and higher net charge-offs as a
percentage of average gross loans receivable. The provision for
loan losses and related loan portfolio performance is further
analyzed under “Consolidated Revenue Summary--Loan Volume and
Portfolio Performance Analysis” above.
U.S. cost of providing services was $219.7 million, an increase
of $16.7 million, or 8.2%, compared to $203.0 million for the year
ended December 31, 2017. The increase was primarily due to $12.7
million, or 35.1%, higher advertising costs. Advertising costs were
elevated in 2018 primarily because of the expansion of Avio loans
and the mix shift to online.
The $8.0 million decrease in corporate, district and other
operating expenses was primarily due to $2.1 million lower
share-based compensation expense, lower variable compensation costs
for financial performance and lower professional fees, offset by
increased investment in technology, analytical and professional
talent and incremental costs of being a public company.
Canada Segment Results Three
Months Ended December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change %
Revenue $ 52,430 $ 50,589 $ 1,841 3.6 %
Provision for losses 21,643 8,829
12,814 145.1 %
Net revenue 30,787 41,760 (10,973 )
(26.3 )% Advertising costs 1,384 3,471 (2,087 ) (60.1 )%
Non-advertising costs of providing services 17,052
16,250 802 4.9 % Total cost of providing
services 18,436 19,721 (1,285 ) (6.5 )%
Gross margin 12,351 22,039 (9,688 ) (44.0 )% Corporate,
district and other 4,849 4,545 304 6.7 % Interest expense 2,703
59 2,644 # Total operating
expense 7,552 4,604 2,948 64.0 %
Segment operating income 4,799 17,435 (12,636 ) (72.5 )%
Interest expense 2,703 59 2,644 # Depreciation and amortization
1,208 1,157 51 4.4 %
EBITDA 8,710 18,651 (9,941 ) (53.3 )% Share-based cash and
non-cash compensation — 156 (156 ) Other adjustments 54
(417 ) 471
Adjusted EBITDA
$ 8,764 $ 18,390 $ (9,626
) (52.3 )% # - Change greater than 100% or not meaningful.
Canada Segment Results - For the three
months ended December 31, 2018 and 2017
Canada revenue increased $1.8 million, or 3.6%, to $52.4 million
for the three months ended December 31, 2018 from $50.6 million in
the prior year period. On a constant currency basis, revenue
increased $4.0 million, or 7.9%. Revenue growth in Canada was
impacted by the significant asset growth and product mix shift from
the accelerated transition from Single-Pay and Unsecured
Installment loans to Open-End loans that have a lower yield.
Single-Pay yields were also negatively affected by regulatory rate
changes in Ontario and British Columbia. On a constant currency
basis, total gross loan receivables grew by $123.2 million, or
117.8%, compared to the same period in the prior year.
Single-Pay revenue decreased $18.0 million, or 46.1%, to $21.0
million for the three months ended December 31, 2018, and
Single-Pay receivables decreased $16.0 million, or 30.5%, to $36.6
million from $52.6 million in the prior year. The decreases in
Single-Pay revenue and receivables were due to the product mix
shift in Canada from Single-Pay loans to Open-End loans and by
regulatory changes that lowered Single Pay pricing
year-over-year.
Canadian non-Single-Pay revenue increased $19.8 million, or
172.7%, to $31.4 million compared to $11.6 million the same quarter
a year ago, on $121.5 million, or 234.0%, 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 the third and fourth quarters of 2018.
The provision for losses increased $12.8 million, or 145.1%, to
$21.6 million for the three months ended December 31, 2018 compared
to $8.8 million in the prior-year period, because of upfront
provisioning on Open-End loan volumes and mix shift from Single-Pay
loans and Unsecured Installment to Open-End loans. Total Open-End
and Installment loans grew by $16.0 million sequentially during the
fourth quarter of 2018, compared to $3.0 million in the fourth
quarter of 2017. On a constant currency basis, provision for losses
increased by $13.7 million, or 155.2%.
The total cost of providing services in Canada decreased $1.3
million, or 6.5%, to $18.4 million for the three months ended
December 31, 2018, compared to $19.7 million in the prior year
period. Advertising costs were lower by $2.1 million, or 60.1%. The
increase in non-advertising cost of providing services was due
primarily to loan servicing costs resulting from Canada’s increased
loan portfolio and the opening of seven LendDirect stores between
the fourth quarter of 2017 and the fourth quarter of 2018. On a
constant currency basis, cost of providing services decreased $0.5
million, or 2.8%.
Canada operating expenses increased 64.0% to $7.6 million in the
three months ended December 31, 2018 from $4.6 million in the prior
year period, primarily due to increased interest expense resulting
from the Non-Recourse Canada SPV Facility that commenced in August
2018.
Canada Segment Results Year
Ended December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change % Revenue $
191,932 $ 186,408 $ 5,524 3.0 % Provision for
losses 72,989 45,075 27,914 61.9
%
Net revenue 118,943 141,333 (22,390 ) (15.8 )% Advertising
costs 10,531 10,415 116 1.1 % Non-advertising costs of providing
services 67,770 62,968 4,802 7.6
% Total cost of providing services 78,301 73,383
4,918 6.7 %
Gross margin 40,642 67,950
(27,308 ) (40.2 )% Corporate, district and other 19,640 16,952
2,688 15.9 % Interest expense 4,001 201
3,800 # Total operating expense 23,641 17,153
6,488 37.8 %
Segment operating income
17,001 50,797 (33,796 ) (66.5 )% Interest expense 4,001 201 3,800 #
Depreciation and amortization 4,514 4,546
(32 ) (0.7 )%
EBITDA 25,516 55,544 (30,028 ) (54.1 )%
Legal settlements 119 — 119 Share-based cash and non-cash
compensation — 156 (156 ) Other adjustments 277
(1,071 ) 1,348
Adjusted EBITDA
$ 25,912 $ 54,629 $ (28,717 )
(52.6 )% # - Change greater than 100% or not meaningful.
Canada Segment Results - For the year
ended December 31, 2018 and 2017
Canada revenue rose $5.5 million, or 3.0%, to $191.9 million,
for the year ended December 31, 2018, from $186.4 million in the
prior year. Revenue growth in Canada benefited from the significant
asset growth and accelerated product transition from Single-Pay and
Unsecured Installment loans to Open-End loans. Single-Pay yields
were affected adversely by regulatory rate changes in Alberta,
Ontario and British Columbia. Currency translation for the period
did not have a significant impact on net revenue compared to the
prior year.
Single-Pay revenue decreased $36.2 million, or 24.5%, to $111.4
million for the year ended December 31, 2018, and Single-Pay ending
receivables decreased $16.0 million, or 30.5%, to $36.6 million
from $52.6 million in the prior year. The decreases in Single-Pay
revenue and receivables were due to the product mix shift in Canada
from Single-Pay loans to Open-End loans and by regulatory changes
that lowered pricing year-over-year.
Canadian non-Single-Pay revenue increased $41.7 million, or
107.5%, to $80.5 million compared to $38.8 million in the same
period a year ago on $121.5 million, or 234.0%, 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 the third and fourth quarters of 2018.
The provision for losses increased $27.9 million, or 61.9%, to
$73.0 million for the year ended December 31, 2018 compared to
$45.1 million in the prior-year period, primarily because of loan
volumes and mix shift from Single-Pay loans to Unsecured
Installment and Open-End loans.
The cost of providing services in Canada increased $4.9 million,
or 6.7%, to $78.3 million for the year ended December 31, 2018,
compared to $73.4 million in the prior year. The increase was due
primarily to $4.8 million, or 7.6%, higher non-advertising costs of
providing services compared to the prior year, reflecting $2.2
million of loan servicing costs associated with Canada's increased
loan portfolio and $1.1 million of additional compensation expense
related to an increase in headcount from LendDirect store openings.
The remaining increase is primarily related to occupancy expenses
from higher store counts, as we opened seven LendDirect stores
during 2018.
Operating expenses increased $6.5 million, or 37.8%, to $23.6
million in the year ended December 31, 2018, from $17.2 million in
the prior year. Corporate, district and other expenses increased
$2.7 million, due to increased collections and customer support
payroll expenses, increased volumes, expansion of the LendDirect
business and product shifts from Single-Pay and Unsecured
Installment to Open-End loans. Additionally, interest expense
increased $3.8 million, due to the Non-Recourse Canada SPV Facility
commenced in August 2018.
U.K. Segment Results Three
Months Ended December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change %
Revenue $ 12,987 $ 10,584 $ 2,403 22.7 %
Provision for losses 5,014 4,041 973
24.1 %
Net revenue 7,973 6,543 1,430 21.9 %
Advertising costs 1,893 1,436 457 31.8 % Non-advertising costs of
providing services 506 843 (337 ) (40.0
)% Total cost of providing services 2,399 2,279
120 5.3 %
Gross margin 5,574 4,264
1,310 30.7 % Corporate, district and other 60,872 4,127 56,745 #
Interest income (7 ) (1 ) 6 # Total operating
expense 60,865 4,126 56,739 #
Segment operating (loss) income (55,291 ) 138 (55,429 ) #
Interest income (7 ) (1 ) 6 # Depreciation and amortization 123
117 6 5.1 %
EBITDA
(55,175 ) 254 (55,429 ) # U.K. redress and related costs 57,403 —
57,403 Other adjustments (6 ) (7 ) 1
Adjusted EBITDA $ 2,222 $
247 $ 1,975 # # - Change greater than
100% or not meaningful
U.K. Segment Results - For the three
months ended December 31, 2018 and 2017
U.K. revenue improved $2.4 million, or 22.7%, to $13.0 million
for the three months ended December 31, 2018 compared to $10.6
million in the prior year period. On a constant currency basis,
revenue increased $2.8 million, or 26.5%. Provision for losses
increased $1.0 million, or 24.1%, due to upfront provisioning on
volume growth and the product mix shift from Single-Pay to
Installment loans. Installment loans in the U.K. grew by $9.0
million year-over-year, from $14.7 million to $23.7 million. On a
constant currency basis, provision for losses increased $1.1
million, or 27.7%.
The cost of providing services in the U.K. increased $0.1
million, or 5.3%, for the three months ended December 31, 2018
compared to the prior year period.
Corporate, district and other expenses increased $56.7 million,
or 135.0% to $60.9 million for the three months ended December 31,
2018, as 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 high-cost short-term
credit providers in the U.K. These costs totaled $4.0 million and
$4.6 million in the third and fourth quarters of 2018,
respectively.
As described in more detail in the Current Report on Form 8-K we
are filing today, our subsidiary in the U.K., Curo Transatlantic
Limited (“CTL”), is evaluating and discussing with UK regulatory
authorities an SOA that, subject to court and creditor approval,
may allow CTL to (a) substantially compromise and settle
liabilities in respect of consumer claims arising from historical
affordability, creditworthiness and responsible lending practices
and (b) continue our operations in the U.K.
In connection with the proposed SOA, the Company recognized
total charges in the fourth quarter of 2018 of $57.4 million
comprised of (a) $22.5 million of non-cash goodwill impairment
charges, (b) $4.6 million of fourth quarter redress claims and
related costs, (c) a $23.6 million fund to settle historical
redress claims and (d) $6.7 million in advisory and other costs
that will be required to execute the SOA. If for any reason the SOA
is not implemented, or it is implemented on other terms, the manner
in which we account for U.K. redress and SOA related costs may
change in our final audited financial statements for the year ended
December 31, 2018. We anticipate determination of our definitive
plans for addressing U.K. redress claims by the end of February.
Implementing the SOA would require the consent of bondholders
holding a majority in aggregate principal amount of our outstanding
8.25% Notes due 2025. We are currently in active discussions with
our bondholders regarding this matter.
U.K. Segment Results Year Ended
December 31, (dollars in thousands, unaudited)
2018 2017 Change $ Change % Revenue $ 49,238
$ 39,496 $ 9,742 24.7 % Provision for losses
21,632 13,660 7,972 58.4 %
Net revenue 27,606 25,836 1,770 6.9 % Advertising costs
8,970 5,495 3,475 63.2 % Non-advertising costs of providing
services 3,209 6,269 (3,060 ) (48.8 )%
Total cost of providing services 12,179 11,764
415 3.5 %
Gross margin 15,427 14,072 1,355 9.6
% Corporate, district and other 79,262 17,218 62,044 360.3 %
Interest income (26 ) (12 ) 14 # Restructuring costs —
7,393 (7,393 ) # Total operating expense
79,236 24,599 54,637 #
Segment operating loss (63,809 ) (10,527 ) (53,282 ) #
Interest income (26 ) (12 ) 14 # Depreciation and amortization 501
648 (147 ) (22.7 )%
EBITDA
(63,334 ) (9,891 ) (53,443 ) # U.K. redress and related costs
61,355 — 61,355 Other adjustments (54 ) (35 ) (19 ) Restructuring
costs — 7,393 (7,393 )
Adjusted
EBITDA $ (2,033 ) $ (2,533 )
$ 500 (19.7 )% # - Change greater than 100% or not
meaningful
U.K. Segment Results - For the year
ended December 31, 2018 and 2017
U.K. revenue improved $9.7 million, or 24.7%, to $49.2 million
for the year ended December 31, 2018 compared to $39.5 million in
the prior year. On a constant currency basis, revenue rose $8.2
million, or 20.7%. Provision for losses increased $8.0 million,
and, on a constant currency basis, increased $7.3 million, or
53.3%, due to volume growth.
The cost of providing services in the U.K. increased $0.4
million, or 3.5%, for the year ended December 31, 2018, compared to
the prior year period. On a constant currency basis, the cost of
providing services remained flat year-over-year.
Corporate, district and other expenses increased $62.0 million,
or 360.3%, to $79.3 million for the year ended December 31, 2018,
as compared to the prior year period, including redress and SOA
related costs of $61.4 million comprised of (a) $8.6 million of
customer redress claims and related costs, (b) $30.3 million of
proposed cash settlement costs and (c) $22.5 million of goodwill
impairment cost.
CURO GROUP HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
December 31,2018
December 31,2017
ASSETS Cash $ 71,034 $ 162,374 Restricted cash
(includes restricted cash of consolidated VIEs of $12,840 and
$6,871 as of December 31, 2018 and 2017, respectively) 28,823
12,117 Gross loans receivable (includes loans of consolidated VIEs
of $148,876 and $213,846 as of December 31, 2018 and 2017,
respectively) 596,787 432,837 Less: allowance for loan losses
(includes allowance for losses of consolidated VIEs of $12,688 and
$46,140 as of December 31, 2018 and 2017, respectively) (79,384 )
(69,568 ) Loans receivable, net 517,403 363,269 Deferred income
taxes 1,534 772 Income taxes receivable 16,741 3,455 Prepaid
expenses and other 45,070 42,512 Property and equipment, net 78,015
87,086 Goodwill 119,281 145,607 Other intangibles, net of
accumulated amortization of $43,020 and $41,156 as of December 31,
2018 and 2017, respectively 33,628 32,769 Other 13,197 9,770
Total Assets $ 924,726 $ 859,731
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and
accrued liabilities $ 87,636 $ 55,792 Deferred revenue 9,663 11,984
Income taxes payable 1,579 4,120 Accrued interest (includes accrued
interest of consolidated VIEs of $831 and $1,266 as of December 31,
2018 and 2017 respectively) 20,899 25,467 Credit services
organization guarantee liability 12,007 17,795 Deferred rent 11,000
11,577 Long-term debt (includes long-term debt and issuance costs
of consolidated VIEs of $111,335 and $3,856 as of December 31, 2018
and $124,590 and $4,188 as of December 31, 2017, respectively)
804,140 706,225 Subordinated shareholder debt 2,196 2,381 Other
long-term liabilities 6,222 5,768 Deferred tax liabilities 14,321
11,486 Total Liabilities $ 969,663 $ 852,595
Stockholders' Equity Total Stockholders' Equity $ (44,937 )
$ 7,136 Total Liabilities and Stockholders' Equity
$ 924,726 $ 859,731
Balance Sheet Changes - December 31, 2018 compared to
December 31, 2017
Cash - During the year ended
December 31, 2018, we fully redeemed the 12.00% Senior Secured
Notes held by CFTC, our wholly-owned subsidiary. CFTC redeemed
$77.5 million of the 12.00% Senior Secured Notes in the first
quarter of 2018 and the remaining $527.5 million of the original
outstanding principal in the third quarter of 2018. The redemptions
were conducted pursuant to the indenture governing the Senior
Secured Notes, dated as of February 15, 2017, by and among CFTC,
the guarantor party thereto and TMI Trust Company, as trustee and
collateral agent, at a price equal to 112.00% of the principal
amount plus accrued and unpaid interest to the date of redemption.
During the fourth quarter of 2018, CFTC also extinguished 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. The
resulting decrease in cash was offset by (a) 1.0 million shares
exercised by the underwriters on January 5, 2018 at $14 per share
in connection with our initial public offering in December 2017
providing additional net proceeds to the Company of $13.1 million;
(b) issuance of $690.0 million aggregate principal amount of 8.25%
Senior Secured Notes due 2025; (c) net outstanding balance of $20.0
million on our credit facility (the facility was drawn $29.0
million at the end of the third quarter of 2018, $9.0 million of
which was repaid during the fourth quarter); and (d) $111.3 million
proceeds from the Canada SPV Facility.
Gross Loans Receivable and Allowance for
Loan Losses - As noted in "Consolidated Revenue
Summary--Loan Volume and Portfolio Performance Analysis" above,
changes in Gross Loans Receivable and related Allowance for Loan
Losses were due to organic growth in Installment loans and product
mix shift to Installment and Open-End loans (primarily in
Canada).
Accounts payable and accrued
liabilities - Changes from year-end 2017 were primarily due
to U.K. redress and SOA related costs. During the fourth quarter of
2018, our U.K. entity accrued $30.3 million of U.K. redress and SOA
related costs as explained further in the "Segment Analysis"
above.
Long-term debt (including current
maturities) and Accrued Interest - Changes from year-end
2017 were primarily due to the issuance of the 8.25% Senior Secured
Notes due 2025 and the redemption of the 12.00% Senior Secured
Notes due 2022, as previously discussed. During the third quarter
of 2018, we entered into the Canadian SPV Facility and, on October
11, 2018, we used a portion of the proceeds from the 8.25% Senior
Secured Notes due 2025 to pay, in full, the U.S. SPV Facility.
Additionally, the Canada SPV Facilities had $111.3 million
outstanding as of December 31, 2018.
About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in three
countries and powered by its fully integrated technology platform,
is a market leader by revenues in providing short-term credit to
underbanked consumers. In 1997, the Company was founded in
Riverside, California by three Wichita, Kansas childhood friends to
meet the growing consumer need for short-term loans. Their success
led to opening stores across the United States and expanding to
offer online loans and financial services across three countries.
Today, CURO combines its market expertise with a fully integrated
technology platform, omni-channel approach and advanced credit
decisioning to provide an array of short-term credit products
across all mediums. CURO operates under a number of brands
including Speedy Cash, Rapid Cash, Cash Money, LendDirect, Avío
Credit, WageDayAdvance, Juo Loans, and Opt+. With over 20 years of
operating experience, CURO provides financial freedom to the
underbanked.
Conference Call
CURO will host a conference call to discuss these results at
8:15 a.m. Eastern Time on Friday, February 1, 2019. The live
webcast of the call can be accessed at the CURO Investor Relations
website at http://ir.curo.com/.
You may access the call at 1-888-394-8218 (1-786-789-4776 for
international callers). Please ask to join the CURO Group Holdings
call. A replay of the conference call will be available until
February 8, 2019, at 11:59 p.m. Eastern Time. An archived version
of the webcast will be available on the CURO Investor Relations
website for 90 days. You may access the conference call replay at
1-888-203-1112 (1-719-457-0820 for international callers). The
replay access code is 5363726.
Final Results
The financial results presented and discussed herein are on a
preliminary and unaudited basis; final audited data will be
included in the Company’s Annual Report on Form 10-K for the period
ended December 31, 2018.
Forward-Looking Statements
This press release contains forward-looking statements. These
forward-looking statements include statements related to our
expectations regarding our proposal to settle liability for
historical redress claims in the U.K. and the expected timing of
resolution, the expected results from our recent reduction in
force, expectations regarding the contributions to our business
from our agreement with MetaBank and our
fiscal 2019 outlook. In addition, words such as “as
“guidance,” “estimate,” “anticipate,” “believe,” “forecast,”
“step,” “plan,” “predict,” “focused,” “project,” “is likely,”
“expect,” “intend,” “should,” “will,” “confident,” variations of
such words and similar expressions are intended to identify
forward-looking statements. Our ability to achieve these
forward-looking statements is based on certain assumptions and
judgments, including our ability to execute on our business
strategy and our ability to accurately predict our future financial
results. These assumptions and judgments may prove to be inaccurate
in the future. These forward-looking statements are not guarantees
of future performance and involve known and unknown risks and
uncertainties that are difficult to predict with regard to timing,
extent, likelihood and degree of occurrence. There are important
factors both within and outside of our control that could cause our
actual results to differ materially from those in the
forward-looking statements. These factors include our level of
indebtedness; errors in our internal forecasts; our dependence on
third-party lenders to provide the cash we need to fund our loans
and our ability to affordably access third-party financing; actions
of regulators and the negative impact of those actions on our
business; our ability to protect our proprietary technology and
analytics and keep up with that of our competitors; disruption of
our information technology systems that adversely affect our
business operations; ineffective pricing of the credit risk of our
prospective or existing customers; inaccurate information supplied
by customers or third parties would could lead to errors in judging
customers’ qualifications to receive loans; improper disclosure of
customer personal data; failure or third parties who provide
products, services or support to us; any failure of
third-party-lenders upon whom we rely to conduct business in
certain states; disruption to our relationships with banks and
other third-part electronic payment solutions providers; disruption
caused by employee or third-party theft and errors in our stores as
well as other factors discussed in our filings with the Securities
and Exchange Commission. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking
statements as a prediction of actual future results. We undertake
no obligation to update, amend or clarify any forward-looking
statement for any reason.
Fiscal 2019 Outlook - Reconciliation of
Net Income and Diluted Earnings per Share to Adjusted Net Income
and Adjusted Diluted Earnings per share, non-GAAP measures
(1) (unaudited)
Fiscal 2019 Outlook Year Ending
December 31, 2019 (in thousands, except per share data,
unaudited)
Low
High Net income $ 110,500 $ 125,500
Adjustments: Non-cash rent expense and foreign currency exchange
rate impact (2) (3) — — Share-based cash and non-cash compensation
9,000 9,000 U.K. redress and related costs (4) 1,000 1,000
Intangible asset amortization 2,500 2,500 Cumulative tax effect of
adjustments (3,000 ) (3,000 )
Adjusted Net
Income $ 120,000 $ 135,000 Net income $ 110,500 $
125,500 Diluted Weighted Average Shares Outstanding 48,000 48,200
Diluted Earnings per Share $ 2.30 $ 2.60 Per Share impact of
adjustments to Net Income 0.20 0.20
Adjusted Diluted Earnings per Share $
2.50 $ 2.80
Fiscal 2019 Outlook - Reconciliation of
Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures
(1) (unaudited)
Fiscal 2019 Outlook Year Ending
December 31, 2019 (in thousands, unaudited)
Low High Net income $
110,500 $ 125,500 Provision for income taxes 38,000
43,000 Interest expense 73,000 73,000 Depreciation and amortization
18,500 18,500
EBITDA
240,000 260,000 Non-cash rent expense and foreign currency exchange
rate impact (2) (3) — — Share-based cash and non-cash compensation
9,000 9,000 U.K. redress and related costs (4) 1,000
1,000
Adjusted EBITDA $ 250,000
$ 270,000
(1)
See a description of Non-GAAP Financial
Measures at the end of this release for more information.
(2)
The Company has historically excluded the
impact of non-cash interest from adjusted earnings metrics. With
the adoption of ASU 842, effective January 1, 2019, the Company
anticipates the difference between GAAP rent expense and cash rent
paid will grow. However, the Company will continue to adjust for
this difference. The Company is in the process of evaluating the
impact of ASU 842 on rent expense.
(3)
The Company has historically excluded the
impact of foreign currency translation and hedges from adjusted
earnings metrics; the Company does not include the impact of any
hedge settlement or realized currency gains or losses in its
outlook.
(4)
Current estimate of 2019 redress and
related costs based upon an assumed successful completion of the
SOA as discussed above.
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity
with U.S. GAAP, we provide certain “non-GAAP financial
measures,” including:
- Adjusted Net Income and Adjusted
Earnings Per Share, or the Adjusted Earnings Measures (net income
plus or minus gain (loss) on extinguishment of debt, restructuring
and other costs, goodwill and intangible asset impairments,
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 the consolidated financial
statements).
We believe that presentation of non-GAAP financial information
is meaningful and useful in understanding the activities and
business metrics of the Company's operations. We believe that these
non-GAAP financial measures reflect an additional way of viewing
aspects of the business that, when viewed with the Company's U.S.
GAAP results, provide a more complete understanding of factors and
trends affecting the 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 above 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 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 the U.S. GAAP 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. Readers should
consider the information in addition to, but not instead of or
superior to, the financial statements prepared in accordance with
U.S. GAAP. This non-GAAP financial information may be determined or
calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial
Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA Measures have limitations as analytical tools, and
you should not consider these measures in isolation or as a
substitute for analysis of our income or cash flows as reported
under U.S. GAAP. Some of these limitations are:
- they do not include cash expenditures
or future requirements for capital expenditures or contractual
commitments;
- they do not include changes in, or cash
requirements for, working capital needs;
- they do not include the interest
expense, or the cash requirements necessary to service interest or
principal payments on debt;
- depreciation and amortization are
non-cash expense items reported in the statements of cash flows;
and
- other companies in our industry may
calculate these measures differently, limiting their usefulness as
comparative measures.
As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are
not included in the 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 stores based on revenue per store, provision for
losses at each store and store-level EBITDA, with consideration
given to the length of time a store has been open and its
geographic location. We monitor newer stores for their progress to
profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share,
EBITDA and Adjusted EBITDA are used by investors to analyze
operating performance and to 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 release may differ from the computation of
similarly-titled measures provided by other companies.
(CURO-NWS)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190131005890/en/
Investor Relations:Roger DeanExecutive Vice President and Chief
Financial OfficerPhone: 844-200-0342Email: IR@curo.comOrGlobal IR GroupGar Jackson,Phone:
949-873-2789Email: gar@globalirgroup.com
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