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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission File Number: 1-38315
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware90-0934597
(State or other jurisdiction
Of incorporation or organization)		(I.R.S. Employer Identification No.)
3615 North Ridge Road, Wichita, KS
67205
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (316) 772-3801
Former name, former address and former fiscal year, if changed since last report: No Changes

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareCURONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐
Smaller reporting company☒Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☒
As of October 28, 2022 there were 40,485,381 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
THIRD QUARTER ENDED September 30, 2022
INDEX
Page
Item 1.
Financial Statements (unaudited)
September 30, 2022 (unaudited) and December 31, 2021
Three and nine months ended September 30, 2022 (unaudited) and 2021
Three and nine months ended September 30, 2022 (unaudited) and 2021
Three and nine months ended September 30, 2022 (unaudited) and 2021
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


PART I.     FINANCIAL INFORMATION

GLOSSARY

Terms and abbreviations used throughout this report are defined below.
Term or abbreviationDefinition
2021 Form 10-KAnnual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022
7.50% Senior Secured Notes7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028
8.25% Senior Secured Notes8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which we extinguished during the third quarter of 2021
ABLAsset-Backed Lending
Adjusted EBITDAEBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details
ALLAllowance for loan losses
AOCIAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
Average gross loans receivableUtilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
BNPLBuy-Now-Pay-Later
bpsBasis points
C$Canadian dollar
CABCredit Access Business
Canada SPV
A four-year revolving credit facility with capacity up to C$400.0 million
Curo Canada Revolving Credit FacilityC$10.0 million revolving credit facility (formerly known as Cash Money Revolving Credit Facility), maintained by CURO Canada
CDORCanadian Dollar Offered Rate
CFPBConsumer Financial Protection Bureau
CODMChief Operating Decision Maker
Condensed Consolidated Financial StatementsThe condensed consolidated financial statements presented in this Form 10-Q
CSOCredit services organization
CURO CanadaCURO Canada Corp, a wholly-owned Canadian subsidiary of the Company, formerly known as Cash Money Cheque Cashing Inc.
EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FinServFinServ Acquisition Corp., a publicly traded special purpose acquisition company (trading symbol FSRV)
FinTechFinancial Technology; the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or cryptocurrency
First HeritageFirst Heritage Credit, LLC, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi we acquired in July 2022
First Heritage SPV
A revolving credit facility, entered into concurrent with the acquisition of First Heritage, with capacity up to $225.0 million
FlexitiFlexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021
Flexiti SPV
A revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$535.0 million
Form 10-Q
This report on Form 10-Q for the quarter ended September 30, 2022
Gross Combined Loans ReceivableGross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company
Guaranteed by the CompanyLoans originated by third-party lenders through the CSO program which we guarantee but are not included in the unaudited Condensed Consolidated Financial Statements. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business.
3


Term or abbreviationDefinition
Heights FinanceSouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of
the Company, which we acquired on December 27, 2021
Heights Finance SPV
A non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights Finance, with capacity up to $350.0 million. This facility was extinguished on July 15, 2022 when we entered into a new non-recourse revolving warehouse facility, see "Heights SPV."
Heights SPV
A revolving credit facility, entered into to replace the incumbent lender's facility and finance future loans originated by Heights Finance, with capacity up to $425.0 million
KatapultKatapult Holdings, Inc. a lease-to-own platform for online, brick and mortar and omni-channel retailers.
Legacy U.S. Direct Lending BusinessThe Legacy US Direct Lending Business historically operated under the Speedy Cash, Rapid Cash, and Avio Credit brands. We sold the business to Community Choice Finance on July 8, 2022.
LFLLFL Group, Canada's largest home furnishings retailer.
LIBORLondon Inter-Bank Offered Rate
NCONet charge-off; total charge-offs less total recoveries
POSPoint-of-sale
ROURight of use
RSURestricted Stock Unit
SECSecurities and Exchange Commission
Senior Revolver
Senior Secured Revolving Loan Facility with borrowing capacity of $40.0 million
SequentialThe change from one quarter to the next quarter
SOFRSecured Overnight Financing Rate
SPACSpecial Purpose Acquisition Company
SPESpecial Purpose Entity
SPVSpecial Purpose Vehicle
TDRTroubled Debt Restructuring. Debt restructuring for which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties
UDAAPUnfair, deceptive, or abusive acts and practices
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the United States
U.S. SPV
An asset-backed revolving credit facility with capacity up to $200.0 million if certain conditions are met. This facility was extinguished on July 7, 2022.
VIEVariable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries

4



ITEM 1.         FINANCIAL STATEMENTS

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 2022 (unaudited)
December 31,
2021
ASSETS
Cash and cash equivalents$45,683 $63,179 
Restricted cash (includes restricted cash of consolidated VIEs of $89,849 and $57,155 as of September 30, 2022 and December 31, 2021, respectively)
144,020 98,896 
Gross loans receivable (includes loans of consolidated VIEs of $1,713,039 and $1,294,706 as of September 30, 2022 and December 31, 2021, respectively)
1,894,427 1,548,318 
Less: Allowance for loan losses (includes allowance for loan losses of consolidated VIEs of $101,320 and $66,618 as of September 30, 2022 and December 31, 2021, respectively)
(102,743)(87,560)
Loans receivable, net
1,791,684 1,460,758 
Income taxes receivable13,469 31,774 
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $8,206 and $— as of September 30, 2022 and December 31, 2021, respectively)
65,167 42,038 
Property and equipment, net37,402 54,635 
Investment in Katapult25,848 27,900 
Right of use asset - operating leases64,683 116,300 
Deferred tax assets31,986 15,639 
Goodwill424,292 429,792 
Intangibles, net120,345 109,930 
Other assets12,774 9,755 
Total Assets$2,777,353 $2,460,596 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $10,642 and $9,886 as of September 30, 2022 and December 31, 2021, respectively)
$66,723 $121,434 
Deferred revenue25,111 21,649 
Lease liability - operating leases66,370 122,431 
Contingent consideration related to acquisition15,770 26,508 
Income taxes payable— 680 
Accrued interest (includes accrued interest of consolidated VIEs of $5,547 and $3,279 as of September 30, 2022 and December 31, 2021, respectively)
18,048 34,974 
Liability for losses on CSO lender-owned consumer loans— 6,908 
Debt (includes debt and issuance costs of consolidated VIEs of $1,490,102 and $23,117 as of September 30, 2022 and $979,500 and $14,428 as of December 31, 2021, respectively)
2,449,316 1,945,793 
Other long-term liabilities11,563 13,845 
Deferred tax liabilities— 6,044 
Total Liabilities2,652,901 2,300,266 
Commitments and contingencies (Note 11)
Stockholders' Equity
Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued
— — 
Common stock - $0.001 par value; 225,000,000 shares authorized; 50,183,4945 and 49,684,080 shares issued; and 40,485,381 and 40,810,444 shares outstanding at the respective period ends
23 23 
Treasury stock, at cost - 9,698,113 and 8,873,636 shares at the respective period ends
(136,832)(124,302)
Paid-in capital120,546 113,520 
Retained earnings190,685 203,467 
Accumulated other comprehensive loss(49,970)(32,378)
Total Stockholders' Equity124,452 160,330 
Total Liabilities and Stockholders' Equity$2,777,353 $2,460,596 
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
5


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Revenue
Interest and fees revenue$180,515 $190,629 $723,802 $539,155 
Insurance premiums and commissions24,746 12,599 61,659 36,021 
Other revenue8,859 6,052 23,259 18,348 
Total revenue214,120 209,280 808,720 593,524 
Provision for losses78,399 70,718 305,476 152,028 
Net revenue135,721 138,562 503,244 441,496 
Operating Expenses
Salaries and benefits53,413 62,110 215,569 175,347 
Occupancy12,827 13,732 47,371 41,862 
Advertising5,244 9,697 28,451 24,824 
Direct operations11,729 14,883 52,296 40,552 
Depreciation and amortization9,499 7,285 27,985 19,685 
Other operating expense23,646 14,851 58,809 45,020 
Total operating expenses116,358 122,558 430,481 347,290 
Other expense (income)
Interest expense50,149 25,805 130,683 68,784 
Loss (income) from equity method investment2,309 1,582 2,053 (676)
Gain from equity method investment— — — (135,387)
Loss on extinguishment of debt3,702 40,206 3,702 40,206 
(Gain) loss on change in fair value of contingent consideration(11,355)3,825 (7,605)3,825 
Gain on sale of business(68,443)— (68,443)— 
Total other (income) expense(23,638)71,418 60,390 (23,248)
Income (loss) before income taxes43,001 (55,414)12,373 117,454 
Provision (benefit) for income taxes17,348 (13,375)11,464 29,241 
Net income (loss)25,653 (42,039)909 88,213 
Basic earnings (loss) per share$0.63 $(1.02)$0.02 $2.13 
Diluted earnings (loss) per share$0.63 $(1.02)$0.02 $2.03 
Weighted average common shares outstanding:
Basic40,479 41,220 40,203 41,459 
Diluted40,835 41,220 40,754 43,422 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net income (loss)$25,653 $(42,039)$909 $88,213 
Other comprehensive loss, net of tax:
Change in derivative instrument designated as cash flow hedge, net of tax4,567 — 4,567 — 
Foreign currency translation adjustment, net of tax(18,272)(10,611)(22,159)(2,042)
Other comprehensive loss, net of tax(13,705)(10,611)(17,592)(2,042)
Comprehensive income (loss)$11,948 $(52,650)$(16,683)$86,171 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.


7

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
Nine Months Ended
September 30,
20222021
Cash flows from operating activities
Net income$909 $88,213 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization27,985 19,685 
Provision for losses305,476 152,028 
Amortization of debt issuance costs and bond discount4,978 4,794 
Loss on extinguishment of debt3,702 40,206 
Deferred income tax benefit(24,157)(10,730)
Gain on disposal of Legacy U.S. Direct Lending business(68,443)— 
Loss on disposal of property and equipment60 6,816 
Loss from equity method investment2,053 (676)
Gain from equity method investment— (135,387)
Change in fair value of contingent consideration(7,605)3,825 
Share-based compensation 9,956 10,148 
Changes in operating assets and liabilities:
Accrued interest on loans receivable86,932 19,619 
Prepaid expenses and other assets(4,251)(2,989)
Accounts payable and accrued liabilities(54,326)16,591 
Deferred revenue10,730 10,084 
Income taxes payable(679)— 
Income taxes receivable17,636 8,270 
Accrued interest(17,827)(9,017)
Other long-term liabilities2,602 (770)
Net cash provided by continuing operating activities295,731 220,710 
Cash flows from investing activities
Purchase of property, equipment and software(35,270)(14,924)
Loans receivable originated or acquired(1,827,067)(985,603)
Loans receivable repaid1,075,077 661,456 
Proceeds from Katapult— 146,878 
Acquisition of Flexiti, net of acquiree's cash received— (91,203)
Divestiture of Legacy U.S. Direct Lending business, net of cash provided288,980 — 
Acquisition of First Heritage, net of acquiree's cash received(131,012)— 
Net cash used in investing activities(629,292)(283,396)
Cash flows from financing activities
Proceeds from SPV and SPE facilities1,423,291 93,307 
Payments on SPV and SPE facilities(1,015,688)(9,153)
Debt issuance costs paid(9,801)(15,957)
Proceeds from credit facilities137,812 20,931 
Payments on credit facilities(137,812)(20,931)
Extinguishment of 8.25% Senior Secured Notes
— (690,000)
Proceeds from issuance of 7.50% Senior Secured Notes
— 750,000 
Payments of call premiums from early debt extinguishments— (31,250)
Proceeds from exercise of stock options— 266 
Payments to net share settle equity awards(2,930)(1,818)
Repurchase of common stock(13,531)(17,191)
Dividends paid to stockholders(13,691)(11,497)
Net cash provided by financing activities367,650 66,707 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(6,461)(176)
Net increase in cash, cash equivalents and restricted cash27,628 3,845 
Cash, cash equivalents and restricted cash at beginning of period162,075 268,108 
Cash, cash equivalents and restricted cash at end of period$189,703 $271,953 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
8

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)

SUPPLEMENTAL CASH FLOW INFORMATION

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and 2021 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):
September 30,
20222021
Cash and cash equivalents$45,683 $205,785 
Restricted cash (includes restricted cash of consolidated VIEs of $89,849 and $57,155 as of September 30, 2022 and December 31, 2021, respectively)
144,020 66,168 
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows$189,703 $271,953 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.


9


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations

The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its direct and indirect subsidiaries as a combined entity, except where otherwise stated.

The Company is a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and near-prime consumers in the U.S and non-prime and prime consumers in Canada.

Basis of Presentation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP and the accounting policies described in its 2021 Form 10-K. Interim results of operations are not necessarily indicative of results that might be expected for future interim periods or for the year ending December 31, 2022.

While certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, the Company qualifies as a Smaller Reporting Company (SRC) as defined by the SEC, which allows registrants to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of the last business day of the most recently completed second fiscal quarter. Under these rules, the Company met the definition of an SRC as of June 30, 2022. As such, we made the election and reflected SRC status beginning with our first quarterly report following the determination, as of and for the quarter ended June 30, 2022. We will reevaluate our status as of June 30, 2023.

The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented. Beginning January 1, 2022, the Company started reporting "Interest and fees revenue," "Insurance premiums and commissions," and "Other revenue" in place of the previously reported "Revenue" line item in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for a sales price of $345.0 million. Refer to Note 14, "Acquisitions and Divestiture" for further discussion.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements reflect the accounts of CURO and its direct and indirect subsidiaries, including Heights Finance, which we acquired on December 27, 2021 and First Heritage, which we acquired on July 13, 2022. Refer to Note 14, "Acquisitions and Divestiture" for further disclosures related to these acquisitions. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including those impacted by COVID-19, that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Some estimates may also affect the reported amounts of revenues and expenses during the periods presented. Significant estimates that the Company made in the accompanying unaudited Condensed Consolidated Financial Statements include ALL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, CSO liability for losses, estimated tax liabilities and the accounting for the First Heritage, Heights Finance and Flexiti acquisitions. Actual results may differ from those estimates.

10


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisitions

First Heritage Credit, LLC

On July 13, 2022, CURO closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi, for a total purchase price of $140.0 million in cash.

Heights Finance

On December 27, 2021, CURO closed the acquisition of Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products, based in Greenville, South Carolina for a total purchase price of $360.0 million ($335.0 million in cash plus $25.0 million in stock).

Flexiti

On March 10, 2021, CURO closed its acquisition of Flexiti, a POS and BNPL provider based in Toronto, Ontario, in a transaction accounted for as a business combination, for a total purchase price of up to $122.5 million ($86.5 million in cash and up to $32.8 million in contingent cash consideration subject to future operating metrics).

Refer to Note 14,"Acquisitions and Divestiture" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the acquisitions.

Divestiture

Legacy U.S. Direct Lending Business

On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total cash of $345.0 million, of which $35.0 million is payable over 12 months. The divestiture resulted in a gain of $68.4 million for the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations.

Refer to Note 14,"Acquisitions and Divestiture" for further information regarding the divestiture and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the divestiture.

Impacts of COVID-19

For details regarding the effect COVID-19 had on the Company's operations in 2020 and 2021, the Company's response to mitigate the impact of the pandemic and the U.S. and Canadian federal and local responses to the pandemic, refer to the 2021 Form 10-K.

Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13 and subsequent amendments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022. The amended standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.

ASU 2019-10 amended the mandatory effective date for ASU 2016-13. As a result, ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022 for entities that qualified as a smaller reporting company as of June 30, 2019, such as the Company. ASU 2016-13 and its amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The Company deferred the adoption of ASU 2016-13 until January 1, 2023, as permitted under ASU 2019-10. The Company has performed parallel testing through the third quarter of 2022. We continue to refine our model to estimate the expected credit losses, as well as, finalize our processes and internal controls in order to comply with the adoption of ASU 2016-13. The Company believes the implementation will have a material effect on the Company's consolidated financial statements.
11


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



ASU 2020-04 and subsequent amendments

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the upcoming market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect to not apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities also can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. The FASB has recently extended the adoption date to December 31, 2024. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021. It clarifies that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU 2020-04 and are effective in the same timeframe as ASU 2020-04. As of September 30, 2022, the Company has transitioned all debt facilities from LIBOR to SOFR.

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 will have a material effect on its financial statements.

NOTE 2 - VARIABLE INTEREST ENTITIES

As of September 30, 2022, the Company had five credit facilities, whereby certain loans receivable were sold to VIEs to collateralize debt incurred under each facility. See Note 5, "Debt" for additional details on each facility.

The Company has determined that it is the primary beneficiary of the VIEs and is required to consolidate them. The Company includes the assets and liabilities related to the VIEs in the unaudited Condensed Consolidated Financial Statements.

The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):
September 30,
2022		December 31,
2021
Assets
Restricted cash$89,849 $57,155 
Loans receivable, net1,611,719 1,228,088 
Prepaid expenses and other8,206 — 
Deferred tax assets97 — 
Total Assets $1,709,871 $1,285,243 
Liabilities
Accounts payable and accrued liabilities$10,642 $9,886 
Deferred revenue 22 106 
Deferred tax liability— 269 
Accrued interest5,547 3,279 
Income taxes payable(234)— 
Debt, net1,466,985 965,072 
Total Liabilities $1,482,962 $978,612 

12


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – LOANS RECEIVABLE AND REVENUE

As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the tables that follow based on historical practice and for comparability purposes.

The following table summarizes revenue by product (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revolving LOC$77,036 $78,262 $264,642 $209,033 
Unsecured Installment72,422 72,056 320,051 213,233 
Secured Installment17,724 13,743 71,721 41,591 
Single-Pay13,333 26,568 67,388 75,298 
Total Installment103,479 112,367 459,160 330,122 
Insurance revenue24,746 12,599 61,659 36,021 
Other8,859 6,052 23,259 18,348 
   Total revenue(1)
$214,120 $209,280 $808,720 $593,524 
(1) Includes revenue from CSO programs of $3.9 million and $43.4 million for the three months ended September 30, 2022 and 2021, respectively, and $101.2 million and $119.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
September 30, 2022
Revolving LOCUnsecured InstallmentSecured Installment
Single-Pay(1)
Total Installment Total
Current loans receivable$1,045,839 $478,547 $117,934 $19,849 $616,330 $1,662,169 
1-30 days past-due36,844 58,207 12,534 — 70,741 107,585 
Delinquent loans receivable46,703 68,165 9,805 — 77,970 124,673 
   Total loans receivable1,129,386 604,919 140,273 19,849 765,041 1,894,427 
   Less: allowance for losses(67,832)(27,565)(4,900)(2,445)(34,911)(102,743)
Loans receivable, net$1,061,554 $577,354 $135,373 $17,404 $730,130 $1,791,684 
(1) Of the $19.8 million of Single-Pay receivables, $12.2 million relate to mandated extended payment options for certain Canada Single-Pay loans.

September 30, 2022
Revolving LOCUnsecured InstallmentSecured InstallmentTotal Installment - Company OwnedTotal
Delinquent loans receivable
31-60 days past-due$24,925 $19,266 $3,086 $22,352 $47,277 
61-90 days past-due12,360 14,150 1,836 15,986 28,346 
91 + days past-due9,418 34,749 4,883 39,632 49,050 
Total delinquent loans receivable $46,703 $68,165 $9,805 $77,970 $124,673 
13


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


December 31, 2021
Revolving LOCUnsecured InstallmentSecured Installment
Single-Pay(1)
Total Installment - Company OwnedTotal
Current loans receivable$843,379 $359,512 $110,232 $42,463 $512,207 $1,355,586 
1-30 days past-due35,657 45,160 13,213 — 58,373 94,030 
Delinquent loans receivable35,077 53,014 10,611 — 63,625 98,702 
   Total loans receivable914,113 457,686 134,056 42,463 634,205 1,548,318 
   Less: allowance for losses(68,140)(13,387)(3,327)(2,706)(19,420)(87,560)
Loans receivable, net$845,973 $444,299 $130,729 $39,757 $614,785 $1,460,758 
(1) Of the $42.5 million of Single-Pay receivables, $11.3 million relate to mandated extended payment options for certain Canada Single-Pay loans.

December 31, 2021
Revolving LOCUnsecured InstallmentSecured InstallmentTotal Installment - Company OwnedTotal
Delinquent loans receivable
31-60 days past-due$15,452 $16,646 $4,539 $21,185 $36,637 
61-90 days past-due13,397 13,933 3,213 17,146 30,543 
91 + days past-due6,228 22,435 2,859 25,294 31,522 
Total delinquent loans receivable$35,077 $53,014 $10,611 $63,625 $98,702 

The following tables summarize loans Guaranteed by the Company under CSO programs and the related delinquent receivables (in thousands):

December 31, 2021
Unsecured InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Current loans receivable Guaranteed by the Company$37,303 $799 $38,102 
1-30 days past-due6,633 162 6,795 
Delinquent loans receivable Guaranteed by the Company1,378 42 1,420 
Total loans receivable Guaranteed by the Company45,314 1,003 46,317 
Less: Liability for losses on CSO lender-owned consumer loans(6,869)(39)(6,908)
Loans receivable Guaranteed by the Company, net$38,445 $964 $39,409 

December 31, 2021
Unsecured InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Delinquent loans receivable
31-60 days past-due$1,003 $28 $1,031 
61-90 days past-due277 8 285 
91 + days past-due98 6 104 
Total delinquent loans receivable$1,378 $42 $1,420 

14


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following tables summarize activity in the ALL and the liability for losses on CSO lender-owned consumer loans in total (in thousands):
Three Months Ended
September 30, 2022
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$75,128 $32,991 $8,827 $3,239 $45,057 $— $120,185 
Charge-offs(36,298)(33,838)(474)(11,232)(45,544)(3,319)(85,161)
Recoveries5,391 8,674 77 6,990 15,741 217 21,349 
Net charge-offs(30,907)(25,164)(397)(4,242)(29,803)(3,102)(63,812)
Provision for losses41,787 29,129 — 4,381 33,510 3,102 78,399 
Divestiture (2)
(13,555)(9,906)(3,002)(783)(13,691)— (27,246)
Effect of foreign currency translation(4,621)(13)— (149)(162)— (4,783)
Balance, end of period$67,832$27,037$5,428$2,446$34,911$0$102,743
Liability for losses on CSO lender-owned consumer loans: (1)
Balance, beginning of period$— $8,040 $43 $— $8,083 $— $8,083 
Divestiture (2)
— (8,040)(43)— (8,083)— (8,083)
Balance, end of period$— $— $— $— $— $— $— 
(1) All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the divestiture of the Legacy U.S. Direct Lending business.
(2) Write off of the allowance for loan losses or liability for losses on CSO lender-owned consumer loans related to loan balance sold or guarantees transferred from the company on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.
Three Months Ended
September 30, 2021
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$44,847 $16,701 $3,880 $2,432 $23,013 $— $67,860 
Charge-offs(27,974)(18,400)(4,252)(24,640)(47,292)(869)(76,135)
Recoveries8,564 4,811 1,996 18,493 25,300 401 34,265 
Net charge-offs(19,410)(13,589)(2,256)(6,147)(21,992)(468)(41,870)
Provision for losses27,800 11,223 1,858 6,223 19,304 468 47,572 
Effect of foreign currency translation(975)(5)— (39)(44)— (1,019)
Balance, end of period$52,262 $14,330 $3,482 $2,469 $20,281 $— $72,543 
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period— 5,234 31 — $5,265 — $5,265 
Increase in liability— 1,739 3 — 1,742 — 1,742 
Balance, end of period$— $6,973 $34 $— $7,007 $— $7,007 

15


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nine Months Ended
September 30, 2022
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$68,140 $13,387 $3,327 $2,706 $19,420 $— $87,560 
Charge-offs(121,391)(94,166)(17,452)(60,848)(172,466)(9,630)(303,487)
Recoveries22,167 23,337 6,154 44,986 74,477 1,250 97,894 
Net charge-offs(99,224)(70,829)(11,298)(15,862)(97,989)(8,380)(205,593)
Provision for losses119,669 94,400 16,401 16,567 127,368 8,380 255,417 
Divestiture (2)
(13,555)(9,906)(3,002)(783)(13,691)— (27,246)
Effect of foreign currency translation(7,198)(15)— (182)(197)— (7,395)
Balance, end of period$67,832 $27,037 $5,428 $2,446 $34,911 $— $102,743 
Liability for losses on CSO lender-owned consumer loans: (1)
Balance, beginning of period$— $6,869 $39 $— $6,908 $— $6,908 
Divestiture (2)
— (6,869)(39)— (6,908)— (6,908)
Balance, end of period$— $— $— $— $— $— $— 
(1) All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the divestiture of the Legacy U.S. Direct Lending business.
(2) Write off of the allowance for loan losses or liability for losses on CSO lender-owned consumer loans related to loan balance sold or guarantees transferred from the company on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.


Nine Months Ended
September 30, 2021
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$51,958 $24,073 $7,047 $3,084 $34,204 $— $86,162 
Charge-offs(81,175)(58,337)(14,979)(68,680)(141,996)(2,525)(225,696)
Recoveries23,351 16,811 6,756 57,321 80,888 1,331 105,570 
Net charge-offs(57,824)(41,526)(8,223)(11,359)(61,108)(1,194)(120,126)
Provision for losses58,274 31,782 4,658 10,743 47,183 1,194 106,651 
Effect of foreign currency translation(146)1 — 1 2 — (144)
Balance, end of period$52,262 $14,330 $3,482 $2,469 $20,281 $— $72,543 
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period$— $7,160 $68 $— $7,228 $— $7,228 
Decrease in liability— (187)(34)— (221)— (221)
Balance, end of period$— $6,973 $34 $— $7,007 $— $— $7,007 

16


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2022, Revolving LOC and Installment loans classified as nonaccrual were $4.8 million and $39.4 million, respectively. As of December 31, 2021, Revolving LOC and Installment loans classified as nonaccrual were $5.9 million and $41.4 million, respectively. The Company inherently considers nonaccrual loans in its estimate of the ALL as delinquencies are a primary input into the Company's roll-rate-based model.

TDR Loans Receivable

The table below presents TDRs that are related to the Customer Care Program implemented in response to COVID-19, included in both gross loans receivable and the impairment included in the ALL (in thousands):

As of
September 30, 2022
As of
December 31, 2021
Current TDR gross receivables$9,564 $11,580 
Delinquent TDR gross receivables2,920 5,066 
Total TDR gross receivables 12,484 16,646 
Less: Impairment included in the allowance for loan losses(2,645)(3,632)
Less: Additional allowance(759)(2,212)
Outstanding TDR receivables, net of impairment $9,080 $10,802 

The tables below present loans modified and classified as TDRs during the periods presented (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Pre-modification TDR loans receivable$2,020 $3,586 $7,600 $11,953 
Post-modification TDR loans receivable1,945 3,182 7,324 10,654 
Total concessions included in gross charge-offs$75 $404 $276 $1,299 

There were $1.3 million and $2.9 million of loans classified as TDRs that were charged off and included as a reduction in the ALL during the three months ended September 30, 2022 and 2021, respectively, and $4.0 million and $11.0 million during the nine months ended September 30, 2022 and 2021, respectively. The Company had commitments to lend additional funds of $1.4 million to customers with available and unfunded Revolving LOC loans classified as TDRs as of September 30, 2022.

The table below presents the Company's average outstanding TDR loans receivable, interest income recognized on TDR loans and number of TDR loans for the periods presented (dollars in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Average outstanding TDR loans receivable$12,424 $16,190 $11,391 $17,911 
Interest income recognized1,448 4,155 3,855 14,277 
Number of TDR loans828 2,624 2,949 8,872 

NOTE 4 – CREDIT SERVICES ORGANIZATION
As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the paragraphs that follow based on historical practice and for comparability purposes. Refer to Note 14, "Acquisitions and Divestiture" for additional information.

The CSO fee receivables were $5.2 million at December 31, 2021, and are reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The Company bears the risk of loss through its guarantee to purchase customer loans that are charged-off. The terms of these loans range up to six months. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2021 Form 10-K for further details of the Company's accounting policy.

As of December 31, 2021, the incremental maximum amount payable under all such guarantees was $38.4 million. This liability is not included in the Company's unaudited Condensed Consolidated Balance Sheets. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover the entire amount or a portion from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated
17


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

with the guaranty provided to the CSO lenders, which was $6.9 million at December 31, 2021. This liability is reflected in "Liability for losses on CSO lender-owned consumer loans" in the unaudited Condensed Consolidated Balance Sheets.

The Company placed $5.5 million in collateral accounts for the benefit of lenders at December 31, 2021, which is reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each lender.

Deferred revenue associated with the CSO program was immaterial as of December 31, 2021, and there were no costs to obtain, or costs to fulfill, capitalized under the program.

See Note 3, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.

18


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – DEBT
As of September 30, 2022 the Company has transitioned all debt facilities from LIBOR to SOFR. Refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations" for additional details on the transition from LIBOR.

The Company's debt instruments and balances outstanding as of September 30, 2022 and December 31, 2021, including maturity date, effective interest rate and borrowing capacity, were as follows (dollars in thousands):
Effective interest rateOutstanding as of
Maturity DateBorrowing CapacitySeptember 30, 2022December 31, 2021
Corporate Debt:
7.50% Senior Secured Notes
August 1, 20287.50 %$1,000,000 $1,000,000 
Total corporate debt1,000,000 1,000,000 
Funding Debt:
Heights SPVJuly 15, 2024
1-Mo SOFR + 4.25%
$425.0 million$396,610 $— 
First Heritage SPVJuly 13, 2024
1-Mo SOFR + 4.25%
$225.0 million183,203 — 
Flexiti SPV (1) (5)
September 29, 2025
Weighted average interest rate (4) 8.07%
C$535.0 million269,333 176,625 
Flexiti Securitization (1)
December 9, 2025
1-Mo CDOR + 3.59%
C$526.5 million382,937 242,886 
Canada SPV (1)
August 2, 2026
3-Mo CDOR + 6.00%
C$400.0 million258,019 160,533 
Heights Finance SPV (3)
N/A (3)
1-Mo LIBOR + 5.25%
$350.0 million— 350,000 
U.S. SPV (2)
N/A (2)
1-Mo LIBOR + 6.25%
$200.0 million— 49,456 
Curo Canada Revolving Credit Facility (1)
On-demand
Canada Prime Rate + 1.95%
C$10.0 million— — 
Senior RevolverAugust 31, 2023
1-Mo SOFR + 5.00%
$40.0 million— — 
Total funding debt$ 1,490,102 $ 979,500 
Less: debt issuance costs(40,786)(33,707)
Total Debt$ 2,449,316 $ 1,945,793 
(1) Capacity amounts are denominated in Canadian dollars, whereas outstanding balances as of September 30, 2022 and December 31, 2021 are denominated in U.S. dollars.
(2) The U.S. SPV was extinguished on July 8, 2022 upon the divestiture of the Legacy U.S. Direct lending business.
(3) The Heights Finance SPV was extinguished on July 15, 2022 and replaced as of July 15, 2022 with Heights SPV.
(4) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(5) Includes $35.5 million of debt that matured on September 30, 2022, however, due to a Canadian statutory holiday, it is not deemed to be extinguished until the next business day, in October 2022.

Corporate Debt

7.50% Senior Secured Notes

In July 2021, the Company issued $750.0 million of 7.50% Senior Secured Notes which mature on August 1, 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1. In December 2021, the Company issued an additional $250.0 million of 7.50% Senior Secured Notes to fund the acquisition of Heights Finance. Refer to Note 14,"Acquisitions and Divestiture" for additional details. In connection with the 7.50% Senior Secured Notes, financing costs of $19.3 million were capitalized, net of amortization, and included in the unaudited Condensed Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 7.50% Senior Secured Notes as a component of interest expense.

8.25% Senior Secured Notes

In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes maturing on September 1, 2025. In connection with the 8.25% Senior Secured Notes, the Company capitalized financing costs of $13.9 million, which were being amortized as a component of interest expense over its term.

During the third quarter of 2021, the 8.25% Senior Secured Notes were extinguished using proceeds from the 7.50% Senior Secured Notes described above. The early extinguishment of the 8.25% Senior Secured Notes resulted in a loss of $40.2 million.

Funding Debt
19


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


As of September 30, 2022, the Company had five credit facilities whereby certain loans receivable were sold to wholly-owned VIEs to collateralize debt incurred under each facility. These facilities are the (i) Heights SPV, (ii) First Heritage SPV, (iii) Canada SPV, (iv) Flexiti SPV and (v) Flexiti Securitization. For further information on these facilities, refer to Note 2, "Variable Interest Entities".

Heights SPV

On July 15, 2022, we entered into a new $425.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by Heights Finance. The effective interest rate was 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 15, 2024.

First Heritage SPV
On July 13, 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225.0 million non-recourse revolving warehouse facility to replace First Heritage's incumbent lender's facility and to finance future loans originated by First Heritage. The effective interest rate was 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 13, 2024.

Flexiti SPV

In March 2021, concurrently with the acquisition of Flexiti, Flexiti Financing SPE Corp., a wholly-owned Canadian subsidiary of the Company, refinanced and increase its Flexiti SPV to C$500.0 million, with a maturity on March 10, 2024. As of September 30, 2022, the weighted average interest rate was 8.07%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. On September 29, 2022, Flexiti refinanced and increased its Flexiti SPV in order to both increase the borrowing capacity from C$500.0 million to C$535.0 million and extended its maturity to September 29, 2025. All other material terms of the revolving warehouse credit facility remain unchanged.

Flexiti Securitization

In December 2021, Flexiti Securitization Limited Partnership, a wholly-owned Canadian subsidiary of the Company, entered into the Flexiti Securitization. The facility provides for C$500.0 million, with a maturity of December 9, 2025. As of September 30, 2022, the effective interest was one-month CDOR plus 3.59%. The borrower also pays a 0.45% per annum commitment fee on the unused portion of the commitments.

Interest Rate Swap on Flexiti Securitization

On July 7, 2022, Flexiti entered into an interest rate swap with National Bank of Canada to protect against the interest risk on the C$526.5 million, variable rate, borrowing facility. The interest rate swap is a derivative instrument, designated as a cash flow hedge and as such any change in the fair value of the derivative is recorded as a component of other comprehensive income. As of September 30, 2022, a $4.6 million interest rate swap is included in other assets and a $4.6 million gain as a result of the change in fair value is recognized in other comprehensive income on our Condensed Consolidated Balance Sheet.

Canada SPV

In August 2018, CURO Canada Receivables Limited Partnership, a wholly-owned subsidiary of the Company, entered into the Canada SPV. During the fourth quarter of 2021 and first quarter of 2022, the Company amended the existing credit facility in order to, among other things, (i) increase the borrowing capacity from C$175.0 million to C$400.0 million, (ii) reduce borrowing costs, and (iii) extend the initial maturity date by three years, to August 2026. As of September 30, 2022, the effective interest rate was three-month CDOR plus 6.00%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The Canada SPV matures on August 2, 2026.
20


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Heights Finance SPV

In December 2021, the Company acquired Heights Finance, including the Heights Finance SPV. Heights Finance entered into the Heights Finance SPV in December 2019 with a total revolving commitment of $350.0 million. The interest rate on the facility is one-month LIBOR plus 5.25%. The Heights Finance SPV was scheduled to mature on December 31, 2024.

The Heights Finance SPV was extinguished on July 15, 2022, using proceeds from the new $425.0 million non-recourse revolving warehouse facility, "Heights SPV," as described above. The early extinguishment of the Heights Finance SPV resulted in a loss of $0.6 million.

U.S. SPV

In April 2020, CURO Receivables Finance II, LLC, a wholly-owned subsidiary of the Company, entered into the U.S. SPV, which provided for $200.0 million of borrowing capacity with an effective interest rate on the Company's borrowings of one-month LIBOR plus 6.25%. The borrower pays the lenders a monthly commitment fee at an annual rate of 0.50% on the unused portion of the commitments. The U.S. SPV was set to mature on April 8, 2024.

The U.S. SPV was extinguished on July 8, 2022 upon the completion of the divestiture of our Legacy U.S. Direct Lending business to Community Choice Financial. The early extinguishment of the U.S. SPV resulted in a loss of $3.1 million.

Senior Revolver

The Company maintains the Senior Revolver that provides $40.0 million of borrowing capacity, including up to $4.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires August 31, 2023. The Senior Revolver accrues interest at one-month SOFR plus 5.00%.

The Senior Revolver is guaranteed by all subsidiaries that guarantee the 7.50% Senior Secured Notes, and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 7.50% Senior Secured Notes.

CURO Canada Revolving Credit Facility

CURO Canada maintains the Curo Canada Revolving Credit Facility, formerly known as the Cash Money Revolving Credit Facility, a C$10.0 million revolving credit facility, which provides short-term liquidity for the Company's Canadian direct lending operations. As of September 30, 2022, the borrowing capacity under the Curo Canada Revolving Credit Facility was C$9.9 million, net of C$0.1 million in outstanding stand-by letters of credit.

The Curo Canada Revolving Credit Facility is collateralized by substantially all of CURO Canada’s assets and contains various covenants that require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Curo Canada Revolving Credit Facility bear interest per annum at the prime rate of a Canadian chartered bank plus 1.95%.

NOTE 6 – INCOME TAXES

The Company's effective income tax rate was 92.6% and 24.9% for the nine months ended September 30, 2022 and 2021, respectively.

The effective income tax rate for the nine months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business of $8.4 million, share-based compensation of $0.9 million, officers’ compensation of $1.0 million, and non-deductible transaction costs of $0.2 million, partially offset by tax benefits related to change in fair value of contingent consideration of $2.1 million.

The effective income tax rate for the nine months ended September 30, 2021 was lower compared to the blended federal and state/provincial statutory rates of approximately 26.0%, primarily as a result of proportionally more net income in lower rate jurisdictions, driven by the gain on the Katapult transaction of $146.9 million in the second quarter of 2021 and the loss on extinguishment of debt of $40.2 million in the third quarter of 2021. Additionally, the effective tax rate also includes the release of a valuation allowance due to the Company's share of Katapult's income, tax benefits related to share-based compensation, expense related to the non-deductible transaction costs and the change in fair value of contingent consideration, additional Texas accrual for 2020 due to the settlement of 2013 to 2019 Texas tax returns, and a tax benefit for the recognition of Research and Development tax credit.

21


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the accumulated earnings in Canada of $244.8 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $12.2 million. The determination of the U.S. state income taxes upon a potential foreign earnings distribution is impractical. In the event the earnings are distributed to the U.S. legal entities, the Company will adjust the income tax provision for the applicable period and determine the amount of foreign tax credit that would be available.

NOTE 7 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company is required to use valuation techniques that are consistent with the market approach, income approach and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on observable market data obtained from independent sources, or unobservable, meaning those that reflect the Company's own judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available for the specific circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are listed below.

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.

Level 2 – Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability as a result of limited market data. The Company develops these inputs based on the best information available, including its own data.

22


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial Assets and Liabilities Carried at Fair Value

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at September 30, 2022 (in thousands):

Estimated Fair Value
Carrying Value September 30,
2022		Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$7,378 $7,378 $— $— $7,378 
Interest rate swap on Flexiti Securitization4,567 — 4,567 — 4,567 
Financial liabilities:
Non-qualified deferred compensation plan$4,972 $4,972 $— $— $4,972 
Contingent consideration related to acquisition15,770 — — 15,770 15,770 

Interest Rate Swap on Flexiti Securitization

On July 7, 2022, Flexiti entered into an interest rate swap with National Bank of Canada to protect against the interest risk on its variable rate borrowing facility. For additional information on the interest rate swap on the Flexiti Securitization, refer to Note 5, "Debt."
Contingent consideration related to acquisition

In connection with the acquisition of Flexiti during the first quarter of 2021, the Company recorded a liability for contingent consideration based on the achievement of revenue less NCOs and loan origination targets over the two years following closing of the acquisition that could result in additional cash consideration up to $32.8 million to Flexiti's former stockholders. The fair value of the liability is estimated using the option-based income approach using a Monte Carlo simulation model discounted back to the reporting date. The significant unobservable inputs (Level 3) used to estimate the fair value included the expected future tax benefits associated with the acquisition, the probability that the risk adjusted-revenue and origination targets will be achieved and discount rates. The contingent consideration measured at fair value using unobservable inputs decreased from the initial measurement of $20.6 million as of March 31, 2021 to $15.8 million as of September 30, 2022. The first and only payment to date of $1.0 million was made in July 2022. For additional information on Flexiti and the related contingent consideration, refer to Note 14, "Acquisitions and Divestiture."

Cash Surrender Value of Life Insurance and Non-qualified deferred compensation plan

The cash surrender value of life insurance is included in “Other assets” in the Company’s Consolidated Balance Sheets. The non-qualified deferred compensation plan offsetting liability is included in “Accounts payable and accrued liabilities” in the Company’s Consolidated Balance Sheets.

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2021 (in thousands):
Estimated Fair Value
Carrying Value December 31,
2021		Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$8,242 $8,242 $— $— $8,242 
Financial liabilities:
Non-qualified deferred compensation plan$5,109 $5,109 $— $— $5,109 
Contingent consideration related to acquisition26,508 — — 26,508 26,508 
23


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Financial Assets and Liabilities Not Carried at Fair Value

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at September 30, 2022 (in thousands):
Estimated Fair Value
Carrying Value September 30,
2022		Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents $45,683 $45,683 $— $— $45,683 
Restricted cash
144,020 144,020 — — 144,020 
Loans receivable, net 1,791,684 — — 1,791,684 1,791,684 
Financial liabilities:
7.50% Senior Secured Notes
$982,331 $— $489,700 $— $489,700 
Heights SPV
388,013 — — 388,013 388,013 
First Heritage SPV 178,403 — — 183,203 183,203 
Flexiti SPV264,333 — — 269,333 269,333 
Flexiti Securitization380,036 — — 382,937 382,937 
Canada SPV256,200 — — 258,019 258,019 

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2021 (in thousands):
Estimated Fair Value
Carrying Value December 31,
2021		Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents$63,179 $63,179 $— $— $63,179 
Restricted cash98,896 98,896 — — 98,896 
Loans receivable, net1,460,758 — — 1,460,758 1,460,758 
Financial liabilities:
Liability for losses on CSO lender-owned consumer loans (1)
$6,908 $— $— $6,908 $6,908 
7.50% Senior Secured Notes
980,721 — 1,005,700 — 1,005,700 
U.S. SPV (1)
45,392 — — 49,456 49,456 
Canada SPV157,813 — — 160,533 160,533 
Flexiti SPV172,739 — — 176,625 176,625 
Flexiti Securitization239,128 — — 242,886 242,886 
Heights Finance SPV
350,000 — — 350,000 350,000 
(1) Liabilities were disposed of the when we completed the divestiture of the Legacy U.S. Direct Lending business on July 8, 2022.

Loans Receivable, Net

Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the ALL. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. The carrying value of loans receivable approximates their fair value. Refer to Note 3, "Loans Receivable and Revenue" for additional information.

24


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CSO Program

As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the tables that follow based on historical practice and for comparability purposes. Refer to Note 14, "Acquisitions and Divestiture" for additional information.

In connection with CSO programs, the Company guaranteed consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company was required to purchase from the lender charged-off loans that it had guaranteed. Refer to Note 3, "Loans Receivable and Revenue" and Note 4, Credit Services Organization" for additional information. All balances in connection with the CSO programs were disposed of with the completion of the divestiture of the Legacy U.S. Direct Lending business on July 8, 2022.

7.50% Senior Secured Notes, Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Curo Canada Revolving Credit Facility and Senior Revolver (U.S. SPV and Heights Finance SPV extinguished during the third quarter of 2022)

The fair value disclosure for the 7.50% Senior Secured Notes as of September 30, 2022 and December 31, 2021 was based on observable market trading data. The fair values of the Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Curo Canada Revolving Credit Facility and Senior Revolver were based on the cash needed for their respective final settlements.

Investment in Katapult

The table below presents the Company's investment in Katapult (in thousands):
Equity Method Investment
Measurement Alternative (1)
Total Investment in Katapult
Balance at December 31, 2020$7,762 $19,609 $27,371 
Equity method income - Q1 2021546 — 546 
Balance at March 31, 20218,308 19,609 27,917 
Equity method income - Q2 20211,712 — 1,712 
Conversion of investment(2)
6,481 (19,609)(13,128)
Balance at June 30, 202116,501 — 16,501 
Equity method loss - Q3 2021(1,582)— (1,582)
Balance at September 30, 202114,919 — 14,919 
Equity method income - Q4 20212,982 — 2,982 
Purchases of common stock9,999 — 9,999 
Balance at December 31, 202127,900 — 27,900 
Equity method income - Q1 20221,584 — 1,584 
Balance at March 31, 202229,484 — 29,484 
Equity method loss - Q2 2022(1,327)(1,327)
Balance at June 30, 202228,157 — 28,157 
Equity method loss - Q3 2022(2,309)(2,309)
Balance at September 30, 2022$25,848 $— $25,848 
Classification as of December 31, 2021Level 3, not carried at fair valueN/A
Classification as of September 30, 2022Level 3, not carried at fair valueN/A
(1) The Company elected to measure this equity security without a readily determinable fair value equal to its cost minus impairment. If the Company identifies an observable price change in orderly transactions for same or similar investment in Katapult, it will measure the equity security at fair value as of the date that the observable transaction occurred.
(2) On June 9, 2021, Katapult completed its merger with FinServ. Immediately prior to the merger, the Company first converted all of its preferred stock and exercised all common stock warrants, and then exchanged all shares of Katapult common stock for $146.9 million in cash and 18.9 million shares of common stock in the resulting public company, Katapult (NASDAQ: KPLT). The Company's entire investment in Katapult is now accounted for under the equity method of accounting. The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult, based on the pro rata cost basis of the investment and the discharge of the guarantee provided during the second quarter of 2021.
25


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The Company began investing in Katapult in 2017 and increased its investment through multiple private placement acquisitions. During the first quarter of 2021, the Company changed the two-month reporting lag to a one-quarter reporting lag, as discussed in Note 1, "Summary of Significant Accounting Policies and Nature of Operations." The Company recorded a loss of $2.3 million for the three months ended September 30, 2022 based on its share of Katapult’s earnings.

During the fourth quarter of 2021, the Company purchased an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million.

On June 9, 2021, Katapult completed its merger with FinServ. As a result, the Company received $146.9 million in cash and 18.9 million shares of common stock of the resulting public company, Katapult (NASDAQ: KPLT). The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult during the second quarter of 2021. Additionally, as part of the merger, CURO received 3.0 million earn-out warrants and holds two of the eight board of director seats for Katapult.

Both the equity method investment and the previously recognized investment measured at cost minus impairment are presented within "Investment in Katapult" on the unaudited Condensed Consolidated Balance Sheets.

The Company owns 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.

26


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – STOCKHOLDERS' EQUITY

The following table summarizes the changes in stockholders' equity for the nine months ended September 30, 2022 and 2021 (in thousands, except Common Stock data):
Common StockTreasury Stock, at costPaid-in capitalRetained Earnings
AOCI (1)
Total Stockholders' Equity
Shares OutstandingPar Value
Balance at December 31, 2021
40,810,444 $23 $(124,302)$113,520 $203,467 $(32,378)$160,330 
Net income— — — — 1,336 — 1,336 
Foreign currency translation adjustment— — — — — 6,633 6,633 
Dividends— — — — (4,791)— (4,791)
Share-based compensation expense— — — 4,093 — — 4,093 
Repurchase of common stock(824,477)— (12,530)— — — (12,530)
Net settlement of share-based awards362,815 — — (2,284)— — (2,284)
Balance at March 31, 202240,348,782 $23 $(136,832)$115,329 $200,012 $(25,745)$152,787 
Net loss— — — — (26,080)— (26,080)
Foreign currency translation adjustment— — — — — (10,520)(10,520)
Dividends— — — — (4,434)— (4,434)
Share based compensation expense— — — 4,415 — — 4,415 
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes108,969 — — (588)— — (588)
Balance at June 30, 202240,457,751 $23 $(136,832)$119,156 $169,498 $(36,265)$115,580 
Net income— — — — 25,653 — 25,653 
Other comprehensive loss, net of tax— — — — — (13,705)(13,705)
Dividends— — — — (4,466)— (4,466)
Share based compensation expense— — — 1,448 — — 1,448 
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes27,630 — — (58)— — (58)
Balance at September 30 202240,485,381 $23 $(136,832)$120,546 $190,685 $(49,970)$124,452 
(1) Accumulated other comprehensive income (loss)


27


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Common StockTreasury Stock, at costPaid-in capitalRetained Earnings
AOCI (1)
Total Stockholders' Equity
Shares OutstandingPar Value
Balance at December 31, 2020
41,370,504 $9 $(77,852)$79,812 $160,068 $(30,132)$131,905 
Net income— — — — 25,735 — 25,735 
Foreign currency translation adjustment— — — — — 3,855 3,855 
Dividends— — — — (2,368)— (2,368)
Share-based compensation expense— — — 2,683 — — 2,683 
Proceeds from exercise of stock options15,852 — — 48 — — 48 
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes237,423 — — (1,668)— — (1,668)
Balance at March 31, 202141,623,779 $9 $(77,852)$80,875 $183,435 $(26,277)$160,190 
Net income— — — — 104,517 — 104,517 
Foreign currency translation adjustment— — — — — 4,714 4,714 
Dividends— — — — (4,582)— (4,582)
Share-based compensation expense— — — 3,467 — — 3,467 
Proceeds from exercise of stock options43,920 — — 191 — — 191 
Repurchase of common stock(104,487)— (1,752)— — — (1,752)
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes116,329 — — (43)— — (43)
Balances at June 30, 202141,679,541 $9 $(79,604)$84,490 $283,370 $(21,563)$266,702 
Net loss— — — — (42,039)— (42,039)
Foreign currency translation adjustment— — — — — (10,611)(10,611)
Dividends— — — — (4,547)— (4,547)
Share based compensation expense— — — 3,998 — — 3,998 
Proceeds from exercise of stock options7,200 — — 27 — — 27 
Repurchase of common stock(964,566)— (15,940)— — — (15,940)
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes14,936 $(107)(107)
Balance at September 30, 202140,737,111 $9 $(95,544)$88,408 $236,784 $(32,174)$197,483 
(1) Accumulated other comprehensive income (loss)

28


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Dividends

The table below summarizes the Company's quarterly dividends for 2022.
Dividends Paid
Date of declarationStockholders of recordDate paidDividend per share(in thousands)
Q1 2022February 4, 2022February 18, 2022March 1, 2022$0.11 $4,517 
Q2 2022April 28, 2022May 10, 2022May 23, 2022$0.11 $4,440 
Q3 2022August 3, 2022August 15, 2022August 26, 2022$0.11 $4,453 

The table below summarizes the Company's quarterly dividends for 2021.
Dividends Paid
Date of declarationStockholders of recordDate paidDividend per share(in thousands)
Q1 2021January 29, 2021February 16, 2021March 2, 2021$0.055 $2,284 
Q2 2021May 3, 2021May 14, 2021May 27, 2021$0.11 $4,580 
Q3 2021July 28, 2021August 9, 2021August 19, 2021$0.11 $4,556 

In October 2022, the Company's Board of Directors suspended the quarterly dividend.
NOTE 9 – EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net income (loss)$25,653 $(42,039)$909 $88,213 
Weighted average common shares - basic40,479 41,220 40,203 41,459 
Dilutive effect of stock options and restricted stock units356 — 551 1,963 
Weighted average common shares - diluted40,835 41,220 40,754 43,422 
Earnings per share:
Basic earnings per share$0.63 $(1.02)$0.02 $2.13 
Diluted earnings per share$0.63 $(1.02)$0.02 $2.03 

Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive; therefore, these shares are not included in calculating diluted earnings per share. For the three and nine months ended September 30, 2022, there were 3.5 million and 2.4 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the three and nine months ended September 30, 2021, there were 0.1 million and 0.1 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

The Company utilizes the "control number" concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share is applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.

29


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's CODM reviews financial information for operational decision making purposes, including revenues, net revenue, gross margin, segment operating income and other items.
U.S. As of September 30, 2022, the Company operated over 500 U.S. retail locations in 13 states. The Company provides secured and unsecured installment loan products to near-prime and non-prime consumers as well as credit insurance and other ancillary financial products to its customers in the U.S.
Canada Direct Lending. As of September 30, 2022, the Company operated a total of 211 stores across eight Canadian provinces and had an online presence in eight provinces and one territory. The Company provides Revolving LOC and Installment loans, which include Single-Pay loans, optional credit protection insurance products to Revolving LOC and Installment loan customers, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.

Canada POS Lending. As of September 30, 2022, the Company served Canadian customers through POS financing available at over 8,000 retail locations and over 3,500 merchant partners across 10 provinces and two territories. The Company provides Revolving LOC loans and a number of other ancillary financial products to its customers in Canada. Results of operations for the nine months ended September 30, 2021 from Canada POS Lending represent results from the date of Flexiti's acquisition, March 10, 2021, through September 30, 2021.

30


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table illustrates summarized financial information concerning reportable segments (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Revenues by segment: (1)
U.S.$107,430 $131,674 $511,540 $386,960 
Canada Direct Lending78,979 66,190 226,007 186,510 
Canada POS Lending27,711 11,416 71,173 20,054 
Consolidated revenue$214,120 $209,280 $808,720 $593,524 
Net revenues by segment:
U.S. $75,357 $83,244 $315,079 $278,852 
Canada Direct Lending46,032 52,187 145,047 154,717 
Canada POS Lending14,332 3,131 43,118 7,927 
Consolidated net revenue$135,721 $138,562 $503,244 $441,496 
Segment operating (loss) income:
U.S.$30,757 $(62,099)$(11,347)$75,909 
Canada Direct Lending12,069 23,744 45,554 71,334 
Canada POS Lending175 (17,059)(21,834)(29,789)
Consolidated operating (loss) income$43,001 $(55,414)$12,373 $117,454 
Expenditures for long-lived assets by segment:
U.S.$6,545 $4,402 $14,066 $9,226 
Canada Direct Lending630 481 5,094 991 
Canada POS Lending5,846 2,603 16,110 5,134 
Consolidated expenditures for long-lived assets$13,021 $7,486 $35,270 $15,351 
(1) For revenue by product, see Note 3, "Loans Receivable and Revenue."
The following table provides the proportion of gross loans receivable by segment (in thousands):
September 30,
2022		December 31,
2021
U.S. $739,100 $661,945 
Canada Direct Lending465,057 427,197 
Canada POS Lending690,270 459,176 
Total gross loans receivable$1,894,427 $1,548,318 

The following table represents the Company's net long-lived assets, comprised of property and equipment, by segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):
September 30,
2022		December 31,
2021
U.S. $14,618 $32,753 
Canada Direct Lending20,097 21,072 
Canada POS Lending2,687 810 
Total net long-lived assets$37,402 $54,635 

The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.

31


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – COMMITMENTS AND CONTINGENCIES
Securities Litigation and Enforcement

In 2018, a putative securities fraud class action lawsuit was filed against the Company and certain of its officers and directors and other related parties in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662 (the "Yellowdog Action"). The suit alleged the Company made misleading statements and omitted material information regarding the Company's efforts to transition the Canadian inventory of products from Installment loans to Revolving LOC loans.

In December 2020, the Court granted final approval of the $9.0 million settlement and dismissed the case with prejudice. The Company's directors' and officers' insurance policy required the Company to pay the first $2.5 million in fees and settlement and the insurance carriers paid the remaining amounts. For the nine months ended September 30, 2022, there was no further expense related to this litigation.

In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware ("Court") against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally alleged the same underlying facts of the Yellowdog Action. In July 2021, the derivative lawsuits were voluntarily dismissed and Plaintiffs refiled two cases in the United States District Court for the District of Kansas. In April 2022, the Company reached an agreement in principle with the plaintiffs to settle these actions. On October 27, 2022, the Court granted final approval of the settlement and dismissed the case with prejudice. The terms of the settlement provided for the implementation of certain corporate governance reforms and a payment of $345,000 in attorneys’ fees and expenses to plaintiffs’ counsel, which was paid by the Company's insurers, and included no admission of liability or wrongdoing by the Company.

Other Legal Matters. The Company is a defendant in certain other litigation matters encountered from time-to-time in the ordinary course of business, some of which may be covered to an extent by insurance. While it is difficult to predict the outcome of any particular proceeding, the Company does not believe the result of any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.
NOTE 12 – LEASES

Leases entered into by the Company are primarily for retail stores in certain U.S. states and Canadian provinces.

Leases classified as finance leases were immaterial to the Company as of September 30, 2022. Operating leases expire at various times through 2033. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" in the unaudited Condensed Consolidated Balance Sheets. Operating lease costs are included in "Occupancy" in the unaudited Condensed Consolidated Statement of Operations. The majority of leases have an original term up to five years plus renewal options for additional similar terms.

The following table summarizes the operating lease costs and other information for the three and nine months ended September 30, 2022 and September 30, 2021 (dollars in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Operating lease costs:
Third-Party
$7,098 $8,043 $26,151 24,604 
Related-Party
332 551 1,986 1,649 
Total operating lease costs$7,430 $8,594 $28,137 26,253 
Cash paid for amounts included in the measurement of operating lease liabilities$29,713 $26,556 
ROU assets obtained$(26,772)$9,893 
Weighted average remaining lease term - Operating leases4.4 years5.3 years
Weighted average discount rate - Operating leases7.7 %9.1 %

32

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the aggregate operating lease payments that the Company was contractually obligated to make under operating leases as of September 30, 2022 (in thousands):
Third-PartyRelated-PartyTotal
Remainder of 2022$6,845 $253 $7,098 
202323,533 615 24,148 
202416,527 632 17,159 
202511,178 649 11,827 
20266,161 666 6,827 
20273,921 684 4,605 
Thereafter12,423 1,021 13,444 
Total80,588 4,520 85,108 
Less: Imputed interest(17,453)(1,286)(18,739)
Operating lease liabilities$63,135 $3,234 $66,369 

There were no material leases entered into subsequent to the balance sheet date.


NOTE 13 – GOODWILL

The change in the carrying amount of goodwill by operating segment for the nine months ended September 30, 2022 was as follows (in thousands):
U.S.Canada Direct LendingCanada POS LendingTotal
Goodwill at December 31, 2021$359,779 $30,105 $39,908 $429,792 
Foreign currency translation — (2,199)(2,914)(5,113)
Measurement period adjustment 15,379 — — 15,379 
Divestiture (Note 14)(91,131)— — (91,131)
Acquisition (Note 14)75,365 — — 75,365 
Goodwill at September 30, 2022$359,392 $27,906 $36,994 $424,292 

The Company tests goodwill at least annually for potential impairment, as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2021 Form 10-K for additional information on the Company's policy for assessing goodwill for impairment.

In the third quarter of 2022, the Company performed an interim review of triggering events for each reporting unit, which would indicate whether a quantitative or qualitative assessment of goodwill impairment was necessary. As a result of the interim triggering event review, the Company concluded an additional assessment was not necessary and did not record an impairment loss during the three months ended September 30, 2022.

Flexiti Acquisition

The Company completed the acquisition of Flexiti on March 10, 2021, resulting in $39.9 million of goodwill as of December 31, 2021, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. Goodwill of $39.9 million was net of $4.5 million of adjustments upon the conclusion of the measurement period, and $0.5 million of foreign currency translation impact as of December 31, 2021. See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.

Heights Finance Acquisition

The Company completed the acquisition of Heights Finance on December 27, 2021. Provisional goodwill was estimated at $253.9 million, based on the preliminary valuation. The Company recorded a $15.4 million of adjustments during the second quarter of 2022, resulting in a provisional goodwill balance of $269.2 million, as of June 30, 2022. See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.

33

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Legacy U.S. Direct Lending Business Divestiture

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35 million in cash payable in monthly installment payments over the subsequent 12 months. The divestiture resulted in a gain of $68.4 million in the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. As part of the sale, $91.1 million of goodwill was written off. See Note 14,"Acquisitions and Divestiture" for more information related to the divestiture.
First Heritage Acquisition

On July 13, 2022, CURO closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi, for a total purchase price of $140.0 million in cash. Provisional goodwill was recorded at $75.4 million.See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.


NOTE 14 – ACQUISITIONS AND DIVESTITURE

ACQUISITIONS
First Heritage

On July 13, 2022, we completed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi, pursuant to the merger agreement dated May 18, 2022 (“Merger Agreement”). Pursuant to the Merger Agreement, Sugarcane Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), merged with and into First Heritage (the “Merger”), with First Heritage surviving the Merger as a wholly-owned subsidiary of the Company for a purchase price of $140.0 million in cash, subject to certain customary working capital and other adjustments in accordance with the terms of the Merger Agreement. The Company began consolidating the financial results of First Heritage in the Consolidated Financial Statements on July 13, 2022 within the U.S. operating segment.


This transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the acquired assets and liabilities assumed are provisional based on the preliminary fair value estimates as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of September 30, 2022, the primary areas that remain preliminary relate to the valuation of certain loans receivables, intangible assets and certain tax-related balances.

34

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of acquisition (in thousands):

Amounts acquired on July 13, 2022 (as adjusted)
Assets
Cash and cash equivalents
$31,396 
Restricted cash1,933 
Gross loans receivable(1)
218,011 
Prepaid expenses and other1,284 
Property and equipment345 
Right-of-use assets
4,241 
Intangibles, net10,670 
Total assets$267,880 
Liabilities
Accounts payable and accrued liabilities $4,271 
Lease liabilities 4,241 
Debt170,392 
Total liabilities178,904 
Net assets acquired88,976 
Total consideration paid164,341 
Goodwill $75,365 
(1) The gross contractual loans receivables as of July 13, 2022 were $236.1 million, of which the Company estimates $18.1 million will not be collected.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):

Fair ValueUseful Life
Trade name$3,790 10.0 years
Customer relationships6,880 3.5 years
Total identified intangible assets $10,670 

Goodwill of $75.4 million represents the excess of the consideration paid over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributable to expected synergies created with the Company’s future product offerings and the value of the combined workforce. Goodwill from this transaction is deductible for income tax purposes.

The Company incurred costs related to this acquisition of $10.1 million that were recorded in "Other operating expense" in the U.S. segment in the accompanying Consolidated Statement of Operations for the three months ended September 30, 2022.

Heights Finance

On December 27, 2021, the Company acquired 100% of the outstanding stock of Heights Finance for $360.0 million, consisting of $335.0 million in cash and $25.0 million of our common stock. Heights Finance is a consumer finance company that provides secured and unsecured Installment loans to near-prime and non-prime consumers, and offers customary opt-in insurance and other financial products across 390 branches in 11 U.S. states.

The Company began consolidating the financial results of Heights Finance in the Consolidated Financial Statements on December 27, 2021 within the U.S. operating segment. For additional information, see Note 15, "Acquisitions" of the 2021 Form 10-K.

35

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
We are in the process of reviewing the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation prior to December 31, 2022. During the nine months ended September 30, 2022, the Company recorded a measurement period adjustment that increased goodwill by $15.4 million. The measurement period adjustment related to the fair value of the loan portfolio and would have resulted in $7.7 million of incremental interest and fee revenue during the three months ended March 31, 2022. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. As of September 30, 2022, the primary areas that remain preliminary relate to the valuation of intangible assets and certain tax-related balances.

The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of acquisition of Heights Finance (in thousands):

Amounts acquired on December 27, 2021Measurement period adjustmentsAmounts acquired on December 27, 2021 (as adjusted)
Assets
Cash and cash equivalents
$13,564 $— $13,564 
Restricted cash33,630 — 33,630 
Gross loans receivable(1)
471,630 (15,379)456,251 
Income tax receivable3,526 — 3,526 
Prepaid expenses and other7,410 — 7,410 
Property and equipment4,748 — 4,748 
Right-of-use assets
16,111 — 16,111 
Intangibles, net11,900 — 11,900 
Other assets98 — 98 
Total assets$562,617 $(15,379)$547,238 
Liabilities
Accounts payable and accrued liabilities $19,186 $— $19,186 
Lease liabilities 16,315 — 16,315 
Deferred tax liability 1,077 — 1,077 
Accrued interest on debt1,781 — 1,781 
Debt350,000 — 350,000 
Total liabilities$388,359 $— $388,359 
Net assets acquired$174,258 $(15,379)$158,879 
Total consideration paid428,115 428,115 
Goodwill $253,857 $269,236 
(1) The gross contractual loans receivables as of December 27, 2021 were $485.4 million, of which the Company estimates $29.2 million will not be collected.

Flexiti

On March 10, 2021, the Company acquired 100% of the outstanding stock of Flexiti. The fair value of total consideration paid was $86.5 million in cash, $6.3 million in debt costs and $20.6 million in contingent cash consideration subject to future operating metrics, including revenue less NCOs and loan originations. Flexiti provides POS financing solutions to retailers across Canada.

The Company began consolidating the financial results of Flexiti in the unaudited Condensed Consolidated Financial Statements on March 10, 2021. For additional information, see Note 15, "Acquisitions" of the 2021 Form 10-K.

DIVESTITURE
36

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Legacy U.S. Direct Lending Business

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35 million in cash payable in monthly installment payments over the subsequent 12 months.
The divestiture resulted in a gain of $68.4 million in the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. The sale of the business is not considered a strategic shift that will have a major effect on the Company’s operations or financial results, and thus it is not reported as discontinued operations.
The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of divestiture of the Legacy U.S. Direct Lending business (in thousands):

July 8, 2022
Assets
Cash, cash equivalents and restricted cash$21,292 
Loans receivable162,147 
Right of use asset39,326 
Goodwill91,131 
Other assets (1)
30,690 
Total assets$344,586 
Liabilities
Accounts payable and accrued liabilities $8,947 
Right of use liability43,433 
Liability for losses on CSO lender-owned consumer loans 5,628 
Other long term liabilities (2)
5,815 
Total liabilities63,823 
Net assets sold280,763 
Total proceeds349,207 
Total pretax gain on sale of business$68,444 
(1) Includes income tax receivable, property and equipment, intangibles, deferred tax assets, and other assets.
(2) Includes deferred revenue, income taxes payable, deferred tax liability, and other long-term liabilities


The Legacy U.S. Direct Lending Business had pre-tax net income of $60.7 million and $3.6 million for the nine months and three months ended September 30, 2022, respectively. The Legacy U.S. Direct Lending Business had pre-tax net income of $118.1 million and $27.7 million for the nine months and three months ended September 30, 2021, respectively. Pre-tax net income is comprised of net revenue and expenses directly related to the Legacy U.S. Direct Lending Business, which does not include certain costs recorded in the U.S. operating segment that are not classified as disposed of, such as interest expense on the 7.50% Senior Secured Notes and certain corporate expenses.

NOTE 15 – SHARE REPURCHASE PROGRAM

In February 2022, the Company's Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. There were no repurchases under this program as of September 30, 2022. Repurchases are at the Company's discretion and can continue until completed or terminated. The Company expects any repurchases to be made from time-to-time in the open market and/or in privately negotiated transactions at the Company's discretion, subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans and for other corporate purposes.

In May 2021, the Company's Board of Directors authorized a share repurchase program for up to $50.0 million of its common stock. The program commenced in June 2021 and was completed in February 2022.
37

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The table below summarizes share repurchase activity in the $50.0 million repurchase program during the three and nine months ended September 30, 2022 (in thousands, except for per share amounts and number of share amounts):

Three Months Ended September 30, 2022Nine Months Ended
September 30, 2022
Total number of shares repurchased— 824,777 
Average price paid per share$— $15.20 
Total value of shares repurchased$— $12,530 

We repurchased 104,487 shares of our common stock at an average price of $16.77 for a total cost of $1.8 million during the three and nine months ended September 30, 2021.

NOTE 16 – SUBSEQUENT EVENTS

Cost Savings and Efficiency Enhancements

As part of the continuing evaluation of the Company cost structure, the Company made the decision in October 2022 to enact certain cost savings strategies, which include (i) store closures in both Canada and the US, (ii) consolidation of certain back-office functions as well as reductions to our corporate office footprint, and (iii) ending the First Phase credit card.
38


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion of financial condition, results of operations, liquidity and capital resources, our regulatory environment and certain factors that may affect future results, including company-specific, economic and industry-wide factors, should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and accompanying notes included herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, we undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Please see “Risk Factors” in our 2021 Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

We are a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and prime consumers in the U.S. and Canada.

History

CURO was founded in 1997 to meet the growing needs of consumers looking for alternative access to credit. With 25 years of experience, we offer a variety of convenient, accessible financial and loan services across all of our markets. The terms “CURO," "we,” “our,” “us” and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.

In the U.S., we operate under several principal brands, including "Covington Credit," "Heights Finance," "Quick Credit", "Southern Finance" and "First Heritage." Until July 2022 we also operated under brands that included "Speedy Cash", "Rapid Cash" and "Avio Credit". We also offer demand deposit accounts in the U.S. under the Revolve Finance brand, and credit card programs under the First Phase brand, which we launched in the fourth quarter of 2021. As of September 30, 2022, our store network consisted of over 500 U.S. retail locations across 13 states.

In Canada, we operate under “Cash Money” and “LendDirect” direct lending brands and the "Flexiti" point-of-sale brand. As of September 30, 2022, we operated our direct lending and online services in eight Canadian provinces and one Canadian territory. Our point-of-sale operations are available at nearly 8,000 retail locations and over 3,500 merchant partners across 10 provinces and two territories.

In July 2022, we sold our Legacy U.S. Direct Lending Business, which operated under the "Speedy Cash", "Rapid Cash" and "Avio Credit" brands. Also in July 2022 we purchased a U.S. based near-prime installment lender, First Heritage, which operates under the "First Heritage Credit" brand, furthering our strategic shift to broaden our position in the near-prime consumer lending market in the U.S. Refer to Note 14, "Acquisitions and Divestiture" for additional details regarding the divestiture of our Legacy U.S. Direct Lending business and the acquisition of First Heritage.

On December 27, 2021, we acquired Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products in the U.S. The acquisition of Heights Finance accelerated our strategic transition in the U.S. toward longer term, higher balance and lower credit risk products, and provided us with access to what we believe to be a larger addressable market while mitigating regulatory risk.

On March 10, 2021, we acquired Flexiti, an emerging growth Canadian POS/BNPL provider, which provided us instant capability and scale opportunity in Canada's credit card and POS financing markets. Refer to "Item 1—Business—Company Overview" of our 2021 Form 10-K and Note 14,"Acquisitions and Divestiture" for additional details regarding the Heights Finance and Flexiti acquisitions. Both acquisitions were accounted for under the purchase method and thus their results of operations are included in our financial statements commencing as of their respective acquisition dates.

In 2017, we made our first investment in Katapult, an e-commerce focused FinTech company offering an innovative lease financing solution to consumers and enabling essential transactions at the merchant POS. In June 2021, Katapult merged with FinServ, resulting in a new publicly traded company (NASDAQ: KPLT). Refer to "Item 1—Business—Company Overview" of our 2021 Form 10-K for additional information about the merger and its benefits to us. In the fourth quarter of 2021, we acquired an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million. Our fully diluted ownership of Katapult as of September 30, 2022 was 19.4%, assuming full pay-out of earn-out shares, and 18.1% excluding pay-out of earn-out shares.

39


Consolidated Results of Operations

Comparison of Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

Beginning January 1, 2022, we report "Interest and fees revenue," "Insurance premiums and commissions" and "Other revenue" in place of our previously reported "Revenue" on our Condensed Statements of Operations. Prior period presentations have been revised to conform to the current period presentation.

The table below presents our consolidated results of operations. A further discussion of the results of our operating segments is provided under "Segment Analysis" below.

(in thousands, unaudited)Three Months Ended September 30,Nine Months Ended September 30,
20222021Change $Change %20222021Change $Change %
Revenue
Interest and fees revenue$180,515 $190,629 $(10,114)(5.3)%$723,802 $539,155 $184,647 34.2 %
Insurance premiums and commissions24,746 12,599 12,147 96.4 %61,659 36,021 25,638 71.2 %
Other revenue8,859 6,052 2,807 46.4 %23,259 18,348 4,911 26.8 %
Total revenue214,120 209,280 4,840 2.3 %808,720 593,524 $ 215,196 36.3 %
Provision for losses78,399 70,718 7,681 10.9 %305,476 152,028 153,448 100.9 %
Net revenue135,721 138,562 (2,841)(2.1)%503,244 441,496 61,748 14.0 %
Operating Expenses
Salaries and benefits53,413 62,110 (8,697)(14.0)%215,569 175,347 40,222 22.9 %
Occupancy12,827 13,732 (905)(6.6)%47,371 41,862 5,509 13.2 %
Advertising5,244 9,697 (4,453)(45.9)%28,451 24,824 3,627 14.6 %
Direct operations11,729 14,883 (3,154)(21.2)%52,296 40,552 11,744 29.0 %
Depreciation and amortization9,499 7,285 2,214 30.4 %27,985 19,685 8,300 42.2 %
Other operating expense23,646 14,851 8,795 59.2 %58,809 45,020 13,789 30.6 %
Total operating expenses116,358 122,558 (6,200)(5.1)%430,481 347,290 83,191 24.0 %
Other expense (income)
Interest expense50,149 25,805 24,344 94.3 %130,683 68,784 61,899 90.0 %
Loss (income) from equity method investment2,309 1,582 727 46.0 2,053 (676)2,729 #
Gain from equity method investment— — — #— (135,387)135,387 #
Loss on extinguishment of debt3,702 40,206 (36,504)(90.8)%3,702 40,206 (36,504)(90.8)%
(Gain) loss on change in fair value of contingent consideration(11,355)3,825 (15,180)#(7,605)3,825 (11,430)#
Gain on sale of business(68,443)— (68,443)#(68,443)— (68,443)#
Total other (income) expense(23,638)71,418 (95,056)#60,390 (23,248)83,638 #
Income (loss) before income taxes43,001 (55,414)98,415 #12,373 117,454 (105,081)(89.5)%
Provision (benefit) for income taxes17,348 (13,375)30,723 #11,464 29,241 (17,777)(60.8)%
Net income (loss)25,653 (42,039)67,692 #909 88,213 (87,304)(99.0)%
# - Variance greater than 100% or not meaningful.
40


For the three months ended September 30, 2022 and 2021

The improvement in Net income of $67.7 million for the three months ended September 30, 2022 was primarily driven by (i) the $68.4 million Gain on sale of business recorded in the third quarter 2022 resulting from the completion of the divestiture of our Legacy U.S. Direct Lending business in July 2022, (ii) the $11.4 million adjustment to the change in the fair value of contingent consideration recorded in connection with our acquisition of Flexiti, and (iii) in the third quarter of 2021 a $40.2 million loss on the extinguishment and refinancing of our former senior notes ("8.25% Senior Secured Notes"), partially offset in the third quarter of 2022 by a $24.3 million increase in interest expense. The increase in interest expense in the third quarter of 2022 compared to the same period in 2021 was primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse asset-backed lending ("ABL") borrowing to support organic loan growth and acquired portfolios.
For the Nine Months Ended September 30, 2022 and 2021
The decline in Net income of $87.3 million for the nine months ended September 30, 2022 compared to the prior-year period was primarily driven by (i) year-over-year comparisons for the provision for loan losses, which were favorably impacted by COVID-19 stimulus impacts during 2021, (ii) gains related to our investment in Katapult Holdings, Inc., and (iii) higher interest expense in 2022, partially offset by (i) the $68.4 million Gain on sale of business recorded in the third quarter of 2022 resulting from the completion of the divestiture of our Legacy U.S. Lending Direct business in July 2022, (ii) the $11.4 million adjustment to the change in the fair value of contingent consideration recorded in connection with our acquisition of Flexiti, and (iii) in the third quarter of 2021, a $40.2 million loss on the extinguishment and refinancing of our former senior notes ("8.25% Senior Secured Notes"). During the second quarter of 2021, Katapult became a public company via a SPAC merger, generating a pretax gain to us of $135.4 million.
Government stimulus in March 2021 and pandemic-related consumer behavior reduced demand, increased payment rates and lowered loss rates in 2021, resulting in a provision for loan losses that was $16.7 million less than NCOs for the first nine months of 2021. Credit normalization and strong sequential loan growth in the first nine months of 2022 resulted in a provision for loan losses that exceeded NCOs by $50.1 million, a $66.8 million year-over-year change, (including the impact of purchase accounting for the Heights Finance portfolio acquired in December 2021 and First Heritage portfolio acquired in July 2022). The increase of $61.9 million in interest expense in 2022 was primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.
Revenue
For the three months ended September 30, 2022 and 2021
During the three months ended September 30, 2022, total revenue increased $4.8 million, or 2.3% to $214.1 million, compared to the prior-year period, primarily driven by:
•Revenue growth in Canada POS Lending and Canada Direct Lending of 142.7% and 19.3%, respectively,
•Revenue increase related to the Heights Finance and First Heritage acquisitions, partially offset by an 18.4% decline in U.S. revenue primarily as a result of the July 2022 divestiture of our Legacy U.S. Direct Lending business.
For the Nine Months Ended September 30, 2022 and 2021
During the nine months ended September 30, 2022, total revenue increased $215.2 million, or 36.3%, to $808.7 million, compared to the prior-year period, primarily driven by our acquisitions of Heights Finance and First Heritage, growth in Canada Direct Lending and the addition of two full quarters of revenue for the acquisition of Flexiti. The main components were:
•U.S. revenue increase of $124.6 million, or 32.2%, primarily as a result of our Heights Finance and First Heritage acquisitions, offset by a decrease in total revenues due to the July 2022 divestiture of the Legacy U.S. Direct lending business,
•Canada POS Lending revenue increase of $51.1 million, or 255%, compared to the nine months ended September 30, 2021 , which only included Flexiti's results after its acquisition on March 10, 2021; and
•Canada Direct Lending revenue increase of $39.5 million, or 21.2%.

41


The following table summarizes revenue by product for the period indicated:
Three Months Ended
September 30, 2022September 30, 2021
(in thousands, unaudited)U.S.Canada Direct LendingCanada POS LendingTotal% of TotalU.S.Canada Direct LendingCanada POS LendingTotal% of Total
Revolving LOC$ 2,210 $ 50,251 $ 24,575 $ 77,036 36.0 %$ 27,377 $ 40,239 $ 10,646 $ 78,262 37.4 %
Installment90,834 12,645 — 103,479 48.3 %101,036 11,331 — 112,367 53.7 %
Total interest and fees93,044 62,896 24,575 180,515 84.3 %128,413 51,570 10,646 190,629 91.1 %
Insurance premiums and commissions9,986 14,045 715 24,746 11.6 %— 12,506 93 12,599 6.0 %
Other revenue4,400 2,038 2,421 8,859 4.1 %3,261 2,114 677 6,052 2.9 %
   Total revenue$ 107,430 $ 78,979 $ 27,711 $ 214,120 100.0 %$ 131,674 $ 66,190 $ 11,416 $ 209,280 100.0 %

Product Revenue for the Three Months Ended September 30, 2022 and 2021
•Revolving LOC
◦Revolving LOC revenue for the three months ended September 30, 2022 decreased $1.2 million, or 1.6%, compared to the prior-year period, driven by increases in revenue of $10.0 million and $13.9 million in the Canada Direct Lending and Canada POS businesses, respectively, offset by a decrease in U.S. revenue of $25.2 million, or 91.9%, due to the sale of the Legacy U.S. Direct Lending business in July of 2022.

•Installment
◦Installment revenue for the three months ended September 30, 2022 decreased $8.9 million, or 7.9%, compared to the prior-year period. The decrease was driven by the $10.2 million decrease in U.S. Installment revenue in the third quarter of 2022 due to the July 2022 divestiture of the Legacy U.S. Direct lending business, partially offset by the acquisitions of Heights Finance and First Heritage, and a $1.3 million increase in Canada Direct Lending Installment revenue.

•Insurance premiums and commissions
◦Insurance premiums and commissions for the three months ended September 30, 2022 increased $12.1 million, or 96.4%, compared to the prior-year period, driven by U.S. growth of $10.0 million, primarily due to our acquisitions of Heights Finance and First Heritage, and Canada Direct Lending growth of $1.5 million, or 12.3%, year over year, from the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

•Other revenue
◦Other revenue for the three months ended September 30, 2022 increased $2.8 million, or 46.4%, versus the prior-year period, primarily due to a $1.7 million increase in other revenue for Canada POS Lending as ancillary fees rose in line with overall loan growth and $1.1 million in the U.S. from new product offerings associated with our acquisitions of Heights Finance and First Heritage.

Nine Months Ended
September 30, 2022
September 30, 2021
(in thousands, unaudited)U.S.Canada Direct LendingCanada POS LendingTotal% of TotalU.S.Canada Direct LendingCanada POS LendingTotal% of Total
Revolving LOC$ 57,269 $ 143,296 $ 64,077 $ 264,642 32.7 %$ 78,391 $ 112,057 $ 18,585 $ 209,033 35.2 %
Installment423,537 35,623 — 459,160 56.8 %297,803 32,319 — 330,122 55.6 %
Total interest and fees480,806 178,919 64,077 723,802 89.5 %376,194 144,376 18,585 539,155 90.8 %
Insurance premiums and commissions19,310 40,988 1,361 61,659 7.6 %— 35,753 268 36,021 6.1 %
Other revenue11,424 6,100 5,735 23,259 2.9 %10,766 6,381 1,201 18,348 3.1 %
   Total revenue$ 511,540 $ 226,007 $ 71,173 $ 808,720 100.0 %$ 386,960 $ 186,510 $ 20,054 $ 593,524 100.0 %

Product Revenue for the Nine Months Ended September 30, 2022 and 2021

42


•Revolving LOC
◦Revolving LOC revenue for the nine months ended September 30, 2022 increased $55.6 million, or 26.6%, compared to the prior-year period, driven by growth in Canada Direct Lending revenue of $31.2 million, or 27.9%, and Canada POS lending of $45.5 million, partially offset by the effects of the sale of the Legacy U.S. Direct Lending business in July of 2022.

•Installment
◦Installment revenue for the nine months ended September 30, 2022 increased $129.0 million, or 39.1%, compared to the prior-year period, primarily due to an increase of $125.7 million in U.S. installment revenue driven by our acquisition of Heights Finance and First Heritage.

•Insurance premiums and commissions
◦Insurance premiums and commissions for the nine months ended September 30, 2022 increased $25.6 million, or 71.2%, compared to the prior-year period, primarily due to an increase of $19.3 million in U.S. insurance premiums and commission revenue driven by our acquisition of Heights Finance and First Heritage. Canada Direct Lending grew $5.2 million, or 14.6%, year over year, due to growth in the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

•Other revenue
◦Other revenue for the nine months ended September 30, 2022 increased $4.9 million, or 26.8%, versus the prior-year period, due to a $4.5 million increase in other revenue for Canada POS Lending as ancillary fees rose in line with overall loan growth.

Provision for Losses for the Three Months Ended September 30, 2022 and 2021

•Provision for losses increased by $7.7 million, or 10.9%, for the three months ended September 30, 2022 compared to the prior-year period, primarily driven by:
◦Sequential loan growth, driven by strong consumer demand, across all loan portfolios compared to the same period in the prior year;
◦Continued orderly credit normalization associated with loan growth as customers return to pre-COVID-19 payment behaviors, in contrast to the prior year, when customers received government stimulus payments;
◦Provision for losses for our Heights Finance and First Heritage acquisitions offset by the divestiture of the Legacy U.S Direct Lending business in July 2022; and
◦Higher NCO and past-due rates, as COVID-19 impacts lessened compared to the comparable period in the prior year. Refer to the "Segment Analysis" sections below for additional details.

Provision for Losses for the Nine Months Ended September 30, 2022 and 2021

•Provision for losses increased by $153.4 million, or 100.9%, for the nine months ended September 30, 2022 compared to the prior-year period, primarily driven by:
◦Year-over-year loan growth, driven by strong consumer demand, across all loan portfolios compared to the same period in the prior year;
◦Continued orderly credit normalization associated with loan growth as customers return to pre-COVID-19 payment behaviors as compared to the prior year, when customers received government stimulus payments;
◦Full three quarters of provision for losses for our Heights Finance acquisition of $81.1 million;
◦Full three quarters of provision for loan losses for Canada POS Lending of $28.1 million, an increase of $15.9 million compared to the prior-year period; and
◦Higher NCO and past-due rates, as COVID-19 impacts lessened compared to the same period in the prior year. Refer to the "Segment Analysis" sections below for additional details.

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Operating Expenses

The following table summarizes operating expenses for the period indicated:
(in thousands, unaudited)Three Months Ended September 30,Nine Months Ended September 30,
20222021Change $Change %20222021Change $Change %
Operating Expenses
Salaries and benefits$53,413 $62,110 $(8,697)(14.0)%$215,569 $175,347 $40,222 22.9 %
Occupancy12,827 13,732 (905)(6.6)%47,371 41,862 5,509 13.2 %
Advertising5,244 9,697 (4,453)(45.9)%28,451 24,824 3,627 14.6 %
Direct operations11,729 14,883 (3,154)(21.2)%52,296 40,552 11,744 29.0 %
Depreciation and amortization9,499 7,285 2,214 30.4 %27,985 19,685 8,300 42.2 %
Other operating expense23,646 14,851 8,795 59.2 %58,809 45,020 13,789 30.6 %
Total operating expenses$116,358 $122,558 $(6,200)(5.1)%$430,481 $347,290 $83,191 24.0 %

Operating expenses for the three months ended September 30, 2022 decreased $6.2 million, or 5.1% compared to the prior-year period, primarily driven by:
•Salaries and benefits were $53.4 million for the three months ended September 30, 2022, a decrease of $8.7 million, or 14.0%, compared to the prior-year period. The decrease is primarily related to the July 2022 divestiture of our Legacy U.S Direct Lending business offset by the acquisitions of First Heritage and Heights Finance, in July 2022 and December 2021, respectively.

•Advertising costs decreased $4.5 million, or 45.9%, year over year, almost entirely due to the July 2022 divestiture of our Legacy U.S Direct Lending business.

•Direct operations were $11.7 million for the three months ended September 30, 2022, a decrease of $3.2 million, or 21.2%, compared to the prior-year period. The decrease was primarily due to the July 2022 divestiture of our Legacy U.S Direct Lending business, offset by the effect of acquisitions of First Heritage and Heights Finance.

•Depreciation and amortization expense for the three months ended September 30, 2022 increased $2.2 million, or 30.4%, compared to the prior-year period, primarily due to the amortization of First Heritage- and Heights Finance-related assets.

•Other operating expenses were $23.6 million for the three months ended September 30, 2022, an increase of $8.8 million, or 59.2%, compared to the prior-year period, primarily driven by transaction-related professional services costs related to the sale of our Legacy U.S. Direct Lending business and the acquisition of First Heritage during the quarter. Refer to the "Segment Analysis" sections below for additional details.

Operating expenses for the nine months ended September 30, 2022 increased $83.2 million, or 24.0%, primarily driven by:
•Salaries and benefits were $215.6 million for the nine months ended September 30, 2022, an increase of $40.2 million, or 22.9%, compared to the prior-year period. The increase is largely due to the acquisitions of Heights Finance and First Heritage, and three full quarters of Canada POS Lending business salaries and benefits partially offset by the July 2022 divestiture of our Legacy U.S Direct Lending business.

•Occupancy costs were $47.4 million for the nine months ended September 30, 2022, an increase of $5.5 million, or 13.2%, compared to the prior-year period. The increase is almost entirely due to our acquisitions of First Heritage and Heights Finance.

•Advertising costs increased $3.6 million, or 14.6%, primarily driven by the acquisitions of First Heritage and Heights Finance.

•Direct operations were $52.3 million for the nine months ended September 30, 2022, an increase of $11.7 million, or 29.0%, compared to the prior-year period. The increase is due to our acquisition of Heights Finance as well as nine months of Canada POS Lending direct operations of $3.3 million.

•Amortization expense for the nine months ended September 30, 2022 increased $8.3 million, or 42.2%, compared to the prior-year period, primarily due full three quarters of Canada POS Lending expense associated with the amortization of capitalized software development costs and an increase of amortization expense of $5.3 million from our acquisitions of Heights Finance and First Heritage.
44



•Other operating expenses were $58.8 million for the nine months ended September 30, 2022, an increase of $13.8 million, or 30.6%, compared to the prior-year period, primarily driven by costs incurred for the sale of the Legacy U.S. Direct Lending business and the acquisitions of Heights Finance and First Heritage. Refer to the "Segment Analysis" sections below for additional details.
Other Expense (Income)

The following table summarizes other expenses (income) for the period indicated:
(in thousands, unaudited)Three Months Ended September 30,Nine Months Ended September 30,
20222021Change $Change %20222021Change $Change %
Other expense (income)
Interest expense$50,149 $25,805 $24,344 94.3 %130,683 68,784 61,899 90.0 %
Loss (income) from equity method investment2,309 1,582 727 46.0 2,053 (676)2,729 #
Gain from equity method investment— — — #— (135,387)135,387 #
(Gain) loss on change in fair value of contingent consideration(11,355)3,825 (15,180)#(7,605)3,825 (11,430)#
Loss on extinguishment of debt3,702 40,206 (36,504)(90.8)%3,702 40,206 (36,504)(90.8)%
Gain on sale of business(68,443)— (68,443)#(68,443)— (68,443)#
Total other (income) expense$(23,638)$71,418 $(95,056)#60,390 (23,248)83,638 #
# - Variance greater than 100% or not meaningful.

Other expenses for the three months ended September 30, 2022 decreased $95.1 million compared to the prior-year period, primarily driven by:

•Gain on sale of our Legacy U.S. Direct Lending business of $68.4 million in July 2022.

•Loss on extinguishment of debt of $40.2 million in for the three months ended September 30, 2021 due to the early redemption of the 8.25% Senior Secured Notes.

•Interest expense for the three months ended September 30, 2022 increased $24.3 million, or 94.3%, primarily related to (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.

Other expenses for the nine months ended September 30, 2022 increased $83.6 million compared to the prior-year period, primarily driven by:

•During the second quarter of 2021 Katapult became a public company via a SPAC merger, generating a pretax gain of $135.4 million
•Interest expense for the nine months ended September 30, 2022, increased $61.9 million, or 90.0%, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.

•These increases were offset by a the gain on sale of our Legacy U.S. Direct Lending business of $68.4 million that occurred in July 2022 and the loss on extinguishment of debt of $40.2 million in for the three months ended September 30, 2021 due to the early redemption of the 8.25% Senior Secured Notes.


Provision for Income Taxes

Three Months Ended September 30, 2022 and 2021

The effective income tax rate for the three months ended September 30, 2022 was 40.3%. The effective income tax rate for the three months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business and officers’ compensation, partially offset by tax benefits related to change in fair value of contingent consideration. The effective
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income tax rate of adjusted tax expense included in Adjusted Net Income for the three months ended September 30, 2022 was 34.7%.

The effective income tax rate for the three months ended September 30, 2021 was 24.1%. The effective income tax rate was lower than the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of proportionally more loss in lower-tax rate jurisdictions, driven by the loss on extinguishment of debt. In addition, we recorded an income tax benefit from the recognition of research and development tax credit. This benefit was offset by a nondeductible expense item related to the change in fair value of contingent consideration.

Nine Months Ended September 30, 2022 and 2021

The effective income tax rate for the nine months ended September 30, 2022 was 92.6%. The effective income tax rate for the nine months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business, share-based compensation, officers’ compensation, and non-deductible transaction costs, partially offset by tax benefits related to change in fair value of contingent consideration. The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the nine months ended September 30, 2022 was 28.1%.

The effective income tax rate of 24.9% for the nine months ended September 30, 2021 was lower compared to the blended federal and state/provincial statutory rates of approximately 26%, primarily as a result of proportionally more net income in lower rate jurisdictions, driven by the gain on the Katapult transaction in the second quarter of 2021 and the loss on extinguishment of debt in the third quarter of 2021. Additionally, the effective tax rate also includes the release of a valuation allowance due to the Company's share of Katapult's income, tax benefits related to share-based compensation, tax expense related to the non-deductible transaction costs and the change in fair value of contingent consideration, tax expense of additional Texas accrual for 2020 due to the settlement of 2013 to 2019 Texas tax returns, and a tax benefit for the recognition of Research and Development tax credit.
Loan Volume and Portfolio Performance Analysis

The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivable includes loans originated by third-party lenders through CSO programs, which are not included in the unaudited Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender. As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the tables that follow based on historical practice and for comparability purposes. Refer to Note 14, "Acquisitions and Divestiture" for additional information.

As of
(in thousands, unaudited)September 30,
2022		June 30,
2022		March 31,
2022		December 31,
2021		September 30,
2021
U.S.
Revolving LOC$ — $ 58,471 $ 49,077 $ 52,532 $ 51,196 
Installment - Company Owned739,100 627,651 589,652 609,413 137,987 
Canada Direct Lending
Revolving LOC439,117 442,738 424,485 402,405 366,509 
Installment25,940 24,817 23,578 24,792 24,315 
Canada POS Lending
Revolving LOC690,270 627,163 541,776 459,176 302,349 
Company Owned gross loans receivable$ 1,894,427 $ 1,780,840 $ 1,628,568 $ 1,548,318 $ 882,356 
Gross loans receivable Guaranteed by the Company— 51,323 44,420 46,317 43,422 
Gross combined loans receivable (1)
$ 1,894,427 $ 1,832,163 $ 1,672,988 $ 1,594,635 $ 925,778 
(1) See a description of non-GAAP Financial Measures in "Supplemental Non-GAAP Financial Information."

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Gross loans receivable increased $1,012.1 million , or 114.7%, to $1,894.4 million as of September 30, 2022, from $882.4 million as of September 30, 2021. The increase was driven by:

•U.S. Direct Lending increased by $549.9 million primarily driven by loan growth and our Heights Finance and First Heritage acquisitions, partially offset by the sale of the Legacy U.S. Direct Lending business;
•Canada POS Lending growth of $387.9 million, or 128.3%; and
•Canada Direct Lending growth of $74.2 million, or 19.0%.

Sequentially, gross loans receivable increased $113.6 million , or 6.4% , driven by the acquisition of First Heritage, Canada POS Lending growth of $63.1 million, or 10.1%, and Canada Direct Lending Revolving LOC growth of $3.6 million, or 0.8%. The increase was offset by the sale of the Legacy U.S. Direct Lending business. Excluding the loans sold with the divestiture of the Legacy U.S. Direct Lending business, gross loan receivables grew $301.6 million sequentially.
Segment Analysis

The following is a summary of portfolio performance and results of operations for the segment and period indicated (all periods unaudited except for Q4 2021). We report financial results for three reportable segments: U.S., Canada Direct Lending and Canada POS Lending.


U.S. Portfolio Performance
(in thousands, except percentages)Q3 2022
Q2 2022(6)
Q1 2022
Q4 2021(1)
Q3 2021
Gross combined loans receivable (2)
Revolving LOC$ —$ 58,471$ 49,077$ 52,532$ 51,196
Installment loans - Company Owned739,100627,651589,652137,782137,987
Total U.S. Company Owned gross loans receivable739,100686,122638,729190,314189,183
Installment loans - Guaranteed by the Company (3)
—51,32344,42046,31743,422
Total U.S. gross combined loans receivable (2)
$ 739,100$ 737,445$ 683,149$ 236,631$ 232,605
Lending Revenue:
Revolving LOC$ 2,210$ 28,145$ 26,913$ 27,911$ 27,377
Installment loans - Company Owned86,936121,595113,83356,82057,659
Installment loans - Guaranteed by the Company (3)
3,89848,28348,99147,34843,377
Total U.S. lending revenue$ 93,044$ 198,023$ 189,737$ 132,079$ 128,413
Lending Provision:
Revolving LOC$ —$ 11,831$ 9,577$ 11,592$ 8,140
Installment loans - Company Owned29,04554,86832,96218,61816,792
Installment loans - Guaranteed by the Company (3)
—28,31321,74925,96723,146
Total U.S. lending provision$ 29,045$ 95,012$ 64,288$ 56,177$ 48,078
NCOs (7)
Revolving LOC$ 1,140$ 10,248$ 10,055$ 11,481$ 8,329
Installment loans - Company Owned25,72240,75736,24719,66419,548
Installment loans - Guaranteed by the Company (3)
1,58927,39521,49226,06521,404
Total U.S. NCOs$ 28,451$ 78,400$ 67,794$ 57,210$ 49,281
NCO rate (4) (7)
Revolving LOC3.9%19.1%19.8%22.1%16.9%
Installment loans - Company Owned3.8%6.7%6.0%14.3%14.1%
Total U.S. Company Owned NCO rate3.8%7.7%7.1%16.4%14.8%
Installment loans - Guaranteed by the Company (3)
6.2%57.2%47.4%58.1%53.2%
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(in thousands, except percentages)Q3 2022
Q2 2022(6)
Q1 2022
Q4 2021(1)
Q3 2021
Total U.S. NCO rate3.9%11.0%14.7%24.4%21.6%
ALL and CSO Liability for Losses rate (5)
Revolving LOC— %25.1 %26.7%25.9%26.3%
Installment loans - Company Owned4.4 %6.8 %4.2%12.7%13.4%
Total U.S. Company Owned ALL rate4.4 %8.4 %5.9%16.3%16.9%
Installment loans - Guaranteed by the Company (3)
— %15.7 %16.1%14.9%16.1%
Total ALL and CSO Liability for Losses rate4.4 %8.9 %6.6%16.0%16.8%
31+ days past-due rate (5)
Revolving LOC— %17.4 %19.1%19.2%18.3%
Installment loans - Company Owned10.5 %10.0 %9.6%9.4%11.9%
Total U.S. Company Owned past-due rate(8)
10.5 %10.7 %10.4%10.1%13.6%
Installment loans - Guaranteed by the Company (3)
— %2.6 %4.5%3.1%3.8%
(1) On December 27, 2021, we acquired Heights Finance, which accounted for approximately $472 million of U.S. Installment loans as of December 31, 2021. As the period between December 27, 2021 and December 31, 2021 did not result in material loan performance, we have excluded Heights Finance from the table for the fourth quarter of 2021.
(2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."
(3) Includes loans originated by third-party lenders through CSO programs. Installment gross loans receivable Guaranteed by the Company are not included in the Consolidated Financial Statements. All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.
(4) We calculate NCO rate as total NCOs divided by Average gross loans receivable. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(5) We calculate (i) Allowance for loan losses (ALL) and CSO Liability for losses rate and (ii) past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(6) Includes loan balances and activity classified as Held for Sale.
(7) For the first, second and third quarters of 2022, NCOs presented above include $5.0 million, $10.3 million and $0.5 million, respectively, of NCO's related to the purchase accounting fair value discount, which are excluded from provision.
(8) The total past-due rate for U.S. Lending including loans 1-30 days past-due were 20.0%, 21.2%, 17.7%, 18.3% and 22.3% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.

U.S. Loan Net Revenue

U.S. lending revenues decreased by $35.4 million, or 27.5%, to $93.0 million, for the three months ended September 30, 2022, compared to the prior-year period, as a result of the divestiture of the Legacy U.S. Direct lending business in July 2022, partially offset by the acquisitions of Heights Finance in December 2021 and First Heritage in July 2022.

The provision for losses decreased $19.0 million, or 39.6%, year over year, primarily driven by the divestiture of the Legacy U.S. Direct lending business in July 2022, offset by normalized provisioning on loan growth as customer behavior returned to pre-COVID-19 levels and a full quarter's provision for Heights Finance.

U.S. Revolving LOC loan performance

U.S. Revolving LOC loan balances were divested with the completion of the divestiture of the Legacy U.S. Direct lending business in July 2022.

U.S. Installment loan performance - Company Owned

U.S. Installment loan balances as of September 30, 2022 increased $601.1 million, or 435.6%, and revenue increased $29.3 million, or 50.8%, compared to the prior-year period, primarily as a result of our acquisition of Heights Finance and First Heritage. NCO rates decreased 1,034 bps year over year and decreased 294 bps sequentially primarily as a result of Heights Finance and First Heritage. Past-due rates decreased 136 bps year over year and 47 bps sequentially due to the strategic mix shift from divested U.S. Legacy high-cost, short-term lending to longer duration lower risk consumer finance acquisitions of Heights Finance and First Heritage.

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U.S. Installment loan performance - Guaranteed by the Company

U.S. Installment loans Guaranteed by the Company decreased $43.4 million, or 100.0%, year over year. With the sale of the Legacy U.S. Direct Lending business in July of 2022, the company no longer guarantees loans originated by third party lenders through CSO programs.
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Following is a summary of results of operations for the U.S. segment for the periods indicated.

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, unaudited)20222021Change $Change %20222021Change $Change %
Revenue
Interest and fees revenue$93,044 $128,413 $(35,369)(27.5)%$480,806 $376,194 $104,612 27.8 %
Insurance premiums and commissions9,986 — 9,986 #19,310 — 19,310 #
Other revenue4,400 3,261 1,139 34.9 %11,424 10,766 658 6.1 %
Total revenue107,430 131,674 (24,244)(18.4)%511,540 386,960 $ 124,580 32.2 %
Provision for losses32,073 48,430 (16,357)(33.8)%196,461 108,108 88,353 81.7 %
Net revenue75,357 83,244 (7,887)(9.5)%315,079 278,852 36,227 13.0 %
Operating Expenses
Salaries and benefits35,216 44,444 (9,228)(20.8)%154,096 127,867 26,229 20.5 %
Occupancy6,948 8,101 (1,153)(14.2)%29,344 24,834 4,510 18.2 %
Advertising3,816 8,297 (4,481)(54.0)%24,245 21,527 2,718 12.6 %
Direct operations5,534 8,718 (3,184)(36.5)%32,788 26,112 6,676 25.6 %
Depreciation and amortization4,549 3,020 1,529 50.6 %13,710 9,154 4,556 49.8 %
Other operating expenses20,004 11,494 8,510 74.0 %48,458 36,129 12,329 34.1 %
Total operating expenses76,067 84,074 (8,007)(9.5)%302,641 245,623 57,018 23.2 %
Other expense (income)
Interest expense30,965 19,481 11,484 58.9 %86,473 53,177 33,296 62.6 %
Loss (income) from equity method investment2,309 1,582 727 46.0 2,053 (676)2,729 #
Gain from equity method investment— — — #— (135,387)135,387 #
Loss on extinguishment of debt3,702 40,206 (36,504)(90.8)3,702 40,206 (36,504)(90.8)%
Gain on disposal of business(68,443)— (68,443)#(68,443)— (68,443)#
Total other expense (income)(31,467)61,269 (92,736)#23,785 (42,680)66,465 #
Segment operating (loss) income30,757 (62,099)92,856 #(11,347)75,909 (87,256)#
Interest Expense30,965 19,481 11,484 58.9 %86,473 53,177 33,296 62.6 %
Amortization and Depreciation4,549 3,020 1,529 50.6 %13,710 9,154 4,556 49.8 %
EBITDA (1)
66,271 (39,598)105,869 #88,836 138,240 (49,404)(35.7)%
Restructuring costs739 5,651 (4,912)2,954 11,414 (8,460)
Legal and other costs46 370 (324)1,076 370 706 
Loss (income) from equity method investment2,309 1,582 727 2,053 (676)2,729 
Gain from equity method investment— — — — (135,387)135,387 
Transaction costs10,063 141 9,922 10,063 6,482 3,581 
Acquisition-related adjustments(2,883)— (2,883)491 — 491 
Loss on extinguishment of debt3,702 40,206 (36,504)3,702 40,206 (36,504)
Share-based compensation1,306 3,998 (2,692)8,068 10,148 (2,080)
Gain on sale of business(68,443)— (68,443)(68,443)— (68,443)
Other adjustments— (195)195 (640)(600)(40)
Adjusted EBITDA (1)
$ 13,110 $ 12,155 $ 955 7.9 %$ 48,160 $ 70,197 ($ 22,037)(31.4)%
(1) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."
# - Variance greater than 100% or not meaningful.

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U.S. Segment Results - For the Three Months Ended September 30, 2022 and 2021

For a discussion of revenue, provision for losses and related gross loans receivables for the three months ended September 30, 2022 and 2021, see "U.S. Portfolio Performance," above.

Operating expenses for the three months ended September 30, 2022 were $76.1 million, a decrease of $8.0 million, or 9.5%, compared to $84.1 million for the three months ended September 30, 2021, primarily driven by the divestiture of the Legacy U.S. Direct lending business in July 2022, partially offset by the acquisitions of Heights Finance and First Heritage.

U.S. interest expense for the three months ended September 30, 2022 increased $11.5 million, or 58.9% compared to the prior-year period, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, (iii) in July 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage, and (iv) in July 2022, we entered into a new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights Finance.

We recognize our share of Katapult’s income or loss on a one-quarter lag. We recorded a loss of $2.3 million for the three months ended September 30, 2022. We own 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.

U.S. Segment Results - For the Nine Months Ended September 30, 2022 and 2021

Operating expenses for the nine months ended September 30, 2022 were $302.6 million, an increase of $57.0 million, or 23.2%, compared to $245.6 million for the nine months ended September 30, 2021, primarily driven by the operating expenses associated with Heights Finance and First Heritage, partially offset by the divestiture of the Legacy U.S. Direct lending business in July 2022.

U.S. interest expense for the nine months ended September 30, 2022 increased $33.3 million, or 62.6% compared to the prior-year period, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights acquisition, (iii) in July 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage, and (iv) in July 2022, we entered into a new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights Finance.

We recorded a loss of $2.1 million for the nine months ended September 30, 2022 for our share of Katapult's loss. We own 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.
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Canada Direct Lending Portfolio Performance
(in thousands, except percentages)Q3 2022Q2 2022Q1 2022Q4 2021Q3 2021
Gross loans receivable
Revolving LOC$ 439,117$ 442,738$ 424,485$ 402,405$ 366,509
Installment loans 25,94124,81723,57824,79224,315
Total gross loans receivable$ 465,058$ 467,555$ 448,063$ 427,197$ 390,824
Lending Revenue:
Revolving LOC$ 50,251$ 47,591$ 45,455$ 43,943$ 40,239
Installment loans 12,64511,86811,10911,41611,331
Total lending revenue$ 62,896$ 59,459$ 56,564$ 55,359$ 51,570
Lending Provision:
Revolving LOC$28,408$22,641$19,156$ 20,080$ 11,375
Installment loans4,4663,3032,7232,9452,512
Total lending provision$ 32,874$ 25,944$ 21,879$ 23,025$ 13,887
NCOs
Canada Direct Lending Revolving LOC$23,652$20,160$21,590$ 15,112$ 9,887
Canada Direct Lending Installment loans4,0612,9042,6472,7582,444
Total Canada Direct Lending NCOs$ 27,713$ 23,064$ 24,237$ 17,870$ 12,331
NCO rate (1)
Revolving LOC5.4 %4.6%5.2%3.9%2.8%
Installment loans16.0 %12.0%10.9%11.2%10.2%
Total NCO rate5.9 %5.0%5.5%4.4%3.3%
ALL rate (2)
Revolving LOC7.9 %7.2 %7.2 %8.0 %7.5 %
Installment loans10.3 %9.7 %8.8 %8.0 %7.4 %
Total ALL rate8.0 %7.4 %7.3 %8.0 %7.5 %
31+ days past-due rate (2)
Revolving LOC5.1 %4.2 %4.3 %3.2 %2.5 %
Installment loans1.0 %0.8 %1.0 %0.9 %0.7 %
Total past-due rate (3)
4.8 %4.0 %4.1 %3.1 %2.4 %
(1) We calculate NCO rate as total NCOs divided by Average gross loans receivable. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(2) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(3) The total past-due rate for Canada Direct Lending including loans 1-30 days past-due were 9.5%, 8.3%, 7.7%, 6.7% and 5.1% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.


Canada Direct Loan Net Revenue

Canada Direct Lending revenue increased year over year by $11.3 million, or 22.0%, (increased $15.7 million, or 23.7%, on a constant currency basis), for the three months ended September 30, 2022, due to the growth of Revolving LOC loans in Canada.

The provision for losses increased $19.0 million, or 136.7%, (and increased $20.2 million, or 144.3%, on a constant currency basis), to $32.9 million for the three months ended September 30, 2022, compared to $14.0 million in the prior-year period. The provision for losses increased $6.9 million, or 26.7%, (and increased $8.2 million, or 31.5% on a constant currency basis), sequentially. The increase in provision for losses was primarily driven by (i) normalized provisioning on strong year-over-year loan growth as customer behavior returns to pre-COVID-19 levels, (ii) orderly credit normalization to higher NCO and past-due rates as
52


COVID-19 impacts lessened compared to the same period in the prior year, and (iii) continued shift in online originations which have inherently more credit risk versus in-store originations.

Canada Direct Lending Revolving LOC loan performance

Canada Direct Lending Revolving LOC gross loans receivable increased $72.6 million , or 19.0%, ($107.5 million, or 29.3%, on a constant currency basis) year over year and decreased $3.6 million, or 0.5%, but increased $31.2 million, or 7.1%, on a constant currency basis sequentially. Revolving LOC revenue increased $10.0 million, or 24.9%, year over year and $2.7 million, or 5.6%, sequentially, ($17.4 million, or 46.5%, respectively, on a constant currency basis). The quarterly NCO rate increased year over year from 2.8% to 5.4% as of September 30, 2022 and declined sequentially from 4.6% to 5.4% as of September 30, 2022 as COVID-19 impacts lessened compared to the comparable period in the prior year. Past-due rates rose 256 bps year over year and 82 bps sequentially.

Canada Direct Lending Installment loan performance

Canada Direct Lending Installment revenue increased $1.3 million, or 11.6%, ($2.5 million, or 21.8%, on a constant currency basis) year over year. Installment gross loans receivable increased $1.6 million, or 6.7% ($3.7 million, or 15.2%, on a constant currency basis) year over year. The NCO rate increased year over year from 10.2% to 16.0% and sequentially from 12.0% to 16.0% as of September 30, 2022 as COVID-19 impacts lessened compared to the same period in the prior year.

Canada Direct Lending Results of Operations

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, unaudited)20222021Change $Change %20222021Change $Change %
Revenue
Interest and Fees Revenue$62,896 $51,570 $11,326 22.0 %$178,919 $144,376 $34,543 23.9 %
Insurance Premiums and Commissions14,045 12,506 1,539 12.3 %40,988 35,753 5,235 14.6 %
Other Revenue2,038 2,114 (76)(3.6)%6,100 6,381 (281)(4.4)%
Total Revenue78,979 66,190 12,789 19.3 %226,007 186,510 $ 39,497 21.2 %
Provision for Losses32,947 14,003 18,944 #80,960 31,793 49,167 #
Net Revenue46,032 52,187 (6,155)(11.8)%145,047 154,717 (9,670)(6.3)%
Operating expenses
Salaries and Benefits13,962 13,571 391 2.9 %42,025 39,081 2,944 7.5 %
Occupancy5,471 5,403 68 1.3 %17,098 16,750 348 2.1 %
Advertising Expense861 1,139 (278)(24.4)%3,097 2,821 276 9.8 %
Direct Operations2,753 2,418 335 13.9 %8,650 6,869 1,781 25.9 %
Amortization and Depreciation1,134 1,124 10 0.9 %3,360 3,394 (34)(1.0)%
Other operating expenses2,592 2,348 244 10.4 %7,896 7,175 721 10.0 %
Total operating expenses26,773 26,003 770 3.0 %82,126 76,090 6,036 7.9 %
Other expense (income)
Interest Expense7,190 2,440 4,750 #17,367 7,293 10,074 #
Other Expense/Income7,190 2,440 4,750 #17,367 7,293 10,074 #
Segment Operating Income12,069 23,744 (11,675)(49.2)%45,554 71,334 (25,780)(36.1)%
Interest Expense7,190 2,440 4,750 #17,367 7,293 10,074 #
Amortization and Depreciation1,134 1,124 10 0.9 %3,360 3,394 (34)(1.0)%
EBITDA (1)
20,393 27,308 (6,915)(25.3)%66,281 82,021 (15,740)(19.2)%
Legal and other costs— — — #7 — 7 #
Share-based compensation152 — 152 #396 — 396 #
Other Adjustments— 94 (94)#16 242 (226)(93.4)%
Adjusted EBITDA (1)
$ 20,545 $ 27,402 $ (6,857)(25.0)%$ 66,700 $ 82,263 ($ 15,563)(18.9)%
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(1) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."
# - Variance greater than 100% or not meaningful.

Canada Direct Lending Segment Results - For the Three Months Ended September 30, 2022 and 2021
For a discussion of revenue, provision for losses and related gross loans receivables for the three months ended September 30, 2022 and 2021, see "Canada Direct Lending Portfolio Performance" above.

Canada Direct Lending operating expenses were $26.8 million for the three months ended September 30, 2022, an increase of $0.8 million, or 3.0%, ($1.8 million, or 6.7%, on a constant currency basis), compared to the prior-year period, primarily due to higher variable costs, primarily collection and financial service fees, on higher volume.

Interest expense for the three months ended September 30, 2022 was $7.2 million, compared to $2.4 million for the three months ended September 30, 2021, due to higher utilization of the Canada SPV facility and an increase in benchmark rates on variable rate debt.

Canada Direct Lending Segment Results - For the Nine Months Ended September 30, 2022 and 2021

Canada Direct Lending operating expenses were $82.1 million for the six months ended September 30, 2022, an increase of $6.0 million, or 7.9%, ($1.8 million, or 6.7%, on a constant currency basis), compared to the prior-year period, primarily due to higher variable costs, largely collection and financial service fees, on higher volume.

Interest expense for the nine months ended September 30, 2022 was $17.4 million, compared to $7.3 million for the nine months ended September 30, 2021, due to higher utilization of the Canada SPV facility and an increase in benchmark rates on variable rate debt.
Canada POS Lending Portfolio Performance

(in thousands, except percentages)Q3 2022Q2 2022Q1 2022Q4 2021Q3 2021
Revolving LOC
Total gross loans receivable$ 690,270$ 627,163$ 541,776$ 459,176$ 302,349
Total lending revenue$ 24,575$ 20,846$ 18,655$ 13,704$ 10,646
Total lending provision$ 13,379$ 5,963$ 8,714$ 12,511$ 8,285
Canada POS Lending NCOs (1)
$ 6,114$ 3,537$ 2,727$ 1,731$ 1,827
NCO rate (1)(2)
0.9 %0.6 %0.5 %0.5 %0.7 %
ALL rate (3)
4.8 %4.5 %5.1 %4.8 %3.8 %
31+ days past-due rate (3)(4)
3.6 %2.8 %2.2 %1.9 %2.1 %
(1) For the third and fourth quarters of 2021, NCOs presented above include $0.6 million and $0.8 million, respectively, of NCO's related to the fair value discount, which are excluded from provision.
(2) We calculate NCO rate as total NCOs divided by Average gross loans receivable.
(3) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(4) The total past-due rate for Canada POS Lending including loans 1-30 days past-due were 5.8%, 5.3%, 4.2%, 4.1% and 4.8% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.

Canada POS Lending Revolving LOC loan performance

Canada POS Lending revenue increased year over year by $13.9 million, driven by loan growth of $387.9 million, or 128.3%. The increase in gross loans receivable was driven by growth associated with both existing and new merchant partners. Revolving LOC gross loans receivable generally charge-off at 180 days past due. The quarterly NCO rate increased year over year from 0.7% to 0.9% as of September 30, 2022 and increased sequentially from 0.6% to 0.9%. These increases were primarily driven by the maturity of the portfolio and an increased product mix shift in increased lending to lower credit quality consumers. Past-due rates rose 141 bps year over year and 75 bps sequentially.
54




Originations for the three months ended September 30, 2022 were C$351.3 million, an increase of C$151.5 million, or 75.8%, from the prior-year period of C$199.8 million. Originations for the nine months ended September 30, 2022 were C$920.6 million, an increase of C$531.7 million, or 136.7%, from the prior-year period of C$388.9 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $63.1 million, or 10.1%, due to continued strong loan growth.

Canada POS Lending Results of Operations
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, unaudited)2022
2021 (1)
Change $Change %20222021Change $Change %
Revenue
Interest and fees revenue$24,575 $10,647 13,928 #$64,077 $18,586 45,491 #
Insurance premiums and commissions715 93 622 #1,361 268 1,093 #
Other revenue2,421 676 1,745 #5,735 1,200 4,535 #
Total revenue27,711 11,416 16,295 #71,173 20,054 51,119 #
Provision for losses13,379 8,285 5,094 61.5 %28,055 12,127 15,928 #
Net revenue14,332 3,131 11,201 #43,118 7,927 35,191 #
Operating expenses
Salaries and benefits4,234 4,095 139 3.4 %19,447 8,398 11,049 #
Occupancy408 227 181 79.7 %929 278 651 #
Advertising568 261 307 #1,110 476 634 #
Direct operations3,441 3,746 (305)(8.1)%10,857 7,570 3,287 43.4 %
Depreciation and amortization3,816 3,141 675 21.5 %10,915 7,137 3,778 52.9 %
Other operating expense1,051 1,011 40 4.0 %2,456 1,718 738 43.0 %
Total operating expenses13,518 12,481 1,037 8.3 %45,714 25,577 20,137 78.7 %
Other expense(11,355)3,825 (15,180)(7,605)3,825 (11,430)
Interest expense11,994 3,884 8,110 #26,843 8,314 18,529 #
Total other expense639 7,709 (7,070)(91.7)%19,238 12,139 7,099 58.5 %
Segment operating income (loss)175 (17,059)17,234 #(21,834)(29,789)7,955 (26.7)%
Interest expense11,994 3,884 8,110 #26,843 8,314 18,529 #
Depreciation and amortization3,816 3,141 675 21.5 %10,915 7,137 3,778 52.9 %
EBITDA (2)
15,985 (10,034)26,019 #15,924 (14,338)30,262 #
Acquisition-related adjustments— 4,292 (4,292)218 9,787 (9,569)
Change in fair value of contingent consideration(11,355)3,825 (15,180)(7,605)3,825 (11,430)
Share-based compensation(10)— (10)1,494 — 1,494 
Other adjustments— (17)17 43 (34)77 
Adjusted EBITDA (2)
$ 4,620 $ (1,934)$ 6,554 #$ 10,074 ($ 760)$ 10,834 #
# - Variance greater than 100% or not meaningful.
(1) The totals reported for the nine months ended September 30, 2021 include results from the date of the Flexiti acquisition, March 10, 2021, through September 30, 2021.
(2) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

Canada POS Lending Segment Results - For the Three Months Ended September 30, 2022 and 2021
For a discussion of revenue, provision for losses and related gross loans receivable, see the "Canada POS Lending Portfolio Performance," above for the three months ended September 30, 2022.

Canada POS Lending operating expenses were $13.5 million for the three months ended September 30, 2022, an increase of $1.0 million, or 8%, ( $1.5 million, or 12.0%, on a constant currency basis), compared to the prior-year period, primarily due to cost increases to support higher loan volume year over year.

55


Interest expense for the three months ended September 30, 2022 was $12.0 million compared to $3.8 million for the three months ended September 30, 2021, due to an increase in benchmark rates on variable rate debt and increased non-recourse ABL borrowing to support organic loan growth.


Canada POS Lending Segment Results - For the Nine Months Ended September 30, 2022 and 2021

A comparison of the year-over-year results for the nine months ended September 30, 2022 compared to September 30, 2021 are not meaningful as we acquired Flexiti on March 10, 2021.

Supplemental Non-GAAP Financial Information

Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with U.S. GAAP, we provide certain “non-GAAP financial measures,” including:

•Adjusted Net Income ("ANI") and Adjusted Earnings Per Share, or the Adjusted Earnings Measures (net income plus or minus certain legal and other costs, income or loss from equity method investment, goodwill and intangible asset impairments, transaction-related costs, restructuring costs, loss on extinguishment of debt, adjustments related to acquisition accounting, share-based compensation, intangible asset amortization, gain on sale of business, changes in fair value of contingent consideration, certain tax adjustments and cumulative tax effect of applicable 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). As a result of the sale of the Legacy U.S. Direct Lending business, we no longer guarantee loans originated by third-party lenders through CSO programs.

We believe that the 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 Condensed Consolidated Financial Statements. Management believes this analysis provides investors with important information needed to evaluate overall lending performance. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business.

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, 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.

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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.

We calculate Adjusted Earnings per Share utilizing diluted shares outstanding at year-end. If the Company records a loss under U.S. GAAP, shares outstanding utilized to calculate Diluted Earnings per Share are equivalent to basic shares outstanding. Shares outstanding utilized to calculate Adjusted Earnings per Share reflect the number of diluted shares the Company would have reported if reporting net income under U.S. GAAP.

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. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.

We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and 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 Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.
57


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
September 30,		Nine Months Ended
September 30,
20222021Change $Change %20222021Change $Change %
Net income (loss)$ 25,653 $ (42,039)$ 67,692 #$ 909 $ 88,213 ($ 87,304)(99.0)%
Adjustments:
Restructuring costs (1)
739 5,651 2,954 11,414 
Legal and other costs (2)
46 370 1,083 370 
Loss (income) from equity method investment (3)
2,309 1,582 2,053 (676)
Gain from equity method investment (11)
— — — (135,387)
Transaction costs (4)
10,063 141 10,063 6,482 
Acquisition-related adjustments (5)
(2,883)4,292 709 9,787 
Change in fair value of contingent consideration (6)
(11,355)3,825 (7,605)3,825 
Loss on extinguishment of debt (12)
3,702 42,262 3,702 42,262 
Share-based compensation (7)
1,448 3,998 9,958 10,148 
Intangible asset amortization (8)
3,151 1,774 9,652 4,471 
Gain on sale of business (13)
(68,443)— (68,443)— 
Cumulative tax effect of adjustments (9)
23,677 (15,411)18,061 13,058 
Adjusted net (loss) income$ (11,893)$ 6,445 $ (18,338)#$ (16,904)$ 53,967 $ (70,871)#
Net income (loss)$ 25,653 ($ 42,039)$ 909 $ 88,213 
Diluted weighted average shares outstanding40,835 41,220 40,754 43,422 
Adjusted diluted average shares outstanding40,835 43,285 40,754 43,422 
Diluted earnings (loss) per share$ 0.63 $ (1.02)$ 1.65 #$ 0.02 $ 2.03 $ (2.01)#
Per share impact of adjustments to net (loss) income(0.92)1.17 (0.43)(0.79)
Adjusted diluted (loss) earnings per share$ (0.29)$ 0.15 $ (0.44)(293.3)%($ 0.41)$ 1.24 $ (1.65)(133.1)%
Note: Footnotes follow Reconciliation of Net income table on the next page

58


Reconciliation of Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
59


Three Months Ended
September 30,		Nine Months Ended
September 30,
20222021Change $Change %20222021Change $Change %
Net income (loss)$ 25,653 $ (42,039)$ 67,692 #$ 909 $ 88,213 $ (87,304)(99.0)%
Provision (benefit) for income taxes17,348 (13,375)30,723 #11,464 29,241 (17,777)(60.8)%
Interest expense50,149 25,805 24,344 94.3 %130,683 68,784 61,899 90.0 %
Depreciation and amortization9,499 7,285 2,214 30.4 %27,985 19,685 8,300 42.2 %
EBITDA102,649 (22,324)124,973 #171,041 205,923 (34,882)(16.9)%
Restructuring costs (1)
739 5,651 2,954 11,414 
Legal and other costs (2)
46 370 1,083 370 
Loss (income) from equity method investment (3)
2,309 1,582 2,053 (676)
Gain from equity method investment (11)
— — — (135,387)
Transaction costs (4)
10,063 141 10,063 6,482 
Acquisition-related adjustments (5)
(2,883)4,292 709 9,787 
Change in fair value of contingent consideration (6)
(11,355)3,825 (7,605)3,825 
Loss on extinguishment of debt (12)
3,702 40,206 3,702 40,206 
Gain on sale of business (13)
(68,443)— (68,443)— 
Share-based compensation (7)
1,448 3,998 9,958 10,148 
Other adjustments (10)
— (118)(581)(392)
Adjusted EBITDA$ 38,275 $ 37,623 $ 652 1.7 %$ 124,934 $ 151,700 $ (26,766)(17.6)%
Adjusted EBITDA Margin17.9 %18.0 %15.4 %25.6 %
# - Change greater than 100% or not meaningful
(1)Restructuring costs for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021, respectively, resulted from U.S. store closures and related costs and certain severance payments to eliminate duplicate roles.
(2)Legal and other costs for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021, respectively, primarily related to settlement costs related to certain legal matters.
(3)The amount reported is our share of Katapult's U.S. GAAP net income or loss, recognized on a one quarter lag.
(4)Transaction costs for the three and nine months ended September 30, 2022 relate to, the sale of the Legacy U.S. Direct Lending business, and the acquisition of First Heritage, both of which closed in July 2022.

(5)During the three months and nine months ended September 30, 2022, acquisition-related adjustments related to the acquired Heights Finance and First Heritage loan portfolios.

During the three months and nine months ended September 30, 2021, acquisition-related adjustments related to the acquired Flexiti loan portfolio.
(6)In connection with our acquisition of Flexiti, we recorded a $11.4 million and $7.61 million adjustment related to the fair value of the contingent consideration for the three and nine months ended September 30, 2022, respectively. We recorded a $3.8 million and $3.8 million adjustment related to the fair value of the contingent consideration for the three and nine months ended September 30, 2021, respectively.
(7)The estimated fair value of share-based awards was recognized as non-cash compensation expense on a straight-line basis over the vesting period.
(8)Intangible asset amortization in determining ANI for the three and nine months ended September 30, 2022 primarily included amortization of identifiable intangible assets established in connection with the acquisitions of Flexiti, Heights Finance and First Heritage.
(9)Cumulative tax effect of adjustments included in Reconciliation of Net income to Adjusted Net Income table is calculated using the estimated incremental tax rate by country.
(10)During the three and nine months ended 2021 and during the nine months ended 2022, other adjustments primarily reflect the intercompany foreign-currency exchange impact.
(11)Gain on investment in Katapult of $135.4 million recorded during the three and nine months ended September 30, 2021 as a result of its reverse merger with FinServ.
(12)On July 30, 2021, we entered into new 7.50% Senior Secured Notes due 2028, which were used on August 12, 2021 to extinguish the 8.25% Senior Secured Notes due 2025. During the three and nine months ended September 30, 2021, $40.2 million from the loss on the extinguishment of debt was due to the early redemption of the 8.25% Senior Secured Notes due 2025. An additional $2.1 million of interest was incurred for the three and nine months ended September 30, 2021, which represents interest on the 8.25% Senior Secured Notes due 2025 for the period between July 30, 2021 and August 12, 2021. This is the period during which the 8.25% Senior Secured Notes and 7.50% Senior Secured Notes were outstanding.

During the three and nine months ended September 30, 2022, $3.1 million of the loss on extinguishment of debt was due to the early extinguishment of the U.S. SPV on July 8, 2022 upon the completion of the divestiture of our Legacy U.S.Direct Lending business to Community Choice Financial, and $0.6 million was due to the extinguishment of the Heights Finance SPV on July 15, 2022.
(13)On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, resulting in a gain of $68.4 million recorded to "Gain on sale of business" in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2022.

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Currency Information

We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.

Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.

Constant Currency Analysis

We have operations in the U.S. and Canada. In the three months ended September 30, 2022 and 2021, 49.8% and 37.1%, respectively, of our revenues were originated in Canadian Dollars. For the nine months ended September 30, 2022 and 2021, 36.7% and 34.8%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.

Income Statement
Three Months Ended September 30,Nine Months Ended September 30,
20222021$ Change% Change20222021$ Change% Change
Average Exchange Rates for the Canadian Dollar0.7661 0.7941 (0.0280)(3.5)%0.7831 $0.7993 ($0.0162)(2.0)%

Balance Sheet - Exchange Rate as of September 30, 2022 and December 31, 2021
September 30,December 31,Change
20222021$%
Exchange Rate for the Canadian Dollar0.7273 0.7846 (0.0573)(7.3)%

The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of the Canada Direct Lending segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.

We calculated the revenues and gross margin below for our Canada segments during the three and nine months ended September 30, 2022 using the actual average exchange rate during the three and nine months ended September 30, 2021 (in thousands, unaudited).
Three Months Ended September 30,Nine Months Ended September 30,
20222021$ Change% Change20222021$ Change% Change
Canada Direct Lending – constant currency basis:
Revenues$81,861 66,190 $15,671 23.7 %$231,862 186,510 $45,352 24.3 %
Net revenue47,653 52,187 (4,534)(8.7)%148,612 154,717 (6,105)(3.9)%
Segment operating income12,448 23,744 (11,296)(47.6)%46,549 71,334 (24,785)(34.7)%
Canada POS Lending – constant currency basis(1):
Revenues$28,743 11,416 $17,327 151.8 %$73,133 20,054 $53,079 264.7 %
Net revenue14,825 3,131 11,694 373.5 %44,227 7,927 36,300 457.9 %
Segment operating income (loss)405 (17,059)17,464 (102.4)%(21,967)(29,789)7,822 (26.3)%
(1) The totals reported for the nine months ended September 30, 2021 include results from the date of acquisition, March 10, 2021, through September 30, 2021.

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We calculated gross loans receivable for our Canada segments below as of September 30, 2022 using the actual exchange rate as of December 31, 2021 (in thousands, unaudited).
September 30,December 31,Change
20222021$%
Canada Direct Lending – constant currency basis:
Gross loans receivable$501,969 $427,197 $74,772 17.5 %
Canada POS Lending – constant currency basis:
Gross loans receivable$745,056 $459,176 $285,880 62.3 %

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations,and (ii) our revolving credit facilities and our non-recourse funding facilities, as further described in Note 5, "Debt" of the Notes to the Consolidated Financial Statements. Historically, we also used funds from third-party lenders under our CSO programs. As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, we no longer guarantee loans originated by third-party lenders through CSO programs.

As of September 30, 2022, we were in compliance with all financial ratios, covenants and other requirements in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures to further our growth strategy in both the U.S. and Canada, and meet our debt obligations. We may also use cash for potential strategic investments in and acquisitions of other companies that help us extend our reach and product portfolio. Additionally, we may use cash to fund a return on capital for our stockholders through share repurchase programs, or in the form of dividends. Our Board of Directors authorized a $25.0 million share repurchase program in February 2022, under which no shares have been repurchased to date. Refer to Note 15, "Share Repurchase Program" of the Notes to the unaudited Condensed Consolidated Financial Statements for further details of the program.

Our level of cash flow provided by operating activities typically experiences seasonal fluctuations related to our levels of net income and changes in working capital levels, particularly loans receivable. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers to the extent we experience any short-term or long-term funding shortfalls, such as tightening our credit approval practices (as we did during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments.

We may also sell or securitize our assets, draw on our available revolving credit facilities or lines of credit, enter into additional refinancing agreements or reduce our capital spending to generate additional liquidity. The impacts to cash as described in "—Cash Flows" below and other factors resulted in our available cash on hand of $45.7 million as of September 30, 2022. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.

Our recent acquisitions of First Heritage and Heights Finance have increased our product offerings to include customers in the near-prime and prime space. The acquisition of First Heritage and Heights Finance accelerates our strategic transition in the U.S. toward longer term, higher balance and lower rate credit products and provides us with access to a larger addressable market while mitigating regulatory risk. These initiatives to expand our product offerings and grow the U.S. and Canada businesses could materially impact our future cash flows. For further information regarding the acquisitions, refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations," Note 13, "Goodwill," and Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements.

We have no additional material commitments or demands that are likely to affect our liquidity.

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Debt Capitalization Summary
(in thousands, net of deferred financing costs)

CapacityInterest RateMaturity
Balance as of September 30, 2022 (in USD)
7.50% Senior Secured Notes (due 2028) (2)
$1.0 billion7.50%August 1, 2028$ 982,331 
Heights SPV
$425.0 million1-Mo SOFR + 4.25%July 15, 2024388,013 
First Heritage SPV$225.0 million1-Mo SOFR + 4.25%July 13, 2024178,403 
Canada SPV(1)
C$400.0 million3-Mo CDOR + 6.00%August 2, 2026256,200 
Flexiti SPV(1)
C$535.0 million
Weighted average interest rate (3) 8.07%
September 29, 2025264,333 
Flexiti Securitization(1)
C$526.5 million1-Mo CDOR + 3.59%December 9, 2025380,036 
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of September 30, 2022 are denominated in U.S. dollars.
(2) On July 30, 2021, we closed our $750 million aggregate principal amount of new 7.50% Senior Secured Notes, which was used to redeem our $690.0 million 8.25% Senior Secured Notes due 2025. On December 27, 2021, we issued an additional $250.0 million of our 7.50% Senior Secured Notes for a total capacity of $1.0 billion.
(3) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.

Refer to Note 5, "Debt," for details on each of our credit facilities and resources.

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Cash Flows

The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):
Nine Months Ended September 30,
20222021
Net cash provided by continuing operating activities$295,731 $220,710 
Net cash used in investing activities(629,292)(283,396)
Net cash provided by financing activities367,650 66,707 

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2022 was $295.7 million, attributable to net income of $0.9 million, the effect of non-cash reconciling items of $254.0 million, and changes in our operating assets and liabilities of $40.8 million. Our non-cash reconciling items of $254.0 million primarily included $305.5 million of provision for losses and $28.0 million of depreciation and amortization, offset by the gain on the disposal of our Legacy U.S. Direct Lending business of $68.4 million . Our changes in operating assets and liabilities of $40.8 million were primarily related to $54.3 million of lower accounts payable and accrued liabilities as a result of timing on the settlement of certain accruals and (ii) $17.8 million of lower accrued interest, partially offset by $86.9 million of lower accrued interest on our gross loans receivable and $17.6 million of higher income taxes receivable.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2022 was $629.3 million, primarily due to net origination of loans of $752.0 million. In addition, we used cash to purchase $35.3 million of property, equipment and software, an increase from the prior year due to the acquisitions of Flexiti, Heights Finance and First Heritage.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2022 was $367.7 million primarily due to $407.6 million of net proceeds from our non-recourse debt facilities partially offset by (i) $13.5 million of share repurchases in the first quarter of 2022 and (ii) $13.7 million of cash dividends.

Critical Accounting Policies and Estimates

There have been no material changes to the information on critical accounting estimates described in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates, in our 2021 Form 10-K, which information is incorporated by reference herein.

Goodwill. We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.

Our reporting units consist of the U.S., Canada Direct Lending and Canada POS Lending segments, as defined by FASB’s ASC 280, Segment Reporting, for which we assess goodwill for impairment. As of the most recent annual goodwill impairment testing date (October 1, 2021), the U.S., Canada Direct Lending, and Canada POS Lending reporting units' estimated fair values exceeded their carrying value. As described in our 2021 Form 10-K, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or divestiture of a significant portion of a reporting unit or economic outlook. These and other macroeconomic factors were considered when performing the annual test as of October 1, 2021.

For the three months ended September 30, 2022, we reviewed goodwill for triggering events that would indicate a need for an interim quantitative or qualitative assessment of goodwill impairment. As a result of the review, no additional assessment was deemed necessary, and thus there was no goodwill impairment for any reporting unit.

There continues to be uncertainty surrounding macroeconomic factors that could impact our reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future goodwill impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment.

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The following table summarizes the segment allocation of recorded goodwill on our unaudited Condensed Consolidated Balance Sheets as of September 30, 2022:
(in thousands)September 30, 2022Percent of TotalDecember 31, 2021Percent of Total
U.S. (1)
$359,392 84.7 %$359,779 83.7 %
Canada Direct Lending27,906 6.6 %30,105 7.0 %
Canada POS Lending 36,994 8.7 %39,908 9.3 %
Total Goodwill$424,292 $429,792 
(1) Changes in Goodwill between December 31, 2021 and September 30, 2022 are primarily due to the acquisition of First Heritage, offset by the sale of the Legacy U.S. Direct Lending business, refer to FN 14 "Acquisitions and Divestitures".

Regulatory Environment and Compliance

There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2021, as described in our 2021 Form 10-K, except for the following:

CFPB Supervisory Authority

The CFPB is expanding its supervisory authority using its Dormant Authority provided for in the Dodd-Frank Act. On April 25, 2022, the CFPB (or “Bureau”) announced that it will begin conducting supervisory examinations of non-bank financial entities (e.g., FinTechs) not currently subject to supervision and enforcement, if the Bureau believes the companies may be posing risks to consumers. The Bureau is also signaling that it may decide to publicly disclose some of its new supervisory activity so that other entities can be informed of areas the Bureau finds problematic. In the same announcement, the Bureau indicated that it is seeking public comments on a procedural rule to make the examination process more transparent.

CFPB Consumer Reviews

On March 22, 2022, the CFPB issued a compliance bulletin for financial companies and their service providers warning that restricting consumer reviews, silencing consumer reviews, pressuring consumers to remove a review, or posting fake reviews can violate the Consumer Review Fairness Act as well as constitute a UDAAP.

CFPB Anti-Discrimination

On March 16, 2022, CFPB announced that it was expanding its anti-discrimination efforts in all consumer finance markets. The announcement clarified that discrimination can be “unfair” and trigger UDAAP even though the discriminatory action could be covered under the Equal Credit Opportunity Act or another law. The CFPB updated its examination procedures manual for UDAAP to examine decision-making processes for assessing discriminatory risk and outcomes, including advertising, pricing, and other areas.

CFPB and Consumer Data Privacy

The CFPB continues to focus on protecting consumer information. On July 7, 2022, the CFPB issued an advisory opinion stating that users of credit reports have an obligation to protect the public’s data privacy and reminding users of the criminal liability provisions of the Fair Credit Reporting Act (“FCRA”). Further, on August 11, 2022, the CFPB issued Circular 2022-04 which states that financial companies may violate Federal consumer financial protection laws if they fail to safeguard customer data.

2017 and 2020 Final CFPB Rules Update

On October 19, 2022, the Fifth Circuit U.S. Court of Appeals handed down a decision invalidating the balance of the 2017 and 2020 Final CFPB Rule on the basis that the CFPB’s funding mechanism is unconstitutional. Specifically, the Fifth Circuit ruled that the CFPB’s funding structure violates the Constitution because the CFPB does not receive its funding from annual congressional appropriations, but instead receives funding directly from the Federal Reserve based on a request from the CFPB’s director. Thus, while Congress properly authorized the CFPB to promulgate the 2017 and 2020 Final Rule, the CFPB itself did not have the ability to exercise that power via constitutionally appropriated funds. Following this logic, the Fifth Circuit ruled that the appropriate remedy for the resulting harm due to this improper use of unappropriated funds in conducting the rulemaking associated with the 2017 and 2020 Final CFPB Rule was to nullify the CFPB’s action. We anticipate the CFPB will appeal this decision to either an en banc Fifth Circuit or the Supreme Court.

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ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 2021 Form 10-K. There have been no material changes to the quantitative and qualitative information presented therein.

ITEM 4.         CONTROLS AND PROCEDURES

Disclosure Controls and Procedures 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In conducting the evaluation of the effectiveness of its internal control over financial reporting as of September 30, 2022, the Company has excluded the operations of Heights Finance and First Heritage as permitted by the guidance issued by the Office of the Chief Accountant of the SEC (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). The Heights Finance acquisition was completed on December 27, 2021. As of September 30, 2022, Heights Finance's assets represented approximately 30.0% of the Company’s consolidated assets and for the three and nine months ended September 30, 2022, its revenues represented approximately 31.2% and 25.6% respectively of the Company’s consolidated revenues. The First Heritage acquisition was completed on July 13, 2022. As of September 30, 2022, First Heritage's assets represented approximately 11.8% of the Company’s consolidated assets and for the three and nine months ended September 30, 2022, its revenues represented approximately 11.9% and 3.2% respectively of the Company’s consolidated revenues.

See Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details on our acquisition of Heights Finance and First Heritage and its impact on our unaudited Condensed Consolidated Financial Statements.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of September 30, 2022.

Limitation on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Internal Control over Financial Reporting

The Company is working to integrate Heights Finance and First Heritage into its overall internal control over financial reporting processes. Additionally, on March 10, 2021, the Company acquired Flexiti. See Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details. The Company continued the process of refining financial reporting controls on the operations associated with Flexiti as of September 30, 2022. Except for changes made in connection with the integration of Heights Finance and First Heritage, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.     OTHER INFORMATION

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Item 1.         Legal Proceedings
The information required by this item is included in Note 11, "Commitments and Contingencies" of the Notes to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q and is incorporated herein by reference.

Item 1A.     Risk Factors
There were no material changes to our risk factors as described in our 2021 Form 10-K for the year ended December 31, 2021.

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of our common stock during the period covered by this Quarterly Report on Form 10-Q.

Issuer Purchases of Equity Securities

In May 2021, our Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of our common stock. The program commenced in June 2021 and was completed in February 2022. In February 2022, our Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. There were no repurchases under this program as of September 30, 2022.

The following table provides information with respect to repurchases we made of our common stock during the quarter ended September 30, 2022.

Period
Total Number of Shares Purchased(1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Dollar Value of Shares that may yet be Purchased under the Plans or Programs
(in millions)
July 202211,586 $6.21 — $— 
August 20222,774 $7.92 — — 
September 2022213 $5.84 — — 
Total14,573 $10.54 — $— 
(1) Includes shares withheld from employees as tax payments for shares issued under our stock-based compensation plans. See Note 11, "Share-based compensation" of the 2021 Form 10-K for additional details on our stock-based compensation plans.

Item 3.         Defaults Upon Senior Securities

None.

Item 4.         Mine Safety Disclosures

None.

Item 5.         Other Information

(a)    Disclosure of Unreported 8-K Information

None.

(b)    Material Changes to Director Nominee Procedures

None.
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Item 6.        Exhibits
Exhibit no.Exhibit DescriptionFiled/Incorporated by Reference from FormIncorporated by Reference from Exhibit NumberFiling Date
2.18-K2.15/19/2022
2.28-K2.25/19/2022
3.110-Q10.18/5/2020
3.28-K3.212/11/17
4.1S-14.111/28/17
4.2S-14.211/28/17
4.3S-14.35/17/18
10.1Filed herewith
31.1 Filed herewith
31.2 Filed herewith
32.1 Filed herewith
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The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2022, filed with the SEC on May 3, 2022, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, and (v) Notes to Condensed Consolidated Financial Statements*
Filed herewith




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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 2, 2022                CURO Group Holdings Corp.
By:/s/ Roger Dean
Roger Dean
Executive Vice President and Chief Financial Officer
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