EX-99.1 2 ex991-q12018doc.htm EXHIBIT 99.1 Exhibit


CURO Group Holdings Corp Announces First Quarter 2018 Financial Results


Wichita, Kansas--April 26, 2018-CURO Group Holdings Corp. (NYSE: CURO) (“CURO” or the “Company”), a market leader in providing short-term credit to underbanked consumers, today announced its financial results for the first quarter 2018.

“It is great to start 2018 with a very solid quarter highlighted by 27.9% loan growth and 34.5% adjusted earnings growth,” said Don Gayhardt, President and Chief Executive Officer. “We finished the quarter with our balance sheet and credit quality where we expected, maintained solid year-over-year growth in our core loan products and saw early success with our new product launches.”


Consolidated Summary Results
 
 
For the Three Months Ended
(in thousands, except per share data)
 
3/31/2018

3/31/2017

Variance

Revenue
 
$
261,758

$
224,580

16.6
%
Gross Margin
 
109,245

94,905

15.1
%
Gross Loans Receivable
 
389,838

304,842

27.9
%
Net Income
 
23,292

16,638

40.0
%
Adjusted Net Income (1)
 
35,601

26,477

34.5
%
Diluted Earnings per Share
 
$
0.49

$
0.43

14.0
%
Adjusted Diluted Earnings per Share (1)
 
$
0.75

$
0.68

10.3
%
EBITDA (1)
 
61,769

54,108

14.2
%
Adjusted EBITDA (1)
 
75,215

68,632

9.6
%
Weighted Average Shares - diluted
 
47,416

38,959

 
(1) Non-GAAP Metric; see Results of Operations section for reconciliation to nearest GAAP metric
First quarter 2018 year-over-year highlights include:
•
Total revenue of $261.8 million, an increase of 16.6%
•
Gross margin of $109.2 million, an increase of 15.1%
•
27.9% loan growth
•
GAAP Net Income of $23.3 million, an increase of 40.0%
•
Adjusted Net Income of $35.6 million, an increase of 34.5%
•
GAAP Diluted Earnings per Share of $0.49, an increase of 14.0%
•
Adjusted Diluted Earnings per Share of $0.75, an increase of 10.3%
•
Underwriters exercised option for an additional 1,000,000 shares at the original offer price on January 5, 2018
•
Redeemed $77.5 million of our 12.00% Senior Secured Notes on March 7, 2018

Fiscal 2018 Outlook

The Company affirms its full-year 2018 adjusted earnings guidance, a non-GAAP measure that excludes the $11.7 million of debt extinguishment costs from the retirement of $77.5 million of the 12.00% Senior Secured Notes due 2022 and stock-based compensation, as follows:
•
Revenue in the range of $1.025 billion to $1.080 billion
•
Net Income in the range of $110 million to $116 million
•
Adjusted EBITDA in the range of $245 million to $255 million
•
Estimated tax rate of 25% to 27% for the full year
•
Adjusted Diluted Earnings per Share of $2.25 to $2.40





Consolidated Revenue Summary
First Quarter 2018
The following table summarizes revenue by product, including CSO fees, for the periods indicated:
 
 
For the Three Months Ended
 
 
March 31, 2018
 
March 31, 2017
(in thousands)
 
U.S.
Canada
U.K.
Total
 
U.S.
Canada
U.K.
Total
Unsecured Installment
 
$
120,476

$
4,903

$
7,567

$
132,946

 
$
100,754

$
3,420

$
5,257

$
109,431

Secured Installment
 
26,856

—

—

26,856

 
23,669

—

—

23,669

Open-End
 
25,834

1,389

—

27,223

 
17,907

—

—

17,907

Single-Pay
 
26,065

34,292

3,348

63,705

 
26,327

34,179

3,284

63,790

Ancillary
 
5,362

5,666

—

11,028

 
5,665

3,967

151

9,783

   Total revenue
 
$
204,593

$
46,250

$
10,915

$
261,758

 
$
174,322

$
41,566

$
8,692

$
224,580


During the three months ended March 31, 2018, total lending revenue (excluding revenues from ancillary products) grew $35.9 million, or 16.7%, to $250.7 million, compared to the prior year period, predominantly driven by growth in Installment loan revenue in all three countries. Unsecured Installment loan revenues rose 21.5% and Secured Installment revenues rose 13.5% because of loan growth. Single-Pay revenues were flat year-over year. The effect of Single-Pay receivables growth was offset by regulatory changes in Ontario, Canada. Open-End revenues rose 52.0% on organic growth in the U.S. and the introduction of Open-End products in Virginia and Canada. Ancillary revenues increased 12.7% versus the same quarter a year ago primarily due to non-lending revenue in Canada.
The following table presents revenue composition, including CSO fees, of the products and services that we currently offer:
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Installment
 
61.0
%
 
59.2
%
Canada Single-Pay
 
13.1
%
 
15.2
%
U.S. Single-Pay
 
10.0
%
 
11.7
%
U.K. Single-Pay
 
1.3
%
 
1.5
%
Open-End
 
10.4
%
 
8.0
%
Ancillary
 
4.2
%
 
4.4
%
Total
 
100.0
%
 
100.0
%
For the three months ended March 31, 2018 and 2017, revenue generated through the online channel was 43% and 36%, respectively, of consolidated revenue.




Loan Volume and Portfolio Performance Analysis
The following table summarizes Company Owned gross loans receivable, a GAAP balance sheet measure, and reconciles it to gross combined loans receivable, a non-GAAP measure including loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements but from which we earn revenue and for which we provide a guarantee to the lender:
 
Three Months Ended
(in millions)
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
Company-owned gross loans receivable
$
389.8

$
432.8

$
393.4

$
350.3

$
304.8

Gross loans receivable guaranteed by the Company
57.1

78.8

71.2

62.1

57.8

Gross combined loans receivable
$
446.9

$
511.6

$
464.6

$
412.4

$
362.6


Gross combined loans receivable by product are presented below:
 
Three Months Ended
 
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
Unsecured Installment
$
171.4

$
196.3

$
181.8

$
156.0

$
131.4

Secured Installment
79.8

89.2

85.0

76.3

67.5

Single-Pay
87.1

99.4

94.5

91.2

80.3

Open-End
51.5

47.9

32.1

26.8

25.6

CSO
57.1

78.8

71.2

62.1

57.8

Total
$
446.9

$
511.6

$
464.6

$
412.4

$
362.6


Gross combined loans receivable increased $84.3 million, or 23.3%, to $446.9 million for the three months ended March 31, 2018 compared to $362.6 million for the three months ended March 31, 2017 with solid growth in all categories of Company Owned loans. Gross combined loans receivable decreased sequentially from December 31, 2017 because of seasonality as the Company's customers use tax refunds to repay balances.
Unsecured Installment Loans
Unsecured Installment revenue and gross combined loans receivable increased from the prior year quarter due to growth in the United States, primarily in California; growth in Canada, primarily in Alberta; and growth in the United Kingdom. Gross combined Unsecured Installment Loan balances grew $40.4 million, or 21.8%, compared to March 31, 2017.
Loss provision rates as a percentage of originations for Company Owned loans increased sequentially from 22.1% to 27.6%, to maintain allowance coverage. Loss provision rates for loans Guaranteed by the Company remained consistent sequentially from the fourth quarter of 2017. Net charge offs for Company Owned loans and loans Guaranteed by the Company were consistent and improved, respectively, versus the fourth quarter of 2017.
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable was consistent sequentially from the fourth quarter of 2017. Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans Guaranteed by the Company declined from the end of 2017 because of improved net charge offs and delinquencies. The delinquency rate for Company Owned Unsecured Installment gross loans was flat to the fourth quarter of 2017 and up slightly versus the same quarter a year ago, while the delinquency rate for Unsecured Installment gross loans Guaranteed by the Company improved sequentially and year-over-year.




 
2018
 
2017
 
(dollars in thousands, except average loan amount, unaudited)
First Quarter
 
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
 
Unsecured Installment loans:
 
 
 
 
 
 
 
Revenue - Company Owned
$
66,004

 
$
67,800

$
61,653

$
52,550

$
51,206

 
Provision for losses - Company Owned
27,477

 
29,917

29,079

17,845

19,309

 
Net revenue - Company Owned
$
38,527

 
$
37,883

$
32,574

$
34,705

$
31,897

 
Net charge-offs - Company Owned
$
33,410

 
$
32,894

$
23,858

$
18,858

$
(4,918
)
 
Revenue - Guaranteed by the Company
$
66,942

 
$
69,078

$
67,132

$
52,599

$
58,225

 
Provision for losses - Guaranteed by the Company
23,556

 
32,915

36,212

23,575

19,940

 
Net revenue - Guaranteed by the Company
$
43,386

 
$
36,163

$
30,920

$
29,024

$
38,285

 
Net charge-offs - Guaranteed by the Company
$
30,743

 
$
31,898

$
34,904

$
27,309

$
17,088

 
Unsecured Installment gross combined loans receivable:
 
 
 
 
 
 
 
Company owned
$
171,432

 
$
196,306

$
181,831

$
156,075

$
131,386

 
Guaranteed by the Company (1) (2)
54,332

 
75,156

67,438

58,289

53,978

 
Unsecured Installment gross combined loans receivable (1) (2)
$
225,764

 
$
271,462

$
249,269

$
214,364

$
185,364

 
 
 
 
 
 
 
 
 
Unsecured Installment Allowance for loan losses (3)
$
37,916

 
$
43,755

$
46,938

$
41,406

$
42,040

 
Unsecured Installment CSO guarantee liability (3)
$
9,886

 
$
17,072

$
16,056

$
14,748

$
18,482

 
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable
22.1
%
 
22.3
%
25.8
%
26.5
%
32.0
%
 
Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans guaranteed by the Company
18.2
%
 
22.7
%
23.8
%
25.3
%
34.2
%
 
Unsecured Installment past-due balances:
 
 
 
 
 
 
 
Unsecured Installment gross loans receivable
$
39,273

 
$
44,963

$
41,353

$
33,534

$
28,913

 
Unsecured Installment gross loans guaranteed by the Company
$
8,410

 
$
12,480

$
10,462

$
8,204

$
11,196

 
Past-due Unsecured Installment gross loans receivable -- percentage (2)
22.9
%
 
22.9
%
22.7
%
21.5
%
22.0
%
 
Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (2)
15.5
%
 
16.6
%
15.5
%
14.1
%
20.7
%
 
Unsecured Installment other information:
 
 
 
 
 
 
 
Originations - Company owned (4)
$
99,418

 
$
135,284

$
137,618

$
119,636

$
98,691

 
Average loan amount - Company owned
$
666

 
$
714

$
730

$
697

$
687

 
Originations - Guaranteed by the Company (1) (4)
$
60,593

 
$
82,326

$
83,680

$
68,338

$
55,112

 
Average loan amount - Guaranteed by the Company
$
523

 
$
526

$
526

$
485

$
482

 
Unsecured Installment ratios:
 
 
 
 
 
 
 
Provision as a percentage of originations - Company Owned
27.6
%
 
22.1
%
21.1
%
14.9
%
19.6
%
 
Provision as a percentage of gross loans receivable - Company Owned
16.0
%
 
15.2
%
16.0
%
11.4
%
14.7
%
 
Provision as a percentage of originations - Guaranteed by the Company
38.9
%
 
40.0
%
43.3
%
34.5
%
36.2
%
 
Provision as a percentage of gross loans receivable - Guaranteed by the Company
43.4
%
 
43.8
%
53.7
%
40.4
%
36.9
%
 
(1)  Includes loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements.
(2) Non-GAAP measure.
(3) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets.
(4) We have revised previously-reported origination statistics to conform to current year methodology.





Secured Installment Loans
Secured Installment gross combined loans receivable balances increased by $11.3 million, or 15.9%, compared to March 31, 2017 primarily due to growth in California and Arizona. Secured Installment Allowance for loan losses and CSO guarantee liability as a percentage of Secured Installment gross loans receivable settled at a more normalized range in the fourth quarter of 2017 and remained consistent sequentially through the first quarter of 2018. Delinquency rates were stable and net charge offs improved versus the fourth quarter of 2017.
 
2018
 
 
2017
(dollars in thousands, except average loan amount, unaudited)
First Quarter
 
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Secured Installment loans:
 
 
 
 
 
 
Revenue
$
26,856

 
$
27,732

$
26,407

$
23,173

$
23,669

Provision for losses
6,640

 
10,051

6,512

4,955

7,436

Net revenue
$
20,216

 
$
17,681

$
19,895

$
18,218

$
16,233

Net charge-offs
$
8,669

 
$
10,802

$
11,597

$
6,481

$
(2,235
)
Secured Installment gross combined loan balances:
 
 
 
 
 
 
Secured Installment gross combined loans receivable (1)(2)
$
82,534

 
$
92,817

$
88,730

$
80,077

$
71,213

Secured Installment Allowance for loan losses and CSO guarantee liability (3)
$
12,165

 
$
14,194

$
14,945

$
20,030

$
21,557

Secured Installment Allowance for loan losses and CSO guarantee liability as a percentage of Secured Installment gross combined loans receivable
14.7
%

15.3
%
16.8
%
25.0
%
30.3
%
Secured Installment past-due balances:
 
 
 
 
 
 
Secured Installment past-due gross loans receivable and gross loans guaranteed by the Company
$
14,756


$
16,554

$
15,265

$
12,630

$
10,186

Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage (2)
17.9
%
 
17.8
%
17.2
%
15.8
%
14.3
%
Secured Installment other information:
 
 
 
 
 
 
Originations (1)(4)
$
34,750

 
$
48,577

$
52,526

$
45,596

$
37,641

Average loan amount (1)(4)
$
1,222

 
$
1,303

$
1,299

$
1,231

$
1,326

Secured Installment ratios:
 
 
 
 
 
 
Provision as a percentage of originations
19.1
%
 
20.7
%
12.4
%
10.9
%
19.8
%
Provision as a percentage of gross combined loans receivable
8.0
%
 
10.8
%
7.3
%
6.2
%
10.4
%
(1)  Includes loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements.
(2) Non-GAAP measure.
 
 
 
 
 
 
(3) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets.
(4) We have revised previously-reported origination statistics to conform to current year methodology.




Open-End Loans
Open-End loan balances increased by $25.9 million compared to March 31, 2017 from year-over-year growth in Kansas and Tennessee of 12.2% and 8.6%, respectively, the 2017 launch of Open-End in Virginia and conversion in the fourth quarter of 2017 of a portion of Canada Unsecured Installment loans to Open-End loans. The provision for losses and Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable remained consistent with the previous quarter. The decline year-over-year in Allowance as a percentage of Open-End gross receivables compared to March 31, 2017 is primarily due to geographic mix and seasoning in the U.S.
 
2018
 
2017
(dollars in thousands, except average loan amount, unaudited)
First Quarter
 
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Open-End loans:
 
 
 
 
 
 
Revenue
$
27,223

 
$
21,154

$
18,630

$
15,805

$
17,907

Provision for losses
11,428

 
8,334

6,348

4,298

3,265

Net revenue
$
15,795

 
$
12,820

$
12,282

$
11,507

$
14,642

Net charge-offs
$
10,972

 
$
6,799

$
5,991

$
4,343

$
3,876

Open-End gross combined loan balances:
 
 
 
 
 
 
Open-End gross loans receivable
$
51,564

 
$
47,949

$
32,133

$
26,771

$
25,626

Allowance for loan losses
$
6,846

 
$
6,426

$
4,880

$
4,523

$
4,572

Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable
13.3
%
 
13.4
%
15.2
%
16.9
%
17.8
%
Open-End other information:
 
 
 
 
 
 
Average loan amount (1)
$
702

 
$
579

$
463

$
451

$
454

Open-End ratios:
 
 
 
 
 
 
Provision as a percentage of gross combined loans receivable
22.2
%
 
17.4
%
19.8
%
16.1
%
12.7
%
(1) We have revised previously-reported origination statistics to conform to current year methodology.

Single-Pay
Single-Pay revenue and combined loans receivable during the three months ended March 31, 2018 were affected primarily by regulatory changes in Canada (rate changes in Ontario and British Columbia) and continued product shift from Single-Pay to Installment and Open-End loans in all countries. Single-Pay loan balances grew 8.3% (primarily in Canada) but revenue was flat versus the same quarter a year ago because of lower yields in Canada. Credit quality and metrics for Single-Pay remain stable.
 
2018
 
2017
(dollars in thousands, unaudited)
First Quarter
 
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Single-Pay loans:
 
 
 
 
 
 
Revenue
$
63,705

 
$
70,868

$
70,895

$
63,241

$
63,790

Provision for losses
11,302

 
17,952

20,632

14,289

11,399

Net revenue
$
52,403

 
$
52,916

$
50,263

$
48,952

$
52,391

Net charge-offs
$
12,698

 
$
17,362

$
20,515

$
13,849

$
12,499

Single-Pay gross combined loan balances:
 
 
 
 
 
 
Single-Pay gross combined loans receivable (1) (2)
$
87,075

 
$
99,400

$
94,476

$
91,230

$
80,423

Single-Pay Allowance for loan losses and CSO guarantee liability (3)
$
4,485

 
$
5,915

$
5,342

$
5,313

$
4,736

Single-Pay Allowance for loan losses and CSO guarantee liability as a percentage of Single-Pay gross loans receivable
5.2
%
 
6.0
%
5.7
%
5.8
%
5.9
%
(1)  Includes loans originated by third-party lenders through CSO programs, which are not included in our consolidated financial statements.
(2) Non-GAAP measure.
(3) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets.




Results of Operations - CURO Group Consolidated Operations
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
Three Months Ended March 31,
2018
2017
Change $
Change %
Revenue
$
261,758

$
224,580

$
37,178

16.6
 %
Provision for losses
81,031

61,736

19,295

31.3
 %
Net revenue
180,727

162,844

17,883

11.0
 %
Advertising costs
9,756

7,688

2,068

26.9
 %
Non-advertising costs of providing services
61,726

60,251

1,475

2.4
 %
Total cost of providing services
71,482

67,939

3,543

5.2
 %
Gross margin
109,245

94,905

14,340

15.1
 %
 
 
 
 


Operating (income) expense
 
 
 


Corporate, district and other
40,454

32,993

7,461

22.6
 %
Interest expense
22,349

23,366

(1,017
)
(4.4
)%
Loss on extinguishment of debt
11,683

12,458

(775
)
(6.2
)%
Total operating expense
74,486

68,817

5,669

8.2
 %
Net income before income taxes
34,759

26,088

8,671

33.2
 %
Provision for income taxes
11,467

9,450

2,017

21.3
 %
Net income
$
23,292

$
16,638

$
6,654

40.0
 %

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)
Three Months Ended March 31,
2018
2017
Change $
Change %
Net Income
$
23,292

$
16,638

$
6,654

40.0
%
Adjustments:
 
 
 

Loss on extinguishment of debt (1)
11,683

12,458



Transaction-related costs (2)
—

2,254



Share-based cash and non-cash compensation (3)
1,842

126



Intangible asset amortization
676

583



Impact of tax law changes (6)
1,800

—



Cumulative tax effect of adjustments
(3,692
)
(5,582
)
 
 
Adjusted Net Income
$
35,601

$
26,477

$
9,124

34.5
%
 
 
 
 
 
Net income
$
23,292

$
16,638



Diluted Weighted Average Shares Outstanding (4)
47,416

38,959



Diluted Earnings per Share (4)
$
0.49

$
0.43

$
0.06

14.0
%
Per Share impact of adjustments to Net Income (4)
0.26

0.25

 
 
Adjusted Diluted earnings per share (4)
$
0.75

$
0.68

$
0.07

10.3
%





Reconciliation of Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures
 
Three Months Ended March 31,
 
2018
2017
Change $
Change %
Net income
$
23,292

$
16,638

$
6,654

40.0
 %
Provision for income taxes
11,467

9,450

2,017

21.3
 %
Interest expense
22,349

23,366

(1,017
)
(4.4
)%
Depreciation and amortization
4,661

4,654

7

0.2
 %
EBITDA
61,769

54,108

7,661

14.2
 %
Loss on extinguishment of debt (1)
11,683

12,458



Transaction-related costs (2)
—

2,254



Share-based cash and non-cash compensation (3)
1,842

126



Other adjustments (5)
(79
)
(314
)


Adjusted EBITDA
$
75,215

$
68,632

$
6,583

9.6
 %
Adjusted EBITDA Margin
28.7
%
30.6
%
 
 
(1)
For the three months ended March 31, 2017, the $12.5 million loss from the extinguishment of debt was due to the redemption of CURO Intermediate Holding Corp.'s ("CURO Intermediate") 10.75% Senior Secured Notes due 2018 and the 12.00% Senior Cash Pay Notes due 2017. For the three months ended March 31, 2018, the $11.7 million loss from the extinguishment of debt was due to the redemption of CURO Financial Technologies Corp.'s ("CFTC") 12.00% Senior Secured Notes due 2022.
(2)
Transaction-related costs include professional fees paid in connection with potential transactions and the original issuance of $470.0 million of Senior Secured Notes due 2022 in the first quarter of 2017.
(3)
The Company approved the adoption of a share-based compensation plan during 2010 and 2017 for key members of its senior management team. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period.
(4)
The share and per share information have been adjusted to give effect to the 36-to-1 stock split of the Company's common stock that occurred during the fourth quarter of 2017.
(5)
Other adjustments include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense. Rent expense is recognized ratably on a straight-line basis over the lease term.
(6)
As a result of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), which was signed into law on December 22, 2017, the Company provided an estimate of the new repatriation tax as of December 31, 2017. Due to subsequent guidance published in the first quarter of 2018, the Company has booked an additional tax expense of $1.2 million for the 2017 repatriation tax. Additionally, the Tax Act provided for a new GILTI ("Global Intangible Low-Taxed Income") tax starting in 2018 and the Company has estimated and provided tax expense of $0.6 million as of March 31, 2018.

For the three months ended March 31, 2018 and 2017
Revenue and Net Revenue
Revenue increased $37.2 million, or 16.6%, to $261.8 million for the three months ended March 31, 2018 from $224.6 million for the three months ended March 31, 2017. U.S. revenue increased 17.4% on volume growth, U.K. revenue increased by 25.6%, and revenue in Canada increased 11.3% where volume growth offset regulatory impacts on rates and product mix.
Provision for losses increased $19.3 million, or 31.3%, to $81.0 million for the three months ended March 31, 2018 from $61.7 million for the three months ended March 31, 2017. This is explained more fully in the segment analysis that follows.
Cost of Providing Services
The total cost of providing services increased $3.5 million, or 5.2%, to $71.5 million in the three months ended March 31, 2018, compared to $67.9 million in the three months ended March 31, 2017 primarily because of higher customer acquisition spend.
Operating Expenses
Corporate, district and other expense increased $7.5 million, or 22.6% primarily due to $4.1 million additional compensation expense from increased marketing, collections and technology headcount and $1.7 million of additional share-based compensation expense.
Provision for Income Taxes
The effective tax rate for the three months ended March 31, 2018 was 33.0% compared to 36.2% for the three months ended March 31, 2017. As a result of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), the corporate income tax rate for the U.S. decreased from 35% to 21%, effective in 2018. The provision for income tax as of March 31, 2018 includes an additional accrual of $1.2 million for adjustments to estimates of the tax on prior years' foreign repatriation and an estimated GILTI ("Global Intangible Low-Taxed Income") tax of $0.6 million. The $1.2 million additional provision on prior years' foreign repatriation was the result of additional interpretative guidance from the IRS issued during the first quarter of 2018 while the GILTI provision is a new, continuous requirement under the 2017 Tax Act. These items increased the effective tax rate by 5.2%. Excluding the impact of these items, the effective rate for the three months ended March 31, 2018 was 27.8%.





Segment Analysis

We report financial results for three reportable segments: the United States, Canada and the United Kingdom. Following is a recap of results of operations for the segment and period indicated:

U.S. Segment Results
Three Months Ended March 31,
 
 
 
Change
(dollars in thousands)
2018
2017
$
%
Revenue
$
204,593

$
174,322

$
30,271

17.4
 %
Provision for losses
64,333

49,194

15,139

30.8
 %
Net revenue
140,260

125,128

15,132

12.1
 %
Advertising costs
5,159

4,694

465

9.9
 %
Non-advertising costs of providing services
43,757

43,301

456

1.1
 %
   Total cost of providing services
48,916

47,995

921

1.9
 %
Gross margin
91,344

77,133

14,211

18.4
 %
Corporate, district and other
30,532

25,049

5,483

21.9
 %
Interest expense
22,297

23,345

(1,048
)
(4.5
)%
Loss on extinguishment of debt
11,683

12,458

(775
)
(6.2
)%
Total operating expense
64,512

60,852

3,660

6.0
 %
Segment operating income
26,832

16,281

10,551

64.8
 %
Interest expense
22,297

23,345

(1,048
)
(4.5
)%
Depreciation and amortization
3,407

3,360

47

1.4
 %
EBITDA
52,536

42,986

9,550

22.2
 %
Loss on extinguishment of debt
11,683

12,458

(775
)


Other adjustments
(59
)
6

(65
)


Transaction related costs
—

2,254

(2,254
)


Share-based cash and non-cash compensation
1,842

126

1,716



Adjusted EBITDA
$
66,002

$
57,830

$
8,172

14.1
 %

U.S. Segment Results - For the three months ended March 31, 2018 and 2017
First quarter U.S. revenues grew by $30.3 million or 17.4% to $204.6 million.
U.S revenue growth was driven by a $51.3 million, or 18.8%, increase in gross combined loans receivable to $323.8 million at March 31, 2018 compared to $272.5 million in the prior year period. We experienced volume growth primarily from Unsecured Installment receivables, which increased year-over-year $30.3 million, or 21.2%. Secured Installment receivables increased from the prior year period by $11.3 million or 15.9%, and Open-End receivables increased $8.9 million, or 34.8% compared to the prior year period. Open-end growth was driven by year-over-year expansion in Kansas and Tennessee of 12.2% and 8.6%, respectively, and the 2017 launch of Open-End in Virginia.
The increase of $15.1 million, or 30.8%, in provision for losses was primarily driven by the increase in combined loans receivable as previously discussed.
U.S. cost of providing services remained consistent with the same period in the prior year. The total cost of providing services for the three months ended March 31, 2018 were $48.9 million, a slight increase of $0.9 million, or 1.9% compared to $48.0 million for the three months ended March 31, 2017.
The $5.5 million increase of corporate, district and other operating expenses includes $3.0 million of additional compensation expense, primarily due to increased marketing, collections and technology headcount and $1.7 million of additional share-based compensation expense.




Canada Segment Results
Three Months Ended March 31,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
46,250

$
41,566

$
4,684

11.3
 %
Provision for losses
12,550

10,228

2,322

22.7
 %
Net revenue
33,700

31,338

2,362

7.5
 %
Advertising costs
2,726

1,781

945

53.1
 %
Non-advertising costs of providing services
16,472

15,257

1,215

8.0
 %
Total cost of providing services
19,198

17,038

2,160

12.7
 %
Gross margin
14,502

14,300

202

1.4
 %
Corporate, district and other
4,897

3,375

1,522

45.1
 %
Interest expense
57

29

28

96.6
 %
Total operating expense
4,954

3,404

1,550

45.5
 %
Segment operating income
9,548

10,896

(1,348
)
(12.4
)%
Interest expense
57

29

28

96.6
 %
Depreciation and amortization
1,128

1,119

9

0.8
 %
EBITDA
10,733

12,044

(1,311
)
(10.9
)%
Other adjustments
16

(314
)
330



Adjusted EBITDA
$
10,749

$
11,730

$
(981
)
(8.4
)%

Canada Segment Results - For the three months ended March 31, 2018 and 2017
Revenue in Canada was impacted by the product transition in Alberta from Single-Pay loans to Unsecured Installment and Open-End loans and the impact of regulatory rate changes in Ontario and British Columbia. Canada revenue improved $4.7 million, or 11.3% to $46.3 million for the three months ended March 31, 2018 from $41.6 million in the prior year period. On a constant currency basis, revenue was up $2.6 million, or 6.3%.
Single-Pay revenue increased $0.1 million, or 0.3% to $34.3 million for the three months ended March 31, 2018 due to 17.9% higher origination volumes compared to the same period in the prior year. Single-Pay ending receivables increased $5.7 million, or 13.1%, to $48.7 million from $43.1 million in the prior year period.
Canadian non-Single-Pay revenue grew $4.6 million, or 61.9% compared to the same quarter a year ago on $22.0 million, or 68.8% growth in related loan balances.
The provision for losses increased $2.3 million or 22.7% to $12.6 million for the three months ended March 31, 2018 compared to $10.2 million in the prior year period, primarily due to relative loan volumes and mix shift from Single-Pay loans to Unsecured Installment and Open-End loans. On a constant currency basis, provision for losses increased $1.8 million, or 17.2%.
The cost of providing services in Canada increased $2.2 million, or 12.7%, to $19.2 million for the three months ended March 31, 2018, compared to $17.0 million in the prior year period. The increase was due primarily to $0.9 million, or 53.1%, higher advertising costs compared to the prior year period and an increase in occupancy expense from higher store counts. We have opened six LendDirect stores since the first quarter of 2017. On a constant currency basis, cost of providing services increased $1.3 million, or 7.6%.
Operating expenses increased $1.6 million, or 45.5%, to $5.0 million in the three months ended March 31, 2018, from $3.4 million in the prior year period, due to increased collections and customer support payroll expenses from seasonality, increased volumes, expansion of the LendDirect business, and product shifts from Single-Pay loans to Unsecured Installment and Open-End loans. On a constant currency basis, operating expenses increased $1.3 million, or 39.2%.




U.K. Segment Results
Three Months Ended March 31,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
10,915

$
8,692

$
2,223

25.6
 %
Provision for losses
4,148

2,314

1,834

79.3
 %
Net revenue
6,767

6,378

389

6.1
 %
Advertising costs
1,871

1,213

658

54.2
 %
Non-advertising costs of providing services
1,497

1,693

(196
)
(11.6
)%
Total cost of providing services
3,368

2,906

462

15.9
 %
Gross margin
3,399

3,472

(73
)
(2.1
)%
Corporate, district and other
5,025

4,569

456

10.0
 %
Interest income
(5
)
(8
)
(3
)
(37.5
)%
Total operating expense
5,020

4,561

459

10.1
 %
Segment operating loss
(1,621
)
(1,089
)
(532
)
48.9
 %
Interest income
(5
)
(8
)
(3
)
(37.5
)%
Depreciation and amortization
126

175

(49
)
(28.0
)%
EBITDA
(1,500
)
(922
)
(578
)
62.7
 %
Other adjustments
(36
)
(6
)
(30
)


Adjusted EBITDA
$
(1,536
)
$
(928
)
$
(608
)
65.5
 %

U.K. Segment Results - For the three months ended March 31, 2018 and 2017
U.K. revenue improved $2.2 million, or 25.6% to $10.9 million for the three months ended March 31, 2018 from $8.7 million in the prior year period. On a constant currency basis, revenue was up $1.0 million, or 11.8%. Provision for losses increased $1.8 million, and increased $1.4 million, or 59.6% on a constant currency basis, due to growth volume.
The cost of providing services in the U.K. increased $0.5 million, or 15.9%, for the three months ended March 31, 2018 as compared to prior year period due to additional customer acquisition spend. On a constant currency basis the cost of providing services increased $0.1 million, or 3.2%.
Corporate, district and other expenses increased $0.5 million, or 10.1%, to $5.0 million for the three months ended March 31, 2018 as compared to the prior year period. On a constant currency basis, corporate, district and other expenses increased $0.1 million, or 2.0%, and is consistent with quarterly run rates for the full year 2017 and represent normal baseline costs for the U.K.





CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Cash
$
130,739

 
$
162,374

Restricted cash (includes restricted cash of consolidated VIEs of $12,268 and $6,871 as of March 31, 2018 and December 31, 2017, respectively)
17,656

 
12,117

Gross loans receivable (includes loans of consolidated VIEs of $186,492 and $213,846 as of March 31, 2018 and December 31, 2017, respectively)
389,838

 
432,837

Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $36,619 and $46,140 as of March 31, 2018 and December 31, 2017, respectively)
(60,886
)
 
(69,568
)
Loans receivable, net
328,952

 
363,269

Deferred income taxes
1,817

 
772

Income taxes receivable
—

 
3,455

Prepaid expenses and other
32,753

 
42,512

Property and equipment, net
83,522

 
87,086

Goodwill
145,764

 
145,607

Other intangibles, net of accumulated amortization of $42,540 and $41,156 as of March 31, 2018 and December 31, 2017, respectively
31,961

 
32,769

Other
12,217

 
9,770

Total Assets
$
785,381

 
$
859,731

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities
$
52,860

 
$
55,792

Deferred revenue
10,152

 
11,984

Income taxes payable
8,734

 
4,120

Accrued interest (includes accrued interest of consolidated VIEs of $1,263 and $1,266 as of March 31, 2018 and December 31, 2017, respectively)
6,384

 
25,467

Credit services organization guarantee liability
10,412

 
17,795

Deferred rent
11,732

 
11,577

Long-term debt (includes long-term debt and issuance costs of consolidated VIEs of $115,071 and $3,920 as of March 31, 2018 and $124,590 and $4,188 as of December 31, 2017, respectively)
622,644

 
706,225

Subordinated shareholder debt
2,322

 
2,381

Other long-term liabilities
6,199

 
5,768

Deferred tax liabilities
11,393

 
11,486

Total Liabilities
$
742,832

 
$
852,595

Stockholders' Equity
 
 

Preferred stock - $0.001 par value; 25,000,000 shares authorized, respectively, and no shares were issued at either period end
$
—

 
$
—

Common stock - $0.001 par value; 225,000,000 shares authorized, and issued and outstanding of 45,561,419 and 44,561,419 shares as of March 31, 2018 and December 31, 2017, respectively
9

 
8

Paid-in capital
61,056

 
46,079

Retained earnings
27,279

 
3,988

Accumulated other comprehensive loss
(45,795
)
 
(42,939
)
Total Stockholders' Equity
$
42,549

 
$
7,136

Total Liabilities and Stockholders' Equity
$
785,381

 
$
859,731






Balance Sheet Changes - March 31, 2018 compared to December 31, 2017
Cash - Cash decreased from December 31, 2017 primarily because of cash used in the redemption of the 12.00% Senior Secured Notes held by CURO Financial Technologies Corp. ("CFTC"), a wholly-owned subsidiary of the Company. CFTC redeemed $77.5 million of the 12.00% Senior Secured Notes at a price equal to 112.00% of the principal amount plus accrued and unpaid interest to the date of redemption. Following the redemption, $527.5 million of the original outstanding principal amount of the Notes remain outstanding. The redemption was conducted pursuant to the indenture governing the Notes, dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent. The decrease in cash was offset by the 1.0 million of shares exercised by the underwriters on January 5, 2018 in connection with our initial public offering in December 2017. The exercise of this option provided additional cash proceeds of $13.1 million.
Gross Loans Receivable and Allowance for Loan Losses - As previously explained in the Loan Volume and Portfolio Performance Analysis section, changes in Gross Loans Receivable and related Allowance for Loan Losses were due to seasonality resulting from higher customer demand and loan origination volumes during the fourth quarter of 2017 that were concentrated on Installment loans.
Other Assets - Other assets increased because of a $1.5 million increase in the cash surrender value of life insurance used to fund our non-qualified deferred compensation plan and an additional $1.0 million investment we made in Cognical Holdings, Inc. in March 2018 that increased the Company's equity ownership from 9.4% to 10.4%. Cognical Holdings, Inc. operates as a business under an online website, www.zibby.com, that facilitates the purchase of household items by underbanked consumers.
Long-term debt (including current maturities) and Accrued Interest - Changes from year-end 2017 are due to the redemption of the 12.00% Senior Secured Notes as previously discussed. For more information about the Company's long term debt, see Note 11, “Long-Term Debt” of the Notes to Consolidated Financial Statements included in Company's Form 10-K filed with the SEC on March 13, 2018.




About CURO
CURO Group Holdings Corp. (NYSE: CURO), operating in three countries and powered by its fully integrated technology platform, is a market leader by revenues in providing short-term credit to underbanked consumers. In 1997, the Company was founded in Riverside, California by three Wichita, Kansas childhood friends to meet the growing consumer need for short-term loans. Their success led to opening stores across the United States and expanding to offer online loans and financial services across three countries. Today, CURO combines its market expertise with a fully integrated technology platform, omni-channel approach and advanced credit decisioning to provide an array of short-term credit products across all mediums. CURO operates under a number of brands including Speedy Cash, Rapid Cash, Cash Money, LendDirect, Avío Credit, WageDayAdvance, Juo Loans, and Opt+. With over 20 years of operating experience, CURO provides financial freedom to the underbanked.
Conference Call
CURO will host a conference call to discuss these results at 8:15 a.m. Eastern Time on Friday, April 27, 2018. The live webcast of the call can be accessed at the CURO Investor Relations website at http://ir.curo.com/.
You may access the call at 1-866-807-9684 (1-412-317-5415 for international callers). Please ask to join the CURO Group Holdings call. A replay of the conference call will be available until May 4, 2018, at 11:59 p.m. Eastern Time. An archived version of the webcast will be available on the CURO Investor Relations website for 90 days. You may access the conference call replay at 1-877-344-7529 (1-412-317-0088 for international callers). The replay access code is 10119194.
Final Results
The financial results discussed herein are presented on a preliminary basis; final data will be included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018.





Forward-Looking Statements
This press release contains forward-looking statements. These forward-looking statements include statements related to our fiscal 2018 outlook. In addition, words such as “as “guidance,” “estimate,” “anticipate,” “believe,” “forecast,” “step,” “plan,” “predict,” “focused,” “project,” “is likely,” “expect,” “intend,” “should,” “will,” “confident,” variations of such words and similar expressions are intended to identify forward-looking statements. Our ability to achieve these forward-looking statements is based on certain assumptions and judgments, including our ability to execute on our business strategy and our ability to accurately predict our future financial results. These assumptions and judgments may prove to be inaccurate in the future. These forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. There are important factors both within and outside of our control that could cause the Company’s actual results to differ materially from those in the forward-looking statements. These factors include our level of indebtedness; our dependence on third-party lenders to provide the cash we need to fund our loans and our ability to affordably access third-party financing; our ability to protect our proprietary technology and analytics and keep up with that of our competitors; disruption of our information technology systems that adversely affect our business operations; ineffective pricing of the credit risk of our prospective or existing customers; inaccurate information supplied by customers or third parties would could lead to errors in judging customers’ qualifications to receive loans; improper disclosure of customer personal data; failure or third parties who provide products, services or support to us; any failure of third-party-lenders upon whom we rely to conduct business in certain states; disruption to our relationships with banks and other third-part electronic payment solutions providers; disruption caused by employee or third-party theft and errors in our stores as well as other factors discussed in our filings with the Securities and Exchange Commission. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual future results. We undertake no obligation to update, amend or clarify any forward-looking statement for any reason.





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 (Net Income minus certain non-cash and other adjusting items)
•
Adjusted Earnings per share (Earnings per share minus the per share impacts of certain non-cash and other adjusting items)
•
EBITDA (earnings before interest, income taxes, depreciation and amortization);
•
Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items); and
•
Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in the consolidated financial statements).

We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of the Company's operations. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with its 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 GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare the Company's 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 the Company's 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 GAAP, we provide Gross Combined Loans Receivable consisting of owned loans receivable plus loans originated by third-party lenders through the CSO programs, which we guarantee but do not include in the Consolidated Financial Statements. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
We provide non-GAAP financial information for informational purposes and to enhance understanding of the GAAP consolidated financial statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income, or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities or any other liquidity measure derived in accordance with U.S. GAAP. Rather, these measures should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for, or superior to, U.S. GAAP results. Readers should consider the information in addition to, but not instead of or superior to, the financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
Description and Reconciliations of Non-GAAP Financial Measures
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA Measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of the Company's 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 the Company's industry may calculate these measures differently, limiting their usefulness as comparative measures.

We evaluate stores based on revenue per store, provision for losses at each store and store-level EBITDA, with consideration given to the length of time a store has been open and its geographic location. We monitor newer stores for their progress to profitability and their rate of revenue growth.
We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate the Company's ability to incur and service debt and the capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess the Company's estimated enterprise value. The computation of Adjusted EBITDA as presented in this release may differ from the computation of similarly-titled measures provided by other companies.





Investor Relations:
Roger Dean
Executive Vice President & Chief Financial Officer
Phone: 844-200-0342
Email: IR@curo.com
(CURO-NWS)