Market Overview

CURO Group Holdings Corp Announces Second Quarter 2018 Financial Results

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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 its second quarter ended June
30, 2018.

"CURO continued its strong growth momentum in the second quarter of
2018," said Don Gayhardt, President and Chief Executive Officer. "We are
pleased to announce year-over-year loan growth of 26.9% and sequential
loan growth of 14.1%, adjusted earnings growth in the first half of 2018
of 18.9%, and the execution of a milestone bank partner agreement that
allows us to expand our lending footprint in the U.S. Our momentum,
improvement in credit metrics and solid loan growth has further
bolstered our confidence in our full year earnings guidance," Gayhardt
concluded.

Consolidated Summary Results

    For the Three Months Ended     For the Six Months Ended
(in thousands, except per share data)     6/30/2018   6/30/2017   Variance     6/30/2018   6/30/2017   Variance
Revenue $ 248,983   $ 216,944   14.8 % $ 510,741   $ 441,524   15.7

%

Gross Margin 80,412 82,002 (1.9 )% 189,657 176,907 7.2 %
Gross Loans Receivable 444,627 350,362 26.9 % 444,627 350,362 26.9 %
Net Income 15,975 16,342 (2.2 )% 39,267 32,980 19.1 %
Adjusted Net Income (1) 18,102 18,685 (3.1 )% 53,703 45,162 18.9 %
Diluted Earnings per Share $ 0.33 $ 0.42 (21.4 )% $ 0.82 $ 0.85 (3.5 )%
Adjusted Diluted Earnings per Share (1) $ 0.38 $ 0.48 (20.8 )% $ 1.13 $ 1.16 (2.6 )%
EBITDA (1) 46,355 50,121 (7.5 )% 108,124 104,229 3.7 %
Adjusted EBITDA (1) 48,621 53,196 (8.6 )% 123,836 121,828 1.6 %
Weighted Average Shares - diluted 47,996 38,987 47,757 38,983

(1) Non-GAAP Metric; see Results of Operations section for
reconciliation to nearest GAAP metric

 

Second quarter 2018 highlights include:

  • Second quarter Revenue of $249.0 million, an increase of 14.8% over
    the prior year period
  • Year-over-year loan growth of 26.9% and 14.1% sequential loan growth
    from first quarter of 2018
  • Gross margin and earnings declined year-over-year due to changes to
    our loan loss recognition methodology (our previously disclosed Q1
    Loss Recognition Change) that affected the prior year period. The
    change had the effect of reducing loan loss provisioning for
    installment loans well below normalized levels for the second quarter
    of 2017.
  • Notwithstanding the effects of accounting methodology changes in 2017
    on provision comparisons, credit quality improved meaningfully.
    First-pay default rates (FPDs) improved year-over-year for all
    Installment and Open-End products in the U.S. and Canada and were
    stable for Single-Pay. Net charge-off rates for our largest portfolio,
    Company Owned Unsecured Installment, improved 488 basis points
    sequentially from last quarter.
  • Executed agreement with MetaBank® to provide consumers within the
    United States an innovative and flexible line of credit product
  • Completed a successful secondary offering for existing stockholders of
    over 5.5 million shares of common stock at $23 per share

Year-to-date 2018 highlights include:

  • Year-to-date Revenue of $510.7 million, an increase of 15.7% over the
    prior year period
  • Year-to-date GAAP Net Income of $39.3 million, an increase of 19.1%
  • Year-to-date Adjusted Net Income of $53.7 million, an increase of 18.9%
  • 26.9% loan growth
  • Completed a successful secondary offering for existing stockholders of
    over 5.5 million shares of common stock at $23 per share

Fiscal 2018 Outlook

We affirm our 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. Our solid results for the first
half of 2018 and above-expectation loan growth has further bolstered our
confidence in our guidance. Our full-year 2018 guidance is as follows:

  • Revenue in the range of $1.025 billion to $1.080 billion
  • Adjusted 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

Three Months Ended June 30, 2018

The following table summarizes revenue by product, including CSO fees,
for the periods indicated:

  For the Three Months Ended
    June 30, 2018   June 30, 2017
(in thousands) U.S. Canada U.K. Total   U.S. Canada U.K. Total
Unsecured Installment $ 111,244 $ 3,692 $ 8,537 $ 123,473 $ 94,897 $ 4,223 $ 6,029 $ 105,149
Secured Installment 25,777 25,777 23,173 23,173
Open-End 23,261 3,961 27,222 15,805 15,805
Single-Pay 24,978 33,347 3,277 61,602 24,881 34,947 3,413 63,241
Ancillary 4,866   6,043     10,909   5,008   4,425   143   9,576
Total revenue   $ 190,126   $ 47,043   $ 11,814   $ 248,983     $ 163,764   $ 43,595   $ 9,585   $ 216,944
 

During the three months ended June 30, 2018, total lending revenue
(excluding revenues from ancillary products) grew $30.7 million, or
14.8%, to $238.1 million, compared to the prior year period,
predominantly driven by growth in Installment and Open-End loans.
Geographically, revenue in the U.S., Canada and the U.K. grew 16.1%,
7.9%, and 23.3%, respectively. From a product perspective, Unsecured
Installment revenues rose 17.4% and Secured Installment revenues rose
11.2% driven by related loan growth. Single-Pay revenues were affected
primarily by regulatory changes in Canada (rate changes in Alberta,
Ontario and British Columbia) and continued product shift from
Single-Pay to Installment and Open-End loans in all countries. Open-End
revenues rose 72.2% on organic growth in the U.S. and the introduction
of Open-End products in Virginia and Canada. Open-End adoption in Canada
accelerated this quarter as related loan balances grew $34.3 million
sequentially from the first quarter. Even with the accelerated Open-End
growth, Single-Pay balances in Canada only shrank sequentially by $1.4
million. Ancillary revenues increased 13.9% versus the same quarter a
year ago primarily due to non-lending revenue in Canada.

Six Months Ended June 30, 2018

The following table summarizes revenue by product, including CSO fees,
for the periods indicated:

  For the Six Months Ended
    June 30, 2018   June 30, 2017
(in thousands) U.S. Canada U.K. Total   U.S. Canada U.K. Total
Unsecured Installment $ 231,720 $ 8,595 $ 16,104 $ 256,419 $ 195,651 $ 7,643 $ 11,286 $ 214,580
Secured Installment 52,633 52,633 46,842 46,842
Open-End 49,095 5,350 54,445 33,712 33,712
Single-Pay 51,043 67,639 6,625 125,307 51,208 69,126 6,697 127,031
Ancillary 10,228   11,709     21,937   10,673   8,392   294   19,359
Total revenue   $ 394,719   $ 93,293   $ 22,729   $ 510,741     $ 338,086   $ 85,161   $ 18,277   $ 441,524
 

During the six months ended June 30, 2018, total lending revenue
(excluding revenues from ancillary products) grew $66.6 million, or
15.8%, to $488.8 million, compared to the prior year period,
predominantly driven by growth in Installment loans in all three
countries and Open-End loans in the U.S. and Canada. Geographically,
revenue in the U.S., Canada and U.K. grew 16.8%, 9.5%, and 24.4%,
respectively. From a product perspective, Unsecured Installment revenues
rose 19.5% and Secured Installment revenues rose 12.4% because of loan
growth. Single-Pay revenues and combined loans receivable were affected
primarily by regulatory changes in Canada (rate changes in Alberta,
Ontario and British Columbia) and continued product shift from
Single-Pay to Installment and Open-End loans in all countries. Open-End
revenues rose 61.5% on organic growth in the U.S. and the introduction
of Open-End products in Virginia and Canada. Earning assets for our
Open-End product in Canada, which we began offering in the fourth
quarter of 2017, was $47.3 million as of June 30, 2018. Ancillary
revenues increased 13.3% versus the same period 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 June 30,     Six Months Ended June 30,
    2018   2017     2018   2017
Installment 59.9 %   59.1 % 60.5 %   59.2 %
Canada Single-Pay 13.4 % 16.1 % 13.2 % 15.7 %
U.S. Single-Pay 10.0 % 11.5 % 10.0 % 11.6 %
U.K. Single-Pay 1.3 % 1.6 % 1.3 % 1.5 %
Open-End 10.9 % 7.3 % 10.7 % 7.6 %
Ancillary 4.5 %   4.4 %     4.3 %   4.4 %
Total   100.0 %   100.0 %     100.0 %   100.0 %
 

For both the three and six months ended June 30, 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)     June 30,
2018
    March 31,
2018
    December 31,
2017
    September 30,
2017
    June 30,
2017
Company Owned gross loans receivable $ 444.6     $ 389.8     $ 432.8     $ 393.4     $ 350.3

Gross loans receivable Guaranteed by the Company

69.2       57.1       78.8       71.2       62.1
Gross combined loans receivable     $ 513.8       $ 446.9       $ 511.6       $ 464.6       $ 412.4
 

Gross combined loans receivable by product are presented below:

    Three Months Ended
(in millions)     June 30,
2018
    March 31,
2018
    December 31,
2017
    September 30,
2017
    June 30,
2017
Unsecured Installment $ 179.4     $ 171.4     $ 196.3     $ 181.8     $ 156.0
Secured Installment 84.6 79.8 89.2 85.0 76.3
Single-Pay 89.6 87.1 99.4 94.5 91.2
Open-End 91.0 51.5 47.9 32.1 26.8
CSO 69.2       57.1       78.8       71.2       62.1
Total     $ 513.8       $ 446.9       $ 511.6       $ 464.6       $ 412.4
 

Gross combined loans receivable increased $101.4 million, or 24.6%, to
$513.8 million as of June 30, 2018 compared to $412.4 million as of
June 30, 2017. Geographically, gross combined loans receivable grew
23.6%, 33.8% and 36.0%, respectively, in the U.S., Canada and U.K.

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, and growth in the United Kingdom. Gross
combined Unsecured Installment loan balances grew $31.4 million, or
14.6%, compared to June 30, 2017, but the comparisons are affected by
mix shift in Canada from Installment to Open-End. As expected, Canadian
Installment loan balances declined by $19.4 million while Open-End
balances in Canada grew by $51.3 million year-over-year.

Because of the aforementioned effects of the Q1 Loss Recognition Change
on the first half of 2017, we utilize sequential trends in analyzing net
charge-off rates and allowance levels. Net charge-off rates for Company
Owned Unsecured Installment loans improved 488 basis points sequentially
compared to the first quarter of 2018. Similarly, net charge-off rates
for Unsecured Installment loans Guaranteed by the Company improved
nearly 2,000 basis points versus last quarter. FPDs reflect the number
of payments made by customers compared to the number of payments
scheduled to be paid during a period. First-pay default metrics cited in
this release are calculated based on originations from January through
May of 2017 and 2018. FPDs for Company Owned Unsecured Installment loans
were stable overall to the same periods last year but improved for
California which is the largest portion of the portfolio. FPDs for
Unsecured Installment loans Guaranteed by the Company improved by an
average of nearly 140 basis points, or 8%. The improvement in net charge
off rates, FPDs and the related underlying improvement in cumulative
loss development trends in open vintages resulted in lower required
allowance coverage for Unsecured installment, primarily due to: (i) loan
growth proportionally being driven by the extension of more credit to
our best customers, (ii) tightening of credit scoring and approval rates
during first quarter's U.S. income tax refund season and (iii)
continuing improvement in scoring models.

    2018     2017

(dollars in thousands, unaudited)

    Second Quarter     First Quarter Fourth Quarter     Third Quarter     Second Quarter
Unsecured Installment loans:            
Revenue - Company Owned $ 63,404 $ 66,004 $ 67,800 $ 61,653 $ 52,550
Provision for losses - Company Owned 27,434       27,477   29,917       29,079       17,845  
Net revenue - Company Owned $ 35,970       $ 38,527   $ 37,883       $ 32,574       $ 34,705  
Net charge-offs - Company Owned $ 29,734 $ 33,410 $ 32,894 $ 23,858 $ 18,858
Revenue - Guaranteed by the Company $ 60,069 $ 66,942 $ 69,078 $ 67,132 $ 52,599
Provision for losses - Guaranteed by the Company 26,974       23,556   32,915       36,212       23,575  
Net revenue - Guaranteed by the Company $ 33,095       $ 43,386   $ 36,163       $ 30,920       $ 29,024  
Net charge-offs - Guaranteed by the Company $ 25,667 $ 30,743 $ 31,898 $ 34,904 $ 27,309
Unsecured Installment gross combined loans receivable:
Company Owned $ 179,414 $ 171,432 $ 196,306 $ 181,831 $ 156,075
Guaranteed by the Company(1)(2) 66,351       54,332   75,156       67,438       58,289  
Unsecured Installment gross combined loans receivable(1)(2) $ 245,765       $ 225,764   $ 271,462       $ 249,269       $ 214,364  
 
Unsecured Installment Allowance for loan losses(3) $ 35,277 $ 37,916 $ 43,755 $ 46,938 $ 41,406
Unsecured Installment CSO guarantee liability(3) $ 11,193 $ 9,886 $ 17,072 $ 16,056 $ 14,748
Unsecured Installment Allowance for loan losses as a percentage of
Unsecured Installment gross loans receivable
19.7 % 22.1 % 22.3 % 25.8 % 26.5 %
Unsecured Installment CSO guarantee liability as a percentage of
Unsecured Installment gross loans guaranteed by the Company
16.9 % 18.2 % 22.7 % 23.8 % 25.3 %
Unsecured Installment past-due balances:
Unsecured Installment gross loans receivable $ 40,272 $ 39,273 $ 44,963 $ 41,353 $ 33,534
Unsecured Installment gross loans guaranteed by the Company $ 10,319 $ 8,410 $ 12,480 $ 10,462 $ 8,204
Past-due Unsecured Installment gross loans receivable -- percentage (2) 22.4 % 22.9 % 22.9 % 22.7 % 21.5 %
Past-due Unsecured Installment gross loans guaranteed by the Company
percentage(2)
15.6 % 15.5 % 16.6 % 15.5 % 14.1 %
Unsecured Installment other information:
Originations - Company Owned $ 128,146 $ 99,418 $ 135,284 $ 137,618 $ 119,636
Originations - Guaranteed by the Company(1) $ 84,082 $ 60,593 $ 82,326 $ 83,680 $ 68,338
Unsecured Installment ratios:
Provision as a percentage of originations - Company Owned 21.4 % 27.6 % 22.1 % 21.1 % 14.9 %
Provision as a percentage of gross loans receivable - Company Owned 15.3 % 16.0 % 15.2 % 16.0 % 11.4 %
Provision as a percentage of originations - Guaranteed by the Company 32.1 % 38.9 % 40.0 % 43.3 % 34.5 %
Provision as a percentage of gross loans receivable - Guaranteed by
the Company
    40.7 %     43.4 %     43.8 %     53.7 %     40.4 %

(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.

 

Secured Installment Loans

Secured Installment gross combined loans receivable balances as of
June 30, 2018 increased by $7.4 million, or 9.2%, compared to June 30,
2017, primarily due to growth in Arizona, while related revenue grew
11.2%.

Secured Installment Allowance for loan losses and CSO guarantee
liability as a percentage of Secured Installment gross loans receivable
improved from the first quarter of 2018 from 14.7% to 12.4%. For the
three months ended June 30, 2018, delinquency rates of 17.4% and net
charge offs of $9.0 million were consistent with the first quarter
delinquency rates of 17.9% and net charge offs of $8.7 million. Net
charge off rates for Secured Installment rose 282 basis points
sequentially versus the first quarter of 2018. FPDs have improved an
average of nearly 200 basis points, or 11.9%, versus the same periods
last year. The lower required Allowance for loan losses and CSO
guarantee liability as a percentage of gross combined loans receivable
is largely due to FPD trends, origination mix and modest improvement in
vintage cumulative loss development.

    2018         2017

(dollars in thousands, unaudited)

   

Second
Quarter

   

First
Quarter

Fourth
Quarter

 

Third
Quarter

 

Second
Quarter

Secured Installment loans:      
Revenue $ 25,777 $ 26,856 $ 27,732 $ 26,407 $ 23,173
Provision for losses 7,650       6,640   10,051     6,512     4,955  
Net revenue $ 18,127       $ 20,216   $ 17,681     $ 19,895     $ 18,218  
Net charge-offs $ 9,003 $ 8,669 $ 10,802 $ 11,597 $ 6,481
Secured Installment gross combined loan balances:
Secured Installment gross combined loans receivable(1)(2) $ 87,434 $ 82,534 $ 92,817 $ 88,730 $ 80,077
Secured Installment Allowance for loan losses and CSO guarantee
liability(3)
$ 10,812 $ 12,165 $ 14,194 $ 14,945 $ 20,030
Secured Installment Allowance for loan losses and CSO guarantee
liability as a percentage of Secured Installment gross combined
loans receivable
12.4 % 14.7 % 15.3 % 16.8 % 25.0 %
Secured Installment past-due balances:
Secured Installment past-due gross loans receivable and gross loans
guaranteed by the Company
$ 15,246 $ 14,756 $ 16,554 $ 15,265 $ 12,630
Past-due Secured Installment gross loans receivable and gross loans
guaranteed by the Company -- percentage(2)
17.4 % 17.9 % 17.8 % 17.2 % 15.8 %
Secured Installment other information:
Originations(1) $ 53,597 $ 34,750 $ 48,577 $ 52,526 $ 45,596
Secured Installment ratios:
Provision as a percentage of originations 14.3 % 19.1 % 20.7 % 12.4 % 10.9 %
Provision as a percentage of gross combined loans receivable     8.7 %     8.0 %     10.8 %   7.3 %   6.2 %

(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.

 

Open-End Loans

Open-End loan balances as of June 30, 2018 increased by $64.3 million,
or 240.0%, compared to June 30, 2017 from year-over-year growth in
Kansas and Tennessee of 26.9% and 20.6%, respectively, the third quarter
2017 launch of Open-End in Virginia, conversion of most of Alberta's
Unsecured Installment loans to Open-End loans and the launch of Open-End
loans in Ontario. Open-End adoption in Canada accelerated this quarter
as related loan balances grew $34.3 million sequentially from the first
quarter.

The Open-End Allowance for loan losses as a percentage of Open-End gross
loans receivable declined year-over-year and sequentially, primarily due
to geographic mix and seasoning of the U.S. portfolio. At June 30, 2018,
Canadian Open-End gross loans receivable comprised 56.4% of the total,
compared to none at the end of the prior year quarter. FPDs for the U.S.
Open-End portfolio have improved an average of approximately 50 basis
points, or 2%, versus the same periods a year ago primarily because of
seasoning and scoring improvements in mature states, and are improving
sequentially as the Virginia new market portfolio seasons.

    2018     2017

(dollars in thousands, unaudited)

   

Second
Quarter

   

First
Quarter

Fourth
Quarter

   

Third
Quarter

   

Second
Quarter

Open-End loans:            
Revenue $ 27,222 $ 27,223 $ 21,154 $ 18,630 $ 15,805
Provision for losses 14,848       11,428   8,334       6,348       4,298  
Net revenue $ 12,374       $ 15,795   $ 12,820       $ 12,282       $ 11,507  
Net charge-offs $ 11,924 $ 10,972 $ 6,799 $ 5,991 $ 4,343
Open-End gross loan balances:
Open-End gross loans receivable $ 91,033 $ 51,564 $ 47,949 $ 32,133 $ 26,771
Allowance for loan losses $ 9,717 $ 6,846 $ 6,426 $ 4,880 $ 4,523
Open-End Allowance for loan losses as a percentage of Open-End gross
loans receivable
10.7 % 13.3 % 13.4 % 15.2 % 16.9 %
Open-End ratios:
Provision as a percentage of gross loans receivable     16.3 %     22.2 %     17.4 %     19.8 %     16.1 %
 

Single-Pay

Single-Pay revenue and loans receivable during the three months ended
June 30, 2018 declined slightly year-over-year, primarily due to
regulatory changes in Canada (rate changes in Alberta, Ontario and
British Columbia) and continued product shift from Single-Pay to
Installment and Open-End loans in all countries compared to the three
months ended June 30, 2017. Even with the aforementioned accelerated
Open-End growth in Canada, Single-Pay balances in Canada only shrank
sequentially by $1.4 million. Provision for losses and net charge-offs
were consistent for the quarter and Single-Pay Allowance for loan losses
as a percentage of gross loans receivable remained consistent
sequentially.

    2018     2017
(dollars in thousands, unaudited)     Second Quarter     First Quarter Fourth Quarter     Third Quarter     Second Quarter
Single-Pay loans:            
Revenue $ 61,602 $ 63,705 $ 70,868 $ 70,895 $ 63,241
Provision for losses 14,527       11,302   17,952       20,632       14,289  
Net revenue $ 47,075       $ 52,403   $ 52,916       $ 50,263       $ 48,952  
Net charge-offs $ 14,543 $ 12,698 $ 17,362 $ 20,515 $ 13,849
Single-Pay gross loan balances:
Single-Pay gross loans receivable $ 89,575 $ 87,075 $ 99,400 $ 94,476 $ 91,230
Single-Pay Allowance for loan losses $ 4,372 $ 4,485 $ 5,915 $ 5,342 $ 5,313
Single-Pay Allowance for loan losses as a percentage of Single-Pay
gross loans receivable
    4.9 %     5.2 %     6.0 %     5.7 %     5.8 %
 
       

Results of Operations - CURO Group Consolidated Operations



Condensed Consolidated Statements of Income

(Unaudited)

 
(in thousands) Three Months Ended June 30, Six Months Ended June 30,
    2018     2017     Change $    

Change %

    2018     2017     Change $     Change %
Revenue $ 248,983     $ 216,944     $ 32,039     14.8 % $ 510,741     $ 441,524     $ 69,217     15.7 %
Provision for losses 91,986       65,446       26,540   40.6 % 173,017       127,182       45,835   36.0 %
Net revenue 156,997       151,498       5,499   3.6 % 337,724       314,342       23,382   7.4 %
Advertising costs 17,554 11,641 5,913 50.8 % 27,310 19,329 7,981 41.3 %
Non-advertising costs of providing services 59,031       57,855       1,176   2.0 % 120,757       118,106       2,651   2.2 %
Total cost of providing services 76,585       69,496       7,089   10.2 % 148,067       137,435       10,632   7.7 %
Gross margin 80,412 82,002 (1,590 ) (1.9 )% 189,657 176,907 12,750 7.2 %
 
Operating (income) expense
Corporate, district and other 38,655 36,557 2,098 5.7 % 79,109 69,550 9,559 13.7 %
Interest expense 20,465 18,484 1,981 10.7 % 42,814 41,850 964 2.3 %
Loss on extinguishment of debt              

 

#

11,683       12,458       (775 ) (6.2 )%
Total operating expense 59,120       55,041       4,079   7.4 % 133,606       123,858       9,748   7.9 %
Net income before income taxes 21,292 26,961 (5,669 ) (21.0 )% 56,051 53,049 3,002 5.7 %
Provision for income taxes 5,317       10,619       (5,302 ) (49.9 )% 16,784       20,069       (3,285 ) (16.4 )%
Net income     $ 15,975       $ 16,342       $ (367 )     (2.2 )%     $ 39,267       $ 32,980       $ 6,287       19.1 %
# - Variance greater than 100% or not meaningful.
 

Reconciliation of Net Income and Diluted Earnings per Share to
Adjusted Net Income and Adjusted Diluted Earnings per share, non-GAAP
measures

(in thousands, except per share data)     Three Months Ended June 30,     Six Months Ended June 30,
    2018     2017     Change $     Change %     2018     2017     Change $     Change %
Net Income $ 15,975     $ 16,342     $ (367 )     (2.2 )% $ 39,267     $ 32,980     $ 6,287     19.1

%

Adjustments:
Loss on extinguishment of debt(1) 11,683 12,458
Legal settlements(7) 1,950 1,950
Transaction-related costs(2) 146 2,400
Share-based cash and non-cash compensation(3) 2,181 1,180 4,023 1,306
Intangible asset amortization 655 590 1,331 1,173
Impact of tax law changes(6) 1,800
Cumulative tax effect of adjustments (709 )     (1,523 )       (4,401 )     (7,105 )      
Adjusted Net Income $ 18,102 $ 18,685 $ (583 ) (3.1 )% $ 53,703 $ 45,162 $ 8,541 18.9 %
 
Net income $ 15,975 $ 16,342 $ 39,267 $ 32,980
Diluted Weighted Average Shares Outstanding(4) 47,996 38,987 47,757 38,983
Diluted Earnings per Share(4) $ 0.33 $ 0.42 $ (0.09 ) (21.4 )% $ 0.82 $ 0.85 $ (0.03 ) (3.5 )%
Per Share impact of adjustments to Net Income(4) 0.05       0.06         0.31       0.31        
Adjusted Diluted earnings per share(4)     $ 0.38       $ 0.48       $ (0.10 )     (20.8 )%     $ 1.13       $ 1.16       $ (0.03 )     (2.6 )%
 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA,
non-GAAP measures

    Three Months Ended June 30,     Six Months Ended June 30,
      2018     2017     Change $     Change %     2018     2017     Change $     Change %
Net income $ 15,975     $ 16,342     $ (367 )     (2.2 )% $ 39,267     $ 32,980     $ 6,287     19.1 %
Provision for income taxes 5,317 10,619 (5,302 ) (49.9 )% 16,784 20,069 (3,285 ) (16.4 )%
Interest expense 20,465 18,484 1,981 10.7 % 42,814 41,850 964 2.3 %
Depreciation and amortization 4,598   4,676   (78 ) (1.7 )% 9,259   9,330   (71 ) (0.8 )%
EBITDA 46,355 50,121 (3,766 ) (7.5 )% 108,124 104,229 3,895 3.7 %
Loss on extinguishment of debt(1) 11,683 12,458
Legal settlements(7) 1,950 1,950
Transaction-related costs(2) 146 2,400
Share-based cash and non-cash compensation(3) 2,181 1,180 4,023 1,306
Other adjustments(5) 85   (201 )   6   (515 )  
Adjusted EBITDA $ 48,621   $ 53,196   $ (4,575 ) (8.6 )% $ 123,836   $ 121,828   $ 2,008   1.6 %
Adjusted EBITDA Margin 19.5 % 24.5 % 24.2 % 27.6 %

(1)

 

For the six months ended June 30, 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. For the six months ended June 30, 2017, the $12.5
million loss from the extinguishment of debt was due to the
redemption of CURO Intermediate Holding Corp.'s ("CURO
Intermediate") 10.75% Senior Secured Notes due 2018 and the 12.00%
Senior Cash Pay Notes due 2017.

(2)

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)

We approved the adoption of share-based compensation plans
during 2010 and 2017 for key members of senior management. The
estimated fair value of share-based awards is recognized as
non-cash compensation expense on a straight-line basis over the
vesting period.

(4)

The share and per share information have been adjusted to
give effect to the 36-to-1 split of the Company's common stock
that occurred during the fourth quarter of 2017.

(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 became law on December 22, 2017, we provided an
estimate of the new repatriation tax as of December 31, 2017. Due
to subsequent guidance published in the first quarter of 2018, we
booked an additional tax expense of $1.2 million for the 2017
repatriation tax. Additionally, the 2017 Tax Act provided for a
new Global Intangible Low-Taxed Income ("GILTI") tax starting in
2018 and we estimated and provided tax expense of $0.6 million as
of June 30, 2018.

(7)

Legal settlement cost for the three and six months ended
June 30, 2017 includes $2.0 million for the settlement of the
Harrison, et al v. Principal Investment, Inc. et al. For more
information, see Note 18 - "Contingent Liabilities" of the Notes
to Consolidated Financial Statements included in the Company's
Form 10-K filed with the SEC on March 13, 2018.

 

For the three months ended June 30, 2018 and
2017

Revenue and Net Revenue

Revenue increased $32.0 million, or 14.8%, to $249.0 million for the
three months ended June 30, 2018 from $216.9 million for the three
months ended June 30, 2017. U.S. revenue increased 16.1% on volume
growth. Canadian revenue increased 7.9% as volume growth offset
regulatory impacts on rates and product mix. U.K. revenue increased by
23.3%.

Provision for losses increased $26.5 million, or 40.6%, to $92.0 million
for the three months ended June 30, 2018 from $65.4 million for the
three months ended June 30, 2017. Refer to "--Segment Analysis" below
for further explanations on the provision for losses.

Cost of Providing Services

The total cost of providing services increased $7.1 million, or 10.2%,
to $76.6 million in the three months ended June 30, 2018, compared to
$69.5 million in the three months ended June 30, 2017 primarily because
of increased customer acquisition spend analyzed further in the segment
discussions that follow.

Operating Expenses

Corporate, district and other expense increased $2.1 million, or 5.7%
primarily related to increased headcount and $1.0 million of additional
share-based compensation expense.

Provision for Income Taxes

The effective tax rate for the three months ended June 30, 2018 was
25.0% compared to 39.4% for the three months ended June 30, 2017. As a
result of the 2017 Tax Act, the corporate income tax rate for the U.S.
decreased from 35% to 21%, effective in 2018. No tax benefit is
recognized for losses in the U.K.

For the six months ended June 30, 2018 and 2017

Revenue and Net Revenue

Revenue increased $69.2 million, or 15.7%, to $510.7 million for the six
months ended June 30, 2018 from $441.5 million for the six months ended
June 30, 2017. U.S. revenue increased 16.8% on volume growth. Canadian
revenue increased 9.5% as volume growth offset regulatory impacts on
rates and product mix. U.K. revenue increased by 24.4%.

Provision for losses increased $45.8 million, or 36.0%, to $173.0
million for the six months ended June 30, 2018 from $127.2 million for
the six months ended June 30, 2017. Refer to "--Segment Analysis" below
for further explanations on the provision for losses.

Cost of Providing Services

The total cost of providing services increased $10.6 million, or 7.7%,
to $148.1 million in the six months ended June 30, 2018, compared to
$137.4 million in the six months ended June 30, 2017 primarily because
of higher customer acquisition spend.

Operating Expenses

Corporate, district and other expense increased $9.6 million, or 13.7%
primarily due to $5.1 million in additional compensation expense related
to increased collections activity, online customer support and
technology headcount and $2.7 million of additional share-based
compensation expense.

Provision for Income Taxes

The effective tax rate for the six months ended June 30, 2018 was 29.9%
compared to 37.8% for the six months ended June 30, 2017. As a result of
the 2017 Tax Act, the federal corporate income tax rate for the U.S.
decreased from 35% to 21%, effective in 2018. The provision for income
tax as of June 30, 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 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.

Segment Analysis

We report financial results for three reportable segments: the U.S.,
Canada and the U.K. Following is a recap of results of operations for
the segment and period indicated:

U.S. Segment Results     Three Months Ended June 30,
(dollars in thousands)     2018     2017     Change $     Change %
Revenue $ 190,126     $ 163,764     $ 26,362     16.1 %
Provision for losses 71,987   51,958   20,029   38.5 %
Net revenue 118,139 111,806 6,333 5.7 %
Advertising costs 12,409 7,897 4,512 57.1 %
Non-advertising costs of providing services 41,682       40,790       892   2.2 %
Total cost of providing services 54,091       48,687       5,404   11.1 %
Gross margin 64,048 63,119 929 1.5 %
Corporate, district and other 28,221 27,993 228 0.8 %
Interest expense 20,465       18,423       2,042   11.1 %
Total operating expense 48,686       46,416       2,270   4.9 %
Segment operating income 15,362 16,703 (1,341 ) (8.0 )%
Interest expense 20,465 18,423 2,042 11.1 %
Depreciation and amortization 3,379       3,393       (14 ) (0.4 )%
EBITDA 39,206 38,519 687 1.8 %
Legal settlement cost 1,950 (1,950 )
Other adjustments (66 ) (20 ) (46 )
Transaction related costs 146 (146 )
Share-based cash and non-cash compensation 2,181       1,176       1,005  
Adjusted EBITDA     $ 41,321       $ 41,771       $ (450 )     (1.1 )%
 

U.S. Segment Results - For the three months
ended June 30, 2018 and 2017

Second quarter U.S. revenues increased by $26.4 million or 16.1% to
$190.1 million.

U.S. revenue growth was driven by a $64.2 million, or 21.1%, increase in
gross combined loans receivable to $367.7 million at June 30, 2018
compared to $303.6 million at June 30, 2017. We experienced volume
growth primarily from Unsecured Installment receivables, which increased
year-over-year $44.0 million, or 27.6%. Secured Installment receivables
increased from the prior year period by $7.4 million or 9.2%, and
Open-End receivables increased $12.9 million, or 48.3% compared to the
prior year period. Open-End growth was driven by year-over-year
expansion in Kansas and Tennessee of 26.9% and 20.6%, respectively, and
the 2017 third quarter launch of Open-End in Virginia.

The increase of $20.0 million, or 38.5%, in provision for losses was
primarily driven by the increase in combined loans receivable and the
aforementioned 2017 Q1 Loss Recognition Change.

U.S. cost of providing services for the three months ended June 30, 2018
were $54.1 million, an increase of $5.4 million, or 11.1% compared to
$48.7 million for the three months ended June 30, 2017, primarily due to
$4.5 million, or 57.1%, higher advertising costs. Advertising for the
U.S. online channel comprised $3.4 million of the year-over-year
increase, $2.6 million of which related to our new Avio installment
loans. U.S. store advertising rose 22.2% year-over-year. Advertising as
a percentage of revenue was 6.5% and in the range we expected given the
ramping of Avio and mix shift to online.

Corporate, district and other operating expenses remained consistent
with the same period in the prior year. Interest expense increased $2.0
million, resulting from interest on the additional 12.00% Senior Secured
Notes issued in November 2017.

U.S. Segment Results     Six Months Ended June 30,
(dollars in thousands)     2018     2017     Change $     Change %
Revenue $ 394,719     $ 338,086     $ 56,633     16.8 %
Provision for losses 136,320       101,152       35,168   34.8 %
Net revenue 258,399 236,934 21,465 9.1 %
Advertising costs 17,568 12,591 4,977 39.5 %
Non-advertising costs of providing services 85,439       84,091       1,348   1.6 %
Total cost of providing services 103,007       96,682       6,325   6.5 %

Gross margin

155,392 140,252 15,140 10.8 %
Corporate, district and other 58,753 53,042 5,711 10.8 %
Interest expense 42,762 41,768 994 2.4 %
Gain on extinguishment of debt 11,683       12,458       (775 ) (6.2 )%
Total operating expense 113,198       107,268       5,930   5.5 %
Segment operating income 42,194 32,984 9,210 27.9 %
Interest expense 42,762 41,768 994 2.4 %
Depreciation and amortization 6,786       6,753       33   0.5 %
EBITDA 91,742 81,505 10,237 12.6 %
Gain on extinguishment of debt 11,683 12,458 (775 )
Legal settlement cost 1,950 (1,950 )
Other adjustments (125 ) (14 ) (111 )
Transaction related costs 2,400 (2,400 )
Share-based cash and non-cash compensation 4,023       1,302       2,721  
Adjusted EBITDA     $ 107,323       $ 99,601       $ 7,722       7.8 %
 

U.S. Segment Results - For the six months ended
June 30, 2018 and 2017

U.S. revenues increased by $56.6 million, or 16.8%, to $394.7 million
for the six months ended June 30, 2018.

U.S. revenue growth was driven by a $64.2 million, or 21.1%, increase in
gross combined loans receivable to $367.7 million at June 30, 2018
compared to $303.6 million in the prior year period. We experienced
volume growth primarily from Unsecured Installment receivables, which
increased year-over-year $44.0 million, or 27.6%. Secured Installment
receivables increased from the prior year period by $7.4 million, or
9.2%, and Open-End receivables increased $12.9 million, or 48.3%,
compared to the prior year period. Open-End growth was driven by
year-over-year expansion in Kansas and Tennessee of 26.9% and 20.6%,
respectively, and the 2017 third quarter launch of Open-End in Virginia.

The increase of $35.2 million, or 34.8%, in provision for losses was
primarily driven by the increase in combined loans receivable as
previously discussed.

U.S. cost of providing services were $103.0 million, an increase of $6.3
million, or 6.5%, compared to $96.7 million for the six months ended
June 30, 2017. The increase is primarily due to $5.0 million, or 39.5%,
higher advertising costs.

The $5.7 million increase of corporate, district and other operating
expenses includes $4.0 million of additional compensation expense,
primarily due to increased collections, online customer support and
technology headcount and $2.7 million of additional share-based
compensation expense.

Canada Segment Results     Three Months Ended June 30,
(dollars in thousands)     2018     2017     Change $     Change %
Revenue     $ 47,043     $ 43,595     $ 3,448     7.9 %
Provision for losses 14,360       10,300       4,060   39.4 %
Net revenue 32,683 33,295 (612 ) (1.8 )%
Advertising costs 2,704 2,264 440 19.4 %
Non-advertising costs of providing services 16,679       15,069       1,610   10.7 %
Total cost of providing services 19,383       17,333       2,050   11.8 %
Gross margin 13,300 15,962 (2,662 ) (16.7 )%
Corporate, district and other 4,759 4,372 387 8.9 %
Interest expense 7       53       (46 ) (86.8 )%
Total operating expense 4,766       4,425       341   7.7 %
Segment operating income 8,534 11,537 (3,003 ) (26.0 )%
Interest expense 7 53 (46 ) (86.8 )%
Depreciation and amortization 1,091       1,100       (9 ) (0.8 )%
EBITDA 9,632 12,690 (3,058 ) (24.1 )%
Other adjustments 157       (158 )     315  
Adjusted EBITDA     $ 9,789       $ 12,532       $ (2,743 )     (21.9 )%
 

Canada Segment Results - For the three months
ended June 30, 2018 and 2017

Canada revenue improved $3.4 million, or 7.9%, to $47.0 million for the
three months ended June 30, 2018 from $43.6 million in the prior year
period. On a constant currency basis, revenue was up $1.6 million, or
3.6%. Revenue growth in Canada was impacted by the product transition
from Single-Pay loans to Unsecured Installment and Open-End loans and
the impact of regulatory rate changes in Alberta, Ontario and British
Columbia.

Single-Pay revenue decreased $1.6 million, or 4.6%, to $33.3 million for
the three months ended June 30, 2018 and Single-Pay ending receivables
decreased $1.1 million, or 2.2%, to $47.3 million from $48.4 million in
the prior year period due to mix shift in Ontario where we launched
Open-End loans in the fourth quarter of 2017.

Canadian non-Single-Pay revenue increased $5.0 million, or 58.4%, to
$13.7 million compared to $8.6 million the same quarter a year ago on
$31.9 million, or 74.5%, growth in related loan balances. The increase
was primarily related to the launch of Open-End products in Alberta and
Ontario in the fourth quarter of 2017.

The provision for losses increased $4.1 million, or 39.4%, to $14.4
million for the three months ended June 30, 2018 compared to $10.3
million in the prior year period, because of upfront provisioning on
relative loan volumes (total Open-End and Installment loans grew
sequentially by $20.9 million this second quarter compared to $10.9
million in the second quarter of 2017), and mix shift from Single-Pay
loans to Unsecured Installment and Open-End loans. On a constant
currency basis, provision for losses increased $3.5 million, or 33.7%.

The cost of providing services in Canada increased $2.1 million, or
11.8%, to $19.4 million for the three months ended June 30, 2018,
compared to $17.3 million in the prior year period. Advertising rose
19.4% due to increased spend for online and stores to support the ramp
up of our LendDirect brand. The increase in non-advertising cost of
providing services was due primarily to an increase in salary expense
and occupancy expense from higher store counts. We have opened seven
LendDirect stores since the second quarter of 2017. On a constant
currency basis, cost of providing services increased $1.3 million, or
7.3%.

Canada operating expenses remained relatively flat to the same period in
the prior year. Total operating expense increased to $4.8 million in the
three months ended June 30, 2018, from $4.4 million in the prior year
period.

Canada Segment Results     Six Months Ended June 30,
(dollars in thousands)     2018     2017     Change $     Change %
Revenue     $ 93,293     $ 85,161     $ 8,132     9.5 %
Provision for losses 26,910       20,528       6,382   31.1 %
Net revenue 66,383 64,633 1,750 2.7 %
Advertising costs 5,430 4,045 1,385 34.2 %
Non-advertising costs of providing services 33,151       30,326       2,825   9.3 %
Total cost of providing services 38,581       34,371       4,210   12.2 %
Gross margin 27,802 30,262 (2,460 ) (8.1 )%
Corporate, district and other 9,656 7,747 1,909 24.6 %
Interest expense 64       82       (18 ) (22.0 )%
Total operating expense 9,720       7,829       1,891   24.2 %
Segment operating income 18,082 22,433 (4,351 ) (19.4 )%
Interest expense 64 82 (18 ) (22.0 )%
Depreciation and amortization 2,219       2,219         %
EBITDA 20,365 24,734 (4,369 ) (17.7 )%
Other adjustments 173       (472 )     645  
Adjusted EBITDA     $ 20,538       $ 24,262       $ (3,724 )     (15.3 )%
 

Canada Segment Results - For the six months
ended June 30, 2018 and 2017

Canada revenue improved $8.1 million, or 9.5%, to $93.3 million for the
six months ended June 30, 2018 from $85.2 million in the prior year
period. On a constant currency basis, revenue was up $4.2 million, or
4.9%. Revenue growth in Canada was impacted by the product transition
from Single-Pay loans to Unsecured Installment and Open-End loans and
the impact of regulatory rate changes in Alberta, Ontario and British
Columbia.

Single-Pay revenue decreased $1.5 million, or 2.2%, to $67.6 million for
the six months ended June 30, 2018 on related Single-Pay ending
receivables decrease of $1.1 million, or 2.2%, to $47.3 million from
$48.4 million in the prior year period due to mix shift in Ontario where
we launched Open-End loans in the fourth quarter of 2017.

Canadian non-Single-Pay revenue increased $9.6 million, or 60.0%, to
$25.7 million compared to $16.0 million the same period a year ago on
$31.9 million, or 74.5%, growth in related loan balances. The increase
was primarily related to the launch of Open-End products in Alberta and
Ontario in the fourth quarter of 2017.

The provision for losses increased $6.4 million, or 31.1%, to $26.9
million for the six months ended June 30, 2018 compared to $20.5 million
in the prior year period, because of 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 $5.3 million, or
25.6%.

The cost of providing services in Canada increased $4.2 million, or
12.2%, to $38.6 million for the six months ended June 30, 2018, compared
to $34.4 million in the prior year period. The increase was due
primarily to $1.4 million, or 34.2%, higher advertising costs compared
to the prior year period and an increase in occupancy expense from
higher store counts. We have opened seven LendDirect stores since the
second quarter of 2017. On a constant currency basis, cost of providing
services increased $2.6 million, or 7.5%.

Operating expenses increased $1.9 million, or 24.2%, to $9.7 million in
the six months ended June 30, 2018, from $7.8 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 $1.5 million, or 19.0%.

U.K. Segment Results     Three Months Ended June 30,  
(dollars in thousands)     2018     2017     Change $     Change %
Revenue     $ 11,814     $ 9,585     $ 2,229     23.3 %
Provision for losses 5,639       3,188       2,451   76.9 %
Net revenue 6,175 6,397 (222 ) (3.5 )%
Advertising costs 2,441 1,479 962 65.0 %
Non-advertising costs of providing services 670       1,997       (1,327 ) (66.4 )%
Total cost of providing services 3,111       3,476       (365 ) (10.5 )%
Gross margin 3,064 2,921 143 4.9 %
Corporate, district and other 5,675 4,192 1,483 35.4 %
Interest (income) expense (7 )     9       16  

 

#

Total operating expense 5,668       4,201       1,467   34.9 %
Segment operating loss (2,604 ) (1,280 ) (1,324 ) (103.4 )%
Interest (income) expense (7 ) 9 16

 

#

Depreciation and amortization 128       182       (54 ) (29.7 )%
EBITDA (2,483 ) (1,089 ) (1,394 ) (128.0 )%
Other adjustments (6 )     (12 )     6  
Adjusted EBITDA     $ (2,489 )     $ (1,101 )     $ (1,388 )     (126.1 )%
# - Variance greater than 100% or not meaningful
 

U.K. Segment Results - For the three months
ended June 30, 2018 and 2017

U.K. revenue improved $2.2 million, or 23.3%, to $11.8 million for the
three months ended June 30, 2018 from $9.6 million in the prior year
period. On a constant currency basis, revenue was up $1.5 million, or
16.0%. Provision for losses increased $2.5 million, and on a constant
currency basis, increased $2.1 million, or 66.0%, due to upfront
provisioning on volume growth and the high percentage of new customers
in the origination mix. Installment loans in the U.K. grew sequentially
by $3.7 million in the second quarter compared to $1.9 million in the
second quarter of 2017.

The cost of providing services in the U.K. decreased $0.4 million, or
10.5%, for the three months ended June 30, 2018 compared to prior year
period due to reduction in costs related to the completion of store
closures in the third quarter of 2017, partially offset by higher
customer acquisition spend. On a constant currency basis, the cost of
providing services decreased $0.6 million, or 16.4%.

Corporate, district and other expenses increased $1.5 million, or 35.4%,
to $5.7 million for the three months ended June 30, 2018 compared to the
prior year period. This increase includes costs related to customer
redress pursuant to a complaint resolution process for all lenders in
the U.K. The cost in the second quarter of 2018 to administer the
complaint resolution process and the direct customer redress paid or
accrued totaled $1.4 million, an increase of $0.9 million compared to
the prior year period. On a constant currency basis, corporate, district
and other expenses increased $1.2 million, or 27.6%.

U.K. Segment Results     Six Months Ended June 30,  
(dollars in thousands)     2018     2017     Change $     Change %
Revenue     $ 22,729     $ 18,277     $ 4,452     24.4 %
Provision for losses 9,787       5,502       4,285   77.9 %
Net revenue 12,942 12,775 167 1.3 %
Advertising costs 4,312 2,692 1,620 60.2 %
Non-advertising costs of providing services 2,167       3,689       (1,522 ) (41.3 )%
Total cost of providing services 6,479       6,381       98   1.5 %
Gross margin 6,463 6,394 69 1.1 %
Corporate, district and other 10,700 8,761 1,939 22.1 %
Interest (income) expense (12 )     1       13  

 

#

Total operating expense 10,688       8,762       1,926   22.0 %
Segment operating loss (4,225 ) (2,368 ) (1,857 ) 78.4 %
Interest income (12 ) 1 13

 

#

Depreciation and amortization 254       357       (103 ) (28.9 )%
EBITDA (3,983 ) (2,010 ) (1,973 ) 98.2 %
Other adjustments (42 )     (18 )     (24 )
Adjusted EBITDA     $ (4,025 )     $ (2,028 )     $ (1,997 )     98.5 %
# - Variance greater than 100% or not meaningful
 

U.K. Segment Results - For the six months ended
June 30, 2018 and 2017

U.K. revenue improved $4.5 million, or 24.4%, to $22.7 million for the
six months ended June 30, 2018 from $18.3 million in the prior year
period. On a constant currency basis, revenue was up $2.5 million, or
13.9%. Provision for losses increased $4.3 million, and, on a constant
currency basis, increased $3.5 million, or 62.9%, due to volume growth.

The cost of providing services in the U.K. increased $0.1 million, or
1.5%, for the six months ended June 30, 2018 compared to prior year
period due to higher customer acquisition spend offset by a lower cost
basis upon completion of store closures in the third quarter of 2017. On
a constant currency basis, the cost of providing services decreased $0.5
million, or 7.4%.

Corporate, district and other expenses increased $1.9 million, or 22.1%,
to $10.7 million for the six months ended June 30, 2018 compared to the
prior year period. This increase includes costs related to customer
redress pursuant to a complaint resolution process for all lenders in
the U.K. The cost in the six months ended June 30, 2018 to administer
the complaint resolution process and the direct customer redress paid or
accrued totaled $2.9 million, an increase of $2.0 million compared to
the prior year period. On a constant currency basis, corporate, district
and other expenses increased $1.0 million, or 12.0%.

       

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 
June 30, 2018 December 31, 2017
      (Unaudited)      
ASSETS
Cash $ 115,105 $ 162,374
Restricted cash (includes restricted cash of consolidated VIEs of
$12,268 and $6,871 as of June 30, 2018 and December 31, 2017,
respectively)
12,448 12,117
Gross loans receivable (includes loans of consolidated VIEs of
$186,492 and $213,846 as of June 30, 2018 and December 31, 2017,
respectively)
444,627 432,837
Less: allowance for loan losses (includes allowance for losses of
consolidated VIEs of $36,619 and $46,140 as of June 30, 2018 and
December 31, 2017, respectively)
(59,754 ) (69,568 )
Loans receivable, net 384,873 363,269
Deferred income taxes 3,697 772
Income taxes receivable

623

3,455
Prepaid expenses and other 36,297 42,512
Property and equipment, net 80,420 87,086
Goodwill 143,753 145,607
Other intangibles, net of accumulated amortization of $42,540 and
$41,156 as of June 30, 2018 and December 31, 2017, respectively
30,825 32,769
Other 12,809   9,770  
Total Assets $

820,850

  $ 859,731  
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 53,557 $ 55,792
Deferred revenue 10,548 11,984
Income taxes payable

5,475

4,120
Accrued interest (includes accrued interest of consolidated VIEs of
$1,263 and $1,266 as of June 30, 2018 and December 31, 2017,
respectively)
22,175 25,467
Credit services organization guarantee liability 11,619 17,795
Deferred rent 11,481 11,577
Long-term debt (includes long-term debt and issuance costs of
consolidated VIEs of $115,071 and $3,920 as of June 30, 2018 and
$124,590 and $4,188 as of December 31, 2017, respectively)
626,833 706,225
Subordinated shareholder debt 2,278 2,381
Other long-term liabilities 6,589 5,768
Deferred tax liabilities 17,446   11,486  
Total Liabilities $

768,001

  $ 852,595  
Stockholders' Equity
Preferred stock - $0.001 par value; 25,000,000 shares authorized; no
shares were issued at either period end
$ $
Common stock - $0.001 par value; 225,000,000 shares authorized;
45,770,551 and 44,561,419 shares issued and outstanding as of June
30, 2018 and December 31, 2017, respectively
9 8
Paid-in capital 62,573 46,079
Retained earnings 43,254 3,988
Accumulated other comprehensive loss (52,987 ) (42,939 )
Total Stockholders' Equity $ 52,849   $ 7,136  
Total Liabilities and Stockholders' Equity     $

820,850

      $ 859,731  
 

Balance Sheet Changes - June 30, 2018 compared to December 31, 2017

Cash - Cash decreased from December 31,
2017 primarily due to cash used in the redemption of the 12.00% Senior
Secured Notes held by 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 Senior
Secured Notes remain outstanding. The redemption was conducted pursuant
to the indenture governing the Senior Secured Notes, dated as of
February 15, 2017, by and among CFTC, the guarantors party thereto and
TMI Trust Company, as trustee and collateral agent. The decrease in cash
was offset by the 1.0 million shares exercised by the underwriters on
January 5, 2018 at $14 per share in connection with our initial public
offering in December 2017. The exercise of this option provided
additional net proceeds of $13.1 million.

Gross Loans Receivable and Allowance for Loan
Losses
- As previously explained in " -- Loan Volume and
Portfolio Performance Analysis" above, changes in Gross Loans Receivable
and related Allowance for Loan Losses were due to organic growth in
Installment loans and product mix shift to Installment and Open-End
loans (primarily in Canada).

Prepaid Expenses and Other - Prepaid
expenses include CSO loans made by third party lenders and are excluded
from the Gross Loans Receivable on the Balance Sheet. Changes in prepaid
expenses from December 31, 2017 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 Guaranteed
by the Company. For more information about CSO loans, see Note 8,
"Credit Services Organization" of the Notes to Consolidated Financial
Statements included in the Company's Form 10-K filed with the SEC on
March 13, 2018.

Other Assets - Other assets increased
because of a $2.2 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 our equity ownership from 9.4% to 10.4%.
Cognical Holdings, Inc. operates as a business under www.zibby.com
and 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 Tuesday, July 31, 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 August 7, 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 10122165.

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 June 30, 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 our 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 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
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
our income or cash flows as reported under U.S. GAAP. Some of these
limitations are:

  • they do not include cash expenditures or future requirements for
    capital expenditures or contractual commitments;
  • they do not include changes in, or cash requirements for working
    capital needs;
  • they do not include the interest expense, or the cash requirements
    necessary to service interest or principal payments on debt;
  • depreciation and amortization are non-cash expense items reported in
    the statements of cash flows; and
  • other companies in our industry may calculate these measures
    differently, limiting their usefulness as comparative measures.

As noted above, Gross Combined Loans Receivable includes loans
originated by third-party lenders through CSO programs which are not
included in the consolidated financial statements but from which we earn
revenue and for which we provide a guarantee to the lender. Management
believes this analysis provide investors with important information
needed to evaluate overall lending performance.

We evaluate stores based on revenue per store, provision for losses at
each store and store-level EBITDA, with consideration given to the
length of time a store has been open and its geographic location. We
monitor newer stores for their progress to profitability and their rate
of revenue growth.

We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and
Adjusted EBITDA are used by investors to analyze operating performance
and evaluate our ability to incur and service debt and the capacity for
making capital expenditures. Adjusted EBITDA is also useful to investors
to help assess our estimated enterprise value. The computation of
Adjusted EBITDA as presented in this release may differ from the
computation of similarly-titled measures provided by other companies.

(CURO-NWS)

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