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CURO Group Holdings Corp. Announces Fourth Quarter and Full Year 2019 Financial Results, Initiates Dividend Program, Authorizes new $25.0 million Share Repurchase Program and Initiates 2020 Guidance

CURO Group Holdings Corp. (NYSE: CURO) ("CURO" or the "Company"), a market leader in providing short-term credit to underbanked consumers, today announced financial results for its fourth quarter and full year ended December 31, 2019.

"We are pleased to report excellent quarterly and annual earnings growth," said Don Gayhardt, President and Chief Executive Officer. "For the full year, our revenue and Adjusted Diluted Earnings per Share(1) grew 9.3% and 46.6%, respectively, versus 2018, and we generated substantial free cash that we invested in new growth opportunities and returned to shareholders in the form of $72.3 million of share repurchases. For our fourth quarter, outstanding growth in Canada, where revenue and Adjusted EBITDA(1) grew 18.3% and 131.2%, respectively, coupled with disciplined expense management, offset lower year-over-year growth in the U.S. caused by repositioning and optimization of our California Installment loan portfolios. We are introducing 2020 guidance which reflects our expectation that:

  • Canada will continue to be a strong growth engine;
  • U.S. regulatory changes will be manageable with earnings growth outside of California offsetting California declines;
  • Significant excess cash flow will be generated; and
  • We will continue to diversify our funding sources and be disciplined in our return of capital."

Consolidated Summary Results - Unaudited

 

For the Three Months Ended (2)

 

For the Twelve Months Ended (2)

(in thousands, except per share data)

12/31/2019

 

12/31/2018

 

Variance

 

12/31/2019

 

12/31/2018

 

Variance

Revenue

$

302,294

$

287,579

5.1

%

$

1,141,797

$

1,045,073

9.3

%

Gross margin

95,299

81,682

16.7

%

378,616

325,470

16.3

%

Company Owned gross loans receivable

665,828

571,531

16.5

%

665,828

571,531

16.5

%

Net income from continuing operations

29,571

15,418

91.8

%

103,898

16,459

#

Adjusted Net Income (1)

34,793

22,885

52.0

%

130,059

92,346

40.8

%

Diluted Earnings per Share from continuing operations

$

0.68

$

0.32

#

$

2.26

$

0.34

#

Adjusted Diluted Earnings per Share (1)

$

0.80

$

0.48

66.7

%

$

2.83

$

1.93

46.6

%

EBITDA (1)

61,526

40,208

53.0

%

230,848

120,837

91.0

%

Adjusted EBITDA (1)

67,534

53,378

26.5

%

261,132

219,823

18.8

%

Weighted Average Shares - diluted

43,243

47,773

 

45,974

47,965

 

# - Variance greater than 100% or not meaningful

(1) These are non-GAAP metrics. For a reconciliation of each non-GAAP metric to the nearest GAAP metric, see the applicable reconciliations contained under "Results of Operations - CURO Group Consolidated Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

(2) Excludes discontinued operations; see "Results of Discontinued Operations" for additional details.

Fourth quarter 2019 and subsequent developments include:

  • Revenue increase of $14.7 million, or 5.1%, over the prior-year period, driven primarily by revenue growth from Open-End loans in the U.S. and Canada, which more than outpaced the year-over-year decline in Unsecured and Secured Installment loan revenues stemming from California portfolio repositioning.
  • Growth in Company Owned gross loans receivable and Gross combined loans receivables of 16.5% and 13.9%, respectively, versus the prior-year period. Year-over-year comparisons benefited from the Q1 2019 Open-End Loss Recognition Change. See "Loan Volume and Portfolio Performance Analysis" for additional details on the Q1 2019 Open-End Loss Recognition Change. Excluding the impact of this change, Company Owned gross loans receivable and Gross combined loans receivables grew 7.7% and 6.2%, respectively. Further, excluding the negative impact of California portfolio repositioning, Company Owned gross loans receivable grew 21.6% year-over-year.
  • Consolidated quarterly net charge-off ("NCO") rates improvement of 200 basis points ("bps") compared to the prior-year quarter, primarily because of improvement in Canada. U.S. NCO rate comparisons were affected primarily by modestly higher charge-offs in the California Unsecured Installment portfolio and elevated Open-End charge-offs after strong asset expansion in the third quarter of 2019.
  • Net income from continuing operations and Adjusted Net Income increase of 91.8% and 52.0%, respectively.
  • Diluted Earnings per Share from continuing operations increase to $0.68 from $0.32 and Adjusted Diluted Earnings per Share increase to $0.80 from $0.48, as compared to the prior-year quarter.
  • Announcement of the acquisition of Ad Astra Recovery Services, Inc., our exclusive provider of third-party collection services for the U.S. business. The acquisition, which was completed on January 3, 2020, is expected to provide multiple synergies and be accretive to 2020 earnings as disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on December 16, 2019.
  • Authorization by our Board of Directors of a new share repurchase program, up to $25.0 million, of CURO common stock.
  • Initiation of a dividend program and declaration of our first quarterly cash dividend of $0.055 per share ($0.22 per share annualized) to be paid on March 2, 2020 to stockholders of record as of the close of business on February 18, 2020.
  • Executed a non-binding letter of intent for an additional $200 million Non-Recourse Revolving Credit Facility to fund our growing U.S. portfolios. This facility has a 90% advance rate with a 5.75% LIBOR spread.

Full-year 2019 developments include:

  • Revenue increase of $96.7 million, or 9.3%, over the prior year. Year-over-year revenue comparisons include approximately $49 million benefit from the Q1 2019 Open-End Loss Recognition Change, offset by a similar increase in provision expense.
  • Net Income from continuing operations of $103.9 million, an increase of $87.4 million compared to the prior year, and Diluted Earnings per Share of $2.26, up from $0.34 in the prior year.
  • Adjusted Net Income and Adjusted Diluted Earnings per Share growth of 40.8% and 46.6%, respectively, over the prior year.
  • Continued success with the Canada Open-End product transition, as the portfolio grew and matured and NCO rates improved. Canada Adjusted EBITDA increased $33.0 million over the prior year, from $25.9 million to $58.9 million.
  • During the period from April through July 2019, investment of an additional $3.8 million in Cognical Holdings, Inc. ("Katapult," formerly known as Zibby), an on-line virtual lease-to-own platform. As a result of this investment, our diluted ownership of Katapult increased to 43.8%.
  • Completion of the exit from the U.K. market during the first quarter of 2019, resulting in favorable U.S. tax consequences related to the loss on disposal.
  • Addition of two independent directors to our Board of Directors, which brought both compliance and human resources experience and insight, as announced in our Current Report on Form 8-K filed with the SEC on July 22, 2019.
  • Cumulative open market purchases of 4,069,796 shares through February 5, 2020 under the terms of our $50 million share repurchase program that was announced in April 2019. As of February 5, 2020, the authorized total under the repurchase program has been fully utilized.
  • The purchase of 2,000,000 shares from Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated investment funds ("FFL"), a related party to the Company, as disclosed in our Current Report on Form 8-K filed with the SEC on September 3, 2019.

2020 Outlook

The Company is initiating its full-year 2020 revenue and non-GAAP adjusted earnings guidance, as follows:

  • Revenue in the range of $1.165 billion to $1.195 billion, an increase of $23.2 million, or 2.0%, to $53.2 million, or 4.7% over 2019
  • Adjusted Net Income in the range of $135 million to $145 million, an increase of $4.6 million, or 3.5% to $13.6 million, or 10.4%, over 2019
  • Adjusted EBITDA in the range of $265 million to $280 million, an increase of $3.9 million, or 1.5%, to $18.9 million, or 7.2%, over 2019
  • Adjusted Diluted Earnings per Share in the range of $3.10 to $3.35, an increase of $0.27 per share, or 9.5%, to $0.52 per share, or 18.4%, over 2019
  • Effective income tax rate in the range of 26% to 27%, consistent with 2019

For a reconciliation of each non-GAAP metric to the nearest GAAP metric, see the specific reconciliations contained under "Fiscal 2020 Outlook - Reconciliations" at the end of this release. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

Consolidated Revenue by Product and Segment

Year-over-year comparisons for Open-End loan portfolio metrics are affected by the Q1 2019 Open-End Loss Recognition Change. Additionally, throughout this release, we exclude financial results of our former U.K. operations for all periods presented, as they were discontinued for accounting and reporting purposes in February 2019. See "Results of Discontinued Operations" for additional information.

The following tables summarize revenue by product, including credit services organization ("CSO") fees, for the periods indicated:

 

Three Months Ended

 

December 31, 2019

 

December 31, 2018

(in thousands, unaudited)

U.S.

 

Canada

 

Total

 

U.S.

 

Canada

 

Total

Unsecured Installment

$

133,953

$

1,658

$

135,611

$

143,135

$

2,172

$

145,307

Secured Installment

28,690

28,690

29,482

29,482

Open-End

43,278

28,017

71,295

29,580

17,647

47,227

Single-Pay

30,192

19,652

49,844

28,710

20,986

49,696

Ancillary

4,159

12,695

16,854

4,241

11,626

15,867

Total revenue

$

240,272

$

62,022

$

302,294

$

235,148

$

52,431

$

287,579

 

During the three months ended December 31, 2019, total revenue grew $14.7 million, or 5.1%, to $302.3 million, compared to the prior-year period, predominantly driven by growth in Open-End loans in both countries. Geographically, total revenue in the U.S. and Canada grew 2.2% and 18.3%, respectively. From a product perspective, Unsecured Installment and Secured Installment revenues decreased 6.7% and 2.7%, respectively, due to portfolio repositioning and optimization in California ahead of regulatory changes effective January 1, 2020. Single-Pay loan balances grew 4.4% sequentially (defined within this release as the change from the third quarter of 2019 to the fourth quarter of 2019, or comparable periods for 2018 sequential metrics) and were flat year-over-year (3.2% loan growth in the U.S. was offset by declines in Canada from migration to Open-End loans). Open-End loans in Canada grew $94.1 million, or 59.5% ($72.0 million, or 45.5%, excluding past-due receivables), from December 31, 2018, which fueled related revenue growth of $10.4 million, or 58.8%. U.S. Open-End revenue rose 46.3% on related loan growth of $34.1 million, or 69.3% ($6.1 million, or 12.4%, excluding past-due receivables). Ancillary revenues increased 6.2% versus the comparable quarter a year ago, primarily due to the sale of insurance products to Open-End and Installment loan customers in Canada.

 

Year Ended

 

December 31, 2019

 

December 31, 2018

(in thousands, unaudited)

U.S.

 

Canada

 

Total

 

U.S.

 

Canada

 

Total

Unsecured Installment

$

523,979

$

6,751

$

530,730

$

509,884

$

13,399

$

523,283

Secured Installment

110,513

110,513

110,677

110,677

Open-End

147,794

97,462

245,256

106,229

35,733

141,962

Single-Pay

112,925

78,524

191,449

107,545

111,447

218,992

Ancillary

18,295

45,554

63,849

18,806

31,353

50,159

Total revenue

$

913,506

$

228,291

$

1,141,797

$

853,141

$

191,932

$

1,045,073

 

For the year ended December 31, 2019, total revenue grew $96.7 million, or 9.3%, to $1,141.8 million, compared to the prior year, predominantly driven by growth in Open-End loans in both countries. Geographically, total revenue in the U.S. and Canada grew 7.1% and 18.9%, respectively. From a product perspective, Unsecured Installment revenues rose $14.1 million, or 2.8%, in the U.S., with full-year comparisons affected by the aforementioned fourth quarter 2019 portfolio repositioning and optimization in California and a decrease in Canada of $6.6 million due to the continued transition to Open-End loans. Secured Installment revenues and related receivables were flat year-over-year as growth in other states offset California declines from portfolio repositioning. U.S. Single-Pay revenue increased $5.4 million, or 5.0%, compared to the prior year. Canadian Single-Pay usage and product profitability were impacted negatively year-over-year by regulatory changes in Ontario effective July 1, 2018, and the strategic transition of qualifying customers to Open-End loans. Open-End revenues rose $103.3 million, or 72.8%, on related loan growth in Canada and U.S., primarily in Tennessee, Virginia and Kansas. Ancillary revenues increased $13.7 million, or 27.3%, versus the prior year, primarily due to the sale of insurance to Installment and Open-End loan customers in Canada.

The following table presents revenue composition, including CSO fees, of the products and services that we currently offer:

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Installment

 

54.4

%

 

60.8

%

 

56.2

%

 

60.6

%

Canada Single-Pay

 

6.5

%

 

7.3

%

 

6.9

%

 

10.7

%

U.S. Single-Pay

 

10.0

%

 

10.0

%

 

9.9

%

 

10.3

%

Open-End

 

23.6

%

 

16.4

%

 

21.5

%

 

13.6

%

Ancillary

 

5.5

%

 

5.5

%

 

5.5

%

 

4.8

%

Total

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

For the three months ended December 31, 2019 and 2018, revenue generated through the online channel as a percentage of consolidated revenue was 47% and 44%, respectively. For the year ended December 31, 2019 and 2018, revenue generated through the online channel as a percentage of consolidated revenue was 46% and 42%, respectively.

Loan Volume and Portfolio Performance Analysis

The following table summarizes Company Owned gross loans receivable, a GAAP-basis balance sheet measure, with reconciliation to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivable include loans originated by third-party lenders through CSO programs, which are not included in the Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender.

 

As of

(in millions, unaudited)

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

Company Owned gross loans receivable

 

$

665.8

 

 

$

657.6

 

 

$

609.6

 

 

$

553.2

 

 

$

571.5

 

Gross loans receivable Guaranteed by the Company

 

76.7

 

 

73.1

 

 

67.3

 

 

61.9

 

 

80.4

 

Gross combined loans receivable (1)

 

$

742.5

 

 

$

730.7

 

 

$

676.9

 

 

$

615.1

 

 

$

651.9

 

(1)

See "Non-GAAP Financial Measures" at the end of this release for definition and more information.

Gross combined loans receivable by product is presented below. Year-over-year comparisons for Open-End are affected by the Q1 2019 Open-End Loss Recognition Change. Excluding the impact of the Q1 2019 Open-End Loss Recognition Change, Open-End receivables increased $78.1 million, or 37.7%, year-over-year.

 

As of

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

Unsecured Installment

$

160.8

$

174.5

$

164.7

$

161.7

$

190.4

Secured Installment

88.1

90.1

85.5

81.0

93.0

Single-Pay

81.4

78.0

76.1

69.7

80.8

Open-End

335.5

315.0

283.3

240.8

207.3

CSO

76.7

73.1

67.3

61.9

80.4

Total

$

742.5

$

730.7

$

676.9

$

615.1

$

651.9

Gross combined loans receivable increased $90.5 million, or 13.9%, to $742.5 million as of December 31, 2019, from $651.9 million as of December 31, 2018, primarily due to an increase in Open-End loans of 69.3% and 59.5% in the U.S. and Canada, respectively. Gross combined loans receivable performance by product is explained further in the following sections.

Unsecured Installment Loans

Unsecured Installment revenue and related gross combined loans receivable decreased 6.7% and 12.2%, respectively, from the prior-year quarter, due to portfolio repositioning and optimization in California to manage January 1, 2020 regulatory changes. Unsecured Installment gross combined loans receivable decreased $32.8 million compared to December 31, 2018.

Unsecured Installment loans in California were $71.4 million, or 44.4%, as of December 31, 2019, a decrease of $30.1 million from $101.5 million as of December 31, 2018, and of $15.0 million from $86.4 million as of September 30, 2019.

Unsecured Installment loans Guaranteed by the Company declined $3.1 million year-over-year due to regulatory change in Ohio, effective April 2019, and the subsequent conversion of some Ohio CSO volume to Company Owned loans, partially offset by growth in Texas.

The NCO rate for Company Owned Unsecured Installment gross loans receivables in the fourth quarter of 2019 increased approximately 40 bps year-over-year, primarily due to mix shift associated with California portfolio repositioning and optimization. California NCO rates for Unsecured Installment loans historically are lower than our other major states. California comprised 48.8% of total U.S. Company Owned Unsecured Installment loans as of December 31, 2019 compared to 58.0% in the prior year. Also, due to the repositioning, California NCO rates have increased slightly year-over-year. Company Owned Unsecured Installment NCO rates for the U.S. excluding California were flat year-over-year.

The Unsecured Installment Allowance for loan losses as a percentage of Company Owned Unsecured Installment gross loans receivable ("allowance coverage") increased year-over-year from 19.8% as of December 31, 2018 to 22.1% as of December 31, 2019, primarily as a result of the aforementioned increase in U.S. NCO rates and higher past-due balances. Past-due receivables as a percentage of total gross receivables increased 100 bps from the same quarter a year ago, consistent with the change in NCO rates. Sequentially, allowance coverage increased from 21.9% to 22.1% as of December 31, 2019.

NCO rates for Unsecured Installment loans Guaranteed by the Company improved 270 bps compared to the same quarter a year ago. The CSO liability for losses decreased sequentially from 14.4% to 14.2% for the fourth quarter of 2019.

...

 

2019

 

2018

(dollars in thousands, unaudited)

Fourth Quarter

 

Third Quarter

 

Second Quarter

 

First Quarter

 

Fourth Quarter

Unsecured Installment loans:

 

 

 

 

 

Revenue - Company Owned

$

63,428

 

$

65,809

 

$

59,814

 

$

65,542

 

$

69,748

 

Provision for losses - Company Owned

33,183

 

31,891

 

33,514

 

33,845

 

39,565

 

Net revenue - Company Owned

$

30,245

 

$

33,918

 

$

26,300

 

$

31,697

 

$

30,183

 

Net charge-offs - Company Owned

$

35,729

 

$

28,973

 

$

31,970

 

$

37,919

 

$

37,951

 

 

 

 

 

 

 

Revenue - Guaranteed by the Company

$

72,183

 

$

71,424

 

$

62,298

 

$

70,236

 

$

75,559

 

Provision for losses - Guaranteed by the Company

34,858

 

36,664

 

28,336

 

27,422

 

37,352

 

Net revenue - Guaranteed by the Company

$

37,325

 

$

34,760

 

$

33,962

 

$

42,814

 

$

38,207

 

Net charge-offs - Guaranteed by the Company

$

34,486

 

$

35,916

 

$

27,486

 

$

30,421

 

$

38,522

 

Unsecured Installment gross combined loans receivable:

 

 

Company Owned

$

160,782

 

$

174,489

 

$

164,722

 

$

161,716

 

$

190,403

 

Guaranteed by the Company (1)(2)

74,317

 

70,704

 

65,055

 

59,740

 

77,451

 

Unsecured Installment gross combined loans receivable (1)(2)

$

235,099

 

$

245,193

 

$

229,777

 

$

221,456

 

$

267,854

 

Average gross loans receivable:

 

 

 

 

 

Average Unsecured Installment gross loans receivable - Company Owned (3)

$

167,636

 

$

169,606

 

$

163,219

 

$

176,060

 

$

187,767

 

Average Unsecured Installment gross loans receivable - Guaranteed by the Company (3)

$

72,511

 

$

67,880

 

$

62,398

 

$

68,596

 

$

76,629

 

Allowance for loan losses and CSO liability for losses:

 

 

 

 

 

Unsecured Installment Allowance for loan losses (4)

$

35,587

 

$

38,127

 

$

35,223

 

$

33,666

 

$

37,716

 

Unsecured Installment CSO liability for losses (4)

$

10,553

 

$

10,181

 

$

9,433

 

$

8,583

 

$

11,582

 

Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable

22.1

%

21.9

%

21.4

%

20.8

%

19.8

%

Unsecured Installment CSO liability for losses as a percentage of Unsecured Installment gross loans guaranteed by the Company

14.2

%

14.4

%

14.5

%

14.4

%

15.0

%

Unsecured Installment past-due balances:

 

 

 

 

 

Unsecured Installment gross loans receivable

$

43,100

 

$

46,537

 

$

38,037

 

$

40,801

 

$

49,087

 

Unsecured Installment gross loans guaranteed by the Company

$

12,477

 

$

11,842

 

$

10,087

 

$

7,967

 

$

11,708

 

Past-due Unsecured Installment gross loans receivable -- percentage (2)

26.8

%

26.7

%

23.1

%

25.2

%

25.8

%

Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (2)

16.8

%

16.7

%

15.5

%

13.3

%

15.1

%

Unsecured Installment other information:

 

 

 

 

 

Originations - Company Owned

$

87,080

 

$

107,275

 

$

102,792

 

$

78,515

 

$

114,182

 

Originations - Guaranteed by the Company (1)

$

91,004

 

$

89,644

 

$

80,445

 

$

68,899

 

$

89,319

 

Unsecured Installment ratios: