CURO Group Holdings Corp. Announces Third Quarter 2018 Financial Results


Wichita, Kansas--October 24, 2018-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 third quarter ended September 30, 2018. Key highlights include:

Year-over-year loan growth of 39.2% and accelerated transition to Open-end loans in Canada, both ahead of expectations
Significant loan growth drove a year-over-year earnings decline primarily due to required up-front provisioning
Full year 2018 guidance has been revised with a higher revenue outlook but lower earnings outlook
Completed issuance of $690.0 million principal amount of 8.250% Senior Secured Notes due 2025 and used a portion of the net proceeds to redeem all of our 12.00% Senior Secured Notes due 2022 thereby lowering borrowing costs by 375 basis points
Entered into a four-year revolving Canadian-dollar-denominated credit facility, the Canada SPV Facility, with a C$175.0 million initial borrowing capacity. With the extinguishment of the U.S. facility during October 2018, borrowing costs for SPV financing are lowered by 525 basis points

“We were pleased with our team's ability to drive robust loan growth ahead of plan in all three countries in the third quarter, but this rate of growth resulted in elevated provisioning levels which drove earnings below our expectations. Results were particularly affected by the acceleration of Open-End loan product in Canada where we added $87.4 million of Open-End loan balances during the third quarter, which well exceeded our expectations. The related upfront loan loss provisioning caused Canadian net revenue and Adjusted EBITDA to drop by $10.9 million and $13.2 million sequentially, respectively, compared to the second quarter of 2018. We expect loan growth in Canada to stabilize at more normalized levels in the fourth quarter and, as a result, we expect Canadian earnings to rebound quickly. Our U.S. business grew loans by $55.3 million sequentially and 21.8% year-over-year which affected loan loss provision comparisons there. Combined gross loans receivable grew $132.7 million sequentially and 39.2% year-over-year and we expect strong loan growth to continue in the fourth quarter. Based on that and our third quarter results, we are adjusting our guidance for full-year 2018,” commented Don Gayhardt, President and Chief Executive Officer of CURO Group Holdings Corp.

Consolidated Summary Results
 
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands, except per share data)
 
9/30/2018

9/30/2017

Variance

 
9/30/2018

9/30/2017

Variance

Revenue
 
$
283,004

$
255,119

10.9
 %
 
$
793,745

$
696,643

13.9
 %
Gross Margin
 
63,984

80,166

(20.2
)%
 
253,641

257,073

(1.3
)%
Gross Loans Receivable
 
567,675

393,423

44.3
 %
 
567,675

393,423

44.3
 %
Net (Loss) Income
 
(47,022
)
9,762

NM

 
(7,755
)
42,743

NM

Adjusted Net Income (1)
 
10,949

14,209

(22.9
)%
 
64,652

59,372

8.9
 %
Diluted Earnings per Share
 
$
(0.97
)
$
0.25

NM

 
$
(0.16
)
$
1.10

NM

Adjusted Diluted Earnings per Share (1)
 
$
0.23

$
0.36

(36.1
)%
 
$
1.35

$
1.53

(11.8
)%
EBITDA (1)
 
(35,654
)
43,316

NM

 
72,470

147,545

NM

Adjusted EBITDA (1)
 
38,354

51,429

(25.4
)%
 
162,190

173,257

(6.4
)%
Weighted Average Shares - diluted
 
48,352

38,918

 
 
48,061

38,959

 
(1) Non-GAAP Metric; see Results of Operations for reconciliation to nearest GAAP metric
 
 
 
 
Third quarter 2018 financial highlights include:
Third quarter Revenue of $283.0 million, an increase of 10.9% over the prior year period
Year-over-year loan growth of 39.2% and 25.8% sequential loan growth from second quarter of 2018
Gross margin and earnings declined year-over-year due to significantly higher sequential loan growth in 2018 (25.8%) versus third quarter 2017 sequential loan growth (12.6%), resulting in higher loss provisioning
Credit quality was generally improved overall. Net charge-off rates were up modestly year-over-year for Unsecured and Secured Installment loans while net charge-off rates for all other products improved compared to the same quarter a year ago

Year-to-date 2018 highlights include:
Year-to-date Revenue of $793.7 million, an increase of 13.9% over the prior year period
Year-to-date GAAP Net Loss of $7.8 million
Year-to-date Adjusted Net Income of $64.7 million, an increase of 8.9%
44.3% gross loan growth since third quarter 2017, (39.1% growth including loans guaranteed by the Company)





Completed a successful secondary offering for existing stockholders of over 5.5 million shares of common stock at $23 per share
Executed agreement with MetaBank® to provide consumers within the United States an innovative and flexible line of credit product

Fiscal 2018 Outlook

The Company is revising its full-year 2018 adjusted earnings guidance, a non-GAAP measure that excludes $11.7 million of debt extinguishment costs from the retirement of $77.5 million of the 12.00% Senior Secured Notes due 2022 in the first quarter of 2018, $71.0 million of such costs from the retirement of the remaining $527.5 million of these notes in the third quarter of 2018, $10.0 million of debt extinguishment costs expected relating to the repayment in full of the US SPV Facility in the fourth quarter of 2018, third and fourth quarter 2018 U.K. customer redress costs, $1.2 million of tax expense related to the 2017 Tax Act and $1.2 million of net benefits from adjustment of legal settlement liabilities, stock-based compensation and intangible asset amortization. We now anticipate full-year 2018 guidance to be as follows:

Revenue in the range of $1.090 billion to $1.095 billion, increased from prior range of $1.025 billion to $1.080 billion
Adjusted Net Income in the range of $88 million to $91 million compared to prior range of $110 million to $116 million
Adjusted EBITDA in the range of $215 million to $218 million compared to prior range of $245 million to $255 million
Estimated tax rate of 25% to 27% for the full year
Adjusted Diluted Earnings per Share of $1.84 to $1.88 compared to prior range of $2.25 to $2.40

Consolidated Revenue Summary
Three Months Ended September 30, 2018
The following table summarizes revenue by product, including CSO fees, for the periods indicated:
 
 
For the Three Months Ended
 
 
September 30, 2018
 
September 30, 2017
(in thousands)
 
U.S.
Canada
U.K.
Total
 
U.S.
Canada
U.K.
Total
Unsecured Installment
 
$
135,028

$
2,632

$
10,931

$
148,591

 
$
116,233

$
5,601

$
6,951

$
128,785

Secured Installment
 
28,562



28,562

 
26,407



26,407

Open-End
 
27,554

12,736


40,290

 
18,630



18,630

Single-Pay
 
27,792

22,822

2,591

53,205

 
27,753

39,550

3,592

70,895

Ancillary
 
4,337

8,019


12,356

 
4,803

5,507

92

10,402

   Total revenue
 
$
223,273

$
46,209

$
13,522

$
283,004

 
$
193,826

$
50,658

$
10,635

$
255,119


During the three months ended September 30, 2018, total lending revenue (excluding revenues from ancillary products) grew $25.9 million, or 10.6%, to $270.6 million, compared to the prior year period, predominantly driven by growth in Installment and Open-End loans. Geographically, revenue in the U.S. and U.K. grew 15.2% and 27.1%, respectively. Canada revenue declined 8.8% primarily due to the continued product mix shift from Single-Pay. From a product perspective, Unsecured Installment revenues rose 15.4% and Secured Installment revenues rose 8.2% driven by related loan growth. Single-Pay revenues were affected primarily by regulatory changes in Canada (rate changes in Alberta, Ontario and British Columbia) leading to a shift to Open-End loans as well as a continued general product shift from Single-Pay to Installment and Open-End loans in all countries. Open-End revenues rose 116.3% 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 $87.4 million sequentially from the second quarter. With the accelerated Open-End growth, Single-Pay balances in Canada shrank sequentially by $11.2 million. Ancillary revenues increased 18.8% versus the same quarter a year ago primarily due to non-lending revenue in Canada.





Nine Months Ended September 30, 2018
The following table summarizes revenue by product, including CSO fees, for the periods indicated:
 
 
For the Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
(in thousands)
 
U.S.
Canada
U.K.
Total
 
U.S.
Canada
U.K.
Total
Unsecured Installment
 
$
366,748

$
11,227

$
27,035

$
405,010

 
$
311,884

$
13,244

$
18,237

$
343,365

Secured Installment
 
81,195



81,195

 
73,249



73,249

Open-End
 
76,649

18,086


94,735

 
52,342



52,342

Single-Pay
 
78,835

90,461

9,216

178,512

 
78,961

108,676

10,289

197,926

Ancillary
 
14,565

19,728


34,293

 
15,476

13,899

386

29,761

   Total revenue
 
$
617,992

$
139,502

$
36,251

$
793,745

 
$
531,912

$
135,819

$
28,912

$
696,643


During the nine months ended September 30, 2018, total lending revenue (excluding revenues from ancillary products) grew $92.6 million, or 13.9%, to $759.5 million, compared to the prior year period, predominantly driven by growth in Installment loans in the U.S. and U.K. and Open-End loans in the U.S. and Canada. Geographically, revenue in the U.S., Canada and U.K. grew 16.2%, 2.7%, and 25.4%, respectively. From a product perspective, Unsecured Installment revenues rose 18.0% and Secured Installment revenues rose 10.8% 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) leading to a shift to Open-End loans as well as a continued general product shift from Single-Pay. Open-End revenues rose 81.0% on organic growth in the U.S. and the introduction of Open-End products in Virginia and Canada. As of September 30, 2018, loan balances for our Open-End product in Canada, which we began offering in the fourth quarter of 2017, grew to $138.7 million. Ancillary revenues increased 15.2% 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 September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Installment
 
62.6
%
 
60.8
%
 
61.3
%
 
59.8
%
Canada Single-Pay
 
8.1
%
 
15.5
%
 
11.4
%
 
15.6
%
U.S. Single-Pay
 
9.8
%
 
10.9
%
 
9.9
%
 
11.3
%
U.K. Single-Pay
 
0.9
%
 
1.4
%
 
1.2
%
 
1.5
%
Open-End
 
14.2
%
 
7.3
%
 
11.9
%
 
7.5
%
Ancillary
 
4.4
%
 
4.1
%
 
4.3
%
 
4.3
%
Total
 
100.0
%

100.0
%

100.0
%
 
100.0
%
For the three months ended September 30, 2018 and 2017, revenue generated through the online channel was 47% and 39%, respectively, of consolidated revenue. For the nine months ended September 30, 2018 and 2017, revenue generated through the online channel was 44% and 37%, 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)
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Company Owned gross loans receivable
$
567.7

$
444.6

$
389.8

$
432.8

$
393.4

Gross loans receivable Guaranteed by the Company
78.8

69.2

57.1

78.8

71.2

Gross combined loans receivable
$
646.5

$
513.8

$
446.9

$
511.6

$
464.6







Gross combined loans receivable by product are presented below:
 
Three Months Ended
(in millions)
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
Unsecured Installment
$
211.6

$
179.4

$
171.4

$
196.3

$
181.8

Secured Installment
91.2

84.6

79.8

89.2

85.0

Single-Pay
80.8

89.6

87.1

99.4

94.5

Open-End
184.1

91.0

51.5

47.9

32.1

CSO
78.8

69.2

57.1

78.8

71.2

Total
$
646.5

$
513.8

$
446.9

$
511.6

$
464.6


Gross combined loans receivable increased $181.9 million, or 39.1%, to $646.5 million as of September 30, 2018 compared to $464.6 million as of September 30, 2017. Geographically, gross combined loans receivable grew 21.8%, 94.9% and 65.5%, 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 our CSO programs as well as growth in the United Kingdom. Gross combined Unsecured Installment loan balances grew $38.1 million, or 15.3%, compared to September 30, 2017, net of a decline in Canada of $30.2 million due to mix shift to Open-End. Excluding Canada, gross combined Unsecured Installment loan balances increased 34.1% year-over-year.
The net charge-off rate and past-due percentage for Company Owned Unsecured Installment loans in the third quarter of 2018 both increased approximately 300bps from the third quarter of 2017 due to geographic mix shift. Canadian unsecured installment balances were down $30.2 million compared to prior year due to Open-End migration. However, at the country level, Unsecured net charge-off rates improved year-over-year in all cases. The net charge-off rate for the U.S was 100 bps lower year-over-year and net charge-off rates in Canada and the U.K. also declined compared to the same period last year. As Canadian Unsecured Installment balances declined from the shift to Open-End and U.S. balances grew $46.7 million, the U.S. percentage of total Company Owned Unsecured Installment loan balances rose from 65.8% to 78.6% year-over-year. Net charge-off rates in the U.S. are higher than Canada, so this geographic mix shift results in an overall increase in net charge-off rate even though each country’s rate declined. Provision exceeded NCOs for Unsecured Installment by $7.6 million.
Net charge-off rates for Unsecured Installment loans Guaranteed by the Company improved meaningfully from third quarter 2017 on underlying vintage improvement but also because the same quarter last year was affected by Hurricane Harvey. Net charge off rates for this product were higher in the third quarter of 2018 than the second quarter following normal seasonal patterns.
Unsecured Installment Allowance coverage for loan losses increased sequentially on a consolidated basis due to the geographic mix shift described above, but remained consistent by geography as noted above. Allowance on Unsecured Installment loans Guaranteed by the Company remained consistent sequentially.











 
2018
 
2017
(dollars in thousands, unaudited)
 Third Quarter
Second Quarter
First Quarter
 
Fourth Quarter
Third Quarter
Unsecured Installment loans:
 
 
 
 
 
 
Revenue - Company Owned
$
75,077

$
63,404

$
66,004

 
$
67,800

$
61,653

Provision for losses - Company Owned (1)
39,025

27,434

27,477

 
29,967

31,110

Net revenue - Company Owned
$
36,052

$
35,970

$
38,527

 
$
37,833

$
30,543

Net charge-offs - Company Owned (1)
$
31,403

$
29,734

$
33,410

 
$
32,944

$
25,889

Revenue - Guaranteed by the Company
$
73,514

$
60,069

$
66,942

 
$
69,078

$
67,132

Provision for losses - Guaranteed by the Company (1)
39,552

26,974

23,556

 
34,001

38,106

Net revenue - Guaranteed by the Company
$
33,962

$
33,095

$
43,386

 
$
35,077

$
29,026

Net charge-offs - Guaranteed by the Company (1)
$
37,995

$
25,667

$
30,743

 
$
32,984

$
36,798

Unsecured Installment gross combined loans receivable:
 
 
 
 
 
 
Company Owned
$
211,565

$
179,414

$
171,432

 
$
196,306

$
181,831

Guaranteed by the Company (2)(3)
75,807

66,351

54,332

 
75,156

67,438

Unsecured Installment gross combined loans receivable(2)(3)
$
287,372

$
245,765

$
225,764

 
$
271,462

$
249,269

 
 
 
 
 
 
 
Unsecured Installment Allowance for loan losses (4)
$
43,066

$
35,277

$
37,916

 
$
43,755

$
46,938

Unsecured Installment CSO guarantee liability (4)
$
12,750

$
11,193

$
9,886

 
$
17,072

$
16,056

Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable
20.4
%
19.7
%
22.1
%
 
22.3
%
25.8
%
Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans guaranteed by the Company
16.8
%
16.9
%
18.2
%
 
22.7
%
23.8
%
Unsecured Installment past-due balances:
 
 
 
 
 
 
Unsecured Installment gross loans receivable
$
54,618

$
40,272

$
39,273

 
$
44,963

$
41,353

Unsecured Installment gross loans guaranteed by the Company
$
12,120

$
10,319

$
8,410

 
$
12,480

$
10,462

Past-due Unsecured Installment gross loans receivable -- percentage (3)
25.8
%
22.4
%
22.9
%
 
22.9
%
22.7
%
Past-due Unsecured Installment gross loans guaranteed by the Company -- percentage (3)
16.0
%
15.6
%
15.5
%
 
16.6
%
15.5
%
Unsecured Installment other information:
 
 
 
 
 
 
Originations - Company Owned
$
142,347

$
128,146

$
99,418

 
$
135,284

$
137,618

Originations - Guaranteed by the Company (2)
$
91,828

$
84,082

$
60,593

 
$
82,326

$
83,680

Unsecured Installment ratios:
 
 
 
 
 
 
Provision as a percentage of gross loans receivable - Company Owned
18.4
%
15.3
%
16.0
%

15.3
%
17.1
%
Provision as a percentage of gross loans receivable - Guaranteed by the Company
52.2
%
40.7
%
43.4
%

45.2
%
56.5
%
(1) As part of improvements made to our financial reporting processes in 2018, we have reclassified certain provision expense and net charge-off activity to be consistent with current period presentation. We added approximately $2.0 million to third quarter 2017 Provision Expense and Net charge-offs for Company Owned loans and approximately $1.9 million and $1.1 million to third and fourth quarter 2017 Provision Expense and Net charge offs for loans Guaranteed by the Company.
(2)  Includes loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements.
(3) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details.
(4) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets.






Secured Installment Loans
Secured Installment gross combined loans receivable balances as of September 30, 2018 increased by $5.5 million, or 6.2%, compared to September 30, 2017, primarily due to growth in Arizona, while related revenue grew 8.2%. Provision expense increased by $7.6 million in the third quarter of 2018 compared to the third quarter of 2017 primarily because of adjustments to the Allowance for loan loss coverage rate during the third quarter of 2017. Third quarter 2018 net charge-off rates for Secured Installment loans increased by 443 basis points from the same period in the prior year but declined 144 basis points from the second quarter of 2018.
Secured Installment Allowance for loan losses and CSO guarantee liability as a percentage of Secured Installment gross loans receivable remained consistent from the second quarter at 12.4%. For the three months ended September 30, 2018, net charge-offs of $9.3 million were consistent with second quarter net charge-offs of $9.0 million. First Pay Defaults (FPDs) reflect the number of payments made by customers compared to the number of payments scheduled to be paid during a period. FPDs remained flat versus the same period last year.
 
2018
 
2017
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
 
Fourth Quarter
Third Quarter
Secured Installment loans:
 
 
 
 
 
 
Revenue
$
28,562

$
25,777

$
26,856

 
$
27,732

$
26,407

Provision for losses (1)
10,188

7,650

6,640

 
9,246

2,618

Net revenue
$
18,374

$
18,127

$
20,216

 
$
18,486

$
23,789

Net charge-offs (1)
$
9,285

$
9,003

$
8,669

 
$
9,997

$
7,703

Secured Installment gross combined loan balances:
 
 
 
 
 
 
Secured Installment gross combined loans receivable (2)(3)
$
94,194

$
87,434

$
82,534

 
$
92,817

$
88,730

Secured Installment Allowance for loan losses and CSO guarantee liability (4)
$
11,714

$
10,812

$
12,165

 
$
14,194

$
14,945

Secured Installment Allowance for loan losses and CSO guarantee liability as a percentage of Secured Installment gross combined loans receivable
12.4
%
12.4
%
14.7
%
 
15.3
%
16.8
%
Secured Installment past-due balances:
 
 
 
 
 
 
Secured Installment past-due gross loans receivable and gross loans guaranteed by the Company
$
17,754

$
15,246

$
14,756

 
$
16,554

$
15,265

Past-due Secured Installment gross loans receivable and gross loans guaranteed by the Company -- percentage(3)
18.8
%
17.4
%
17.9
%
 
17.8
%
17.2
%
Secured Installment other information:
 
 
 
 
 
 
Originations (2)
$
51,742

$
53,597

$
34,750

 
$
48,577

$
52,526

Secured Installment ratios:
 
 
 
 
 
 
Provision as a percentage of gross combined loans receivable
10.8
%
8.7
%
8.0
%
 
10.0
%
3.0
%
(1) As part of improvements made to our financial reporting process in 2018, we have reclassified certain provision expense and net charge-off activity to be consistent with current period presentation. We added approximately $3.9 million and $0.8 million from third and fourth quarter 2017 Provision Expense and Net-charge offs.
(2) Includes loans originated by third-party lenders through CSO programs, which are not included in the consolidated financial statements.
(3) Non-GAAP measure - Refer to "Non-GAAP Financial Measures" for further details.
(4) Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on the Consolidated Balance Sheets.





Open-End Loans
Open-End loan balances as of September 30, 2018 increased by $151.9 million, or 472.8%, compared to September 30, 2017 primarily due to the third quarter 2017 launch of Open-End in Canada as we transition from Single-Pay and Installment loans as well as the introduction of Open-End loans in Virginia in the third quarter of 2017. Open-End adoption in Canada accelerated this quarter as related loan balances grew $87.4 million sequentially from the second 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 seasoning of the U.S. portfolio and a shift to Open-End in Canada where losses and required allowance coverage is lower than the U.S. At September 30, 2018, Canadian Open-End gross loans receivable comprised 75.3% of the total Open-End product, compared to none at the end of the prior year quarter. The increase in the third quarter 2018 net charge-off rate is largely a result of significant new customer acquisitions associated with the transition to Open-End loans in Ontario. In addition, we relaxed underwriting selectively in two of our mature state markets in the U.S. to expand and improve net revenue.
 
2018
 
2017
(dollars in thousands, unaudited)
Third Quarter
Second Quarter
First Quarter
 
Fourth Quarter
Third Quarter
Open-End loans:
 
 
 
 
 
 
Revenue
$
40,290

$
27,222

$
27,223

 
$
21,154

$
18,630

Provision for losses
31,686

14,848

11,428

 
8,334

6,348

Net revenue
$
8,604

$
12,374

$
15,795

 
$
12,820

$
12,282

Net charge-offs
$
23,579

$
11,924

$
10,972

 
$
6,799

$
5,991

Open-End gross loan balances:
 
 
 
 
 
 
Open-End gross loans receivable
$
184,067

$
91,033

$
51,564

 
$
47,949

$
32,133

Allowance for loan losses
$
18,013

$
9,717

$
6,846

 
$
6,426

$
4,880

Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable
9.8
%
10.7
%
13.3
%
 
13.4
%
15.2
%
Open-End ratios:
 
 
 
 
 
 
Provision as a percentage of gross loans receivable
17.2
%
16.3
%
22.2
%
 
17.4
%
19.8
%

Single-Pay
Single-Pay revenue and related loans receivable during the three months ended September 30, 2018 declined year-over-year compared to the three months ended September 30, 2017 primarily due to regulatory changes in Canada (rate changes in Alberta, Ontario and British Columbia) and the accelerated shift to Open-End loans there, as well as a continued general product shift from Single-Pay to Installment and Open-End loans in all countries. Because of the aforementioned accelerated Open-End growth in Canada ($87.4 million in the quarter), Single-Pay loan balances in Canada shrank sequentially by $11.2 million from the second to third quarter and have stabilized. 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)
Third Quarter
Second Quarter
First Quarter
 
Fourth Quarter
Third Quarter
Single-Pay loans:


 
 
 
 
Revenue
$
53,205

$
61,602

$
63,705

 
$
70,868

$
70,895

Provision for losses
13,511

14,527

11,302

 
17,952

20,632

Net revenue
$
39,694

$
47,075

$
52,403

 
$
52,916

$
50,263

Net charge-offs
$
13,927

$
14,543

$
12,698

 
$
17,362

$
20,515

Single-Pay gross loan balances:


 
 
 
 
Single-Pay gross loans receivable
$
80,867

$
89,575

$
87,075

 
$
99,400

$
94,476

Single-Pay Allowance for loan losses
$
3,768

$
4,372

$
4,485

 
$
5,915

$
5,342

Single-Pay Allowance for loan losses as a percentage of Single-Pay gross loans receivable
4.7
%
4.9
%
5.2
%
 
6.0
%
5.7
%





Results of Operations - CURO Group Consolidated Operations
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
2018
2017
Change $
Change %
 
2018
2017
Change $
Change %
Revenue
$
283,004

$
255,119

$
27,885

10.9
 %
 
$
793,745

$
696,643

$
97,102

13.9
 %
Provision for losses
134,523

99,341

35,182

35.4
 %
 
307,540

226,523

81,017

35.8
 %
Net revenue
148,481

155,778

(7,297
)
(4.7
)%
 
486,205

470,120

16,085

3.4
 %
Advertising costs
24,114

16,270

7,844

48.2
 %
 
51,424

35,599

15,825

44.5
 %
Non-advertising costs of providing services
60,383

59,342

1,041

1.8
 %
 
181,140

177,448

3,692

2.1
 %
Total cost of providing services
84,497

75,612

8,885

11.8
 %
 
232,564

213,047

19,517

9.2
 %
Gross margin
63,984

80,166

(16,182
)
(20.2
)%
 
253,641

257,073

(3,432
)
(1.3
)%
 
 
 
 


 
 
 
 
 
Operating expense
 
 
 


 
 
 
 
 
Corporate, district and other
35,185

34,247

938

2.7
 %
 
114,294

103,797

10,497

10.1
 %
Interest expense
23,396

18,844

4,552

24.2
 %
 
66,210

60,694

5,516

9.1
 %
Loss on extinguishment of debt
69,200


69,200

#

 
80,883

12,458

68,425

#

Restructuring costs

7,393

(7,393
)
#

 

7,393

(7,393
)
#

Total operating expense
127,781

60,484

67,297

#

 
261,387

184,342

77,045

41.8
 %
Net (loss) income before income taxes
(63,797
)
19,682

(83,479
)
#

 
(7,746
)
72,731

(80,477
)
#

(Benefit) provision for income taxes
(16,775
)
9,920

(26,695
)
#

 
9

29,988

(29,979
)
#

Net (loss) income
$
(47,022
)
$
9,762

$
(56,784
)
#

 
$
(7,755
)
$
42,743

$
(50,498
)
#

# - 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 September 30,
 
Nine Months Ended September 30,
2018
2017
Change $
Change %
 
2018
2017
Change $
Change %
Net (loss) income
$
(47,022
)
$
9,762

$
(56,784
)
#

 
$
(7,755
)
$
42,743

$
(50,498
)
#

Adjustments:
 
 
 

 
 
 
 
 
Loss on extinguishment of debt and related costs (1) 
72,165





 
83,848

12,458

 
 
Restructuring costs (2)

7,393



 

7,393

 
 
Legal settlements (3)
2,774

361




 
2,774

2,311

 
 
Transaction-related costs (4)

123



 

2,523

 
 
Share-based cash and non-cash compensation (5)
2,089

454




 
6,112

1,760

 
 
Intangible asset amortization
728

634



 
2,059

1,807

 
 
Impact of tax law changes (6)
(600
)




 
1,200


 
 
Cumulative tax effect of adjustments
(19,185
)
(4,518
)
 
 
 
(23,586
)
(11,623
)
 
 
Adjusted Net Income
$
10,949

$
14,209

$
(3,260
)
(22.9
)%
 
$
64,652

$
59,372

$
5,280

8.9
 %
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(47,022
)
$
9,762




 
$
(7,755
)
$
42,743

 
 
Diluted Weighted Average Shares Outstanding (7)
48,352

38,914



 
48,061

38,959

 
 
Diluted Earnings per Share (7)
$
(0.97
)
$
0.25

$
(1.22
)
#

 
$
(0.16
)
$
1.10

$
(1.26
)
#

Per Share impact of adjustments to Net Income (7)
1.20

0.11

 
 
 
1.51

0.43

 
 
Adjusted Diluted Earnings per Share (7)
$
0.23

$
0.36

$
(0.13
)
(36.1
)%
 
$
1.35

$
1.53

$
(0.18
)
(11.8
)%
# - Variance greater than 100% or not meaningful.






Reconciliation of Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
2017
Change $
Change %
 
2018
2017
Change $
Change %
Net (loss) income
$
(47,022
)
$
9,762

$
(56,784
)
#

 
$
(7,755
)
$
42,743

$
(50,498
)
#

(Benefit) provision for income taxes
(16,775
)
9,920

(26,695
)
#

 
9

29,988

(29,979
)
#

Interest expense
23,396

18,844

4,552

24.2
 %
 
66,210

60,694

5,516

9.1
 %
Depreciation and amortization
4,747

4,790

(43
)
(0.9
)%
 
14,006

14,120

(114
)
(0.8
)%
EBITDA
(35,654
)
43,316

(78,970
)
#

 
72,470

147,545

(75,075
)
(50.9
)%
Loss on extinguishment of debt (1)
69,200





 
80,883

12,458

 
 
Restructuring costs (2)

7,393




 

7,393

 
 
Legal settlements(3)
2,774

361




 
2,774

2,311

 
 
Transaction-related costs(4)

123




 

2,523

 
 
Share-based cash and non-cash compensation(5)
2,089

454




 
6,112

1,760

 
 
Other adjustments(8)
(55
)
(218
)



 
(49
)
(733
)
 
 
Adjusted EBITDA
$
38,354

$
51,429

$
(13,075
)
(25.4
)%
 
$
162,190

$
173,257

$
(11,067
)
(6.4
)%
Adjusted EBITDA Margin
13.6
%
20.2
%
 
 
 
20.4
%
24.9
%
 
 
# - Variance greater than 100% or not meaningful.
(1)
For the nine months ended September 30, 2018, the $80.9 million of loss on extinguishment of debt is comprised of (a) $11.7 million incurred in the first quarter of 2018 for the redemption of $77.5 million of the CURO Financial Technologies Corp.'s ("CFTC") 12.00% Senior Secured Notes due 2022 and (b) $69.2 million incurred in the third quarter of 2018 for the redemption of the remaining $525.7 million of these notes. The $69.2 million of third quarter loss on extinguishment is comprised of a $54.0 million make whole premium and $15.2 million of deferred financing costs, net of premium/discounts. An additional $3.0 million is included in related costs for the three and nine months ended September 30, 2018 for duplicative interest paid through September 30, 2018 prior to repayment of the remaining 12.00% Senior Secured Notes and the Non-Recourse U.S. SPV Facility.

For the nine months ended September 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)
Restructuring costs of $7.4 million for the three and nine months ended September 30, 2017 were due to the closure of the remaining 13 U.K. stores.
(3)
Legal settlements for the three and nine months ended September 30, 2018 includes (a) $4.0 million of customer redress costs in the U.K., (b) a $1.8 million reduction of the liability related to our offer to reimburse certain bank overdraft or non-sufficient funds fees because of possible borrower confusion about certain electronic payments we initiated on their loans and (c) settlement of certain matters in California and Canada. Legal settlements for the three and nine months ended September 30, 2017 includes $2.3 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.
(4)
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.
(5)
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.
(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. Subsequent to further guidance published in the first quarter of 2018, we booked additional tax expense of $1.2 million for the 2017 repatriation tax. Additionally, the 2017 Tax Act provided for a new GILTI tax starting in 2018 and we estimated and provided tax expense of $0.6 million in the first quarter of 2018. This expense was reversed in the third quarter of 2018 based on changes in the geographic mix of income.
(7)
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.
(8)
Other adjustments include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense. Rent expense is recognized ratably on a straight-line basis over the lease term.

For the three months ended September 30, 2018 and 2017
Revenue and Net Revenue
Revenue increased $27.9 million, or 10.9%, to $283.0 million for the three months ended September 30, 2018 from $255.1 million for the three months ended September 30, 2017. U.S. revenue increased 15.2% on volume growth. Canadian revenue decreased 8.8% primarily due to the continued product mix transitioning from Single-Pay and Installment Loans to Open-End loans. U.K. revenue increased by 27.1%.
Provision for losses increased $35.2 million, or 35.4%, to $134.5 million for the three months ended September 30, 2018 from $99.3 million for the three months ended September 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 $8.9 million, or 11.8%, to $84.5 million in the three months ended September 30, 2018, compared to $75.6 million in the three months ended September 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 $0.9 million, or 2.7%, primarily related to share-based compensation expense.
Provision for Income Taxes
The effective tax benefit rate for the three months ended September 30, 2018 was 26.3% compared to a tax expense rate 50.4% for the three months ended September 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. and certain other Canadian entities that we utilize to launch new products and brands. The lack of tax benefit in these entities was offset in the third quarter of 2018 by a $3.3 million benefit for the fair market value impact of a historic stock option plan that was modified in 2017 creating a taxable event, and by the reversal of $0.6 million of estimated Global Intangible Low-Taxed Income ("GILTI") originally recorded in the first quarter of 2018 based on a shift in the geographic composition of pre-tax income.

For the nine months ended September 30, 2018 and 2017
Revenue and Net Revenue
Revenue increased $97.1 million, or 13.9%, to $793.7 million for the nine months ended September 30, 2018 from $696.6 million for the nine months ended September 30, 2017. U.S. revenue increased 16.2% on volume growth. Canadian revenue increased 2.7% as volume growth offset regulatory impacts on rates and product mix. U.K. revenue increased by 25.4%.
Provision for losses increased $81.0 million, or 35.8%, to $307.5 million for the nine months ended September 30, 2018 from $226.5 million for the nine months ended September 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 $19.5 million, or 9.2%, to $232.6 million in the nine months ended September 30, 2018, compared to $213.0 million in the nine months ended September 30, 2017 primarily because of higher customer acquisition spend.
Operating Expenses
Corporate, district and other expense increased $10.5 million, or 10.1%, primarily due to $6.9 million of costs related to customer redress pursuant to a complaint resolution process for all lenders in the U.K, $4.4 million of year-over-year incremental share-based compensation expense and $1.2 million in year-over-year additional compensation expense related to increased collections activity, online customer support and technology headcount.
Provision for Income Taxes
The effective tax benefit rate for the nine months ended September 30, 2018 was 0.1% compared to a tax expense rate of 41.2% for the nine months ended September 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 September 30, 2018 includes an additional accrual of $1.2 million for adjustments to estimates of the tax on prior years' foreign repatriation as the result of additional interpretative guidance from the IRS issued during the first quarter of 2018 and the above mentioned impacts of loss entities with no tax benefits and the benefits from stock option exercise.






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 September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
223,273

$
193,826

$
29,447

15.2
 %
Provision for losses
103,256

79,506

23,750

29.9
 %
Net revenue
120,017

114,320

5,697

5.0
 %
Advertising costs
17,632

12,005

5,627

46.9
 %
Non-advertising costs of providing services
42,280

41,213

1,067

2.6
 %
   Total cost of providing services
59,912

53,218

6,694

12.6
 %
Gross margin
60,105

61,102

(997
)
(1.6
)%
Corporate, district and other
22,360

25,257

(2,897
)
(11.5
)%
Interest expense
22,169

18,795

3,374

18.0
 %
Loss on extinguishment of debt
69,200


69,200

#

Total operating expense
113,729

44,052

69,677

#

Segment operating (loss) income
(53,624
)
17,050

(70,674
)
#

Interest expense
22,169

18,795

3,374

18.0
 %
Depreciation and amortization
3,536

3,447

89

2.6
 %
EBITDA
(27,919
)
39,292

(67,211
)
#

Loss on extinguishment of debt
69,200


69,200



Legal settlements
(1,297
)
361

(1,658
)


Other adjustments
(99
)
(27
)
(72
)


Transaction related costs

123

(123
)


Share-based cash and non-cash compensation
2,089

454

1,635



Adjusted EBITDA
$
41,974

$
40,203

$
1,771

4.4
 %
# - Variance greater than 100% or not meaningful

U.S. Segment Results - For the three months ended September 30, 2018 and 2017
Third quarter U.S. revenues increased by $29.4 million, or 15.2%, to $223.3 million.
U.S revenue growth was driven by a $75.8 million, or 21.8%, increase in gross combined loans receivable to $423.0 million at September 30, 2018 compared to $347.2 million at September 30, 2017. We experienced volume growth primarily from Unsecured Installment receivables, which increased year-over-year $55.1 million, or 29.4%, while Open-End receivables increased $13.2 million, or 41.2%, compared to the prior year period. Open-End receivables growth was driven by the 2017 third quarter introduction of Open-End in Virginia, organic growth in Tennessee of 11.3% and growth in Kansas of 13.2%. Secured Installment receivables increased from the prior year period by $5.5 million or 6.2%.
The increase of $23.8 million, or 29.9%, in provision for losses was primarily driven by sequential loan growth of $55.3 million, or 15.0%. U.S. Company-Owned Unsecured Installment and Secured Installment net charge-offs rates rose modestly year-over-year while net charge-off rates for Unsecured Installment loans Guaranteed by the Company and Single-Pay loans improved from third quarter 2017. Net charge-off rates for Open-End loans increased because we relaxed underwriting selectively in two of our mature state markets to expand and improve net revenue.
U.S. cost of providing services for the three months ended September 30, 2018 was $59.9 million, an increase of $6.7 million, or 12.6%, compared to $53.2 million for the three months ended September 30, 2017. The increase was primarily due to $5.6 million, or 46.9%, higher advertising costs. Advertising for the U.S. online channel comprised $5.0 million of the year-over-year increase, $1.8 million of which related to our new Avio installment and Open-End loans. U.S. store advertising rose 11.2% year-over-year. Advertising as a percentage of revenue was 7.9% compared to 6.5% in the prior quarter, and in the range we expected given the ramping of Avio, the mix shift to online and seasonality.
Corporate, district and other operating expenses decreased $2.9 million compared to the same period in the prior year primarily due to adjustments to variable compensation cost assumptions, lower professional fees and a $1.3 million net reduction of our liabilities related to certain litigation matters, offset by $1.6 million of additional share-based compensation expense.
U.S. Interest expense for the third quarter of 2018 increased by $3.4 million compared to the same period prior year and was affected by the related refinancing transactions. We issued $690.0 million of 8.250% Senior Secured Notes due 2025 on August 27, 2018. We subsequently used the proceeds of this issuance to extinguish the remaining $527.5 million 2017 12.00% Senior





Secured Notes on September 7, 2018 and the Non-Recourse U.S. SPV Facility on October 11, 2018. We incurred additional interest during the third quarter of 2018 of $3.0 million during the time between the issuance of the Senior Secured Notes due 2025 and the extinguishment of the other existing debt facilities.
U.S. Segment Results
Nine Months Ended September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
617,992

$
531,912

$
86,080

16.2
 %
Provision for losses
239,576

180,658

58,918

32.6
 %
Net revenue
378,416

351,254

27,162

7.7
 %
Advertising costs
35,200

24,596

10,604

43.1
 %
Non-advertising costs of providing services
127,719

125,304

2,415

1.9
 %
   Total cost of providing services
162,919

149,900

13,019

8.7
 %
Gross margin
215,497

201,354

14,143

7.0
 %
Corporate, district and other
81,113

78,299

2,814

3.6
 %
Interest expense
64,931

60,563

4,368

7.2
 %
Loss on extinguishment of debt
80,883

12,458

68,425

#

Total operating expense
226,927

151,320

75,607

50.0
 %
Segment operating (loss) income
(11,430
)
50,034

(61,464
)
#

Interest expense
64,931

60,563

4,368

7.2
 %
Depreciation and amortization
10,322

10,200

122

1.2
 %
EBITDA
63,823

120,797

(56,974
)
(47.2
)%
Loss on extinguishment of debt
80,883

12,458

68,425

 
Restructuring costs

2,523

(2,523
)
 
Legal settlements
(1,297
)
2,311

(3,608
)
 
Other adjustments
(224
)
(47
)
(177
)
 
Share-based cash and non-cash compensation
6,112

1,756

4,356

 
Adjusted EBITDA
$
149,297

$
139,798

$
9,499

6.8
 %
# - Variance greater than 100% or not meaningful

U.S. Segment Results - For the nine months ended September 30, 2018 and 2017
U.S. revenues increased by $86.1 million, or 16.2%, to $618.0 million for the nine months ended September 30, 2018.
U.S revenue growth was driven by a $75.8 million, or 21.8%, increase in gross combined loans receivable to $423.0 million at September 30, 2018 compared to $347.2 million at September 30, 2017. We experienced volume growth primarily from Unsecured Installment receivables, which increased year-over-year $55.1 million, or 29.4%, while Open-End receivables increased $13.2 million, or 41.2%, compared to the prior year period. Open-End receivables growth was driven by the 2017 third quarter introduction of Open-End in Virginia, organic growth in Tennessee of 11.3% and growth in Kansas of 13.2%. Secured Installment receivables increased from the prior year period by $5.5 million or 6.2%.
The increase of $58.9 million, or 32.6%, in provision for losses was primarily driven by the increase in combined loans receivable as previously discussed.
U.S. cost of providing services were $162.9 million, an increase of $13.0 million, or 8.7%, compared to $149.9 million for the nine months ended September 30, 2017. The increase is primarily due to $10.6 million, or 43.1%, higher advertising costs. Advertising for the U.S. online channel comprised $8.5 million of the year-over-year increase, $4.4 million of which related to our new Avio installment and Open-End loans which launched in the third quarter of 2017. U.S. store advertising rose 15.0% year-over-year. Advertising as a percentage of revenue was 5.7% compared to 4.5% in the prior year, and in the range we expected given the ramping of Avio, the mix shift to online and seasonality.
The $2.8 million increase of corporate, district and other operating expenses includes $4.4 million of additional share-based compensation expense, offset by a $1.3 million net reduction in liabilities for certain litigation matters.





Canada Segment Results
Three Months Ended September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
46,209

$
50,658

$
(4,449
)
(8.8
)%
Provision for losses
24,436

15,718

8,718

55.5
 %
Net revenue
21,773

34,940

(13,167
)
(37.7
)%
Advertising costs
3,717

2,899

818

28.2
 %
Non-advertising costs of providing services
17,567

16,392

1,175

7.2
 %
Total cost of providing services
21,284

19,291

1,993

10.3
 %
Gross margin
489

15,649

(15,160
)
(96.9
)%
Corporate, district and other
5,135

4,660

475

10.2
 %
Interest expense
1,234

60

1,174

#

Total operating expense
6,369

4,720

1,649

34.9
 %
Segment operating (loss) income
(5,880
)
10,929

(16,809
)
#

Interest expense
1,234

60

1,174

#

Depreciation and amortization
1,087

1,170

(83
)
(7.1
)%
EBITDA
(3,559
)
12,159

(15,718
)
#

Legal settlements
119


119



Other adjustments
50

(182
)
232



Adjusted EBITDA
$
(3,390
)
$
11,977

$
(15,367
)
#

# - Variance greater than 100% or not meaningful.
 
 

Canada Segment Results - For the three months ended September 30, 2018 and 2017
Canada revenue decreased $4.4 million, or 8.8%, to $46.2 million for the three months ended September 30, 2018 from $50.7 million in the prior year period. On a constant currency basis, revenue decreased $2.5 million, or 4.9%. Revenue growth in Canada was impacted by the accelerated product transition from Single-Pay and Unsecured Installment loans to Open-End loans and by regulatory rate changes in Alberta, Ontario and British Columbia.
Single-Pay revenue decreased $16.7 million, or 42.3%, to $22.8 million for the three months ended September 30, 2018 and Single-Pay ending receivables decreased $14.2 million, or 28.3%, to $36.1 million from $50.4 million in the prior year. The decrease in Single-Pay revenue and receivables was due to the product mix shift in Canada from Single-Pay loans to Open-End loans and by regulatory changes that lower pricing year-over-year.
Canadian non-Single-Pay revenue increased $12.3 million, or 110.5%, to $23.4 million compared to $11.1 million the same quarter a year ago on $108.5 million, or 221.6%, growth in related loan balances. The increase was primarily related to the launch of Open-End products in Alberta and Ontario in the fourth quarter of 2017 and significant expansion of the Open-End product in Ontario in the third quarter of 2018.
The provision for losses increased $8.7 million, or 55.5%, to $24.4 million for the three months ended September 30, 2018 compared to $15.7 million in the prior year period because of upfront provisioning on Open-End loan volumes and mix shift from Single-Pay loans and Unsecured Installment to Open-End loans. Total Open-End and Installment loans grew by $82.7 million sequentially during the quarter compared to $6.1 million in the third quarter of 2017. On a constant currency basis, provision for losses increased by $9.8 million, or 62.2%.
The cost of providing services in Canada increased $2.0 million, or 10.3%, to $21.3 million for the three months ended September 30, 2018, compared to $19.3 million in the prior year period. Advertising costs rose $0.8 million, or 28.2%, 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 loan servicing costs resulting from Canada’s significantly increased loan portfolio. On a constant currency basis, cost of providing services increased $2.9 million, or 15.0%.
Canada operating expenses increased to $6.4 million in the three months ended September 30, 2018 from $4.7 million in the prior year period primarily due to increased interest expense resulting from the Non-Recourse Canada SPV Facility entered into during August 2018.





Canada Segment Results
Nine Months Ended September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
139,502

$
135,819

$
3,683

2.7
 %
Provision for losses
51,346

36,246

15,100

41.7
 %
Net revenue
88,156

99,573

(11,417
)
(11.5
)%
Advertising costs
9,147

6,944

2,203

31.7
 %
Non-advertising costs of providing services
50,718

46,718

4,000

8.6
 %
Total cost of providing services
59,865

53,662

6,203

11.6
 %
Gross margin
28,291

45,911

(17,620
)
(38.4
)%
Corporate, district and other
14,791

12,407

2,384

19.2
 %
Interest expense
1,298

142

1,156

#

Total operating expense
16,089

12,549

3,540

28.2
 %
Segment operating income
12,202

33,362

(21,160
)
(63.4
)%
Interest expense
1,298

142

1,156

#

Depreciation and amortization
3,306

3,389

(83
)
(2.4
)%
EBITDA
16,806

36,893

(20,087
)
(54.4
)%
Legal settlements
119


119



Other adjustments
223

(654
)
877

 
Adjusted EBITDA
$
17,148

$
36,239

$
(19,091
)
(52.7
)%
# - Variance greater than 100% or not meaningful.
 
 
 
 
Canada Segment Results - For the nine months ended September 30, 2018 and 2017
Canada revenue improved $3.7 million, or 2.7%, to $139.5 million for the nine months ended September 30, 2018 from $135.8 million in the prior year period. On a constant currency basis, revenue was up $1.7 million, or 1.2%. Revenue growth in Canada was impacted by the accelerated product transition from Single-Pay and Unsecured Installment loans to Open-End loans and by regulatory rate changes in Alberta, Ontario and British Columbia.
Single-Pay revenue decreased $18.2 million, or 16.8%, to $90.5 million for the nine months ended September 30, 2018 and Single-Pay ending receivables decrease of $14.2 million, or 28.3%, to $36.1 million from $50.4 million in the prior year. The decrease in Single-Pay revenue and receivables was due to product mix shift in Canada from Single-Pay loans to Open-End loans and by regulatory changes that lower pricing year-over-year.
Canadian non-Single-Pay revenue increased $21.9 million, or 80.7%, to $49.0 million compared to $27.1 million the same period a year ago on $108.5 million, or 221.6%, growth in related loan balances. The increase was primarily related to the launch of Open-End products in Alberta and Ontario in the fourth quarter of 2017 and significant expansion of the Open-End product in Ontario in the third quarter of 2018.
The provision for losses increased $15.1 million, or 41.7%, to $51.3 million for the nine months ended September 30, 2018 compared to $36.2 million in the prior year period because of 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 $14.5 million, or 40.1%.
The cost of providing services in Canada increased $6.2 million, or 11.6%, to $59.9 million for the nine months ended September 30, 2018, compared to $53.7 million in the prior year period. The increase was due primarily to $4.0 million, or 8.6%, higher non-advertising costs of providing services compared to the prior year due to $1.6 million of loan servicing costs resulting from Canada's increased loan portfolio and $1.4 million of additional salary expense related to an increase in headcount. The remaining increase is primarily related to occupancy expenses from higher store counts as we have opened seven LendDirect stores since the third quarter of 2017. On a constant currency basis, cost of providing services increased $5.4 million, or 10.0%.
Operating expenses increased $3.5 million, or 28.2%, to $16.1 million in the nine months ended September 30, 2018, from $12.5 million in the prior year period. Corporate, district and other expenses increased by $2.4 million due to increased collections and customer support payroll expenses from seasonality, increased volumes, expansion of the LendDirect business and product shifts from Single-Pay and Unsecured Installment to Open-End loans. Additionally, interest expense increased by $1.2 million due to the Non-Recourse Canada SPV Facility entered into during August 2018. On a constant currency basis, operating expenses increased $3.3 million, or 26.6%.






U.K. Segment Results
Three Months Ended September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
13,522

$
10,635

$
2,887

27.1
 %
Provision for losses
6,831

4,117

2,714

65.9
 %
Net revenue
6,691

6,518

173

2.7
 %
Advertising costs
2,765

1,367

1,398

#

Non-advertising costs of providing services
536

1,737

(1,201
)
(69.1
)%
Total cost of providing services
3,301

3,104

197

6.3
 %
Gross margin
3,390

3,414

(24
)
(0.7
)%
Corporate, district and other
7,690

4,330

3,360

77.6
 %
Interest income
(7
)
(12
)
(5
)
41.7
 %
Restructuring costs

7,393

(7,393
)
#

Total operating expense
7,683

11,711

(4,028
)
(34.4
)%
Segment operating loss
(4,293
)
(8,297
)
4,004

48.3
 %
Interest income
(7
)
(12
)
(5
)
41.7
 %
Depreciation and amortization
124

174

(50
)
(28.7
)%
EBITDA
(4,176
)
(8,135
)
3,959

48.7
 %
Legal settlements
3,952


3,952

 
Other adjustments
(6
)
(10
)
4



Restructuring costs

7,393

(7,393
)


Adjusted EBITDA
$
(230
)
$
(752
)
$
522

69.4
 %
# - Variance greater than 100% or not meaningful

U.K. Segment Results - For the three months ended September 30, 2018 and 2017
U.K. revenue improved $2.9 million, or 27.1%, to $13.5 million for the three months ended September 30, 2018 compared to $10.6 million in the prior year period. Provision for losses increased $2.7 million, or 65.9%, due to upfront provisioning on volume growth, high percentage of new customers in the origination mix and the product mix from Single-Pay to Installment loans. Installment loans in the U.K. grew sequentially by $7.3 million in the third quarter compared to $1.0 million in the third quarter of 2017. Currency translation for the period did not have a significant impact on net revenue compared to prior year.
The cost of providing services in the U.K. decreased $0.2 million, or 6.3%, for the three months ended September 30, 2018 compared to prior year period.
Corporate, district and other expenses increased $3.4 million, or 77.6%, to $7.7 million for the three months ended September 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 third quarter of 2018 to administer the complaint resolution process and the direct customer redress paid or accrued totaled $4.0 million, an increase of $3.3 million compared to the prior year period.
As we have previously disclosed, our U.K. operating results have experienced an elevated level of legal settlement expenses related to customer redress pursuant to a complaint resolution process for all lenders in the U.K. During the quarter ending September 30, 2018, these costs totaled $4.0 million. After careful consideration, we do not believe that, given the scale of our U.K. operations, we can sustain claims at this level and may not be able to continue viable U.K. business operations without action by the U.K. business to reduce the risk of claims relating to historic lending. We have been in ongoing discussions with relevant regulators, including the Financial Conduct Authority (“FCA”) and the Financial Ombudsman Service with regard to our alternatives. While these discussions are ongoing, the FCA is liaising with our U.K. operations regarding the appointment of a Skilled Person (under section.166 of the (U.K.) Financial Services and Markets Act 2000) to undertake a limited-scope review of the options being considered.  We are evaluating, and are discussing with the FCA, several potential courses of action including potential solutions to allow the firm to finally resolve liabilities associated with historic lending. The potential alternatives under consideration may require approval of the FCA, consent under certain of our debt facilities, and court approval in the U.K. We have not determined to pursue any specific alternative at this time and are continuing to evaluate our options.







U.K. Segment Results
Nine Months Ended September 30,
(dollars in thousands)
2018
2017
Change $
Change %
Revenue
$
36,251

$
28,912

$
7,339

25.4
 %
Provision for losses
16,618

9,619

6,999

72.8
 %
Net revenue
19,633

19,293

340

1.8
 %
Advertising costs
7,077

4,059

3,018

74.4
 %
Non-advertising costs of providing services
2,703

5,426

(2,723
)
(50.2
)%
Total cost of providing services
9,780

9,485

295

3.1
 %
Gross margin
9,853

9,808

45

0.5
 %
Corporate, district and other
18,390

13,091

5,299

40.5
 %
Interest income
(19
)
(11
)
8

(72.7
)%
Restructuring and other costs

7,393

(7,393
)
#

Total operating expense
18,371

20,473

(2,102
)
(10.3
)%
Segment operating loss
(8,518
)
(10,665
)
2,147

(20.1
)%
Interest income
(19
)
(11
)
8

(72.7
)%
Depreciation and amortization
378

531

(153
)
(28.8
)%
EBITDA
(8,159
)
(10,145
)
1,986

(19.6
)%
Legal settlements
3,952


3,952

 
Other adjustments
(48
)
(28
)
(20
)
 
Restructuring costs

7,393

(7,393
)


Adjusted EBITDA
$
(4,255
)
$
(2,780
)
$
(1,475
)
53.1
 %
# - Variance greater than 100% or not meaningful

U.K. Segment Results - For the nine months ended September 30, 2018 and 2017
U.K. revenue improved $7.3 million, or 25.4%, to $36.3 million for the nine months ended September 30, 2018 compared to $28.9 million in the prior year period. On a constant currency basis, revenue was up $5.4 million, or 18.8%. Provision for losses increased $7.0 million, and, on a constant currency basis, increased $6.1 million, or 63.9%, due to volume growth.
The cost of providing services in the U.K. increased $0.3 million, or 3.1%, for the nine months ended September 30, 2018 compared to prior year period. On a constant currency basis, the cost of providing services decreased $0.3 million, or 2.8%.
Corporate, district and other expenses increased $5.3 million, or 40.5%, to $18.4 million for the nine months ended September 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 nine months ended September 30, 2018 to administer the complaint resolution process and the direct customer redress paid or accrued totaled $6.9 million, an increase of $5.3 million compared to the prior year period. On a constant currency basis, corporate, district and other expenses increased $4.4 million, or 33.5%.






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

September 30, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Cash
$
153,361

 
$
162,374

Restricted cash (includes restricted cash of consolidated VIEs of $19,107 and $6,871 as of September 30, 2018 and December 31, 2017, respectively)
24,236

 
12,117

Gross loans receivable (includes loans of consolidated VIEs of $353,384 and $213,846 as of September 30, 2018 and December 31, 2017, respectively)
567,675

 
432,837

Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $49,951 and $46,140 as of September 30, 2018 and December 31, 2017, respectively)
(76,068
)
 
(69,568
)
Loans receivable, net
491,607

 
363,269

Deferred income taxes

 
772

Income taxes receivable
16,363

 
3,455

Prepaid expenses and other
40,109

 
42,512

Property and equipment, net
79,790

 
87,086

Goodwill
143,966

 
145,607

Other intangibles, net of accumulated amortization of $43,250 and $41,156 as of September 30, 2018 and December 31, 2017, respectively
33,208

 
32,769

Other
13,090

 
9,770

Total Assets
$
995,730

 
$
859,731

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities
$
52,853

 
$
55,792

Deferred revenue
9,667

 
11,984

Income taxes payable
338

 
4,120

Accrued interest (includes accrued interest of consolidated VIEs of $1,603 and $1,266 as of September 30, 2018 and December 31, 2017, respectively)
7,391

 
25,467

Credit services organization guarantee liability
13,243

 
17,795

Deferred rent
11,288

 
11,577

Long-term debt (includes long-term debt and issuance costs of consolidated VIEs of $169,666 and $7,710 as of September 30, 2018 and $124,590 and $4,188 as of December 31, 2017, respectively)
868,201

 
706,225

Subordinated shareholder debt
2,319

 
2,381

Other long-term liabilities
6,949

 
5,768

Deferred tax liabilities
13,617

 
11,486

Total Liabilities
$
985,866

 
$
852,595

Stockholders' Equity
 
 
 
Total Stockholders' Equity
$
9,864

 
$
7,136

Total Liabilities and Stockholders' Equity
$
995,730

 
$
859,731


Balance Sheet Changes - September 30, 2018 compared to December 31, 2017
Cash - During the nine months ended September 30, 2018, we fully redeemed the 12.00% Senior Secured Notes held by CFTC, our wholly-owned subsidiary. CFTC redeemed $77.5 million of the 12.00% Senior Secured Notes in the first quarter of 2018 and the remaining $527.5 million of the original outstanding principal in the third quarter of 2018. The redemptions were conducted pursuant to the indenture governing the Senior Secured Notes, dated as of February 15, 2017, by and among CFTC, the guarantors party thereto and TMI Trust Company, as trustee and collateral agent at a price equal to 112.00% of the principal amount plus accrued and unpaid interest to the date of redemption. The resulting decrease in cash was offset by (a) 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 providing additional net proceeds of $13.1 million; (b) the issuance of $690.0 million aggregate principal amount of 8.250% Senior Secured Notes due 2025; and (c) proceeds from the Canada SPV Facility.
Subsequent to September 30, 2018, we utilized a portion of cash proceeds from the 8.250% Senior Secured Notes to fully extinguish the Non-Recourse U.S. SPV Facility on October 11, 2018.





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).
Long-term debt (including current maturities) and Accrued Interest - Changes from year-end 2017 are primarily due to the issuance of the 8.250% Senior Secured Notes due 2025 and the redemption of the 12.00% Senior Secured Notes due 2022, as previously discussed. Additionally, as of September 30, 2018, the Senior Revolver, which had no balance outstanding as of December 31, 2017, had a balance outstanding of $29.0 million. Finally, the U.S. and Canada SPV Facilities had approximately $26.6 million more outstanding as of September 30, 2018 compared to December 31, 2017 on the U.S. SPV Facility. During the third quarter, we entered into the Canadian SPV Facility and on October 11, 2018, we used a portion of the proceeds from the 8.250% Senior Secured Notes due 2025 to pay, in full, the U.S. SPV Facility.





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 Thursday, October 25, 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 November 1, 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 10125718.
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 September 30, 2018.






Forward-Looking Statements
This press release contains forward-looking statements. These forward-looking statements include statements related to our expectations for loan growth in Canada and resulting earnings; our expectations for Company-wide loan growth; our expectations of debt extinguishment costs; our updated fiscal 2018 outlook; and our expectations about the future viability of our UK operations. 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, our ability to accurately predict our future financial results and actions of regulators in the UK and alternatives available to us related to our UK operations. 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; actions of regulators; 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 and Adjusted Earnings Per Share, or the Adjusted Earnings Measures (net income plus or minus gain (loss) on extinguishment of debt, restructuring and other costs, goodwill and intangible asset impairments, transaction-related costs, share-based compensation, intangible asset amortization and cumulative tax effect of adjustments, on a total and per share basis);
EBITDA (earnings before interest, income taxes, depreciation and amortization);
Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items); and
Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in the consolidated financial statements).

We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of the Company's operations. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with 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.

Investor Relations:
Roger Dean
Executive Vice President and Chief Financial Officer
Phone: 844-200-0342
Email: IR@curo.com
Or
Global IR Group
Gar Jackson,
Phone: 949-873-2789
Email: gar@globalirgroup.com


(CURO-NWS)



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