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Press Release: CURO Group Holdings Corp. -7-

· 02/04/2021 16:00

Non-advertising costs of providing services decreased $8.8 million, or 14.6%, to $51.5 million in the three months ended December 31, 2020, compared to $60.3 million in the three months ended December 31, 2019. Of the $8.8 million decrease, $3.6 million related to third-party collection costs incurred in 2019 related to Ad Astra, which previously were included in Non-advertising costs of providing services. Subsequent to our acquisition of Ad Astra, which became our wholly owned subsidiary as of January 3, 2020, its operating costs are included within "Corporate, district and other expenses," consistent with presentation of our other internal collection costs. The remaining decrease year over year in Non-advertising costs of providing services was due to lower underwriting and other variable costs as a result of lower demand and lower collection costs as a result of stimulus-related pay-downs.

Advertising costs decreased $4.3 million, or 25.9%, year over year because of COVID-19 Impacts.

Corporate, District and Other Expenses

Corporate, district and other expenses were $43.6 million for the three months ended December 31, 2020, an increase of $6.5 million, or 17.7%, compared to the three months ended December 31, 2019. Corporate, district and other expenses in the three months ended December 31, 2020 included $1.9 million of collection costs related to Ad Astra. Comparable costs were included in Non-advertising costs of providing services prior to the acquisition of Ad Astra. Excluding Ad Astra costs, Corporate, district and other expenses increased $4.6 million year over year, primarily due to the timing and extent of variable compensation and higher professional fees year over year, partially offset by travel and other cost reductions, including work-from-home initiatives to manage COVID-19 Impacts.

Equity Method Investment

Refer to the "Katapult Update for the Three Months and Year Ended December 31, 2020 and 2019" below for details.

Interest Expense

Interest expense for the three months ended December 31, 2020 increased $1.0 million, or 5.7%, on slightly higher year-over-year borrowings.

Provision for Income Taxes

The effective income tax rate for the three months ended December 31, 2020 was 45.3%. The effective income tax rate was higher than the federal and state/provincial statutory rates of approximately 26%, primarily as the result of several non-taxable events, which skewed the effective tax rate due to the lower level of pre-tax income during the quarter.

Refer to the Reconciliation of Net Income from continuing operations to Adjusted Net Income for additional information. The effective income tax rate of adjusted tax expense included in the Adjusted Net Income for the three months ended December 31, 2020 was 29.7%.

For the Year Ended December 31, 2020 and 2019

Revenue and Net Revenue

Revenue decreased $294.4 million, or 25.8%, to $847.4 million for the year ended December 31, 2020 from $1,141.8 million for the year ended December 31, 2019 as a result of the declines in combined gross loans receivable discussed above. Year over year, U.S. decreased 30.1%, primarily from COVID-19 Impacts, and Canada decreased 8.5% (7.7% on a constant-currency basis). As previously mentioned, COVID-19 impacts on year-over-year results for Canada were less pronounced compared to the U.S. due to the faster reopening of Canadian markets and the continued growth of our Open-End loans in Canada.

Provision for losses decreased by $179.7 million, or 38.4%, for the year ended December 31, 2020 compared to the prior year. The decrease in provision for loan losses was primarily due to lower loan volume and lower NCOs as a result of COVID-19 Impacts, as discussed in more detail in the "Loan Volume and Portfolio Performance Analysis" and "Segment Analysis" sections.

Cost of Providing Services

Non-advertising costs of providing services decreased $35.6 million, or 14.7%, to $205.7 million in the year ended December 31, 2020, compared to $241.2 million in the year ended December 31, 2019. Of the $35.6 million decrease, $15.5 million was related to third-party collection costs incurred in 2019 related to Ad Astra, which were included in Non-advertising costs of providing services prior to the acquisition of Ad Astra. Following the January 3, 2020 acquisition, we included Ad Astra operating costs within "Corporate, district and other expenses," consistent with the presentation of our other internal collection costs. The remaining decrease in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand, (ii) lower collection costs after governmental stimulus-related pay-downs and (iii) lower discretionary variable compensation.

Advertising costs decreased $8.8 million, or 16.6%, year over year because of COVID-19 Impacts.

Corporate, District and Other Expenses

Corporate, district and other expenses were $159.9 million for the year ended December 31, 2020, a decrease of $0.3 million, or 0.2%, compared to the year ended December 31, 2019. Corporate, district and other expenses in the year ended December 31, 2020 included $9.6 million of collection costs related to Ad Astra, which prior to our acquisition of it, were included in Non-advertising costs of providing services. For the year ended December 31, 2020, corporate, district and other expenses also included (i) $12.9 million of share-based compensation costs, (ii) $2.2 million of Canadian GST described in our reconciliation to Adjusted Net Income above and (iii) $5.7 million of legal and other costs described in our reconciliation to Adjusted Net Income above. For the year ended December 31, 2019, corporate district and other costs included (i) U.K.-related costs of $8.8 million, (ii) $10.3 million of share-based compensation and (iii) $4.8 million of legal and other costs as described in our reconciliation to Adjusted Net Income above. Share-based compensation costs increased primarily as a result of awards granted in the first quarter of 2020.

Excluding Ad Astra costs, share-based compensation expense and other costs described above, comparable corporate, district and other expenses decreased $6.6 million year over year, primarily due to the timing and extent of variable compensation and other cost reductions, including work-from-home initiatives to manage COVID-19 Impacts.

Equity Method Investment

Refer to the "Katapult Update for the Three Months and Year Ended December 31, 2020 and 2019" below for details.

Interest Expense

Interest expense for the year ended December 31, 2020 increased $2.9 million, or 4.2%, on slightly higher year-over-year borrowings.

Provision for Income Taxes

The effective income tax rate for the year ended December 31, 2020 was 7.3%. The effective income tax rate was lower compared to the federal and state/provincial statutory rates of approximately 26%, primarily as the result of discrete, one-time tax benefits related to usage of NOLs and other valuation allowance releases and the aforementioned fourth quarter non-taxable events.

First, given the CARES Act impact treatment of NOLs as described above, we recorded an income tax benefit of $11.3 million related to the carry-back of U.S. federal NOLs from tax years 2018 and 2019, which offsets our tax liability for years prior to tax reform and will generate a refund of previously-paid taxes at a 35% statutory rate.

Second, we recorded a tax benefit of $4.6 million related to the release of a valuation allowance previously recorded against NOLs for certain entities in Canada. In addition, we released a valuation allowance of $1.1 million against the cumulative losses from our investment in Katapult, as we continued to record equity method income from this investment during the year.

The tax benefits described above were partially offset by an increase in the reserve for uncertain tax positions in the U.S. of $1.1 million and the impact of the fourth quarter non-taxable events. Refer to the Reconciliation of Net Income from continuing operations to Adjusted Net Income for additional information.

The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the year ended December 31, 2020 was 25.3%.

Katapult Update for the Three Months and Year Ended December 31, 2020 and 2019

A portion of our investment in Katapult is accounted for using the equity method of accounting. We recognize our share of its income or loss on a two-month lag with a corresponding adjustment to the carrying value of the investment included in "Investments" on the unaudited Consolidated Balance Sheet. As of December 31, 2020, our recognized share of Katapult's earnings through October 31, 2020 was $1.9 million for the fourth quarter and $4.5 million for the full year, as compared with losses of $1.2 million and $6.3 million for the three months and year ended December 31, 2019, respectively.

During the third quarter of 2020, we acquired additional equity interests in Katapult from certain existing owners for $11.2 million. As a result of these acquisitions, a portion of our Katapult ownership will continue to be recognized under the equity method of accounting and a portion has been reclassified and will be measured at cost less impairment. During the fourth quarter of 2020, we purchased an additional equity interest in Katapult for $1.6 million.

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February 04, 2021 16:00 ET (21:00 GMT)