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Press Release: CURO Group Holdings Corp. -8-

· 02/04/2021 16:00
U.S. Segment Results Three Months Ended December 31, Year Ended December 31, (dollars in thousands, unaudited) 2020 2019 Change $ Change % 2020 2019 Change $ Change % ----------------------- --------- --------- ---------- ---------- --------- --------- ----------- ---------- Revenue $ 146,588 $ 240,272 ($ 93,684) (39.0)% $ 638,524 $ 913,506 ($ 274,982) (30.1)% Provision for losses 59,108 111,576 (52,468) (47.0)% 230,164 392,105 (161,941) (41.3)% --------- --------- ---------- --------- --------- ----------- Net revenue 87,480 128,696 (41,216) (32.0)% 408,360 521,401 (113,041) (21.7)% Advertising 11,083 15,016 (3,933) (26.2)% 40,702 46,735 (6,033) (12.9)% Non-advertising costs of providing services 33,990 42,848 (8,858) (20.7)% 137,467 171,714 (34,247) (19.9)% --------- --------- ---------- --------- --------- ----------- Total cost of providing services 45,073 57,864 (12,791) (22.1)% 178,169 218,449 (40,280) (18.4)% --------- --------- ---------- --------- --------- ----------- Gross margin 42,407 70,832 (28,425) (40.1)% 230,191 302,952 (72,761) (24.0)% Corporate, district and other expenses 38,368 31,754 6,614 20.8% 137,152 138,180 (1,028) (0.7)% Interest expense 16,347 15,079 1,268 8.4% 63,413 59,325 4,088 6.9% (Income) loss from equity method investment (1,893) 1,163 (3,056) # (4,546) 6,295 (10,841) # --------- --------- ---------- --------- --------- ----------- Total operating expense 52,822 47,996 4,826 10.1% 196,019 203,800 (7,781) (3.8)% --------- --------- ---------- --------- --------- ----------- Segment operating (loss) income (10,415) 22,836 (33,251) # 34,172 99,152 (64,980) (65.5)% Interest expense 16,347 15,079 1,268 8.4% 63,413 59,325 4,088 6.9% Depreciation and amortization 3,078 3,263 (185) (5.7)% 12,992 13,816 (824) (6.0)% --------- --------- ---------- --------- --------- ----------- EBITDA 9,010 41,178 (32,168) (78.1)% 110,577 172,293 (61,716) (35.8)% Legal and other costs 2,160 2,173 (13) 5,662 4,660 1,002 U.K. related costs -- -- -- -- 8,844 (8,844) (Income) loss from equity method investment (1,893) 1,163 (3,056) (4,546) 6,295 (10,841) Share-based compensation 3,014 2,736 278 12,910 10,323 2,587 Other adjustments (117) 22 (139) (58) (184) 126 --------- --------- ---------- --------- --------- ----------- Adjusted EBITDA $ 12,174 $ 47,272 ($ 35,098) (74.2)% $ 124,545 $ 202,231 ($ 77,686) (38.4)% ----------------------- --------- --------- ---------- ------ --------- --------- ----------- ------ # - Variance greater than 100% or not meaningful.For the Nine Months Ended September 30, (1) (in thousands) 2020 2019 ---------------------- ---------------------- ----------------------- Revenue $ 173,842 $ 59,479 Cost of revenue 116,534 46,576 ---------------------- --------------------- Gross profit 57,308 12,903 ---------------------- --------------------- Operating expenses 28,195 22,611 Interest and loss on extinguishment of debt 10,091 6,594 ---------------------- --------------------- Income before income taxes 19,022 (16,302) ---------------------- --------------------- Net income $ 18,599 ($ 16,302) ---------------------- --------------------- Originations $ 142,462 $ 54,094 Cash and restricted cash $ 39,239 Gross property held for lease $ 179,302 ----------------------- ---------------------- ----------------------- (1) Source: Katapult's Registration Statement on Form S-4, pages F-62, F-63, F-69 and 101, filed with the SEC on January 29, 2021.

In December 2020, we announced that Katapult and FinServ entered into a definitive merger agreement that, when completed, we expect will provide consideration to us in a combination of cash and stock. Based on market prices as of the date of this release, we expect to receive consideration with a total value between $520 million and $540 million, an increase from $365 million at the time the transaction was agreed to in December 2020. To date, our total cash investment in Katapult is $27.5 million. Upon closing of the transaction, we anticipate receiving cash of up to $130 million while maintaining at least a 21% ownership, on a fully-diluted basis, in the newly formed public company. The transaction is expected to close during the first half of 2021 and remains subject to approval by FinServ's stockholders and other customary closing conditions. The transaction will result in both a cash tax liability and deferred tax liability, with the cash tax liability dependent upon cash received at closing. Assuming cash proceeds to us of $130 million, our estimated cash tax liability is approximately $35 million.

The table below presents select financial information for Katapult for the periods presented:

Segment Analysis

We report financial results for two reportable segments: the U.S. and Canada. Following is a summary of results of operations for the segment and period indicated:

U.S. Segment Results - For the Three Months Ended December 31, 2020 and 2019

U.S. revenues decreased by $93.7 million, or 39.0%, to $146.6 million, compared to the prior-year period for the three months ended December 31, 2020, as a result of the declines in combined gross loans receivable described above. Excluding the impact of California Installment loan runoff stemming from regulatory changes that were effective January 1, 2020, U.S. revenues decreased $73.0 million, or 35.0%. Sequentially, U.S. revenues increased $13.7 million, or 10.3%. Excluding California portfolios impacted by regulatory changes, U.S. revenues increased $16.6 million, or 13.9%, sequentially.

The provision for losses decreased $52.5 million, or 47.0%, primarily as a result of lower loan volume and lower NCOs, as previously described. U.S. NCOs decreased by $57.7 million, or 51.8%, year over year and the U.S. NCO rate improved by 420 bps to 21.0% for the three months ended December 31, 2020 from 25.2% in the prior-year period.

Non-advertising costs of providing services for the three months ended December 31, 2020 were $34.0 million, a decrease of $8.9 million, or 20.7%, compared to $42.8 million for the three months ended December 31, 2019. The decrease was primarily driven by Ad Astra costs of $3.6 million, which prior to its acquisition by us were included in Non-advertising costs of providing services. The remaining decrease year over year in Non-advertising costs of providing services was due to (i) lower underwriting and other variable costs as a result of lower demand and (ii) lower collection costs resulting from government stimulus-related pay-downs.

Advertising costs decreased $3.9 million, or 26.2%, year over year because of COVID-19 Impacts.

Corporate, district and other expenses were $38.4 million for the three months ended December 31, 2020, an increase of $6.6 million, or 20.8%, compared to the prior-year period. Corporate, district and other expenses for the three months ended December 31, 2020 included $1.9 million of collection costs related to Ad Astra, which were historically included in Non-advertising costs of providing services. Excluding Ad Astra costs, Corporate, district and other expenses increased $4.4 million year over year, primarily due to the timing and extent of variable compensation and higher professional fees compared to the prior-year period, partially offset by certain cost reductions, including work-from-home initiatives, to manage COVID-19 Impacts.

U.S. interest expense for the three months ended December 31, 2020 increased $1.3 million, or 8.4%, primarily related to the new Non-Recourse U.S. SPV Facility, which we closed in April 2020.

As described above, we recognize our share of Katapult's income on a two-month lag and recorded income of $1.9 million for the three months ended December 31, 2020.

U.S. Segment Results - For the Year Ended December 31, 2020 and 2019

U.S. revenues decreased by $275.0 million, or 30.1%, to $638.5 million for the year ended December 31, 2020 compared to the prior year, as a result of decreases in combined gross loans receivable. Excluding the aforementioned impact of California Installment loan runoff, U.S. revenues decreased by $203.0 million, or 26.2%.

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