CURO Group Holdings Corp. Announces First Quarter 2019 Financial Results and Authorizes $50 million Share Buyback Program

WICHITA, Kan.–(BUSINESS WIRE)–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 first quarter 2019.

“We are pleased to report that first quarter results exceeded our
expectations and 2019 is off to a very solid start,” said Don Gayhardt,
President and Chief Executive Officer. “We are especially encouraged by
the continued progress in Canada with better-than-expected sequential
earnings contribution affirming the success of our product transition in
the second half of 2018. Adjusted EBITDA for Canada increased 8.9%
versus the same quarter a year ago despite reduced Single-Pay yields and
strategic mix shift away from Single-Pay loans in Ontario. Our U.S.
business continues to do well and posted 10.5% revenue growth on 18.4%
loan growth.”

Consolidated Summary Results

First quarter 2019 financial developments included:

• Revenue of $277.9 million, an increase of 10.8% over the prior year
  period, driven primarily by organic growth in the U.S. and Open-End
  growth in Canada. Year-over-year comparisons included an $8.9 million
  benefit from the Open-End loss recognition change (“Q1 2019 Open-End
  Loss Recognition Change”) discussed below offset by a similar increase
  in provision expense.
• Growth in Company Owned gross loans receivable and Gross combined
  loans receivables of 49.8% and 44.2%, respectively. Year-over-year
  comparisons benefited from the Q1 2019 Open-End Loss Recognition
  Change. Excluding the impact of this change, Company Owned gross loans
  receivable and Gross combined loans receivables grew 41.0% and 36.6%,
  respectively.
• Adjusted Diluted Earnings per Share of $0.80, an increase of 2.6% over
  the prior-year period.
• Completed exit from U.K. market. Discontinued operations for our two
  U.K. subsidiaries through February 25, 2019 resulted in Net Income
  from Discontinued Operations of $8.4 million for the three months
  ended March 31, 2019 compared to the $1.6 million Net Loss in the
  prior-year quarter.
• Recognition of the loss on investment in U.K. subsidiaries resulted in
  an estimated tax benefit of $47.4 million and is expected to result in
  the elimination of U.S. federal cash income tax payments for 2019.
• Pay down of our Senior Secured Revolving Loan Facility from $20.0
  million to zero and reduction of the net balances drawn on our
  Non-Recourse Canada SPV Facility by $20.9 million.
• Launched our new demand deposit account, Revolve Finance, sponsored by
  Republic Bank of Chicago. Revolve is being rolled out across our U.S.
  branches and provides customers with a checking account solution that
  combines a Visa-branded debit card, a number of technology-enabled
  tools and optional overdraft protection.
• Our Board of Directors authorized a share repurchase program providing
  for the repurchase of up to $50.0 million of our common stock. The
  repurchase program will continue until completed or terminated. We
  expect the purchases to be made from time-to-time in the open market
  and/or in privately negotiated transactions at our discretion, subject
  to market conditions and other factors. Any repurchased shares will be
  available for use in connection with equity plans and for other
  corporate purposes.

Fiscal 2019 Outlook

The Company affirms full-year 2019 guidance as disclosed in its Current
Report on Form 8-K filed with the Securities and Exchange Commission on
March 1, 2019 as follows:

• Revenue in the range of $1.154 billion to $1.173 billion, an increase
  from 2018 revenue of $1.094 billion of approximately $60 million, or
  5% to $80 million, or 7%
• Adjusted Net Income in the range of $112.0 million to $128.0 million,
  an increase from 2018 Adjusted Net Income of $89.5 million of
  approximately $23 million, or 25%, to $39 million, or 43%
• Adjusted EBITDA in the range of $240.0 million to $260.0 million, an
  increase from 2018 Adjusted EBITDA of $218 million of approximately
  $22 million, or 10%, to $42 million, or 20%
• Estimated income tax rate in the range of 25% to 27%
• Adjusted Diluted Earnings per Share in the range of $2.35 to $2.65, an
  increase from 2018 Adjusted Diluted Earnings per Share of $1.86 of
  $0.49 per share, or 26%, to $0.79 per share, or 42%

See “Fiscal 2019 Outlook – Reconciliations” at the end of this release
for a reconciliation to the nearest GAAP metric and “Non-GAAP Financial
Measures” for description of non-GAAP metrics.

Discussion of Consolidated Revenue by Product and Segment

Three Months Ended March 31, 2019

The following table summarizes revenue by product, including credit
services organization (“CSO”) fees, for the periods indicated.
Year-over-year comparisons for Open-End were affected by the Q1 2019
Open-End Loss Recognition Change. Throughout the release, data omits our
former U.K. operations for all periods presented, which we discontinued
in February 2019.

During the three months ended March 31, 2019, total revenue grew $27.1
million, or 10.8%, to $277.9 million, compared to the prior-year period,
predominantly driven by growth in Installment and Open-End loans from
strong customer demand and product introductions in new markets.
Geographically, total revenue in the U.S. and Canada grew 10.5% and
12.0%, respectively. From a product perspective, Unsecured Installment
and Secured Installment revenues rose 8.3% and 2.3%, respectively,
driven by related loan growth. Year-over-year Single-Pay usage was
negatively impacted by regulatory changes in Ontario as well as a
continued general product mix shift from Single-Pay to Installment and
Open-End loans in the U.S. and Canada. Open-End revenues rose 94.2% on
organic growth in legacy states in the U.S. and growth in Canada,
primarily after the introduction of Open-End products in Ontario in the
third quarter of 2018. Open-End loans in Canada grew $26.0 million, or
16.4%, sequentially (defined within this release as the change from the
fourth quarter of 2018 to the first quarter of 2019) and Single-Pay loan
balances stabilized in Canada sequentially. Ancillary revenues increased
36.5% versus the same quarter a year ago, primarily due to the sale of
insurance to Installment and Open-End loan customers in Canada.

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

For both the three months ended March 31, 2019 and 2018, revenue
generated through the online channel as a percentage of consolidated
revenue was 46%.

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⁽¹⁾, 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:

Gross combined loans receivable by product are presented below
(year-over-year and sequential comparisons for Open-End are affected by
the Q1 2019 Open-End Loss Recognition Change):

Gross combined loans receivable increased $188.7 million, or 44.2%, to
$615.1 million as of March 31, 2019 compared to $426.4 million as of
March 31, 2018. Geographically, gross combined loans receivable grew
18.4% and 125.8%, respectively, in the U.S. and Canada, explained
further by product in the following sections. Sequentially, gross
combined loans receivable declined $36.8 million, or 5.7%, for the three
months ended March 31, 2019 compared to $65.6 million, or 13.3%, for the
three months ended March 31, 2018 on expected and normal seasonal trends
from U.S. federal income tax refunds. The sequential decline for the
three months ended March 31, 2019 was offset by the continued growth in
Canada Open-End products, discussed further below.

Unsecured Installment Loans

Unsecured Installment revenue and gross combined loans receivable
increased from the prior year quarter due to growth in the U.S.,
primarily in California and CSO. Unsecured Installment gross combined
loans receivable grew $11.2 million, or 5.3%, compared to March 31,
2018, despite a decline in Canada of $22.6 million due to mix shift to
Open-End loans. In the U.S., Unsecured Installment gross combined loans
receivable increased 19.5% year-over-year. Canada was negatively
impacted by the growth and customer preference of Open-End during 2018,
as further discussed below. In Canada, total Unsecured Installment loan
originations declined $14.5 million, or 66.3%, from the first quarter of
2018 also due to mix shift. U.S. originations were up $12.1 million, or
9.5%, versus the prior-year quarter.

The net charge-off (“NCO”) rate for Company Owned Unsecured Installment
gross loans receivables in the first quarter of 2019 increased
approximately 377 bps from the first quarter of 2018, primarily due to
geographic mix shift from Canada to the U.S. Canadian balances were down
$22.6 million compared to the prior year due to shifting customer
preference from Installment to Open-End, while U.S. balances grew $28.4
million due to customer demand and higher advertising spend. As a
result, the U.S. percentage mix of total Company Owned Unsecured
Installment gross loans receivable rose from 76.4% last year to 91.2%
this year. The absolute level of NCO rates in the U.S. is higher than
Canada, so the relative growth in the U.S. balances resulted in an
overall increase in the consolidated NCO rate for Company Owned
Unsecured Installment loans. In addition, the NCO rate in the U.S. rose
from 20.5% in the first quarter of 2018 to 23.3% in the first quarter of
2019, because of both credit-line increases and expansion of the Avio
brand. As an immature portfolio, Avio has higher relative NCO rates.

The required Unsecured Installment Allowance for loan losses as a
percentage of Company Owned Unsecured Installment gross loans receivable
(“allowance coverage”) increased sequentially from 19.8% to 20.8%,
primarily as a result of higher NCO rates. Past-due Company Owned
Unsecured Installment gross combined loans receivable as a percentage of
related total receivables increased 230 bps to 25.2% from 22.9% in the
prior-year quarter on a consolidated basis. NCO rates for Unsecured
Installment loans Guaranteed by the Company decreased 314 bps compared
to the same quarter in 2018. The required CSO liability for losses
decreased sequentially from 15.0% to 14.4% during the first quarter of
2019 due to improving NCO and past-due rate comparisons.

Secured Installment Loans

Secured Installment gross combined loans receivable balances as of
March 31, 2019 increased by $0.6 million, or 0.7%, compared to March 31,
2018 while related Secured Installment revenue grew 2.3%. The NCO rate
was fairly stable and the past-due rate improved 120 bps year-over-year.
Secured Installment Allowance for loan losses and CSO liability for
losses as a percentage of Secured Installment gross combined loans
receivable decreased sequentially from 13.2% to 11.9% during the first
quarter of 2019.

Open-End Loans

Open-End loan balances as of March 31, 2019 increased by $189.2 million
compared to March 31, 2018, primarily due to the launch of Open-End in
Canada in late 2017, which amounted to $167.1 million of the total loan
growth. Open-End balances in Canada grew $26.0 million sequentially from
the fourth quarter of 2018 ($22.2 million on a constant currency basis).
Remaining year-over-year loan growth was driven by the organic growth in
seasoned markets, such as Virginia, Tennessee and Kansas.

Q1 2019 Open-End Loss Recognition Change

Effective January 1, 2019, we modified the timeframe in which we
charge-off Open-End loans and made related refinements to our loss
provisioning methodology. Prior to January 1, 2019, we deemed Open-End
loans uncollectible and charged-off when a customer missed a scheduled
payment and the loan was considered past-due. Because of our continuing
shift to Open-End loans in Canada and our analysis of payment patterns
on early-stage versus late-stage delinquencies, we revised our estimates
and now consider Open-End loans uncollectible when the loan has been
contractually past-due for 90 consecutive days. Consequently, past-due
Open-End loans and related accrued interest now remain in loans
receivable for 90 days before being charged off against the allowance
for loan losses. All recoveries on charged-off loans are credited to the
allowance for loan losses. We evaluate the adequacy of the allowance for
loan losses compared to the related gross loans receivable balances that
include accrued interest.

The aforementioned change was treated as a change in accounting estimate
for accounting purposes and applied prospectively beginning January 1,
2019.

The change affects comparability to prior periods as follows:

• Gross combined loans receivable: balances
  as of March 31, 2019 include $32.4 million of Open-End loans that are
  up to 90 days past-due with related accrued interest, while such
  balances for prior periods do not include any past-due loans.
• Revenues: for the quarter ended March 31,
  2019, revenues include accrued interest on past-due loan balances of
  $8.9 million, while revenues in prior periods do not include
  comparable amounts.
• Provision for Losses: prospectively,
  past-due, unpaid balances plus related accrued interest charge-off on
  day 91. Provision expense is affected by NCOs (total charge-offs less
  total recoveries) plus changes to the required Allowance for loan
  losses. Because NCOs prospectively include unpaid principal and up to
  90 days of related accrued interest, NCO amounts and rates are higher
  and the required Open-End Allowance for loan losses as a percentage of
  Open-End gross loans receivable is higher. The Open-End Allowance for
  loan losses as a percentage of Open-End gross loans receivable rose
  from 9.6% as of December 31, 2018 to 19.5% as of March 31, 2019.

The following table reports first quarter Open-End loan performance
including the effect of the Q1 2019 Open-End Loss Recognition Change:

In addition, the following table illustrates, on a pro forma basis, the
first quarter of 2019 results if the Q1 2019 Open-End Loss Recognition
Change had been applied to our outstanding Open-End loan portfolio as of
December 31, 2018. This table is illustrative of retrospective
application to determine the net charge-offs that would have been
incurred in first quarter of 2019 from the December 31, 2018 loan book.
The purpose of this pro forma illustration is primarily to provide a
representative level of NCO rates from applying the Q1 2019 Open-End
Loss Recognition Change.

Contacts

Investor Relations:
Roger Dean
Executive Vice President and
Chief Financial Officer
844-200-0342
[email protected]
or
Global
IR Group
Gar Jackson,
949-873-2789
[email protected]

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