CURO Group Holdings Corp. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to__________

Commission File Number: 1-38315

CURO GROUP HOLDINGS CORP.

(Exact name of registrant as specified in its charter)


Delaware						90-0934597
(State or other jurisdiction Of incorporation or organization)						(I.R.S. Employer Identification No.)

3615 North Ridge Road, Wichita, KS						67205
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (316) 772-3801

Former name, former address and former fiscal year, if changed since last report: No Changes

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	CURO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of October 28, 2022 there were 40,485,381 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

FORM 10-Q

THIRD QUARTER ENDED September 30, 2022

INDEX

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets –

September 30, 2022 (unaudited) and December 31, 2021

Condensed Consolidated Statements of Operations –

Three and nine months ended September 30, 2022 (unaudited) and 2021

Condensed Consolidated Statements of Comprehensive (Loss) Income –

Three and nine months ended September 30, 2022 (unaudited) and 2021

Condensed Consolidated Statements of Cash Flows –

Three and nine months ended September 30, 2022 (unaudited) and 2021

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART 2 – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

PART I. FINANCIAL INFORMATION

GLOSSARY

Terms and abbreviations used throughout this report are defined below.


Term or abbreviation						Definition




2021 Form 10-K						Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022
7.50% Senior Secured Notes						7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028
8.25% Senior Secured Notes						8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which we extinguished during the third quarter of 2021

ABL						Asset-Backed Lending
Adjusted EBITDA						EBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details
ALL						Allowance for loan losses

AOCI						Accumulated Other Comprehensive Income (Loss)
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
Average gross loans receivable						Utilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
BNPL						Buy-Now-Pay-Later
bps						Basis points
C$						Canadian dollar
CAB						Credit Access Business
Canada SPV						A four-year revolving credit facility with capacity up to C$400.0 million

Curo Canada Revolving Credit Facility						C$10.0 million revolving credit facility (formerly known as Cash Money Revolving Credit Facility), maintained by CURO Canada
CDOR						Canadian Dollar Offered Rate

CFPB						Consumer Financial Protection Bureau


CODM						Chief Operating Decision Maker
Condensed Consolidated Financial Statements						The condensed consolidated financial statements presented in this Form 10-Q

CSO						Credit services organization

CURO Canada						CURO Canada Corp, a wholly-owned Canadian subsidiary of the Company, formerly known as Cash Money Cheque Cashing Inc.


EBITDA						Earnings Before Interest, Taxes, Depreciation and Amortization
Exchange Act						Securities Exchange Act of 1934, as amended

FASB						Financial Accounting Standards Board
FinServ						FinServ Acquisition Corp., a publicly traded special purpose acquisition company (trading symbol FSRV)
FinTech						Financial Technology; the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or cryptocurrency
First Heritage						First Heritage Credit, LLC, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi we acquired in July 2022
First Heritage SPV						A revolving credit facility, entered into concurrent with the acquisition of First Heritage, with capacity up to $225.0 million
Flexiti						Flexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021
Flexiti SPV						A revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$535.0 million
Form 10-Q						This report on Form 10-Q for the quarter ended September 30, 2022
Gross Combined Loans Receivable						Gross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company
Guaranteed by the Company						Loans originated by third-party lenders through the CSO program which we guarantee but are not included in the unaudited Condensed Consolidated Financial Statements. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business.


Term or abbreviation						Definition
Heights Finance						SouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of the Company, which we acquired on December 27, 2021
Heights Finance SPV						A non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights Finance, with capacity up to $350.0 million. This facility was extinguished on July 15, 2022 when we entered into a new non-recourse revolving warehouse facility, see "Heights SPV."
Heights SPV						A revolving credit facility, entered into to replace the incumbent lender's facility and finance future loans originated by Heights Finance, with capacity up to $425.0 million
Katapult						Katapult Holdings, Inc. a lease-to-own platform for online, brick and mortar and omni-channel retailers.
Legacy U.S. Direct Lending Business						The Legacy US Direct Lending Business historically operated under the Speedy Cash, Rapid Cash, and Avio Credit brands. We sold the business to Community Choice Finance on July 8, 2022.
LFL						LFL Group, Canada's largest home furnishings retailer.
LIBOR						London Inter-Bank Offered Rate

NCO						Net charge-off; total charge-offs less total recoveries

POS						Point-of-sale


ROU						Right of use
RSU						Restricted Stock Unit
SEC						Securities and Exchange Commission
Senior Revolver						Senior Secured Revolving Loan Facility with borrowing capacity of $40.0 million
Sequential						The change from one quarter to the next quarter
SOFR						Secured Overnight Financing Rate
SPAC						Special Purpose Acquisition Company

SPE						Special Purpose Entity
SPV						Special Purpose Vehicle

TDR						Troubled Debt Restructuring. Debt restructuring for which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties

UDAAP						Unfair, deceptive, or abusive acts and practices
U.S.						United States of America

U.S. GAAP						Generally Accepted Accounting Principles in the United States
U.S. SPV						An asset-backed revolving credit facility with capacity up to $200.0 million if certain conditions are met. This facility was extinguished on July 7, 2022.
VIE						Variable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries

ITEM 1. FINANCIAL STATEMENTS

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30, 2022 (unaudited)		December 31, 2021

ASSETS
Cash and cash equivalents	$	45,683	$	63,179
Restricted cash (includes restricted cash of consolidated VIEs of $89,849 and $57,155 as of September 30, 2022 and December 31, 2021, respectively)	144,020		98,896
Gross loans receivable (includes loans of consolidated VIEs of $1,713,039 and $1,294,706 as of September 30, 2022 and December 31, 2021, respectively)	1,894,427		1,548,318
Less: Allowance for loan losses (includes allowance for loan losses of consolidated VIEs of $101,320 and $66,618 as of September 30, 2022 and December 31, 2021, respectively)	(102,743)		(87,560)
Loans receivable, net	1,791,684		1,460,758
Income taxes receivable	13,469		31,774
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $8,206 and $— as of September 30, 2022 and December 31, 2021, respectively)	65,167		42,038
Property and equipment, net	37,402		54,635
Investment in Katapult	25,848		27,900
Right of use asset - operating leases	64,683		116,300
Deferred tax assets	31,986		15,639
Goodwill	424,292		429,792
Intangibles, net	120,345		109,930
Other assets	12,774		9,755
Total Assets	$	2,777,353	$	2,460,596
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $10,642 and $9,886 as of September 30, 2022 and December 31, 2021, respectively)	$	66,723	$	121,434
Deferred revenue	25,111		21,649
Lease liability - operating leases	66,370		122,431
Contingent consideration related to acquisition	15,770		26,508
Income taxes payable	—		680
Accrued interest (includes accrued interest of consolidated VIEs of $5,547 and $3,279 as of September 30, 2022 and December 31, 2021, respectively)	18,048		34,974
Liability for losses on CSO lender-owned consumer loans	—		6,908
Debt (includes debt and issuance costs of consolidated VIEs of $1,490,102 and $23,117 as of September 30, 2022 and $979,500 and $14,428 as of December 31, 2021, respectively)	2,449,316		1,945,793
Other long-term liabilities	11,563		13,845
Deferred tax liabilities	—		6,044
Total Liabilities	2,652,901		2,300,266
Commitments and contingencies (Note 11)
Stockholders' Equity
Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued	—		—
Common stock - $0.001 par value; 225,000,000 shares authorized; 50,183,4945 and 49,684,080 shares issued; and 40,485,381 and 40,810,444 shares outstanding at the respective period ends	23		23
Treasury stock, at cost - 9,698,113 and 8,873,636 shares at the respective period ends	(136,832)		(124,302)
Paid-in capital	120,546		113,520
Retained earnings	190,685		203,467
Accumulated other comprehensive loss	(49,970)		(32,378)
Total Stockholders' Equity	124,452		160,330
Total Liabilities and Stockholders' Equity	$	2,777,353	$	2,460,596

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue
Interest and fees revenue	$	180,515	$	190,629	$	723,802	$	539,155
Insurance premiums and commissions	24,746		12,599		61,659		36,021
Other revenue	8,859		6,052		23,259		18,348
Total revenue	214,120		209,280		808,720		593,524
Provision for losses	78,399		70,718		305,476		152,028
Net revenue	135,721		138,562		503,244		441,496
Operating Expenses
Salaries and benefits	53,413		62,110		215,569		175,347
Occupancy	12,827		13,732		47,371		41,862
Advertising	5,244		9,697		28,451		24,824
Direct operations	11,729		14,883		52,296		40,552
Depreciation and amortization	9,499		7,285		27,985		19,685
Other operating expense	23,646		14,851		58,809		45,020
Total operating expenses	116,358		122,558		430,481		347,290
Other expense (income)
Interest expense	50,149		25,805		130,683		68,784
Loss (income) from equity method investment	2,309		1,582		2,053		(676)
Gain from equity method investment	—		—		—		(135,387)
Loss on extinguishment of debt	3,702		40,206		3,702		40,206
(Gain) loss on change in fair value of contingent consideration	(11,355)		3,825		(7,605)		3,825
Gain on sale of business	(68,443)		—		(68,443)		—
Total other (income) expense	(23,638)		71,418		60,390		(23,248)
Income (loss) before income taxes	43,001		(55,414)		12,373		117,454
Provision (benefit) for income taxes	17,348		(13,375)		11,464		29,241
Net income (loss)	25,653		(42,039)		909		88,213

Basic earnings (loss) per share	$	0.63	$	(1.02)	$	0.02	$	2.13
Diluted earnings (loss) per share	$	0.63	$	(1.02)	$	0.02	$	2.03

Weighted average common shares outstanding:
Basic	40,479		41,220		40,203		41,459
Diluted	40,835		41,220		40,754		43,422

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	25,653	$	(42,039)	$	909	$	88,213
Other comprehensive loss, net of tax:
Change in derivative instrument designated as cash flow hedge, net of tax	4,567		—		4,567		—
Foreign currency translation adjustment, net of tax	(18,272)		(10,611)		(22,159)		(2,042)
Other comprehensive loss, net of tax	(13,705)		(10,611)		(17,592)		(2,042)
Comprehensive income (loss)	$	11,948	$	(52,650)	$	(16,683)	$	86,171

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands, unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net income	$	909	$	88,213
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,985		19,685
Provision for losses	305,476		152,028
Amortization of debt issuance costs and bond discount	4,978		4,794
Loss on extinguishment of debt	3,702		40,206
Deferred income tax benefit	(24,157)		(10,730)
Gain on disposal of Legacy U.S. Direct Lending business	(68,443)		—
Loss on disposal of property and equipment	60		6,816
Loss from equity method investment	2,053		(676)
Gain from equity method investment	—		(135,387)
Change in fair value of contingent consideration	(7,605)		3,825
Share-based compensation	9,956		10,148
Changes in operating assets and liabilities:
Accrued interest on loans receivable	86,932		19,619
Prepaid expenses and other assets	(4,251)		(2,989)
Accounts payable and accrued liabilities	(54,326)		16,591
Deferred revenue	10,730		10,084
Income taxes payable	(679)		—
Income taxes receivable	17,636		8,270
Accrued interest	(17,827)		(9,017)
Other long-term liabilities	2,602		(770)
Net cash provided by continuing operating activities	295,731		220,710
Cash flows from investing activities
Purchase of property, equipment and software	(35,270)		(14,924)
Loans receivable originated or acquired	(1,827,067)		(985,603)
Loans receivable repaid	1,075,077		661,456
Proceeds from Katapult	—		146,878
Acquisition of Flexiti, net of acquiree's cash received	—		(91,203)
Divestiture of Legacy U.S. Direct Lending business, net of cash provided	288,980		—
Acquisition of First Heritage, net of acquiree's cash received	(131,012)		—
Net cash used in investing activities	(629,292)		(283,396)
Cash flows from financing activities
Proceeds from SPV and SPE facilities	1,423,291		93,307
Payments on SPV and SPE facilities	(1,015,688)		(9,153)
Debt issuance costs paid	(9,801)		(15,957)
Proceeds from credit facilities	137,812		20,931
Payments on credit facilities	(137,812)		(20,931)
Extinguishment of 8.25% Senior Secured Notes	—		(690,000)


Proceeds from issuance of 7.50% Senior Secured Notes	—		750,000
Payments of call premiums from early debt extinguishments	—		(31,250)
Proceeds from exercise of stock options	—		266
Payments to net share settle equity awards	(2,930)		(1,818)
Repurchase of common stock	(13,531)		(17,191)
Dividends paid to stockholders	(13,691)		(11,497)
Net cash provided by financing activities	367,650		66,707
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6,461)		(176)
Net increase in cash, cash equivalents and restricted cash	27,628		3,845
Cash, cash equivalents and restricted cash at beginning of period	162,075		268,108
Cash, cash equivalents and restricted cash at end of period	$	189,703	$	271,953

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands, unaudited)

SUPPLEMENTAL CASH FLOW INFORMATION

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and 2021 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):


	September 30,
	2022		2021
Cash and cash equivalents	$	45,683	$	205,785
Restricted cash (includes restricted cash of consolidated VIEs of $89,849 and $57,155 as of September 30, 2022 and December 31, 2021, respectively)	144,020		66,168
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows	$	189,703	$	271,953

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

Nature of Operations

The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its direct and indirect subsidiaries as a combined entity, except where otherwise stated.

The Company is a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and near-prime consumers in the U.S and non-prime and prime consumers in Canada.

Basis of Presentation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP and the accounting policies described in its 2021 Form 10-K. Interim results of operations are not necessarily indicative of results that might be expected for future interim periods or for the year ending December 31, 2022.

While certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, the Company qualifies as a Smaller Reporting Company (SRC) as defined by the SEC, which allows registrants to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of the last business day of the most recently completed second fiscal quarter. Under these rules, the Company met the definition of an SRC as of June 30, 2022. As such, we made the election and reflected SRC status beginning with our first quarterly report following the determination, as of and for the quarter ended June 30, 2022. We will reevaluate our status as of June 30, 2023.

The unaudited Condensed Consolidated Financial Statements and the accompanying notes reflect adjustments of a normal and recurring nature, which are, in the opinion of management, necessary to present fairly the Company's results of operations, financial position and cash flows for the periods presented. Beginning January 1, 2022, the Company started reporting "Interest and fees revenue," "Insurance premiums and commissions," and "Other revenue" in place of the previously reported "Revenue" line item in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for a sales price of $345.0 million. Refer to Note 1 4 , "Acquisitions and Divestiture " for further discussion.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements reflect the accounts of CURO and its direct and indirect subsidiaries, including Heights Finance, which we acquired on December 27, 2021 and First Heritage, which we acquired on July 13, 2022. Refer to Note 14, "Acquisitions and Divestiture" for further disclosures related to these acquisitions. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including those impacted by COVID-19, that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Some estimates may also affect the reported amounts of revenues and expenses during the periods presented. Significant estimates that the Company made in the accompanying unaudited Condensed Consolidated Financial Statements include ALL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, CSO liability for losses, estimated tax liabilities and the accounting for the First Heritage, Heights Finance and Flexiti acquisitions. Actual results may differ from those estimates.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisitions

First Heritage Credit, LLC

Heights Finance

On December 27, 2021, CURO closed the acquisition of Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products, based in Greenville, South Carolina for a total purchase price of $360.0 million ($335.0 million in cash plus $25.0 million in stock).

Flexiti

On March 10, 2021, CURO closed its acquisition of Flexiti, a POS and BNPL provider based in Toronto, Ontario, in a transaction accounted for as a business combination, for a total purchase price of up to $122.5 million ($86.5 million in cash and up to $32.8 million in contingent cash consideration subject to future operating metrics).

Refer to Note 14,"Acquisitions and Divestiture" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the acquisitions.

Divestiture

Legacy U.S. Direct Lending Business

On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total cash of $345.0 million, of which $35.0 million is payable over 12 months. The divestiture resulted in a gain of $68.4 million for the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations.

Refer to Note 14,"Acquisitions and Divestiture" for further information regarding the divestiture and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the divestiture.

Impacts of COVID-19

For details regarding the effect COVID-19 had on the Company's operations in 2020 and 2021, the Company's response to mitigate the impact of the pandemic and the U.S. and Canadian federal and local responses to the pandemic, refer to the 2021 Form 10-K.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU 2016-13 and subsequent amendments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022. The amended standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.

ASU 2019-10 amended the mandatory effective date for ASU 2016-13. As a result, ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022 for entities that qualified as a smaller reporting company as of June 30, 2019, such as the Company. ASU 2016-13 and its amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. The Company deferred the adoption of ASU 2016-13 until January 1, 2023, as permitted under ASU 2019-10. The Company has performed parallel testing through the third quarter of 2022. We continue to refine our model to estimate the expected credit losses, as well as, finalize our processes and internal controls in order to comply with the adoption of ASU 2016-13. The Company believes the implementation will have a material effect on the Company's consolidated financial statements.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

ASU 2020-04 and subsequent amendments

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the upcoming market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect to not apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities also can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. The FASB has recently extended the adoption date to December 31, 2024. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021. It clarifies that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU 2020-04 and are effective in the same timeframe as ASU 2020-04. As of September 30, 2022, the Company has transitioned all debt facilities from LIBOR to SOFR.

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 will have a material effect on its financial statements.

NOTE 2 - VARIABLE INTEREST ENTITIES

As of September 30, 2022, the Company had five credit facilities, whereby certain loans receivable were sold to VIEs to collateralize debt incurred under each facility. See Note 5, "Debt" for additional details on each facility.

The Company has determined that it is the primary beneficiary of the VIEs and is required to consolidate them. The Company includes the assets and liabilities related to the VIEs in the unaudited Condensed Consolidated Financial Statements.

The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):


	September 30, 2022		December 31, 2021
Assets
Restricted cash	$	89,849	$	57,155
Loans receivable, net	1,611,719		1,228,088
Prepaid expenses and other	8,206		—
Deferred tax assets	97		—
Total Assets	$	1,709,871	$	1,285,243
Liabilities
Accounts payable and accrued liabilities	$	10,642	$	9,886
Deferred revenue	22		106
Deferred tax liability	—		269
Accrued interest	5,547		3,279
Income taxes payable	(234)		—
Debt, net	1,466,985		965,072
Total Liabilities	$	1,482,962	$	978,612

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – LOANS RECEIVABLE AND REVENUE

As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the tables that follow based on historical practice and for comparability purposes.

The following table summarizes revenue by product (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revolving LOC	$	77,036	$	78,262	$	264,642	$	209,033

Unsecured Installment	72,422		72,056		320,051		213,233
Secured Installment	17,724		13,743		71,721		41,591
Single-Pay	13,333		26,568		67,388		75,298
Total Installment	103,479		112,367		459,160		330,122

Insurance revenue	24,746		12,599		61,659		36,021
Other	8,859		6,052		23,259		18,348
Total revenue(1)	$	214,120	$	209,280	$	808,720	$	593,524
(1) Includes revenue from CSO programs of $3.9 million and $43.4 million for the three months ended September 30, 2022 and 2021, respectively, and $101.2 million and $119.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):


	September 30, 2022
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay(1)		Total Installment		Total
Current loans receivable	$	1,045,839	$	478,547	$	117,934	$	19,849	$	616,330	$	1,662,169
1-30 days past-due	36,844		58,207		12,534		—		70,741		107,585
Delinquent loans receivable	46,703		68,165		9,805		—		77,970		124,673
Total loans receivable	1,129,386		604,919		140,273		19,849		765,041		1,894,427
Less: allowance for losses	(67,832)		(27,565)		(4,900)		(2,445)		(34,911)		(102,743)
Loans receivable, net	$	1,061,554	$	577,354	$	135,373	$	17,404	$	730,130	$	1,791,684
(1) Of the $19.8 million of Single-Pay receivables, $12.2 million relate to mandated extended payment options for certain Canada Single-Pay loans.


	September 30, 2022
	Revolving LOC		Unsecured Installment		Secured Installment		Total Installment - Company Owned		Total
Delinquent loans receivable
31-60 days past-due	$	24,925	$	19,266	$	3,086	$	22,352	$	47,277
61-90 days past-due	12,360		14,150		1,836		15,986		28,346
91 + days past-due	9,418		34,749		4,883		39,632		49,050
Total delinquent loans receivable	$	46,703	$	68,165	$	9,805	$	77,970	$	124,673

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	December 31, 2021
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay(1)		Total Installment - Company Owned		Total
Current loans receivable	$	843,379	$	359,512	$	110,232	$	42,463	$	512,207	$	1,355,586
1-30 days past-due	35,657		45,160		13,213		—		58,373		94,030
Delinquent loans receivable	35,077		53,014		10,611		—		63,625		98,702
Total loans receivable	914,113		457,686		134,056		42,463		634,205		1,548,318
Less: allowance for losses	(68,140)		(13,387)		(3,327)		(2,706)		(19,420)		(87,560)
Loans receivable, net	$	845,973	$	444,299	$	130,729	$	39,757	$	614,785	$	1,460,758
(1) Of the $42.5 million of Single-Pay receivables, $11.3 million relate to mandated extended payment options for certain Canada Single-Pay loans.


	December 31, 2021
	Revolving LOC		Unsecured Installment		Secured Installment		Total Installment - Company Owned		Total
Delinquent loans receivable
31-60 days past-due	$	15,452	$	16,646	$	4,539	$	21,185	$	36,637
61-90 days past-due	13,397		13,933		3,213		17,146		30,543
91 + days past-due	6,228		22,435		2,859		25,294		31,522
Total delinquent loans receivable	$	35,077	$	53,014	$	10,611	$	63,625	$	98,702

The following tables summarize loans Guaranteed by the Company under CSO programs and the related delinquent receivables (in thousands):


	December 31, 2021
	Unsecured Installment		Secured Installment		Total Installment - Guaranteed by the Company
Current loans receivable Guaranteed by the Company	$	37,303	$	799	$	38,102
1-30 days past-due	6,633		162		6,795
Delinquent loans receivable Guaranteed by the Company	1,378		42		1,420
Total loans receivable Guaranteed by the Company	45,314		1,003		46,317
Less: Liability for losses on CSO lender-owned consumer loans	(6,869)		(39)		(6,908)
Loans receivable Guaranteed by the Company, net	$	38,445	$	964	$	39,409


	December 31, 2021
	Unsecured Installment		Secured Installment		Total Installment - Guaranteed by the Company
Delinquent loans receivable
31-60 days past-due	$	1,003	$	28	$	1,031
61-90 days past-due	277		8		285
91 + days past-due	98		6		104
Total delinquent loans receivable	$	1,378	$	42	$	1,420

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following tables summarize activity in the ALL and the liability for losses on CSO lender-owned consumer loans in total (in thousands):


	Three Months Ended September 30, 2022
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay		Total Installment		Other		Total
Allowance for loan losses:
Balance, beginning of period	$	75,128	$	32,991	$	8,827	$	3,239	$	45,057	$	—	$	120,185
Charge-offs	(36,298)		(33,838)		(474)		(11,232)		(45,544)		(3,319)		(85,161)
Recoveries	5,391		8,674		77		6,990		15,741		217		21,349
Net charge-offs	(30,907)		(25,164)		(397)		(4,242)		(29,803)		(3,102)		(63,812)
Provision for losses	41,787		29,129		—		4,381		33,510		3,102		78,399
Divestiture (2)	(13,555)		(9,906)		(3,002)		(783)		(13,691)		—		(27,246)
Effect of foreign currency translation	(4,621)		(13)		—		(149)		(162)		—		(4,783)
Balance, end of period	$67,832		$27,037		$5,428		$2,446		$34,911		$0		$102,743

Liability for losses on CSO lender-owned consumer loans: (1)
Balance, beginning of period	$	—	$	8,040	$	43	$	—	$	8,083	$	—	$	8,083
Divestiture (2)	—		(8,040)		(43)		—		(8,083)		—		(8,083)
Balance, end of period	$	—	$	—	$	—	$	—	$	—	$	—	$	—
(1) All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the divestiture of the Legacy U.S. Direct Lending business.
(2) Write off of the allowance for loan losses or liability for losses on CSO lender-owned consumer loans related to loan balance sold or guarantees transferred from the company on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.


	Three Months Ended September 30, 2021
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay		Total Installment		Other		Total
Allowance for loan losses:
Balance, beginning of period	$	44,847	$	16,701	$	3,880	$	2,432	$	23,013	$	—	$	67,860
Charge-offs	(27,974)		(18,400)		(4,252)		(24,640)		(47,292)		(869)		(76,135)
Recoveries	8,564		4,811		1,996		18,493		25,300		401		34,265
Net charge-offs	(19,410)		(13,589)		(2,256)		(6,147)		(21,992)		(468)		(41,870)
Provision for losses	27,800		11,223		1,858		6,223		19,304		468		47,572
Effect of foreign currency translation	(975)		(5)		—		(39)		(44)		—		(1,019)
Balance, end of period	$	52,262	$	14,330	$	3,482	$	2,469	$	20,281	$	—	$	72,543
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period	—		5,234		31		—		$	5,265	—		$	5,265
Increase in liability	—		1,739		3		—		1,742		—		1,742
Balance, end of period	$	—	$	6,973	$	34	$	—	$	7,007	$	—	$	7,007

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Nine Months Ended September 30, 2022
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay		Total Installment		Other		Total
Allowance for loan losses:
Balance, beginning of period	$	68,140	$	13,387	$	3,327	$	2,706	$	19,420	$	—	$	87,560
Charge-offs	(121,391)		(94,166)		(17,452)		(60,848)		(172,466)		(9,630)		(303,487)
Recoveries	22,167		23,337		6,154		44,986		74,477		1,250		97,894
Net charge-offs	(99,224)		(70,829)		(11,298)		(15,862)		(97,989)		(8,380)		(205,593)
Provision for losses	119,669		94,400		16,401		16,567		127,368		8,380		255,417
Divestiture (2)	(13,555)		(9,906)		(3,002)		(783)		(13,691)		—		(27,246)
Effect of foreign currency translation	(7,198)		(15)		—		(182)		(197)		—		(7,395)
Balance, end of period	$	67,832	$	27,037	$	5,428	$	2,446	$	34,911	$	—	$	102,743

Liability for losses on CSO lender-owned consumer loans: (1)
Balance, beginning of period	$	—	$	6,869	$	39	$	—	$	6,908	$	—	$	6,908
Divestiture (2)	—		(6,869)		(39)		—		(6,908)		—		(6,908)
Balance, end of period	$	—	$	—	$	—	$	—	$	—	$	—	$	—
(1) All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the divestiture of the Legacy U.S. Direct Lending business.
(2) Write off of the allowance for loan losses or liability for losses on CSO lender-owned consumer loans related to loan balance sold or guarantees transferred from the company on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.


	Nine Months Ended September 30, 2021
	Revolving LOC		Unsecured Installment		Secured Installment		Single-Pay		Total Installment				Other		Total
Allowance for loan losses:
Balance, beginning of period	$	51,958	$	24,073	$	7,047	$	3,084	$	34,204			$	—	$	86,162
Charge-offs	(81,175)		(58,337)		(14,979)		(68,680)		(141,996)				(2,525)		(225,696)
Recoveries	23,351		16,811		6,756		57,321		80,888				1,331		105,570
Net charge-offs	(57,824)		(41,526)		(8,223)		(11,359)		(61,108)				(1,194)		(120,126)
Provision for losses	58,274		31,782		4,658		10,743		47,183				1,194		106,651
Effect of foreign currency translation	(146)		1		—		1		2				—		(144)
Balance, end of period	$	52,262	$	14,330	$	3,482	$	2,469	$	20,281			$	—	$	72,543

Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period	$	—	$	7,160	$	68	$	—	$	7,228			$	—	$	7,228
Decrease in liability	—		(187)		(34)		—		(221)				—		(221)
Balance, end of period	$	—	$	6,973	$	34	$	—	$	7,007	$	—	$	—	$	7,007

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2022, Revolving LOC and Installment loans classified as nonaccrual were $4.8 million and $39.4 million, respectively. As of December 31, 2021, Revolving LOC and Installment loans classified as nonaccrual were $5.9 million and $41.4 million, respectively. The Company inherently considers nonaccrual loans in its estimate of the ALL as delinquencies are a primary input into the Company's roll-rate-based model.

TDR Loans Receivable

The table below presents TDRs that are related to the Customer Care Program implemented in response to COVID-19, included in both gross loans receivable and the impairment included in the ALL (in thousands):


	As of September 30, 2022		As of December 31, 2021
Current TDR gross receivables	$	9,564	$	11,580
Delinquent TDR gross receivables	2,920		5,066
Total TDR gross receivables	12,484		16,646
Less: Impairment included in the allowance for loan losses	(2,645)		(3,632)
Less: Additional allowance	(759)		(2,212)
Outstanding TDR receivables, net of impairment	$	9,080	$	10,802

The tables below present loans modified and classified as TDRs during the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Pre-modification TDR loans receivable	$	2,020	$	3,586	$	7,600	$	11,953
Post-modification TDR loans receivable	1,945		3,182		7,324		10,654
Total concessions included in gross charge-offs	$	75	$	404	$	276	$	1,299

There were $1.3 million and $2.9 million of loans classified as TDRs that were charged off and included as a reduction in the ALL during the three months ended September 30, 2022 and 2021, respectively, and $4.0 million and $11.0 million during the nine months ended September 30, 2022 and 2021, respectively. The Company had commitments to lend additional funds of $1.4 million to customers with available and unfunded Revolving LOC loans classified as TDRs as of September 30, 2022.

The table below presents the Company's average outstanding TDR loans receivable, interest income recognized on TDR loans and number of TDR loans for the periods presented (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Average outstanding TDR loans receivable	$	12,424	$	16,190	$	11,391	$	17,911
Interest income recognized	1,448		4,155		3,855		14,277
Number of TDR loans	828		2,624		2,949		8,872

NOTE 4 – CREDIT SERVICES ORGANIZATION

As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the paragraphs that follow based on historical practice and for comparability purposes. Refer to Note 14 , "Acquisitions and Divestiture " for additional information.

The CSO fee receivables were $5.2 million at December 31, 2021, and are reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The Company bears the risk of loss through its guarantee to purchase customer loans that are charged-off. The terms of these loans range up to six months. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2021 Form 10-K for further details of the Company's accounting policy.

As of December 31, 2021, the incremental maximum amount payable under all such guarantees was $38.4 million. This liability is not included in the Company's unaudited Condensed Consolidated Balance Sheets. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover the entire amount or a portion from the applicable customers. The Company holds no collateral in respect of the guarantees. The Company estimates a liability for losses associated

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

with the guaranty provided to the CSO lenders, which was $6.9 million at December 31, 2021. This liability is reflected in "Liability for losses on CSO lender-owned consumer loans" in the unaudited Condensed Consolidated Balance Sheets.

The Company placed $5.5 million in collateral accounts for the benefit of lenders at December 31, 2021, which is reflected in "Prepaid expenses and other" in the unaudited Condensed Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each lender.

Deferred revenue associated with the CSO program was immaterial as of December 31, 2021, and there were no costs to obtain, or costs to fulfill, capitalized under the program.

See Note 3, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – DEBT

As of September 30, 2022 the Company has transitioned all debt facilities from LIBOR to SOFR. Refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations" for additional details on the transition from LIBOR.

The Company's debt instruments and balances outstanding as of September 30, 2022 and December 31, 2021, including maturity date, effective interest rate and borrowing capacity, were as follows (dollars in thousands):


		Effective interest rate			Outstanding as of
	Maturity Date			Borrowing Capacity	September 30, 2022		December 31, 2021
Corporate Debt:
7.50% Senior Secured Notes	August 1, 2028	7.50	%		$	1,000,000	$	1,000,000

Total corporate debt					1,000,000		1,000,000
Funding Debt:
Heights SPV	July 15, 2024	1-Mo SOFR + 4.25%		$425.0 million	$	396,610	$	—
First Heritage SPV	July 13, 2024	1-Mo SOFR + 4.25%		$225.0 million	183,203		—
Flexiti SPV (1) (5)	September 29, 2025	Weighted average interest rate (4) 8.07%		C$535.0 million	269,333		176,625
Flexiti Securitization (1)	December 9, 2025	1-Mo CDOR + 3.59%		C$526.5 million	382,937		242,886
Canada SPV (1)	August 2, 2026	3-Mo CDOR + 6.00%		C$400.0 million	258,019		160,533
Heights Finance SPV (3)	N/A (3)	1-Mo LIBOR + 5.25%		$350.0 million	—		350,000
U.S. SPV (2)	N/A (2)	1-Mo LIBOR + 6.25%		$200.0 million	—		49,456
Curo Canada Revolving Credit Facility (1)	On-demand	Canada Prime Rate + 1.95%		C$10.0 million	—		—
Senior Revolver	August 31, 2023	1-Mo SOFR + 5.00%		$40.0 million	—		—
Total funding debt					$	1,490,102	$	979,500
Less: debt issuance costs					(40,786)		(33,707)
Total Debt					$	2,449,316	$	1,945,793

(1) Capacity amounts are denominated in Canadian dollars, whereas outstanding balances as of September 30, 2022 and December 31, 2021 are denominated in U.S. dollars.
(2) The U.S. SPV was extinguished on July 8, 2022 upon the divestiture of the Legacy U.S. Direct lending business.
(3) The Heights Finance SPV was extinguished on July 15, 2022 and replaced as of July 15, 2022 with Heights SPV.
(4) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(5) Includes $35.5 million of debt that matured on September 30, 2022, however, due to a Canadian statutory holiday, it is not deemed to be extinguished until the next business day, in October 2022.

Corporate Debt

7.50% Senior Secured Notes

In July 2021, the Company issued $750.0 million of 7.50% Senior Secured Notes which mature on August 1, 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1. In December 2021, the Company issued an additional $250.0 million of 7.50% Senior Secured Notes to fund the acquisition of Heights Finance. Refer to Note 14,"Acquisitions and Divestiture" for additional details. In connection with the 7.50% Senior Secured Notes, financing costs of $19.3 million were capitalized, net of amortization, and included in the unaudited Condensed Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 7.50% Senior Secured Notes as a component of interest expense.

8.25% Senior Secured Notes

In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes maturing on September 1, 2025. In connection with the 8.25% Senior Secured Notes, the Company capitalized financing costs of $13.9 million, which were being amortized as a component of interest expense over its term.

During the third quarter of 2021, the 8.25% Senior Secured Notes were extinguished using proceeds from the 7.50% Senior Secured Notes described above. The early extinguishment of the 8.25% Senior Secured Notes resulted in a loss of $40.2 million.

Funding Debt

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2022, the Company had five credit facilities whereby certain loans receivable were sold to wholly-owned VIEs to collateralize debt incurred under each facility. These facilities are the (i) Heights SPV, (ii) First Heritage SPV, (iii) Canada SPV, (iv) Flexiti SPV and (v) Flexiti Securitization. For further information on these facilities, refer to Note 2, "Variable Interest Entities".

Heights SPV

On July 15, 2022, we entered into a new $425.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by Heights Finance. The effective interest rate was 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 15, 2024.

First Heritage SPV

On July 13, 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225.0 million non-recourse revolving warehouse facility to replace First Heritage's incumbent lender's facility and to finance future loans originated by First Heritage. The effective interest rate was 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 13, 2024.

Flexiti SPV

In March 2021, concurrently with the acquisition of Flexiti, Flexiti Financing SPE Corp., a wholly-owned Canadian subsidiary of the Company, refinanced and increase its Flexiti SPV to C$500.0 million, with a maturity on March 10, 2024. As of September 30, 2022, the weighted average interest rate was 8.07%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. On September 29, 2022, Flexiti refinanced and increased its Flexiti SPV in order to both increase the borrowing capacity from C$500.0 million to C$535.0 million and extended its maturity to September 29, 2025. All other material terms of the revolving warehouse credit facility remain unchanged.

Flexiti Securitization

In December 2021, Flexiti Securitization Limited Partnership, a wholly-owned Canadian subsidiary of the Company, entered into the Flexiti Securitization. The facility provides for C$500.0 million, with a maturity of December 9, 2025. As of September 30, 2022, the effective interest was one-month CDOR plus 3.59%. The borrower also pays a 0.45% per annum commitment fee on the unused portion of the commitments.

Interest Rate Swap on Flexiti Securitization

On July 7, 2022, Flexiti entered into an interest rate swap with National Bank of Canada to protect against the interest risk on the C$526.5 million, variable rate, borrowing facility. The interest rate swap is a derivative instrument, designated as a cash flow hedge and as such any change in the fair value of the derivative is recorded as a component of other comprehensive income. As of September 30, 2022, a $4.6 million interest rate swap is included in other assets and a $4.6 million gain as a result of the change in fair value is recognized in other comprehensive income on our Condensed Consolidated Balance Sheet.

Canada SPV

In August 2018, CURO Canada Receivables Limited Partnership, a wholly-owned subsidiary of the Company, entered into the Canada SPV. During the fourth quarter of 2021 and first quarter of 2022, the Company amended the existing credit facility in order to, among other things, (i) increase the borrowing capacity from C$175.0 million to C$400.0 million, (ii) reduce borrowing costs, and (iii) extend the initial maturity date by three years, to August 2026. As of September 30, 2022, the effective interest rate was three-month CDOR plus 6.00%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The Canada SPV matures on August 2, 2026.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Heights Finance SPV

In December 2021, the Company acquired Heights Finance, including the Heights Finance SPV. Heights Finance entered into the Heights Finance SPV in December 2019 with a total revolving commitment of $350.0 million. The interest rate on the facility is one-month LIBOR plus 5.25%. The Heights Finance SPV was scheduled to mature on December 31, 2024.

The Heights Finance SPV was extinguished on July 15, 2022, using proceeds from the new $425.0 million non-recourse revolving warehouse facility, "Heights SPV," as described above. The early extinguishment of the Heights Finance SPV resulted in a loss of $0.6 million.

U.S. SPV

In April 2020, CURO Receivables Finance II, LLC, a wholly-owned subsidiary of the Company, entered into the U.S. SPV, which provided for $200.0 million of borrowing capacity with an effective interest rate on the Company's borrowings of one-month LIBOR plus 6.25%. The borrower pays the lenders a monthly commitment fee at an annual rate of 0.50% on the unused portion of the commitments. The U.S. SPV was set to mature on April 8, 2024.

The U.S. SPV was extinguished on July 8, 2022 upon the completion of the divestiture of our Legacy U.S. Direct Lending business to Community Choice Financial. The early extinguishment of the U.S. SPV resulted in a loss of $3.1 million.

Senior Revolver

The Company maintains the Senior Revolver that provides $40.0 million of borrowing capacity, including up to $4.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires August 31, 2023. The Senior Revolver accrues interest at one-month SOFR plus 5.00%.

The Senior Revolver is guaranteed by all subsidiaries that guarantee the 7.50% Senior Secured Notes, and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing the 7.50% Senior Secured Notes.

CURO Canada Revolving Credit Facility

CURO Canada maintains the Curo Canada Revolving Credit Facility, formerly known as the Cash Money Revolving Credit Facility, a C$10.0 million revolving credit facility, which provides short-term liquidity for the Company's Canadian direct lending operations. As of September 30, 2022, the borrowing capacity under the Curo Canada Revolving Credit Facility was C$9.9 million, net of C$0.1 million in outstanding stand-by letters of credit.

The Curo Canada Revolving Credit Facility is collateralized by substantially all of CURO Canada’s assets and contains various covenants that require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Curo Canada Revolving Credit Facility bear interest per annum at the prime rate of a Canadian chartered bank plus 1.95%.

NOTE 6 – INCOME TAXES

The Company's effective income tax rate was 92.6% and 24.9% for the nine months ended September 30, 2022 and 2021, respectively.

The effective income tax rate for the nine months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business of $8.4 million, share-based compensation of $0.9 million, officers’ compensation of $1.0 million, and non-deductible transaction costs of $0.2 million, partially offset by tax benefits related to change in fair value of contingent consideration of $2.1 million.

The effective income tax rate for the nine months ended September 30, 2021 was lower compared to the blended federal and state/provincial statutory rates of approximately 26.0%, primarily as a result of proportionally more net income in lower rate jurisdictions, driven by the gain on the Katapult transaction of $146.9 million in the second quarter of 2021 and the loss on extinguishment of debt of $40.2 million in the third quarter of 2021. Additionally, the effective tax rate also includes the release of a valuation allowance due to the Company's share of Katapult's income, tax benefits related to share-based compensation, expense related to the non-deductible transaction costs and the change in fair value of contingent consideration, additional Texas accrual for 2020 due to the settlement of 2013 to 2019 Texas tax returns, and a tax benefit for the recognition of Research and Development tax credit.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company intends to reinvest Canada earnings indefinitely in its Canadian operations and therefore has not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the accumulated earnings in Canada of $244.8 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $12.2 million. The determination of the U.S. state income taxes upon a potential foreign earnings distribution is impractical. In the event the earnings are distributed to the U.S. legal entities, the Company will adjust the income tax provision for the applicable period and determine the amount of foreign tax credit that would be available.

NOTE 7 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company is required to use valuation techniques that are consistent with the market approach, income approach and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on observable market data obtained from independent sources, or unobservable, meaning those that reflect the Company's own judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available for the specific circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are listed below.

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.

Level 2 – Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability as a result of limited market data. The Company develops these inputs based on the best information available, including its own data.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial Assets and Liabilities Carried at Fair Value

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at September 30, 2022 (in thousands):


			Estimated Fair Value
	Carrying Value September 30, 2022		Level 1		Level 2		Level 3		Total
Financial assets:
Cash Surrender Value of Life Insurance	$	7,378	$	7,378	$	—	$	—	$	7,378
Interest rate swap on Flexiti Securitization	4,567		—		4,567		—		4,567
Financial liabilities:
Non-qualified deferred compensation plan	$	4,972	$	4,972	$	—	$	—	$	4,972
Contingent consideration related to acquisition	15,770		—		—		15,770		15,770

Interest Rate Swap on Flexiti Securitization

On July 7, 2022, Flexiti entered into an interest rate swap with National Bank of Canada to protect against the interest risk on its variable rate borrowing facility. For additional information on the interest rate swap on the Flexiti Securitization, refer to Note 5 , "Debt ."

Contingent consideration related to acquisition

In connection with the acquisition of Flexiti during the first quarter of 2021, the Company recorded a liability for contingent consideration based on the achievement of revenue less NCOs and loan origination targets over the two years following closing of the acquisition that could result in additional cash consideration up to $32.8 million to Flexiti's former stockholders. The fair value of the liability is estimated using the option-based income approach using a Monte Carlo simulation model discounted back to the reporting date. The significant unobservable inputs (Level 3) used to estimate the fair value included the expected future tax benefits associated with the acquisition, the probability that the risk adjusted-revenue and origination targets will be achieved and discount rates. The contingent consideration measured at fair value using unobservable inputs decreased from the initial measurement of $20.6 million as of March 31, 2021 to $15.8 million as of September 30, 2022. The first and only payment to date of $1.0 million was made in July 2022. For additional information on Flexiti and the related contingent consideration, refer to Note 14, "Acquisitions and Divestiture."

Cash Surrender Value of Life Insurance and Non-qualified deferred compensation plan

The cash surrender value of life insurance is included in “Other assets” in the Company’s Consolidated Balance Sheets. The non-qualified deferred compensation plan offsetting liability is included in “Accounts payable and accrued liabilities” in the Company’s Consolidated Balance Sheets.

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2021 (in thousands):


			Estimated Fair Value
	Carrying Value December 31, 2021		Level 1		Level 2		Level 3		Total
Financial assets:
Cash Surrender Value of Life Insurance	$	8,242	$	8,242	$	—	$	—	$	8,242
Financial liabilities:
Non-qualified deferred compensation plan	$	5,109	$	5,109	$	—	$	—	$	5,109
Contingent consideration related to acquisition	26,508		—		—		26,508		26,508

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial Assets and Liabilities Not Carried at Fair Value

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at September 30, 2022 (in thousands):


			Estimated Fair Value
	Carrying Value September 30, 2022		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	45,683	$	45,683	$	—	$	—	$	45,683
Restricted cash	144,020		144,020		—		—		144,020
Loans receivable, net	1,791,684		—		—		1,791,684		1,791,684
Financial liabilities:
7.50% Senior Secured Notes	$	982,331	$	—	$	489,700	$	—	$	489,700
Heights SPV	388,013		—		—		388,013		388,013
First Heritage SPV	178,403		—		—		183,203		183,203
Flexiti SPV	264,333		—		—		269,333		269,333
Flexiti Securitization	380,036		—		—		382,937		382,937
Canada SPV	256,200		—		—		258,019		258,019

The table below presents the assets and liabilities that were not carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2021 (in thousands):


			Estimated Fair Value
	Carrying Value December 31, 2021		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	63,179	$	63,179	$	—	$	—	$	63,179
Restricted cash	98,896		98,896		—		—		98,896
Loans receivable, net	1,460,758		—		—		1,460,758		1,460,758
Financial liabilities:
Liability for losses on CSO lender-owned consumer loans (1)	$	6,908	$	—	$	—	$	6,908	$	6,908
7.50% Senior Secured Notes	980,721		—		1,005,700		—		1,005,700
U.S. SPV (1)	45,392		—		—		49,456		49,456
Canada SPV	157,813		—		—		160,533		160,533
Flexiti SPV	172,739		—		—		176,625		176,625
Flexiti Securitization	239,128		—		—		242,886		242,886
Heights Finance SPV	350,000		—		—		350,000		350,000
(1) Liabilities were disposed of the when we completed the divestiture of the Legacy U.S. Direct Lending business on July 8, 2022.

Loans Receivable, Net

Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the ALL. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. The carrying value of loans receivable approximates their fair value. Refer to Note 3, "Loans Receivable and Revenue" for additional information.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CSO Program

In connection with CSO programs, the Company guaranteed consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company was required to purchase from the lender charged-off loans that it had guaranteed. Refer to Note 3, "Loans Receivable and Revenue" and Note 4, Credit Services Organization" for additional information. All balances in connection with the CSO programs were disposed of with the completion of the divestiture of the Legacy U.S. Direct Lending business on July 8, 2022.

7.50% Senior Secured Notes, Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Curo Canada Revolving Credit Facility and Senior Revolver (U.S. SPV and Heights Finance SPV extinguished during the third quarter of 2022)

The fair value disclosure for the 7.50% Senior Secured Notes as of September 30, 2022 and December 31, 2021 was based on observable market trading data. The fair values of the Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Curo Canada Revolving Credit Facility and Senior Revolver were based on the cash needed for their respective final settlements.

Investment in Katapult

The table below presents the Company's investment in Katapult (in thousands):


	Equity Method Investment		Measurement Alternative (1)		Total Investment in Katapult











Balance at December 31, 2020	$	7,762	$	19,609	$	27,371
Equity method income - Q1 2021	546		—		546
Balance at March 31, 2021	8,308		19,609		27,917
Equity method income - Q2 2021	1,712		—		1,712
Conversion of investment(2)	6,481		(19,609)		(13,128)
Balance at June 30, 2021	16,501		—		16,501
Equity method loss - Q3 2021	(1,582)		—		(1,582)
Balance at September 30, 2021	14,919		—		14,919
Equity method income - Q4 2021	2,982		—		2,982
Purchases of common stock	9,999		—		9,999
Balance at December 31, 2021	27,900		—		27,900
Equity method income - Q1 2022	1,584		—		1,584
Balance at March 31, 2022	29,484		—		29,484
Equity method loss - Q2 2022	(1,327)				(1,327)

Balance at June 30, 2022	28,157		—		28,157
Equity method loss - Q3 2022	(2,309)				(2,309)
Balance at September 30, 2022	$	25,848	$	—	$	25,848

Classification as of December 31, 2021	Level 3, not carried at fair value		N/A
Classification as of September 30, 2022	Level 3, not carried at fair value		N/A
(1) The Company elected to measure this equity security without a readily determinable fair value equal to its cost minus impairment. If the Company identifies an observable price change in orderly transactions for same or similar investment in Katapult, it will measure the equity security at fair value as of the date that the observable transaction occurred.
(2) On June 9, 2021, Katapult completed its merger with FinServ. Immediately prior to the merger, the Company first converted all of its preferred stock and exercised all common stock warrants, and then exchanged all shares of Katapult common stock for $146.9 million in cash and 18.9 million shares of common stock in the resulting public company, Katapult (NASDAQ: KPLT). The Company's entire investment in Katapult is now accounted for under the equity method of accounting. The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult, based on the pro rata cost basis of the investment and the discharge of the guarantee provided during the second quarter of 2021.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company began investing in Katapult in 2017 and increased its investment through multiple private placement acquisitions. During the first quarter of 2021, the Company changed the two-month reporting lag to a one-quarter reporting lag, as discussed in Note 1, "Summary of Significant Accounting Policies and Nature of Operations." The Company recorded a loss of $2.3 million for the three months ended September 30, 2022 based on its share of Katapult’s earnings.

During the fourth quarter of 2021, the Company purchased an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million.

On June 9, 2021, Katapult completed its merger with FinServ. As a result, the Company received $146.9 million in cash and 18.9 million shares of common stock of the resulting public company, Katapult (NASDAQ: KPLT). The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult during the second quarter of 2021. Additionally, as part of the merger, CURO received 3.0 million earn-out warrants and holds two of the eight board of director seats for Katapult.

Both the equity method investment and the previously recognized investment measured at cost minus impairment are presented within "Investment in Katapult" on the unaudited Condensed Consolidated Balance Sheets.

The Company owns 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – STOCKHOLDERS' EQUITY

The following table summarizes the changes in stockholders' equity for the nine months ended September 30, 2022 and 2021 (in thousands, except Common Stock data):


	Common Stock			Treasury Stock, at cost		Paid-in capital		Retained Earnings		AOCI (1)		Total Stockholders' Equity
	Shares Outstanding	Par Value
Balance at December 31, 2021	40,810,444	$	23	$	(124,302)	$	113,520	$	203,467	$	(32,378)	$	160,330
Net income	—	—		—		—		1,336		—		1,336
Foreign currency translation adjustment	—	—		—		—		—		6,633		6,633
Dividends	—	—		—		—		(4,791)		—		(4,791)
Share-based compensation expense	—	—		—		4,093		—		—		4,093
Repurchase of common stock	(824,477)	—		(12,530)		—		—		—		(12,530)
Net settlement of share-based awards	362,815	—		—		(2,284)		—		—		(2,284)
Balance at March 31, 2022	40,348,782	$	23	$	(136,832)	$	115,329	$	200,012	$	(25,745)	$	152,787
Net loss	—	—		—		—		(26,080)		—		(26,080)
Foreign currency translation adjustment	—	—		—		—		—		(10,520)		(10,520)
Dividends	—	—		—		—		(4,434)		—		(4,434)
Share based compensation expense	—	—		—		4,415		—		—		4,415
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes	108,969	—		—		(588)		—		—		(588)
Balance at June 30, 2022	40,457,751	$	23	$	(136,832)	$	119,156	$	169,498	$	(36,265)	$	115,580
Net income	—	—		—		—		25,653		—		25,653
Other comprehensive loss, net of tax	—	—		—		—		—		(13,705)		(13,705)
Dividends	—	—		—		—		(4,466)		—		(4,466)
Share based compensation expense	—	—		—		1,448		—		—		1,448
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes	27,630	—		—		(58)		—		—		(58)
Balance at September 30 2022	40,485,381	$	23	$	(136,832)	$	120,546	$	190,685	$	(49,970)	$	124,452
(1) Accumulated other comprehensive income (loss)

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Common Stock			Treasury Stock, at cost		Paid-in capital		Retained Earnings		AOCI (1)		Total Stockholders' Equity
	Shares Outstanding	Par Value
Balance at December 31, 2020	41,370,504	$	9	$	(77,852)	$	79,812	$	160,068	$	(30,132)	$	131,905
Net income	—	—		—		—		25,735		—		25,735
Foreign currency translation adjustment	—	—		—		—		—		3,855		3,855
Dividends	—	—		—		—		(2,368)		—		(2,368)
Share-based compensation expense	—	—		—		2,683		—		—		2,683
Proceeds from exercise of stock options	15,852	—		—		48		—		—		48
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes	237,423	—		—		(1,668)		—		—		(1,668)

Balance at March 31, 2021	41,623,779	$	9	$	(77,852)	$	80,875	$	183,435	$	(26,277)	$	160,190
Net income	—	—		—		—		104,517		—		104,517
Foreign currency translation adjustment	—	—		—		—		—		4,714		4,714
Dividends	—	—		—		—		(4,582)		—		(4,582)
Share-based compensation expense	—	—		—		3,467		—		—		3,467
Proceeds from exercise of stock options	43,920	—		—		191		—		—		191
Repurchase of common stock	(104,487)	—		(1,752)		—		—		—		(1,752)
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes	116,329	—		—		(43)		—		—		(43)
Balances at June 30, 2021	41,679,541	$	9	$	(79,604)	$	84,490	$	283,370	$	(21,563)	$	266,702
Net loss	—	—		—		—		(42,039)		—		(42,039)
Foreign currency translation adjustment	—	—		—		—		—		(10,611)		(10,611)
Dividends	—	—		—		—		(4,547)		—		(4,547)
Share based compensation expense	—	—		—		3,998		—		—		3,998
Proceeds from exercise of stock options	7,200	—		—		27		—		—		27
Repurchase of common stock	(964,566)	—		(15,940)		—		—		—		(15,940)
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes	14,936					$	(107)					(107)
Balance at September 30, 2021	40,737,111	$	9	$	(95,544)	$	88,408	$	236,784	$	(32,174)	$	197,483
(1) Accumulated other comprehensive income (loss)

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Dividends

The table below summarizes the Company's quarterly dividends for 2022.


						Dividends Paid
	Date of declaration	Stockholders of record	Date paid	Dividend per share		(in thousands)
Q1 2022	February 4, 2022	February 18, 2022	March 1, 2022	$	0.11	$	4,517
Q2 2022	April 28, 2022	May 10, 2022	May 23, 2022	$	0.11	$	4,440
Q3 2022	August 3, 2022	August 15, 2022	August 26, 2022	$	0.11	$	4,453

The table below summarizes the Company's quarterly dividends for 2021.


						Dividends Paid
	Date of declaration	Stockholders of record	Date paid	Dividend per share		(in thousands)
Q1 2021	January 29, 2021	February 16, 2021	March 2, 2021	$	0.055	$	2,284
Q2 2021	May 3, 2021	May 14, 2021	May 27, 2021	$	0.11	$	4,580
Q3 2021	July 28, 2021	August 9, 2021	August 19, 2021	$	0.11	$	4,556

In October 2022, the Company's Board of Directors suspended the quarterly dividend.

NOTE 9 – EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	25,653	$	(42,039)	$	909	$	88,213



Weighted average common shares - basic	40,479		41,220		40,203		41,459
Dilutive effect of stock options and restricted stock units	356		—		551		1,963
Weighted average common shares - diluted	40,835		41,220		40,754		43,422

Earnings per share:
Basic earnings per share	$	0.63	$	(1.02)	$	0.02	$	2.13




Diluted earnings per share	$	0.63	$	(1.02)	$	0.02	$	2.03

Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive; therefore, these shares are not included in calculating diluted earnings per share. For the three and nine months ended September 30, 2022, there were 3.5 million and 2.4 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive. For the three and nine months ended September 30, 2021, there were 0.1 million and 0.1 million, respectively, of potential shares of common stock excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

The Company utilizes the "control number" concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share is applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – SEGMENT REPORTING

Segment information is prepared on the same basis that the Company's CODM reviews financial information for operational decision making purposes, including revenues, net revenue, gross margin, segment operating income and other items.

U.S. As of September 30, 2022, the Company operated over 500 U.S. retail locations in 13 states. The Company provides secured and unsecured installment loan products to near-prime and non-prime consumers as well as credit insurance and other ancillary financial products to its customers in the U.S.

Canada Direct Lending. As of September 30, 2022, the Company operated a total of 211 stores across eight Canadian provinces and had an online presence in eight provinces and one territory. The Company provides Revolving LOC and Installment loans, which include Single-Pay loans, optional credit protection insurance products to Revolving LOC and Installment loan customers, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.

Canada POS Lending. As of September 30, 2022, the Company served Canadian customers through POS financing available at over 8,000 retail locations and over 3,500 merchant partners across 10 provinces and two territories. The Company provides Revolving LOC loans and a number of other ancillary financial products to its customers in Canada. Results of operations for the nine months ended September 30, 2021 from Canada POS Lending represent results from the date of Flexiti's acquisition, March 10, 2021, through September 30, 2021.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table illustrates summarized financial information concerning reportable segments (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues by segment: (1)
U.S.	$	107,430	$	131,674	$	511,540	$	386,960
Canada Direct Lending	78,979		66,190		226,007		186,510
Canada POS Lending	27,711		11,416		71,173		20,054
Consolidated revenue	$	214,120	$	209,280	$	808,720	$	593,524
Net revenues by segment:
U.S.	$	75,357	$	83,244	$	315,079	$	278,852
Canada Direct Lending	46,032		52,187		145,047		154,717
Canada POS Lending	14,332		3,131		43,118		7,927
Consolidated net revenue	$	135,721	$	138,562	$	503,244	$	441,496
Segment operating (loss) income:
U.S.	$	30,757	$	(62,099)	$	(11,347)	$	75,909
Canada Direct Lending	12,069		23,744		45,554		71,334
Canada POS Lending	175		(17,059)		(21,834)		(29,789)
Consolidated operating (loss) income	$	43,001	$	(55,414)	$	12,373	$	117,454
Expenditures for long-lived assets by segment:
U.S.	$	6,545	$	4,402	$	14,066	$	9,226
Canada Direct Lending	630		481		5,094		991
Canada POS Lending	5,846		2,603		16,110		5,134
Consolidated expenditures for long-lived assets	$	13,021	$	7,486	$	35,270	$	15,351
(1) For revenue by product, see Note 3, "Loans Receivable and Revenue."

The following table provides the proportion of gross loans receivable by segment (in thousands):


	September 30, 2022		December 31, 2021
U.S.	$	739,100	$	661,945
Canada Direct Lending	465,057		427,197
Canada POS Lending	690,270		459,176
Total gross loans receivable	$	1,894,427	$	1,548,318

The following table represents the Company's net long-lived assets, comprised of property and equipment, by segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):


	September 30, 2022		December 31, 2021
U.S.	$	14,618	$	32,753
Canada Direct Lending	20,097		21,072
Canada POS Lending	2,687		810
Total net long-lived assets	$	37,402	$	54,635

The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Securities Litigation and Enforcement

In 2018, a putative securities fraud class action lawsuit was filed against the Company and certain of its officers and directors and other related parties in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662 (the "Yellowdog Action"). The suit alleged the Company made misleading statements and omitted material information regarding the Company's efforts to transition the Canadian inventory of products from Installment loans to Revolving LOC loans.

In December 2020, the Court granted final approval of the $9.0 million settlement and dismissed the case with prejudice. The Company's directors' and officers' insurance policy required the Company to pay the first $2.5 million in fees and settlement and the insurance carriers paid the remaining amounts. For the nine months ended September 30, 2022, there was no further expense related to this litigation.

In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware ("Court") against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally alleged the same underlying facts of the Yellowdog Action. In July 2021, the derivative lawsuits were voluntarily dismissed and Plaintiffs refiled two cases in the United States District Court for the District of Kansas. In April 2022, the Company reached an agreement in principle with the plaintiffs to settle these actions. On October 27, 2022, the Court granted final approval of the settlement and dismissed the case with prejudice. The terms of the settlement provided for the implementation of certain corporate governance reforms and a payment of $345,000 in attorneys’ fees and expenses to plaintiffs’ counsel, which was paid by the Company's insurers, and included no admission of liability or wrongdoing by the Company.

Other Legal Matters. The Company is a defendant in certain other litigation matters encountered from time-to-time in the ordinary course of business, some of which may be covered to an extent by insurance. While it is difficult to predict the outcome of any particular proceeding, the Company does not believe the result of any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.

NOTE 12 – LEASES

Leases entered into by the Company are primarily for retail stores in certain U.S. states and Canadian provinces.

Leases classified as finance leases were immaterial to the Company as of September 30, 2022. Operating leases expire at various times through 2033. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" in the unaudited Condensed Consolidated Balance Sheets. Operating lease costs are included in "Occupancy" in the unaudited Condensed Consolidated Statement of Operations. The majority of leases have an original term up to five years plus renewal options for additional similar terms.

The following table summarizes the operating lease costs and other information for the three and nine months ended September 30, 2022 and September 30, 2021 (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022			2021
Operating lease costs:
Third-Party	$	7,098	$	8,043	$	26,151		24,604
Related-Party	332		551		1,986			1,649
Total operating lease costs	$	7,430	$	8,594	$	28,137		26,253

Cash paid for amounts included in the measurement of operating lease liabilities					$	29,713		$	26,556
ROU assets obtained					$	(26,772)		$	9,893
Weighted average remaining lease term - Operating leases					4.4 years			5.3 years
Weighted average discount rate - Operating leases					7.7		%	9.1		%

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table summarizes the aggregate operating lease payments that the Company was contractually obligated to make under operating leases as of September 30, 2022 (in thousands):


	Third-Party		Related-Party		Total
Remainder of 2022	$	6,845	$	253	$	7,098
2023	23,533		615		24,148
2024	16,527		632		17,159
2025	11,178		649		11,827
2026	6,161		666		6,827
2027	3,921		684		4,605
Thereafter	12,423		1,021		13,444
Total	80,588		4,520		85,108
Less: Imputed interest	(17,453)		(1,286)		(18,739)
Operating lease liabilities	$	63,135	$	3,234	$	66,369

There were no material leases entered into subsequent to the balance sheet date.

NOTE 13 – GOODWILL

The change in the carrying amount of goodwill by operating segment for the nine months ended September 30, 2022 was as follows (in thousands):


	U.S.		Canada Direct Lending		Canada POS Lending		Total
Goodwill at December 31, 2021	$	359,779	$	30,105	$	39,908	$	429,792
Foreign currency translation	—		(2,199)		(2,914)		(5,113)
Measurement period adjustment	15,379		—		—		15,379
Divestiture (Note 14)	(91,131)		—		—		(91,131)
Acquisition (Note 14)	75,365		—		—		75,365
Goodwill at September 30, 2022	$	359,392	$	27,906	$	36,994	$	424,292

The Company tests goodwill at least annually for potential impairment, as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" of the 2021 Form 10-K for additional information on the Company's policy for assessing goodwill for impairment.

In the third quarter of 2022, the Company performed an interim review of triggering events for each reporting unit, which would indicate whether a quantitative or qualitative assessment of goodwill impairment was necessary. As a result of the interim triggering event review, the Company concluded an additional assessment was not necessary and did not record an impairment loss during the three months ended September 30, 2022.

Flexiti Acquisition

The Company completed the acquisition of Flexiti on March 10, 2021, resulting in $39.9 million of goodwill as of December 31, 2021, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. Goodwill of $39.9 million was net of $4.5 million of adjustments upon the conclusion of the measurement period, and $0.5 million of foreign currency translation impact as of December 31, 2021. See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.

Heights Finance Acquisition

The Company completed the acquisition of Heights Finance on December 27, 2021. Provisional goodwill was estimated at $253.9 million, based on the preliminary valuation. The Company recorded a $15.4 million of adjustments during the second quarter of 2022, resulting in a provisional goodwill balance of $269.2 million, as of June 30, 2022. See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Legacy U.S. Direct Lending Business Divestiture

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35 million in cash payable in monthly installment payments over the subsequent 12 months. The divestiture resulted in a gain of $68.4 million in the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. As part of the sale, $91.1 million of goodwill was written off. See Note 14,"Acquisitions and Divestiture" for more information related to the divestiture.

First Heritage Acquisition

On July 13, 2022, CURO closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi, for a total purchase price of $140.0 million in cash. Provisional goodwill was recorded at $75.4 million.See Note 14,"Acquisitions and Divestiture" for more information related to the business combination.

NOTE 14 – ACQUISITIONS AND DIVESTITURE

ACQUISITIONS

First Heritage

On July 13, 2022, we completed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, based in Ridgeland, Mississippi, pursuant to the merger agreement dated May 18, 2022 (“Merger Agreement”). Pursuant to the Merger Agreement, Sugarcane Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), merged with and into First Heritage (the “Merger”), with First Heritage surviving the Merger as a wholly-owned subsidiary of the Company for a purchase price of $140.0 million in cash, subject to certain customary working capital and other adjustments in accordance with the terms of the Merger Agreement. The Company began consolidating the financial results of First Heritage in the Consolidated Financial Statements on July 13, 2022 within the U.S. operating segment.

This transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the acquired assets and liabilities assumed are provisional based on the preliminary fair value estimates as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of September 30, 2022, the primary areas that remain preliminary relate to the valuation of certain loans receivables, intangible assets and certain tax-related balances.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of acquisition (in thousands):


	Amounts acquired on July 13, 2022 (as adjusted)
Assets
Cash and cash equivalents	$	31,396
Restricted cash	1,933
Gross loans receivable(1)	218,011
Prepaid expenses and other	1,284
Property and equipment	345
Right-of-use assets	4,241
Intangibles, net	10,670
Total assets	$	267,880

Liabilities
Accounts payable and accrued liabilities	$	4,271
Lease liabilities	4,241
Debt	170,392
Total liabilities	178,904

Net assets acquired	88,976
Total consideration paid	164,341
Goodwill	$	75,365
(1) The gross contractual loans receivables as of July 13, 2022 were $236.1 million, of which the Company estimates $18.1 million will not be collected.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):


	Fair Value		Useful Life
Trade name	$	3,790	10.0 years
Customer relationships	6,880		3.5 years
Total identified intangible assets	$	10,670

Goodwill of $75.4 million represents the excess of the consideration paid over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributable to expected synergies created with the Company’s future product offerings and the value of the combined workforce. Goodwill from this transaction is deductible for income tax purposes.

The Company incurred costs related to this acquisition of $10.1 million that were recorded in "Other operating expense" in the U.S. segment in the accompanying Consolidated Statement of Operations for the three months ended September 30, 2022.

Heights Finance

On December 27, 2021, the Company acquired 100% of the outstanding stock of Heights Finance for $360.0 million, consisting of $335.0 million in cash and $25.0 million of our common stock. Heights Finance is a consumer finance company that provides secured and unsecured Installment loans to near-prime and non-prime consumers, and offers customary opt-in insurance and other financial products across 390 branches in 11 U.S. states.

The Company began consolidating the financial results of Heights Finance in the Consolidated Financial Statements on December 27, 2021 within the U.S. operating segment. For additional information, see Note 15, "Acquisitions" of the 2021 Form 10-K.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

We are in the process of reviewing the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation prior to December 31, 2022. During the nine months ended September 30, 2022, the Company recorded a measurement period adjustment that increased goodwill by $15.4 million. The measurement period adjustment related to the fair value of the loan portfolio and would have resulted in $7.7 million of incremental interest and fee revenue during the three months ended March 31, 2022. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. As of September 30, 2022, the primary areas that remain preliminary relate to the valuation of intangible assets and certain tax-related balances.

The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of acquisition of Heights Finance (in thousands):


	Amounts acquired on December 27, 2021		Measurement period adjustments		Amounts acquired on December 27, 2021 (as adjusted)
Assets
Cash and cash equivalents	$	13,564	$	—	$	13,564
Restricted cash	33,630		—		33,630
Gross loans receivable(1)	471,630		(15,379)		456,251
Income tax receivable	3,526		—		3,526
Prepaid expenses and other	7,410		—		7,410
Property and equipment	4,748		—		4,748
Right-of-use assets	16,111		—		16,111
Intangibles, net	11,900		—		11,900
Other assets	98		—		98
Total assets	$	562,617	$	(15,379)	$	547,238

Liabilities
Accounts payable and accrued liabilities	$	19,186	$	—	$	19,186
Lease liabilities	16,315		—		16,315
Deferred tax liability	1,077		—		1,077
Accrued interest on debt	1,781		—		1,781
Debt	350,000		—		350,000
Total liabilities	$	388,359	$	—	$	388,359

Net assets acquired	$	174,258	$	(15,379)	$	158,879
Total consideration paid	428,115				428,115
Goodwill	$	253,857			$	269,236
(1) The gross contractual loans receivables as of December 27, 2021 were $485.4 million, of which the Company estimates $29.2 million will not be collected.

Flexiti

On March 10, 2021, the Company acquired 100% of the outstanding stock of Flexiti. The fair value of total consideration paid was $86.5 million in cash, $6.3 million in debt costs and $20.6 million in contingent cash consideration subject to future operating metrics, including revenue less NCOs and loan originations. Flexiti provides POS financing solutions to retailers across Canada.

The Company began consolidating the financial results of Flexiti in the unaudited Condensed Consolidated Financial Statements on March 10, 2021. For additional information, see Note 15, "Acquisitions" of the 2021 Form 10-K.

DIVESTITURE

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Legacy U.S. Direct Lending Business

On July 8, 2022 the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35 million in cash payable in monthly installment payments over the subsequent 12 months.

The divestiture resulted in a gain of $68.4 million in the three and nine months ended September 30, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. The sale of the business is not considered a strategic shift that will have a major effect on the Company’s operations or financial results, and thus it is not reported as discontinued operations.

The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of divestiture of the Legacy U.S. Direct Lending business (in thousands):


	July 8, 2022
Assets
Cash, cash equivalents and restricted cash	$	21,292
Loans receivable	162,147
Right of use asset	39,326
Goodwill	91,131
Other assets (1)	30,690
Total assets	$	344,586

Liabilities
Accounts payable and accrued liabilities	$	8,947
Right of use liability	43,433
Liability for losses on CSO lender-owned consumer loans	5,628
Other long term liabilities (2)	5,815
Total liabilities	63,823

Net assets sold	280,763
Total proceeds	349,207
Total pretax gain on sale of business	$	68,444
(1) Includes income tax receivable, property and equipment, intangibles, deferred tax assets, and other assets.
(2) Includes deferred revenue, income taxes payable, deferred tax liability, and other long-term liabilities

The Legacy U.S. Direct Lending Business had pre-tax net income of $60.7 million and $3.6 million for the nine months and three months ended September 30, 2022, respectively. The Legacy U.S. Direct Lending Business had pre-tax net income of $118.1 million and $27.7 million for the nine months and three months ended September 30, 2021, respectively. Pre-tax net income is comprised of net revenue and expenses directly related to the Legacy U.S. Direct Lending Business, which does not include certain costs recorded in the U.S. operating segment that are not classified as disposed of, such as interest expense on the 7.50% Senior Secured Notes and certain corporate expenses.

NOTE 15 – SHARE REPURCHASE PROGRAM

In February 2022, the Company's Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. There were no repurchases under this program as of September 30, 2022. Repurchases are at the Company's discretion and can continue until completed or terminated. The Company expects any repurchases to be made from time-to-time in the open market and/or in privately negotiated transactions at the Company's 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.

In May 2021, the Company's Board of Directors authorized a share repurchase program for up to $50.0 million of its common stock. The program commenced in June 2021 and was completed in February 2022.

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The table below summarizes share repurchase activity in the $50.0 million repurchase program during the three and nine months ended September 30, 2022 (in thousands, except for per share amounts and number of share amounts):


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Total number of shares repurchased	—		824,777
Average price paid per share	$	—	$	15.20
Total value of shares repurchased	$	—	$	12,530

We repurchased 104,487 shares of our common stock at an average price of $16.77 for a total cost of $1.8 million during the three and nine months ended September 30, 2021.

NOTE 16 – SUBSEQUENT EVENTS

Cost Savings and Efficiency Enhancements

As part of the continuing evaluation of the Company cost structure, the Company made the decision in October 2022 to enact certain cost savings strategies, which include (i) store closures in both Canada and the US, (ii) consolidation of certain back-office functions as well as reductions to our corporate office footprint, and (iii) ending the First Phase credit card.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion of financial condition, results of operations, liquidity and capital resources, our regulatory environment and certain factors that may affect future results, including company-specific, economic and industry-wide factors, should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and accompanying notes included herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, we undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Please see “Risk Factors” in our 2021 Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

We are a tech-enabled, omni-channel consumer finance company serving a full spectrum of non-prime and prime consumers in the U.S. and Canada.

History

CURO was founded in 1997 to meet the growing needs of consumers looking for alternative access to credit. With 25 years of experience, we offer a variety of convenient, accessible financial and loan services across all of our markets. The terms “CURO," "we,” “our,” “us” and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.

In the U.S., we operate under several principal brands, including "Covington Credit," "Heights Finance," "Quick Credit", "Southern Finance" and "First Heritage." Until July 2022 we also operated under brands that included "Speedy Cash", "Rapid Cash" and "Avio Credit". We also offer demand deposit accounts in the U.S. under the Revolve Finance brand, and credit card programs under the First Phase brand, which we launched in the fourth quarter of 2021. As of September 30, 2022, our store network consisted of over 500 U.S. retail locations across 13 states.

In Canada, we operate under “Cash Money” and “LendDirect” direct lending brands and the "Flexiti" point-of-sale brand. As of September 30, 2022, we operated our direct lending and online services in eight Canadian provinces and one Canadian territory. Our point-of-sale operations are available at nearly 8,000 retail locations and over 3,500 merchant partners across 10 provinces and two territories.

In July 2022, we sold our Legacy U.S. Direct Lending Business, which operated under the "Speedy Cash", "Rapid Cash" and "Avio Credit" brands. Also in July 2022 we purchased a U.S. based near-prime installment lender, First Heritage, which operates under the "First Heritage Credit" brand, furthering our strategic shift to broaden our position in the near-prime consumer lending market in the U.S. Refer to Note 14, "Acquisitions and Divestiture" for additional details regarding the divestiture of our Legacy U.S. Direct Lending business and the acquisition of First Heritage.

On December 27, 2021, we acquired Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products in the U.S. The acquisition of Heights Finance accelerated our strategic transition in the U.S. toward longer term, higher balance and lower credit risk products, and provided us with access to what we believe to be a larger addressable market while mitigating regulatory risk.

On March 10, 2021, we acquired Flexiti, an emerging growth Canadian POS/BNPL provider, which provided us instant capability and scale opportunity in Canada's credit card and POS financing markets. Refer to "Item 1—Business—Company Overview" of our 2021 Form 10-K and Note 14,"Acquisitions and Divestiture" for additional details regarding the Heights Finance and Flexiti acquisitions. Both acquisitions were accounted for under the purchase method and thus their results of operations are included in our financial statements commencing as of their respective acquisition dates.

In 2017, we made our first investment in Katapult, an e-commerce focused FinTech company offering an innovative lease financing solution to consumers and enabling essential transactions at the merchant POS. In June 2021, Katapult merged with FinServ, resulting in a new publicly traded company (NASDAQ: KPLT). Refer to "Item 1—Business—Company Overview" of our 2021 Form 10-K for additional information about the merger and its benefits to us. In the fourth quarter of 2021, we acquired an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million. Our fully diluted ownership of Katapult as of September 30, 2022 was 19.4%, assuming full pay-out of earn-out shares, and 18.1% excluding pay-out of earn-out shares.

Consolidated Results of Operations

Comparison of Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

Beginning January 1, 2022, we report "Interest and fees revenue," "Insurance premiums and commissions" and "Other revenue" in place of our previously reported "Revenue" on our Condensed Statements of Operations. Prior period presentations have been revised to conform to the current period presentation.

The table below presents our consolidated results of operations. A further discussion of the results of our operating segments is provided under "Segment Analysis" below.


(in thousands, unaudited)	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		2021		Change $		Change %		2022		2021		Change $		Change %
Revenue
Interest and fees revenue	$	180,515	$	190,629	$	(10,114)	(5.3)	%	$	723,802	$	539,155	$	184,647	34.2	%
Insurance premiums and commissions	24,746		12,599		12,147		96.4	%	61,659		36,021		25,638		71.2	%
Other revenue	8,859		6,052		2,807		46.4	%	23,259		18,348		4,911		26.8	%
Total revenue	214,120		209,280		4,840		2.3	%	808,720		593,524		$ 215,196		36.3	%
Provision for losses	78,399		70,718		7,681		10.9	%	305,476		152,028		153,448		100.9	%
Net revenue	135,721		138,562		(2,841)		(2.1)	%	503,244		441,496		61,748		14.0	%
Operating Expenses
Salaries and benefits	53,413		62,110		(8,697)		(14.0)	%	215,569		175,347		40,222		22.9	%
Occupancy	12,827		13,732		(905)		(6.6)	%	47,371		41,862		5,509		13.2	%
Advertising	5,244		9,697		(4,453)		(45.9)	%	28,451		24,824		3,627		14.6	%
Direct operations	11,729		14,883		(3,154)		(21.2)	%	52,296		40,552		11,744		29.0	%
Depreciation and amortization	9,499		7,285		2,214		30.4	%	27,985		19,685		8,300		42.2	%
Other operating expense	23,646		14,851		8,795		59.2	%	58,809		45,020		13,789		30.6	%
Total operating expenses	116,358		122,558		(6,200)		(5.1)	%	430,481		347,290		83,191		24.0	%
Other expense (income)
Interest expense	50,149		25,805		24,344		94.3	%	130,683		68,784		61,899		90.0	%
Loss (income) from equity method investment	2,309		1,582		727		46.0		2,053		(676)		2,729		#
Gain from equity method investment	—		—		—		#		—		(135,387)		135,387		#
Loss on extinguishment of debt	3,702		40,206		(36,504)		(90.8)	%	3,702		40,206		(36,504)		(90.8)	%
(Gain) loss on change in fair value of contingent consideration	(11,355)		3,825		(15,180)		#		(7,605)		3,825		(11,430)		#
Gain on sale of business	(68,443)		—		(68,443)		#		(68,443)		—		(68,443)		#
Total other (income) expense	(23,638)		71,418		(95,056)		#		60,390		(23,248)		83,638		#
Income (loss) before income taxes	43,001		(55,414)		98,415		#		12,373		117,454		(105,081)		(89.5)	%
Provision (benefit) for income taxes	17,348		(13,375)		30,723		#		11,464		29,241		(17,777)		(60.8)	%
Net income (loss)	25,653		(42,039)		67,692		#		909		88,213		(87,304)		(99.0)	%


# - Variance greater than 100% or not meaningful.

For the three months ended September 30, 2022 and 2021

The improvement in Net income of $67.7 million for the three months ended September 30, 2022 was primarily driven by (i) the $68.4 million Gain on sale of business recorded in the third quarter 2022 resulting from the completion of the divestiture of our Legacy U.S. Direct Lending business in July 2022, (ii) the $11.4 million adjustment to the change in the fair value of contingent consideration recorded in connection with our acquisition of Flexiti, and (iii) in the third quarter of 2021 a $40.2 million loss on the extinguishment and refinancing of our former senior notes ("8.25% Senior Secured Notes"), partially offset in the third quarter of 2022 by a $24.3 million increase in interest expense. The increase in interest expense in the third quarter of 2022 compared to the same period in 2021 was primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse asset-backed lending ("ABL") borrowing to support organic loan growth and acquired portfolios.

For the Nine Months Ended September 30, 2022 and 2021

The decline in Net income of $87.3 million for the nine months ended September 30, 2022 compared to the prior-year period was primarily driven by (i) year-over-year comparisons for the provision for loan losses, which were favorably impacted by COVID-19 stimulus impacts during 2021, (ii) gains related to our investment in Katapult Holdings, Inc., and (iii) higher interest expense in 2022, partially offset by (i) the $68.4 million Gain on sale of business recorded in the third quarter of 2022 resulting from the completion of the divestiture of our Legacy U.S. Lending Direct business in July 2022, (ii) the $11.4 million adjustment to the change in the fair value of contingent consideration recorded in connection with our acquisition of Flexiti, and (iii) in the third quarter of 2021, a $40.2 million loss on the extinguishment and refinancing of our former senior notes ("8.25% Senior Secured Notes"). During the second quarter of 2021, Katapult became a public company via a SPAC merger, generating a pretax gain to us of $135.4 million.

Government stimulus in March 2021 and pandemic-related consumer behavior reduced demand, increased payment rates and lowered loss rates in 2021, resulting in a provision for loan losses that was $16.7 million less than NCOs for the first nine months of 2021. Credit normalization and strong sequential loan growth in the first nine months of 2022 resulted in a provision for loan losses that exceeded NCOs by $50.1 million, a $66.8 million year-over-year change, (including the impact of purchase accounting for the Heights Finance portfolio acquired in December 2021 and First Heritage portfolio acquired in July 2022). The increase of $61.9 million in interest expense in 2022 was primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.

Revenue

For the three months ended September 30, 2022 and 2021

During the three months ended September 30, 2022, total revenue increased $4.8 million, or 2.3% to $214.1 million, compared to the prior-year period, primarily driven by:

•Revenue growth in Canada POS Lending and Canada Direct Lending of 142.7% and 19.3%, respectively,

•Revenue increase related to the Heights Finance and First Heritage acquisitions, partially offset by an 18.4% decline in U.S. revenue primarily as a result of the July 2022 divestiture of our Legacy U.S. Direct Lending business.

For the Nine Months Ended September 30, 2022 and 2021

During the nine months ended September 30, 2022, total revenue increased $215.2 million, or 36.3%, to $808.7 million, compared to the prior-year period, primarily driven by our acquisitions of Heights Finance and First Heritage, growth in Canada Direct Lending and the addition of two full quarters of revenue for the acquisition of Flexiti. The main components were:

•U.S. revenue increase of $124.6 million, or 32.2%, primarily as a result of our Heights Finance and First Heritage acquisitions, offset by a decrease in total revenues due to the July 2022 divestiture of the Legacy U.S. Direct lending business,

•Canada POS Lending revenue increase of $51.1 million, or 255%, compared to the nine months ended September 30, 2021 , which only included Flexiti's results after its acquisition on March 10, 2021; and

•Canada Direct Lending revenue increase of $39.5 million, or 21.2%.

The following table summarizes revenue by product for the period indicated:


	Three Months Ended
	September 30, 2022										September 30, 2021
(in thousands, unaudited)	U.S.		Canada Direct Lending		Canada POS Lending		Total		% of Total		U.S.		Canada Direct Lending		Canada POS Lending		Total		% of Total
Revolving LOC	$	2,210	$	50,251	$	24,575	$	77,036	36.0	%	$	27,377	$	40,239	$	10,646	$	78,262	37.4	%
Installment	90,834		12,645		—		103,479		48.3	%	101,036		11,331		—		112,367		53.7	%
Total interest and fees	93,044		62,896		24,575		180,515		84.3	%	128,413		51,570		10,646		190,629		91.1	%
Insurance premiums and commissions	9,986		14,045		715		24,746		11.6	%	—		12,506		93		12,599		6.0	%
Other revenue	4,400		2,038		2,421		8,859		4.1	%	3,261		2,114		677		6,052		2.9	%
Total revenue	$	107,430	$	78,979	$	27,711	$	214,120	100.0	%	$	131,674	$	66,190	$	11,416	$	209,280	100.0	%

Product Revenue for the Three Months Ended September 30, 2022 and 2021

•Revolving LOC

◦Revolving LOC revenue for the three months ended September 30, 2022 decreased $1.2 million, or 1.6%, compared to the prior-year period, driven by increases in revenue of $10.0 million and $13.9 million in the Canada Direct Lending and Canada POS businesses, respectively, offset by a decrease in U.S. revenue of $25.2 million, or 91.9%, due to the sale of the Legacy U.S. Direct Lending business in July of 2022.

•Installment

◦Installment revenue for the three months ended September 30, 2022 decreased $8.9 million, or 7.9%, compared to the prior-year period. The decrease was driven by the $10.2 million decrease in U.S. Installment revenue in the third quarter of 2022 due to the July 2022 divestiture of the Legacy U.S. Direct lending business, partially offset by the acquisitions of Heights Finance and First Heritage, and a $1.3 million increase in Canada Direct Lending Installment revenue.

•Insurance premiums and commissions

◦Insurance premiums and commissions for the three months ended September 30, 2022 increased $12.1 million, or 96.4%, compared to the prior-year period, driven by U.S. growth of $10.0 million, primarily due to our acquisitions of Heights Finance and First Heritage, and Canada Direct Lending growth of $1.5 million, or 12.3%, year over year, from the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

•Other revenue

◦Other revenue for the three months ended September 30, 2022 increased $2.8 million, or 46.4%, versus the prior-year period, primarily due to a $1.7 million increase in other revenue for Canada POS Lending as ancillary fees rose in line with overall loan growth and $1.1 million in the U.S. from new product offerings associated with our acquisitions of Heights Finance and First Heritage.


	Nine Months Ended
	September 30, 2022										September 30, 2021
(in thousands, unaudited)	U.S.		Canada Direct Lending		Canada POS Lending		Total		% of Total		U.S.		Canada Direct Lending		Canada POS Lending		Total		% of Total
Revolving LOC	$	57,269	$	143,296	$	64,077	$	264,642	32.7	%	$	78,391	$	112,057	$	18,585	$	209,033	35.2	%
Installment	423,537		35,623		—		459,160		56.8	%	297,803		32,319		—		330,122		55.6	%
Total interest and fees	480,806		178,919		64,077		723,802		89.5	%	376,194		144,376		18,585		539,155		90.8	%
Insurance premiums and commissions	19,310		40,988		1,361		61,659		7.6	%	—		35,753		268		36,021		6.1	%
Other revenue	11,424		6,100		5,735		23,259		2.9	%	10,766		6,381		1,201		18,348		3.1	%
Total revenue	$	511,540	$	226,007	$	71,173	$	808,720	100.0	%	$	386,960	$	186,510	$	20,054	$	593,524	100.0	%

Product Revenue for the Nine Months Ended September 30, 2022 and 2021

•Revolving LOC

◦Revolving LOC revenue for the nine months ended September 30, 2022 increased $55.6 million, or 26.6%, compared to the prior-year period, driven by growth in Canada Direct Lending revenue of $31.2 million, or 27.9%, and Canada POS lending of $45.5 million, partially offset by the effects of the sale of the Legacy U.S. Direct Lending business in July of 2022.

•Installment

◦Installment revenue for the nine months ended September 30, 2022 increased $129.0 million, or 39.1%, compared to the prior-year period, primarily due to an increase of $125.7 million in U.S. installment revenue driven by our acquisition of Heights Finance and First Heritage.

•Insurance premiums and commissions

◦Insurance premiums and commissions for the nine months ended September 30, 2022 increased $25.6 million, or 71.2%, compared to the prior-year period, primarily due to an increase of $19.3 million in U.S. insurance premiums and commission revenue driven by our acquisition of Heights Finance and First Heritage. Canada Direct Lending grew $5.2 million, or 14.6%, year over year, due to growth in the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

•Other revenue

◦Other revenue for the nine months ended September 30, 2022 increased $4.9 million, or 26.8%, versus the prior-year period, due to a $4.5 million increase in other revenue for Canada POS Lending as ancillary fees rose in line with overall loan growth.

Provision for Losses for the Three Months Ended September 30, 2022 and 2021

•Provision for losses increased by $7.7 million, or 10.9%, for the three months ended September 30, 2022 compared to the prior-year period, primarily driven by:

◦Sequential loan growth, driven by strong consumer demand, across all loan portfolios compared to the same period in the prior year;

◦Continued orderly credit normalization associated with loan growth as customers return to pre-COVID-19 payment behaviors, in contrast to the prior year, when customers received government stimulus payments;

◦Provision for losses for our Heights Finance and First Heritage acquisitions offset by the divestiture of the Legacy U.S Direct Lending business in July 2022; and

◦Higher NCO and past-due rates, as COVID-19 impacts lessened compared to the comparable period in the prior year. Refer to the "Segment Analysis" sections below for additional details.

Provision for Losses for the Nine Months Ended September 30, 2022 and 2021

•Provision for losses increased by $153.4 million, or 100.9%, for the nine months ended September 30, 2022 compared to the prior-year period, primarily driven by:

◦Year-over-year loan growth, driven by strong consumer demand, across all loan portfolios compared to the same period in the prior year;

◦Continued orderly credit normalization associated with loan growth as customers return to pre-COVID-19 payment behaviors as compared to the prior year, when customers received government stimulus payments;

◦Full three quarters of provision for losses for our Heights Finance acquisition of $81.1 million;

◦Full three quarters of provision for loan losses for Canada POS Lending of $28.1 million, an increase of $15.9 million compared to the prior-year period; and

◦Higher NCO and past-due rates, as COVID-19 impacts lessened compared to the same period in the prior year. Refer to the "Segment Analysis" sections below for additional details.

Operating Expenses

The following table summarizes operating expenses for the period indicated:


(in thousands, unaudited)	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		2021		Change $		Change %		2022		2021		Change $		Change %
Operating Expenses
Salaries and benefits	$	53,413	$	62,110	$	(8,697)	(14.0)	%	$	215,569	$	175,347	$	40,222	22.9	%
Occupancy	12,827		13,732		(905)		(6.6)	%	47,371		41,862		5,509		13.2	%
Advertising	5,244		9,697		(4,453)		(45.9)	%	28,451		24,824		3,627		14.6	%
Direct operations	11,729		14,883		(3,154)		(21.2)	%	52,296		40,552		11,744		29.0	%
Depreciation and amortization	9,499		7,285		2,214		30.4	%	27,985		19,685		8,300		42.2	%
Other operating expense	23,646		14,851		8,795		59.2	%	58,809		45,020		13,789		30.6	%
Total operating expenses	$	116,358	$	122,558	$	(6,200)	(5.1)	%	$	430,481	$	347,290	$	83,191	24.0	%

Operating expenses for the three months ended September 30, 2022 decreased $6.2 million, or 5.1% compared to the prior-year period, primarily driven by:

•Salaries and benefits were $53.4 million for the three months ended September 30, 2022, a decrease of $8.7 million, or 14.0%, compared to the prior-year period. The decrease is primarily related to the July 2022 divestiture of our Legacy U.S Direct Lending business offset by the acquisitions of First Heritage and Heights Finance, in July 2022 and December 2021, respectively.

•Advertising costs decreased $4.5 million, or 45.9%, year over year, almost entirely due to the July 2022 divestiture of our Legacy U.S Direct Lending business.

•Direct operations were $11.7 million for the three months ended September 30, 2022, a decrease of $3.2 million, or 21.2%, compared to the prior-year period. The decrease was primarily due to the July 2022 divestiture of our Legacy U.S Direct Lending business, offset by the effect of acquisitions of First Heritage and Heights Finance.

•Depreciation and amortization expense for the three months ended September 30, 2022 increased $2.2 million, or 30.4%, compared to the prior-year period, primarily due to the amortization of First Heritage- and Heights Finance-related assets.

•Other operating expenses were $23.6 million for the three months ended September 30, 2022, an increase of $8.8 million, or 59.2%, compared to the prior-year period, primarily driven by transaction-related professional services costs related to the sale of our Legacy U.S. Direct Lending business and the acquisition of First Heritage during the quarter. Refer to the "Segment Analysis" sections below for additional details.

Operating expenses for the nine months ended September 30, 2022 increased $83.2 million, or 24.0%, primarily driven by:

•Salaries and benefits were $215.6 million for the nine months ended September 30, 2022, an increase of $40.2 million, or 22.9%, compared to the prior-year period. The increase is largely due to the acquisitions of Heights Finance and First Heritage, and three full quarters of Canada POS Lending business salaries and benefits partially offset by the July 2022 divestiture of our Legacy U.S Direct Lending business.

•Occupancy costs were $47.4 million for the nine months ended September 30, 2022, an increase of $5.5 million, or 13.2%, compared to the prior-year period. The increase is almost entirely due to our acquisitions of First Heritage and Heights Finance.

•Advertising costs increased $3.6 million, or 14.6%, primarily driven by the acquisitions of First Heritage and Heights Finance.

•Direct operations were $52.3 million for the nine months ended September 30, 2022, an increase of $11.7 million, or 29.0%, compared to the prior-year period. The increase is due to our acquisition of Heights Finance as well as nine months of Canada POS Lending direct operations of $3.3 million.

•Amortization expense for the nine months ended September 30, 2022 increased $8.3 million, or 42.2%, compared to the prior-year period, primarily due full three quarters of Canada POS Lending expense associated with the amortization of capitalized software development costs and an increase of amortization expense of $5.3 million from our acquisitions of Heights Finance and First Heritage.

•Other operating expenses were $58.8 million for the nine months ended September 30, 2022, an increase of $13.8 million, or 30.6%, compared to the prior-year period, primarily driven by costs incurred for the sale of the Legacy U.S. Direct Lending business and the acquisitions of Heights Finance and First Heritage. Refer to the "Segment Analysis" sections below for additional details.

Other Expense (Income)

The following table summarizes other expenses (income) for the period indicated:


(in thousands, unaudited)	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		2021		Change $		Change %		2022	2021	Change $	Change %
Other expense (income)
Interest expense	$	50,149	$	25,805	$	24,344	94.3	%	130,683	68,784	61,899	90.0	%
Loss (income) from equity method investment	2,309		1,582		727		46.0		2,053	(676)	2,729	#
Gain from equity method investment	—		—		—		#		—	(135,387)	135,387	#
(Gain) loss on change in fair value of contingent consideration	(11,355)		3,825		(15,180)		#		(7,605)	3,825	(11,430)	#
Loss on extinguishment of debt	3,702		40,206		(36,504)		(90.8)	%	3,702	40,206	(36,504)	(90.8)	%
Gain on sale of business	(68,443)		—		(68,443)		#		(68,443)	—	(68,443)	#
Total other (income) expense	$	(23,638)	$	71,418	$	(95,056)	#		60,390	(23,248)	83,638	#


# - Variance greater than 100% or not meaningful.

Other expenses for the three months ended September 30, 2022 decreased $95.1 million compared to the prior-year period, primarily driven by:

•Gain on sale of our Legacy U.S. Direct Lending business of $68.4 million in July 2022.

•Loss on extinguishment of debt of $40.2 million in for the three months ended September 30, 2021 due to the early redemption of the 8.25% Senior Secured Notes.

•Interest expense for the three months ended September 30, 2022 increased $24.3 million, or 94.3%, primarily related to (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.

Other expenses for the nine months ended September 30, 2022 increased $83.6 million compared to the prior-year period, primarily driven by:

•During the second quarter of 2021 Katapult became a public company via a SPAC merger, generating a pretax gain of $135.4 million

•Interest expense for the nine months ended September 30, 2022, increased $61.9 million, or 90.0%, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, and (iii) increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios.

•These increases were offset by a the gain on sale of our Legacy U.S. Direct Lending business of $68.4 million that occurred in July 2022 and the loss on extinguishment of debt of $40.2 million in for the three months ended September 30, 2021 due to the early redemption of the 8.25% Senior Secured Notes.

Provision for Income Taxes

Three Months Ended September 30, 2022 and 2021

The effective income tax rate for the three months ended September 30, 2022 was 40.3%. The effective income tax rate for the three months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business and officers’ compensation, partially offset by tax benefits related to change in fair value of contingent consideration. The effective

income tax rate of adjusted tax expense included in Adjusted Net Income for the three months ended September 30, 2022 was 34.7%.

The effective income tax rate for the three months ended September 30, 2021 was 24.1%. The effective income tax rate was lower than the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of proportionally more loss in lower-tax rate jurisdictions, driven by the loss on extinguishment of debt. In addition, we recorded an income tax benefit from the recognition of research and development tax credit. This benefit was offset by a nondeductible expense item related to the change in fair value of contingent consideration.

Nine Months Ended September 30, 2022 and 2021

The effective income tax rate for the nine months ended September 30, 2022 was 92.6%. The effective income tax rate for the nine months ended September 30, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lost tax benefits related to the divestiture of the Legacy U.S. Direct Lending business, share-based compensation, officers’ compensation, and non-deductible transaction costs, partially offset by tax benefits related to change in fair value of contingent consideration. The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the nine months ended September 30, 2022 was 28.1%.

The effective income tax rate of 24.9% for the nine months ended September 30, 2021 was lower compared to the blended federal and state/provincial statutory rates of approximately 26%, primarily as a result of proportionally more net income in lower rate jurisdictions, driven by the gain on the Katapult transaction in the second quarter of 2021 and the loss on extinguishment of debt in the third quarter of 2021. Additionally, the effective tax rate also includes the release of a valuation allowance due to the Company's share of Katapult's income, tax benefits related to share-based compensation, tax expense related to the non-deductible transaction costs and the change in fair value of contingent consideration, tax expense of additional Texas accrual for 2020 due to the settlement of 2013 to 2019 Texas tax returns, and a tax benefit for the recognition of Research and Development tax credit.

Loan Volume and Portfolio Performance Analysis

The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivable includes loans originated by third-party lenders through CSO programs, which are not included in the unaudited Condensed Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender. As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company will continue to present these loans in the tables that follow based on historical practice and for comparability purposes. Refer to Note 14, "Acquisitions and Divestiture" for additional information.


	As of
(in thousands, unaudited)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
U.S.
Revolving LOC	$	—	$	58,471	$	49,077	$	52,532	$	51,196
Installment - Company Owned	739,100		627,651		589,652		609,413		137,987
Canada Direct Lending
Revolving LOC	439,117		442,738		424,485		402,405		366,509
Installment	25,940		24,817		23,578		24,792		24,315
Canada POS Lending
Revolving LOC	690,270		627,163		541,776		459,176		302,349
Company Owned gross loans receivable	$	1,894,427	$	1,780,840	$	1,628,568	$	1,548,318	$	882,356
Gross loans receivable Guaranteed by the Company	—		51,323		44,420		46,317		43,422
Gross combined loans receivable (1)	$	1,894,427	$	1,832,163	$	1,672,988	$	1,594,635	$	925,778


(1) See a description of non-GAAP Financial Measures in "Supplemental Non-GAAP Financial Information."

Gross loans receivable increased $1,012.1 million , or 114.7%, to $1,894.4 million as of September 30, 2022, from $882.4 million as of September 30, 2021. The increase was driven by:

•U.S. Direct Lending increased by $549.9 million primarily driven by loan growth and our Heights Finance and First Heritage acquisitions, partially offset by the sale of the Legacy U.S. Direct Lending business;

•Canada POS Lending growth of $387.9 million, or 128.3%; and

•Canada Direct Lending growth of $74.2 million, or 19.0%.

Sequentially, gross loans receivable increased $113.6 million , or 6.4% , driven by the acquisition of First Heritage, Canada POS Lending growth of $63.1 million, or 10.1%, and Canada Direct Lending Revolving LOC growth of $3.6 million, or 0.8%. The increase was offset by the sale of the Legacy U.S. Direct Lending business. Excluding the loans sold with the divestiture of the Legacy U.S. Direct Lending business, gross loan receivables grew $301.6 million sequentially.

Segment Analysis

The following is a summary of portfolio performance and results of operations for the segment and period indicated (all periods unaudited except for Q4 2021). We report financial results for three reportable segments: U.S., Canada Direct Lending and Canada POS Lending.

U.S. Portfolio Performance


(in thousands, except percentages)	Q3 2022		Q2 2022(6)		Q1 2022		Q4 2021(1)		Q3 2021
Gross combined loans receivable (2)
Revolving LOC	$	—	$	58,471	$	49,077	$	52,532	$	51,196
Installment loans - Company Owned	739,100		627,651		589,652		137,782		137,987
Total U.S. Company Owned gross loans receivable	739,100		686,122		638,729		190,314		189,183
Installment loans - Guaranteed by the Company (3)	—		51,323		44,420		46,317		43,422
Total U.S. gross combined loans receivable (2)	$	739,100	$	737,445	$	683,149	$	236,631	$	232,605

Lending Revenue:
Revolving LOC	$	2,210	$	28,145	$	26,913	$	27,911	$	27,377
Installment loans - Company Owned	86,936		121,595		113,833		56,820		57,659
Installment loans - Guaranteed by the Company (3)	3,898		48,283		48,991		47,348		43,377
Total U.S. lending revenue	$	93,044	$	198,023	$	189,737	$	132,079	$	128,413

Lending Provision:
Revolving LOC	$	—	$	11,831	$	9,577	$	11,592	$	8,140
Installment loans - Company Owned	29,045		54,868		32,962		18,618		16,792
Installment loans - Guaranteed by the Company (3)	—		28,313		21,749		25,967		23,146
Total U.S. lending provision	$	29,045	$	95,012	$	64,288	$	56,177	$	48,078

NCOs (7)
Revolving LOC	$	1,140	$	10,248	$	10,055	$	11,481	$	8,329
Installment loans - Company Owned	25,722		40,757		36,247		19,664		19,548
Installment loans - Guaranteed by the Company (3)	1,589		27,395		21,492		26,065		21,404
Total U.S. NCOs	$	28,451	$	78,400	$	67,794	$	57,210	$	49,281

NCO rate (4) (7)
Revolving LOC	3.9%		19.1%		19.8%		22.1%		16.9%
Installment loans - Company Owned	3.8%		6.7%		6.0%		14.3%		14.1%
Total U.S. Company Owned NCO rate	3.8%		7.7%		7.1%		16.4%		14.8%
Installment loans - Guaranteed by the Company (3)	6.2%		57.2%		47.4%		58.1%		53.2%


(in thousands, except percentages)	Q3 2022		Q2 2022(6)		Q1 2022	Q4 2021(1)	Q3 2021
Total U.S. NCO rate	3.9%		11.0%		14.7%	24.4%	21.6%
ALL and CSO Liability for Losses rate (5)
Revolving LOC	—	%	25.1	%	26.7%	25.9%	26.3%
Installment loans - Company Owned	4.4	%	6.8	%	4.2%	12.7%	13.4%
Total U.S. Company Owned ALL rate	4.4	%	8.4	%	5.9%	16.3%	16.9%
Installment loans - Guaranteed by the Company (3)	—	%	15.7	%	16.1%	14.9%	16.1%
Total ALL and CSO Liability for Losses rate	4.4	%	8.9	%	6.6%	16.0%	16.8%

31+ days past-due rate (5)
Revolving LOC	—	%	17.4	%	19.1%	19.2%	18.3%
Installment loans - Company Owned	10.5	%	10.0	%	9.6%	9.4%	11.9%
Total U.S. Company Owned past-due rate(8)	10.5	%	10.7	%	10.4%	10.1%	13.6%

Installment loans - Guaranteed by the Company (3)	—	%	2.6	%	4.5%	3.1%	3.8%

(1) On December 27, 2021, we acquired Heights Finance, which accounted for approximately $472 million of U.S. Installment loans as of December 31, 2021. As the period between December 27, 2021 and December 31, 2021 did not result in material loan performance, we have excluded Heights Finance from the table for the fourth quarter of 2021.

(2) Non-GAAP measure. For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

(3) Includes loans originated by third-party lenders through CSO programs. Installment gross loans receivable Guaranteed by the Company are not included in the Consolidated Financial Statements. All balances in connection with the CSO programs were disposed of on July 8, 2022 upon the completion of the divestiture of the Legacy U.S. Direct Lending business.

(4) We calculate NCO rate as total NCOs divided by Average gross loans receivable. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.

(5) We calculate (i) Allowance for loan losses (ALL) and CSO Liability for losses rate and (ii) past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.

(6) Includes loan balances and activity classified as Held for Sale.

(7) For the first, second and third quarters of 2022, NCOs presented above include $5.0 million, $10.3 million and $0.5 million, respectively, of NCO's related to the purchase accounting fair value discount, which are excluded from provision.

(8) The total past-due rate for U.S. Lending including loans 1-30 days past-due were 20.0%, 21.2%, 17.7%, 18.3% and 22.3% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.

U.S. Loan Net Revenue

U.S. lending revenues decreased by $35.4 million, or 27.5%, to $93.0 million, for the three months ended September 30, 2022, compared to the prior-year period, as a result of the divestiture of the Legacy U.S. Direct lending business in July 2022, partially offset by the acquisitions of Heights Finance in December 2021 and First Heritage in July 2022.

The provision for losses decreased $19.0 million, or 39.6%, year over year, primarily driven by the divestiture of the Legacy U.S. Direct lending business in July 2022, offset by normalized provisioning on loan growth as customer behavior returned to pre-COVID-19 levels and a full quarter's provision for Heights Finance.

U.S. Revolving LOC loan performance

U.S. Revolving LOC loan balances were divested with the completion of the divestiture of the Legacy U.S. Direct lending business in July 2022.

U.S. Installment loan performance - Company Owned

U.S. Installment loan balances as of September 30, 2022 increased $601.1 million, or 435.6%, and revenue increased $29.3 million, or 50.8%, compared to the prior-year period, primarily as a result of our acquisition of Heights Finance and First Heritage. NCO rates decreased 1,034 bps year over year and decreased 294 bps sequentially primarily as a result of Heights Finance and First Heritage. Past-due rates decreased 136 bps year over year and 47 bps sequentially due to the strategic mix shift from divested U.S. Legacy high-cost, short-term lending to longer duration lower risk consumer finance acquisitions of Heights Finance and First Heritage.

U.S. Installment loan performance - Guaranteed by the Company

U.S. Installment loans Guaranteed by the Company decreased $43.4 million, or 100.0%, year over year. With the sale of the Legacy U.S. Direct Lending business in July of 2022, the company no longer guarantees loans originated by third party lenders through CSO programs.

Following is a summary of results of operations for the U.S. segment for the periods indicated.


	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands, unaudited)	2022		2021		Change $		Change %		2022		2021		Change $		Change %
Revenue
Interest and fees revenue	$	93,044	$	128,413	$	(35,369)	(27.5)	%	$	480,806	$	376,194	$	104,612	27.8	%
Insurance premiums and commissions	9,986		—		9,986		#		19,310		—		19,310		#
Other revenue	4,400		3,261		1,139		34.9	%	11,424		10,766		658		6.1	%
Total revenue	107,430		131,674		(24,244)		(18.4)	%	511,540		386,960		$ 124,580		32.2	%
Provision for losses	32,073		48,430		(16,357)		(33.8)	%	196,461		108,108		88,353		81.7	%
Net revenue	75,357		83,244		(7,887)		(9.5)	%	315,079		278,852		36,227		13.0	%
Operating Expenses
Salaries and benefits	35,216		44,444		(9,228)		(20.8)	%	154,096		127,867		26,229		20.5	%
Occupancy	6,948		8,101		(1,153)		(14.2)	%	29,344		24,834		4,510		18.2	%
Advertising	3,816		8,297		(4,481)		(54.0)	%	24,245		21,527		2,718		12.6	%
Direct operations	5,534		8,718		(3,184)		(36.5)	%	32,788		26,112		6,676		25.6	%
Depreciation and amortization	4,549		3,020		1,529		50.6	%	13,710		9,154		4,556		49.8	%
Other operating expenses	20,004		11,494		8,510		74.0	%	48,458		36,129		12,329		34.1	%
Total operating expenses	76,067		84,074		(8,007)		(9.5)	%	302,641		245,623		57,018		23.2	%
Other expense (income)
Interest expense	30,965		19,481		11,484		58.9	%	86,473		53,177		33,296		62.6	%
Loss (income) from equity method investment	2,309		1,582		727		46.0		2,053		(676)		2,729		#
Gain from equity method investment	—		—		—		#		—		(135,387)		135,387		#
Loss on extinguishment of debt	3,702		40,206		(36,504)		(90.8)		3,702		40,206		(36,504)		(90.8)	%
Gain on disposal of business	(68,443)		—		(68,443)		#		(68,443)		—		(68,443)		#
Total other expense (income)	(31,467)		61,269		(92,736)		#		23,785		(42,680)		66,465		#
Segment operating (loss) income	30,757		(62,099)		92,856		#		(11,347)		75,909		(87,256)		#
Interest Expense	30,965		19,481		11,484		58.9	%	86,473		53,177		33,296		62.6	%
Amortization and Depreciation	4,549		3,020		1,529		50.6	%	13,710		9,154		4,556		49.8	%
EBITDA (1)	66,271		(39,598)		105,869		#		88,836		138,240		(49,404)		(35.7)	%
Restructuring costs	739		5,651		(4,912)				2,954		11,414		(8,460)
Legal and other costs	46		370		(324)				1,076		370		706
Loss (income) from equity method investment	2,309		1,582		727				2,053		(676)		2,729
Gain from equity method investment	—		—		—				—		(135,387)		135,387
Transaction costs	10,063		141		9,922				10,063		6,482		3,581
Acquisition-related adjustments	(2,883)		—		(2,883)				491		—		491
Loss on extinguishment of debt	3,702		40,206		(36,504)				3,702		40,206		(36,504)
Share-based compensation	1,306		3,998		(2,692)				8,068		10,148		(2,080)
Gain on sale of business	(68,443)		—		(68,443)				(68,443)		—		(68,443)
Other adjustments	—		(195)		195				(640)		(600)		(40)
Adjusted EBITDA (1)	$	13,110	$	12,155	$	955	7.9	%	$ 48,160		$ 70,197		($ 22,037)		(31.4)	%


(1) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."
# - Variance greater than 100% or not meaningful.

U.S. Segment Results - For the Three Months Ended September 30, 2022 and 2021

For a discussion of revenue, provision for losses and related gross loans receivables for the three months ended September 30, 2022 and 2021, see "U.S. Portfolio Performance," above.

Operating expenses for the three months ended September 30, 2022 were $76.1 million, a decrease of $8.0 million, or 9.5%, compared to $84.1 million for the three months ended September 30, 2021, primarily driven by the divestiture of the Legacy U.S. Direct lending business in July 2022, partially offset by the acquisitions of Heights Finance and First Heritage.

U.S. interest expense for the three months ended September 30, 2022 increased $11.5 million, or 58.9% compared to the prior-year period, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights Finance acquisition, (iii) in July 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage, and (iv) in July 2022, we entered into a new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights Finance.

We recognize our share of Katapult’s income or loss on a one-quarter lag. We recorded a loss of $2.3 million for the three months ended September 30, 2022. We own 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.

U.S. Segment Results - For the Nine Months Ended September 30, 2022 and 2021

Operating expenses for the nine months ended September 30, 2022 were $302.6 million, an increase of $57.0 million, or 23.2%, compared to $245.6 million for the nine months ended September 30, 2021, primarily driven by the operating expenses associated with Heights Finance and First Heritage, partially offset by the divestiture of the Legacy U.S. Direct lending business in July 2022.

U.S. interest expense for the nine months ended September 30, 2022 increased $33.3 million, or 62.6% compared to the prior-year period, primarily driven by (i) an increase in benchmark rates on variable rate debt, (ii) Senior Notes issued to fund in part our Heights acquisition, (iii) in July 2022, concurrently with the closing of the First Heritage acquisition, we entered into a new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage, and (iv) in July 2022, we entered into a new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights Finance.

We recorded a loss of $2.1 million for the nine months ended September 30, 2022 for our share of Katapult's loss. We own 19.4% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of September 30, 2022, and 18.1% excluding pay-out of earn-out shares.

Canada Direct Lending Portfolio Performance


(in thousands, except percentages)	Q3 2022			Q2 2022			Q1 2022			Q4 2021			Q3 2021
Gross loans receivable
Revolving LOC	$	439,117		$	442,738		$	424,485		$	402,405		$	366,509
Installment loans	25,941			24,817			23,578			24,792			24,315
Total gross loans receivable	$	465,058		$	467,555		$	448,063		$	427,197		$	390,824

Lending Revenue:
Revolving LOC	$	50,251		$	47,591		$	45,455		$	43,943		$	40,239
Installment loans	12,645			11,868			11,109			11,416			11,331
Total lending revenue	$	62,896		$	59,459		$	56,564		$	55,359		$	51,570

Lending Provision:
Revolving LOC	$	28,408		$	22,641		$	19,156		$	20,080		$	11,375
Installment loans	4,466			3,303			2,723			2,945			2,512
Total lending provision	$	32,874		$	25,944		$	21,879		$	23,025		$	13,887






NCOs
Canada Direct Lending Revolving LOC	$	23,652		$	20,160		$	21,590		$	15,112		$	9,887
Canada Direct Lending Installment loans	4,061			2,904			2,647			2,758			2,444
Total Canada Direct Lending NCOs	$	27,713		$	23,064		$	24,237		$	17,870		$	12,331

NCO rate (1)
Revolving LOC	5.4		%	4.6%			5.2%			3.9%			2.8%
Installment loans	16.0		%	12.0%			10.9%			11.2%			10.2%
Total NCO rate	5.9		%	5.0%			5.5%			4.4%			3.3%






ALL rate (2)
Revolving LOC	7.9		%	7.2		%	7.2		%	8.0		%	7.5		%
Installment loans	10.3		%	9.7		%	8.8		%	8.0		%	7.4		%
Total ALL rate	8.0		%	7.4		%	7.3		%	8.0		%	7.5		%

31+ days past-due rate (2)
Revolving LOC	5.1		%	4.2		%	4.3		%	3.2		%	2.5		%
Installment loans	1.0		%	0.8		%	1.0		%	0.9		%	0.7		%
Total past-due rate (3)	4.8		%	4.0		%	4.1		%	3.1		%	2.4		%








(1) We calculate NCO rate as total NCOs divided by Average gross loans receivable. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(2) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(3) The total past-due rate for Canada Direct Lending including loans 1-30 days past-due were 9.5%, 8.3%, 7.7%, 6.7% and 5.1% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.

Canada Direct Loan Net Revenue

Canada Direct Lending revenue increased year over year by $11.3 million, or 22.0%, (increased $15.7 million, or 23.7%, on a constant currency basis), for the three months ended September 30, 2022, due to the growth of Revolving LOC loans in Canada.

The provision for losses increased $19.0 million, or 136.7%, (and increased $20.2 million, or 144.3%, on a constant currency basis), to $32.9 million for the three months ended September 30, 2022, compared to $14.0 million in the prior-year period. The provision for losses increased $6.9 million, or 26.7%, (and increased $8.2 million, or 31.5% on a constant currency basis), sequentially. The increase in provision for losses was primarily driven by (i) normalized provisioning on strong year-over-year loan growth as customer behavior returns to pre-COVID-19 levels, (ii) orderly credit normalization to higher NCO and past-due rates as

COVID-19 impacts lessened compared to the same period in the prior year, and (iii) continued shift in online originations which have inherently more credit risk versus in-store originations.

Canada Direct Lending Revolving LOC loan performance

Canada Direct Lending Revolving LOC gross loans receivable increased $72.6 million , or 19.0%, ($107.5 million, or 29.3%, on a constant currency basis) year over year and decreased $3.6 million, or 0.5%, but increased $31.2 million, or 7.1%, on a constant currency basis sequentially. Revolving LOC revenue increased $10.0 million, or 24.9%, year over year and $2.7 million, or 5.6%, sequentially, ($17.4 million, or 46.5%, respectively, on a constant currency basis). The quarterly NCO rate increased year over year from 2.8% to 5.4% as of September 30, 2022 and declined sequentially from 4.6% to 5.4% as of September 30, 2022 as COVID-19 impacts lessened compared to the comparable period in the prior year. Past-due rates rose 256 bps year over year and 82 bps sequentially.

Canada Direct Lending Installment loan performance

Canada Direct Lending Installment revenue increased $1.3 million, or 11.6%, ($2.5 million, or 21.8%, on a constant currency basis) year over year. Installment gross loans receivable increased $1.6 million, or 6.7% ($3.7 million, or 15.2%, on a constant currency basis) year over year. The NCO rate increased year over year from 10.2% to 16.0% and sequentially from 12.0% to 16.0% as of September 30, 2022 as COVID-19 impacts lessened compared to the same period in the prior year.

Canada Direct Lending Results of Operations


	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands, unaudited)	2022		2021		Change $		Change %		2022		2021		Change $		Change %
Revenue
Interest and Fees Revenue	$	62,896	$	51,570	$	11,326	22.0	%	$	178,919	$	144,376	$	34,543	23.9	%
Insurance Premiums and Commissions	14,045		12,506		1,539		12.3	%	40,988		35,753		5,235		14.6	%
Other Revenue	2,038		2,114		(76)		(3.6)	%	6,100		6,381		(281)		(4.4)	%
Total Revenue	78,979		66,190		12,789		19.3	%	226,007		186,510		$ 39,497		21.2	%
Provision for Losses	32,947		14,003		18,944		#		80,960		31,793		49,167		#
Net Revenue	46,032		52,187		(6,155)		(11.8)	%	145,047		154,717		(9,670)		(6.3)	%
Operating expenses
Salaries and Benefits	13,962		13,571		391		2.9	%	42,025		39,081		2,944		7.5	%
Occupancy	5,471		5,403		68		1.3	%	17,098		16,750		348		2.1	%
Advertising Expense	861		1,139		(278)		(24.4)	%	3,097		2,821		276		9.8	%
Direct Operations	2,753		2,418		335		13.9	%	8,650		6,869		1,781		25.9	%
Amortization and Depreciation	1,134		1,124		10		0.9	%	3,360		3,394		(34)		(1.0)	%
Other operating expenses	2,592		2,348		244		10.4	%	7,896		7,175		721		10.0	%
Total operating expenses	26,773		26,003		770		3.0	%	82,126		76,090		6,036		7.9	%
Other expense (income)
Interest Expense	7,190		2,440		4,750		#		17,367		7,293		10,074		#
Other Expense/Income	7,190		2,440		4,750		#		17,367		7,293		10,074		#
Segment Operating Income	12,069		23,744		(11,675)		(49.2)	%	45,554		71,334		(25,780)		(36.1)	%
Interest Expense	7,190		2,440		4,750		#		17,367		7,293		10,074		#
Amortization and Depreciation	1,134		1,124		10		0.9	%	3,360		3,394		(34)		(1.0)	%
EBITDA (1)	20,393		27,308		(6,915)		(25.3)	%	66,281		82,021		(15,740)		(19.2)	%
Legal and other costs	—		—		—		#		7		—		7		#
Share-based compensation	152		—		152		#		396		—		396		#
Other Adjustments	—		94		(94)		#		16		242		(226)		(93.4)	%
Adjusted EBITDA (1)	$	20,545	$	27,402	$	(6,857)	(25.0)	%	$ 66,700		$ 82,263		($ 15,563)		(18.9)	%


(1) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."
# - Variance greater than 100% or not meaningful.

Canada Direct Lending Segment Results - For the Three Months Ended September 30, 2022 and 2021

For a discussion of revenue, provision for losses and related gross loans receivables for the three months ended September 30, 2022 and 2021, see "Canada Direct Lending Portfolio Performance" above.

Canada Direct Lending operating expenses were $26.8 million for the three months ended September 30, 2022, an increase of $0.8 million, or 3.0%, ($1.8 million, or 6.7%, on a constant currency basis), compared to the prior-year period, primarily due to higher variable costs, primarily collection and financial service fees, on higher volume.

Interest expense for the three months ended September 30, 2022 was $7.2 million, compared to $2.4 million for the three months ended September 30, 2021, due to higher utilization of the Canada SPV facility and an increase in benchmark rates on variable rate debt.

Canada Direct Lending Segment Results - For the Nine Months Ended September 30, 2022 and 2021

Canada Direct Lending operating expenses were $82.1 million for the six months ended September 30, 2022, an increase of $6.0 million, or 7.9%, ($1.8 million, or 6.7%, on a constant currency basis), compared to the prior-year period, primarily due to higher variable costs, largely collection and financial service fees, on higher volume.

Interest expense for the nine months ended September 30, 2022 was $17.4 million, compared to $7.3 million for the nine months ended September 30, 2021, due to higher utilization of the Canada SPV facility and an increase in benchmark rates on variable rate debt.

Canada POS Lending Portfolio Performance


(in thousands, except percentages)	Q3 2022			Q2 2022			Q1 2022			Q4 2021			Q3 2021
Revolving LOC
Total gross loans receivable	$	690,270		$	627,163		$	541,776		$	459,176		$	302,349


Total lending revenue	$	24,575		$	20,846		$	18,655		$	13,704		$	10,646


Total lending provision	$	13,379		$	5,963		$	8,714		$	12,511		$	8,285





Canada POS Lending NCOs (1)	$	6,114		$	3,537		$	2,727		$	1,731		$	1,827


NCO rate (1)(2)	0.9		%	0.6		%	0.5		%	0.5		%	0.7		%





ALL rate (3)	4.8		%	4.5		%	5.1		%	4.8		%	3.8		%


31+ days past-due rate (3)(4)	3.6		%	2.8		%	2.2		%	1.9		%	2.1		%








(1) For the third and fourth quarters of 2021, NCOs presented above include $0.6 million and $0.8 million, respectively, of NCO's related to the fair value discount, which are excluded from provision.
(2) We calculate NCO rate as total NCOs divided by Average gross loans receivable.



(3) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(4) The total past-due rate for Canada POS Lending including loans 1-30 days past-due were 5.8%, 5.3%, 4.2%, 4.1% and 4.8% for the three months ended September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively.

Canada POS Lending Revolving LOC loan performance

Canada POS Lending revenue increased year over year by $13.9 million, driven by loan growth of $387.9 million, or 128.3%. The increase in gross loans receivable was driven by growth associated with both existing and new merchant partners. Revolving LOC gross loans receivable generally charge-off at 180 days past due. The quarterly NCO rate increased year over year from 0.7% to 0.9% as of September 30, 2022 and increased sequentially from 0.6% to 0.9%. These increases were primarily driven by the maturity of the portfolio and an increased product mix shift in increased lending to lower credit quality consumers. Past-due rates rose 141 bps year over year and 75 bps sequentially.

Originations for the three months ended September 30, 2022 were C$351.3 million, an increase of C$151.5 million, or 75.8%, from the prior-year period of C$199.8 million. Originations for the nine months ended September 30, 2022 were C$920.6 million, an increase of C$531.7 million, or 136.7%, from the prior-year period of C$388.9 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $63.1 million, or 10.1%, due to continued strong loan growth.

Canada POS Lending Results of Operations


	Three Months Ended September 30,							Nine Months Ended September 30,
(dollars in thousands, unaudited)	2022		2021 (1)		Change $	Change %		2022		2021		Change $	Change %
Revenue
Interest and fees revenue	$	24,575	$	10,647	13,928	#		$	64,077	$	18,586	45,491	#
Insurance premiums and commissions	715		93		622	#		1,361		268		1,093	#
Other revenue	2,421		676		1,745	#		5,735		1,200		4,535	#
Total revenue	27,711		11,416		16,295	#		71,173		20,054		51,119	#
Provision for losses	13,379		8,285		5,094	61.5	%	28,055		12,127		15,928	#
Net revenue	14,332		3,131		11,201	#		43,118		7,927		35,191	#
Operating expenses
Salaries and benefits	4,234		4,095		139	3.4	%	19,447		8,398		11,049	#
Occupancy	408		227		181	79.7	%	929		278		651	#
Advertising	568		261		307	#		1,110		476		634	#
Direct operations	3,441		3,746		(305)	(8.1)	%	10,857		7,570		3,287	43.4	%
Depreciation and amortization	3,816		3,141		675	21.5	%	10,915		7,137		3,778	52.9	%
Other operating expense	1,051		1,011		40	4.0	%	2,456		1,718		738	43.0	%
Total operating expenses	13,518		12,481		1,037	8.3	%	45,714		25,577		20,137	78.7	%
Other expense	(11,355)		3,825		(15,180)			(7,605)		3,825		(11,430)
Interest expense	11,994		3,884		8,110	#		26,843		8,314		18,529	#
Total other expense	639		7,709		(7,070)	(91.7)	%	19,238		12,139		7,099	58.5	%
Segment operating income (loss)	175		(17,059)		17,234	#		(21,834)		(29,789)		7,955	(26.7)	%
Interest expense	11,994		3,884		8,110	#		26,843		8,314		18,529	#
Depreciation and amortization	3,816		3,141		675	21.5	%	10,915		7,137		3,778	52.9	%
EBITDA (2)	15,985		(10,034)		26,019	#		15,924		(14,338)		30,262	#
Acquisition-related adjustments	—		4,292		(4,292)			218		9,787		(9,569)
Change in fair value of contingent consideration	(11,355)		3,825		(15,180)			(7,605)		3,825		(11,430)
Share-based compensation	(10)		—		(10)			1,494		—		1,494
Other adjustments	—		(17)		17			43		(34)		77
Adjusted EBITDA (2)	$	4,620	$	(1,934)	$ 6,554	#		$ 10,074		($ 760)		$ 10,834	#
# - Variance greater than 100% or not meaningful.
(1) The totals reported for the nine months ended September 30, 2021 include results from the date of the Flexiti acquisition, March 10, 2021, through September 30, 2021.
(2) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Consolidated Results of Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

Canada POS Lending Segment Results - For the Three Months Ended September 30, 2022 and 2021

For a discussion of revenue, provision for losses and related gross loans receivable, see the "Canada POS Lending Portfolio Performance," above for the three months ended September 30, 2022.

Canada POS Lending operating expenses were $13.5 million for the three months ended September 30, 2022, an increase of $1.0 million, or 8%, ( $1.5 million, or 12.0%, on a constant currency basis), compared to the prior-year period, primarily due to cost increases to support higher loan volume year over year.

Interest expense for the three months ended September 30, 2022 was $12.0 million compared to $3.8 million for the three months ended September 30, 2021, due to an increase in benchmark rates on variable rate debt and increased non-recourse ABL borrowing to support organic loan growth.

Canada POS Lending Segment Results - For the Nine Months Ended September 30, 2022 and 2021

A comparison of the year-over-year results for the nine months ended September 30, 2022 compared to September 30, 2021 are not meaningful as we acquired Flexiti on March 10, 2021.

Supplemental Non-GAAP Financial Information

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 ("ANI") and Adjusted Earnings Per Share, or the Adjusted Earnings Measures (net income plus or minus certain legal and other costs, income or loss from equity method investment, goodwill and intangible asset impairments, transaction-related costs, restructuring costs, loss on extinguishment of debt, adjustments related to acquisition accounting, share-based compensation, intangible asset amortization, gain on sale of business, changes in fair value of contingent consideration, certain tax adjustments and cumulative tax effect of applicable 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). As a result of the sale of the Legacy U.S. Direct Lending business, we no longer guarantee loans originated by third-party lenders through CSO programs.

We believe that the 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 the Company's U.S. 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 U.S. GAAP. In addition, we believe that the adjustments shown above 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 U.S. 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 Condensed Consolidated Financial Statements. Management believes this analysis provides investors with important information needed to evaluate overall lending performance. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business.

We provide non-GAAP financial information for informational purposes and to enhance understanding of the U.S. 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, 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. Readers should consider the information in addition to, but not instead of or superior to, the financial statements prepared in accordance with U.S. 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.

We calculate Adjusted Earnings per Share utilizing diluted shares outstanding at year-end. If the Company records a loss under U.S. GAAP, shares outstanding utilized to calculate Diluted Earnings per Share are equivalent to basic shares outstanding. Shares outstanding utilized to calculate Adjusted Earnings per Share reflect the number of diluted shares the Company would have reported if reporting net income under U.S. GAAP.

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. All balances in connection with the CSO programs were disposed of on July 8, 2022 with the completion of the divestiture of the Legacy U.S. Direct Lending business. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.

We believe Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and to 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 Form 10-Q may differ from the computation of similarly-titled measures provided by other companies.

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, unaudited)


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022		2021		Change $		Change %		2022		2021		Change $		Change %
Net income (loss)	$	25,653	$	(42,039)	$	67,692	#		$ 909		$ 88,213		($ 87,304)		(99.0)	%
Adjustments:
Restructuring costs (1)	739		5,651						2,954		11,414
Legal and other costs (2)	46		370						1,083		370
Loss (income) from equity method investment (3)	2,309		1,582						2,053		(676)
Gain from equity method investment (11)	—		—						—		(135,387)
Transaction costs (4)	10,063		141						10,063		6,482
Acquisition-related adjustments (5)	(2,883)		4,292						709		9,787
Change in fair value of contingent consideration (6)	(11,355)		3,825						(7,605)		3,825
Loss on extinguishment of debt (12)	3,702		42,262						3,702		42,262
Share-based compensation (7)	1,448		3,998						9,958		10,148
Intangible asset amortization (8)	3,151		1,774						9,652		4,471
Gain on sale of business (13)	(68,443)		—						(68,443)		—
Cumulative tax effect of adjustments (9)	23,677		(15,411)						18,061		13,058
Adjusted net (loss) income	$	(11,893)	$	6,445	$	(18,338)	#		$	(16,904)	$ 53,967		$	(70,871)	#

Net income (loss)	$ 25,653		($ 42,039)						$ 909		$ 88,213
Diluted weighted average shares outstanding	40,835		41,220						40,754		43,422
Adjusted diluted average shares outstanding	40,835		43,285						40,754		43,422
Diluted earnings (loss) per share	$	0.63	$	(1.02)	$	1.65	#		$	0.02	$	2.03	$	(2.01)	#
Per share impact of adjustments to net (loss) income	(0.92)		1.17						(0.43)		(0.79)
Adjusted diluted (loss) earnings per share	$	(0.29)	$	0.15	$	(0.44)	(293.3)	%	($ 0.41)		$ 1.24		$	(1.65)	(133.1)	%
Note: Footnotes follow Reconciliation of Net income table on the next page

Reconciliation of Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)


	Three Months Ended September 30,										Nine Months Ended September 30,
	2022			2021			Change $		Change %		2022		2021		Change $		Change %
Net income (loss)	$	25,653		$	(42,039)		$	67,692	#		$ 909		$ 88,213		$	(87,304)	(99.0)	%
Provision (benefit) for income taxes	17,348			(13,375)			30,723		#		11,464		29,241		(17,777)		(60.8)	%
Interest expense	50,149			25,805			24,344		94.3	%	130,683		68,784		61,899		90.0	%
Depreciation and amortization	9,499			7,285			2,214		30.4	%	27,985		19,685		8,300		42.2	%
EBITDA	102,649			(22,324)			124,973		#		171,041		205,923		(34,882)		(16.9)	%
Restructuring costs (1)	739			5,651							2,954		11,414
Legal and other costs (2)	46			370							1,083		370
Loss (income) from equity method investment (3)	2,309			1,582							2,053		(676)
Gain from equity method investment (11)	—			—							—		(135,387)
Transaction costs (4)	10,063			141							10,063		6,482
Acquisition-related adjustments (5)	(2,883)			4,292							709		9,787
Change in fair value of contingent consideration (6)	(11,355)			3,825							(7,605)		3,825
Loss on extinguishment of debt (12)	3,702			40,206							3,702		40,206
Gain on sale of business (13)	(68,443)			—							(68,443)		—
Share-based compensation (7)	1,448			3,998							9,958		10,148
Other adjustments (10)	—			(118)							(581)		(392)
Adjusted EBITDA	$	38,275		$	37,623		$	652	1.7	%	$ 124,934		$ 151,700		$	(26,766)	(17.6)	%
Adjusted EBITDA Margin	17.9		%	18.0		%					15.4	%	25.6	%
# - Change greater than 100% or not meaningful


(1)			Restructuring costs for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021, respectively, resulted from U.S. store closures and related costs and certain severance payments to eliminate duplicate roles.
(2)			Legal and other costs for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021, respectively, primarily related to settlement costs related to certain legal matters.
(3)			The amount reported is our share of Katapult's U.S. GAAP net income or loss, recognized on a one quarter lag.
(4)			Transaction costs for the three and nine months ended September 30, 2022 relate to, the sale of the Legacy U.S. Direct Lending business, and the acquisition of First Heritage, both of which closed in July 2022.
(5)			During the three months and nine months ended September 30, 2022, acquisition-related adjustments related to the acquired Heights Finance and First Heritage loan portfolios. During the three months and nine months ended September 30, 2021, acquisition-related adjustments related to the acquired Flexiti loan portfolio.
(6)			In connection with our acquisition of Flexiti, we recorded a $11.4 million and $7.61 million adjustment related to the fair value of the contingent consideration for the three and nine months ended September 30, 2022, respectively. We recorded a $3.8 million and $3.8 million adjustment related to the fair value of the contingent consideration for the three and nine months ended September 30, 2021, respectively.
(7)			The estimated fair value of share-based awards was recognized as non-cash compensation expense on a straight-line basis over the vesting period.
(8)			Intangible asset amortization in determining ANI for the three and nine months ended September 30, 2022 primarily included amortization of identifiable intangible assets established in connection with the acquisitions of Flexiti, Heights Finance and First Heritage.
(9)			Cumulative tax effect of adjustments included in Reconciliation of Net income to Adjusted Net Income table is calculated using the estimated incremental tax rate by country.
(10)			During the three and nine months ended 2021 and during the nine months ended 2022, other adjustments primarily reflect the intercompany foreign-currency exchange impact.
(11)			Gain on investment in Katapult of $135.4 million recorded during the three and nine months ended September 30, 2021 as a result of its reverse merger with FinServ.
(12)			On July 30, 2021, we entered into new 7.50% Senior Secured Notes due 2028, which were used on August 12, 2021 to extinguish the 8.25% Senior Secured Notes due 2025. During the three and nine months ended September 30, 2021, $40.2 million from the loss on the extinguishment of debt was due to the early redemption of the 8.25% Senior Secured Notes due 2025. An additional $2.1 million of interest was incurred for the three and nine months ended September 30, 2021, which represents interest on the 8.25% Senior Secured Notes due 2025 for the period between July 30, 2021 and August 12, 2021. This is the period during which the 8.25% Senior Secured Notes and 7.50% Senior Secured Notes were outstanding. During the three and nine months ended September 30, 2022, $3.1 million of the loss on extinguishment of debt was due to the early extinguishment of the U.S. SPV on July 8, 2022 upon the completion of the divestiture of our Legacy U.S.Direct Lending business to Community Choice Financial, and $0.6 million was due to the extinguishment of the Heights Finance SPV on July 15, 2022.
(13)			On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending business to Community Choice Financial, resulting in a gain of $68.4 million recorded to "Gain on sale of business" in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2022.

Currency Information

We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.

Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.

Constant Currency Analysis

We have operations in the U.S. and Canada. In the three months ended September 30, 2022 and 2021, 49.8% and 37.1%, respectively, of our revenues were originated in Canadian Dollars. For the nine months ended September 30, 2022 and 2021, 36.7% and 34.8%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.

Income Statement


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	2021	$ Change	% Change		2022	2021		$ Change	% Change
Average Exchange Rates for the Canadian Dollar	0.7661	0.7941	(0.0280)	(3.5)	%	0.7831	$	0.7993	($0.0162)	(2.0)	%

Balance Sheet - Exchange Rate as of September 30, 2022 and December 31, 2021


	September 30,	December 31,	Change
	2022	2021	$	%
Exchange Rate for the Canadian Dollar	0.7273	0.7846	(0.0573)	(7.3)	%

The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of the Canada Direct Lending segment performance. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.

We calculated the revenues and gross margin below for our Canada segments during the three and nine months ended September 30, 2022 using the actual average exchange rate during the three and nine months ended September 30, 2021 (in thousands, unaudited).


	Three Months Ended September 30,							Nine Months Ended September 30,
	2022		2021	$ Change		% Change		2022		2021	$ Change		% Change
Canada Direct Lending – constant currency basis:
Revenues	$	81,861	66,190	$	15,671	23.7	%	$	231,862	186,510	$	45,352	24.3	%
Net revenue	47,653		52,187	(4,534)		(8.7)	%	148,612		154,717	(6,105)		(3.9)	%
Segment operating income	12,448		23,744	(11,296)		(47.6)	%	46,549		71,334	(24,785)		(34.7)	%
Canada POS Lending – constant currency basis(1):
Revenues	$	28,743	11,416	$	17,327	151.8	%	$	73,133	20,054	$	53,079	264.7	%
Net revenue	14,825		3,131	11,694		373.5	%	44,227		7,927	36,300		457.9	%
Segment operating income (loss)	405		(17,059)	17,464		(102.4)	%	(21,967)		(29,789)	7,822		(26.3)	%
(1) The totals reported for the nine months ended September 30, 2021 include results from the date of acquisition, March 10, 2021, through September 30, 2021.

We calculated gross loans receivable for our Canada segments below as of September 30, 2022 using the actual exchange rate as of December 31, 2021 (in thousands, unaudited).


	September 30,		December 31,		Change
	2022		2021		$		%
Canada Direct Lending – constant currency basis:
Gross loans receivable	$	501,969	$	427,197	$	74,772	17.5	%
Canada POS Lending – constant currency basis:
Gross loans receivable	$	745,056	$	459,176	$	285,880	62.3	%

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations,and (ii) our revolving credit facilities and our non-recourse funding facilities, as further described in Note 5, "Debt" of the Notes to the Consolidated Financial Statements. Historically, we also used funds from third-party lenders under our CSO programs. As a result of the sale of the Legacy U.S. Direct Lending business on July 8, 2022, we no longer guarantee loans originated by third-party lenders through CSO programs.

As of September 30, 2022, we were in compliance with all financial ratios, covenants and other requirements in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures to further our growth strategy in both the U.S. and Canada, and meet our debt obligations. We may also use cash for potential strategic investments in and acquisitions of other companies that help us extend our reach and product portfolio. Additionally, we may use cash to fund a return on capital for our stockholders through share repurchase programs, or in the form of dividends. Our Board of Directors authorized a $25.0 million share repurchase program in February 2022, under which no shares have been repurchased to date. Refer to Note 15, "Share Repurchase Program" of the Notes to the unaudited Condensed Consolidated Financial Statements for further details of the program.

Our level of cash flow provided by operating activities typically experiences seasonal fluctuations related to our levels of net income and changes in working capital levels, particularly loans receivable. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. We have the ability to adjust our volume of lending to consumers to the extent we experience any short-term or long-term funding shortfalls, such as tightening our credit approval practices (as we did during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments.

We may also sell or securitize our assets, draw on our available revolving credit facilities or lines of credit, enter into additional refinancing agreements or reduce our capital spending to generate additional liquidity. The impacts to cash as described in "—Cash Flows" below and other factors resulted in our available cash on hand of $45.7 million as of September 30, 2022. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.

Our recent acquisitions of First Heritage and Heights Finance have increased our product offerings to include customers in the near-prime and prime space. The acquisition of First Heritage and Heights Finance accelerates our strategic transition in the U.S. toward longer term, higher balance and lower rate credit products and provides us with access to a larger addressable market while mitigating regulatory risk. These initiatives to expand our product offerings and grow the U.S. and Canada businesses could materially impact our future cash flows. For further information regarding the acquisitions, refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations," Note 13, "Goodwill," and Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements.

We have no additional material commitments or demands that are likely to affect our liquidity.

Debt Capitalization Summary

(in thousands, net of deferred financing costs)

Capacity

Interest Rate

Maturity

Balance as of September 30, 2022 (in USD)

7.50% Senior Secured Notes (due 2028) (2)

$1.0 billion

7.50%

August 1, 2028

982,331

Heights SPV

$425.0 million

1-Mo SOFR + 4.25%

July 15, 2024

388,013

First Heritage SPV

$225.0 million

1-Mo SOFR + 4.25%

July 13, 2024

178,403

Canada SPV(1)

C$400.0 million

3-Mo CDOR + 6.00%

August 2, 2026

256,200

Flexiti SPV(1)

C$535.0 million

Weighted average interest rate (3) 8.07%

September 29, 2025

264,333

Flexiti Securitization(1)

C$526.5 million

1-Mo CDOR + 3.59%

December 9, 2025

380,036

(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of September 30, 2022 are denominated in U.S. dollars.

(2) On July 30, 2021, we closed our $750 million aggregate principal amount of new 7.50% Senior Secured Notes, which was used to redeem our $690.0 million 8.25% Senior Secured Notes due 2025. On December 27, 2021, we issued an additional $250.0 million of our 7.50% Senior Secured Notes for a total capacity of $1.0 billion.

(3) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.

Refer to Note 5, "Debt," for details on each of our credit facilities and resources.

Cash Flows

The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):


	Nine Months Ended September 30,
	2022		2021
Net cash provided by continuing operating activities	$	295,731	$	220,710
Net cash used in investing activities	(629,292)		(283,396)
Net cash provided by financing activities	367,650		66,707

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2022 was $295.7 million, attributable to net income of $0.9 million, the effect of non-cash reconciling items of $254.0 million, and changes in our operating assets and liabilities of $40.8 million. Our non-cash reconciling items of $254.0 million primarily included $305.5 million of provision for losses and $28.0 million of depreciation and amortization, offset by the gain on the disposal of our Legacy U.S. Direct Lending business of $68.4 million . Our changes in operating assets and liabilities of $40.8 million were primarily related to $54.3 million of lower accounts payable and accrued liabilities as a result of timing on the settlement of certain accruals and (ii) $17.8 million of lower accrued interest, partially offset by $86.9 million of lower accrued interest on our gross loans receivable and $17.6 million of higher income taxes receivable.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2022 was $629.3 million, primarily due to net origination of loans of $752.0 million. In addition, we used cash to purchase $35.3 million of property, equipment and software, an increase from the prior year due to the acquisitions of Flexiti, Heights Finance and First Heritage.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2022 was $367.7 million primarily due to $407.6 million of net proceeds from our non-recourse debt facilities partially offset by (i) $13.5 million of share repurchases in the first quarter of 2022 and (ii) $13.7 million of cash dividends.

Critical Accounting Policies and Estimates

There have been no material changes to the information on critical accounting estimates described in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates, in our 2021 Form 10-K, which information is incorporated by reference herein.

Goodwill. We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.

Our reporting units consist of the U.S., Canada Direct Lending and Canada POS Lending segments, as defined by FASB’s ASC 280, Segment Reporting, for which we assess goodwill for impairment. As of the most recent annual goodwill impairment testing date (October 1, 2021), the U.S., Canada Direct Lending, and Canada POS Lending reporting units' estimated fair values exceeded their carrying value. As described in our 2021 Form 10-K, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or divestiture of a significant portion of a reporting unit or economic outlook. These and other macroeconomic factors were considered when performing the annual test as of October 1, 2021.

For the three months ended September 30, 2022, we reviewed goodwill for triggering events that would indicate a need for an interim quantitative or qualitative assessment of goodwill impairment. As a result of the review, no additional assessment was deemed necessary, and thus there was no goodwill impairment for any reporting unit.

There continues to be uncertainty surrounding macroeconomic factors that could impact our reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future goodwill impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment.

The following table summarizes the segment allocation of recorded goodwill on our unaudited Condensed Consolidated Balance Sheets as of September 30, 2022:


(in thousands)	September 30, 2022		Percent of Total		December 31, 2021		Percent of Total
U.S. (1)	$	359,392	84.7	%	$	359,779	83.7	%
Canada Direct Lending	27,906		6.6	%	30,105		7.0	%
Canada POS Lending	36,994		8.7	%	39,908		9.3	%
Total Goodwill	$	424,292			$	429,792
(1) Changes in Goodwill between December 31, 2021 and September 30, 2022 are primarily due to the acquisition of First Heritage, offset by the sale of the Legacy U.S. Direct Lending business, refer to FN 14 "Acquisitions and Divestitures".

Regulatory Environment and Compliance

There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2021, as described in our 2021 Form 10-K, except for the following:

CFPB Supervisory Authority

The CFPB is expanding its supervisory authority using its Dormant Authority provided for in the Dodd-Frank Act. On April 25, 2022, the CFPB (or “Bureau”) announced that it will begin conducting supervisory examinations of non-bank financial entities (e.g., FinTechs) not currently subject to supervision and enforcement, if the Bureau believes the companies may be posing risks to consumers. The Bureau is also signaling that it may decide to publicly disclose some of its new supervisory activity so that other entities can be informed of areas the Bureau finds problematic. In the same announcement, the Bureau indicated that it is seeking public comments on a procedural rule to make the examination process more transparent.

CFPB Consumer Reviews

On March 22, 2022, the CFPB issued a compliance bulletin for financial companies and their service providers warning that restricting consumer reviews, silencing consumer reviews, pressuring consumers to remove a review, or posting fake reviews can violate the Consumer Review Fairness Act as well as constitute a UDAAP.

CFPB Anti-Discrimination

On March 16, 2022, CFPB announced that it was expanding its anti-discrimination efforts in all consumer finance markets. The announcement clarified that discrimination can be “unfair” and trigger UDAAP even though the discriminatory action could be covered under the Equal Credit Opportunity Act or another law. The CFPB updated its examination procedures manual for UDAAP to examine decision-making processes for assessing discriminatory risk and outcomes, including advertising, pricing, and other areas.

CFPB and Consumer Data Privacy

The CFPB continues to focus on protecting consumer information. On July 7, 2022, the CFPB issued an advisory opinion stating that users of credit reports have an obligation to protect the public’s data privacy and reminding users of the criminal liability provisions of the Fair Credit Reporting Act (“FCRA”). Further, on August 11, 2022, the CFPB issued Circular 2022-04 which states that financial companies may violate Federal consumer financial protection laws if they fail to safeguard customer data.

2017 and 2020 Final CFPB Rules Update

On October 19, 2022, the Fifth Circuit U.S. Court of Appeals handed down a decision invalidating the balance of the 2017 and 2020 Final CFPB Rule on the basis that the CFPB’s funding mechanism is unconstitutional. Specifically, the Fifth Circuit ruled that the CFPB’s funding structure violates the Constitution because the CFPB does not receive its funding from annual congressional appropriations, but instead receives funding directly from the Federal Reserve based on a request from the CFPB’s director. Thus, while Congress properly authorized the CFPB to promulgate the 2017 and 2020 Final Rule, the CFPB itself did not have the ability to exercise that power via constitutionally appropriated funds. Following this logic, the Fifth Circuit ruled that the appropriate remedy for the resulting harm due to this improper use of unappropriated funds in conducting the rulemaking associated with the 2017 and 2020 Final CFPB Rule was to nullify the CFPB’s action. We anticipate the CFPB will appeal this decision to either an en banc Fifth Circuit or the Supreme Court.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about our market risks, see "Quantitative and Qualitative Disclosures about Market Risk" in our 2021 Form 10-K. There have been no material changes to the quantitative and qualitative information presented therein.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including without limitation, controls and procedures designed to ensure that information required to be disclosed in reports we file under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In conducting the evaluation of the effectiveness of its internal control over financial reporting as of September 30, 2022, the Company has excluded the operations of Heights Finance and First Heritage as permitted by the guidance issued by the Office of the Chief Accountant of the SEC (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). The Heights Finance acquisition was completed on December 27, 2021. As of September 30, 2022, Heights Finance's assets represented approximately 30.0% of the Company’s consolidated assets and for the three and nine months ended September 30, 2022, its revenues represented approximately 31.2% and 25.6% respectively of the Company’s consolidated revenues. The First Heritage acquisition was completed on July 13, 2022. As of September 30, 2022, First Heritage's assets represented approximately 11.8% of the Company’s consolidated assets and for the three and nine months ended September 30, 2022, its revenues represented approximately 11.9% and 3.2% respectively of the Company’s consolidated revenues.

See Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details on our acquisition of Heights Finance and First Heritage and its impact on our unaudited Condensed Consolidated Financial Statements.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of September 30, 2022.

Limitation on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A control system also can be circumvented by collusion or improper management override. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process, therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Internal Control over Financial Reporting

The Company is working to integrate Heights Finance and First Heritage into its overall internal control over financial reporting processes. Additionally, on March 10, 2021, the Company acquired Flexiti. See Note 14,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details. The Company continued the process of refining financial reporting controls on the operations associated with Flexiti as of September 30, 2022. Except for changes made in connection with the integration of Heights Finance and First Heritage, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is included in Note 11, "Commitments and Contingencies" of the Notes to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q and is incorporated herein by reference.

Item 1A. Risk Factors

There were no material changes to our risk factors as described in our 2021 Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of our common stock during the period covered by this Quarterly Report on Form 10-Q.

Issuer Purchases of Equity Securities

In May 2021, our Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of our common stock. The program commenced in June 2021 and was completed in February 2022. In February 2022, our Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. There were no repurchases under this program as of September 30, 2022.

The following table provides information with respect to repurchases we made of our common stock during the quarter ended September 30, 2022.


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in millions)
July 2022	11,586	$	6.21	—	$	—
August 2022	2,774	$	7.92	—	—
September 2022	213	$	5.84	—	—
Total	14,573	$	10.54	—	$	—
(1) Includes shares withheld from employees as tax payments for shares issued under our stock-based compensation plans. See Note 11, "Share-based compensation" of the 2021 Form 10-K for additional details on our stock-based compensation plans.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

(a) Disclosure of Unreported 8-K Information

None.

(b) Material Changes to Director Nominee Procedures

None.

Item 6. Exhibits

Exhibit no.

Exhibit Description

Filed/Incorporated by Reference from Form

Incorporated by Reference from Exhibit Number

Filing Date

2.1

Equity Asset Purchase Agreement, dated as of May 18, 2022, among CURO Intermediate Holdings Corp., Sparrow Purchaser, LLC and CCF Intermediate Holdings LLC. Previously filed as an exhibit to the Company's Form 8-K filed May 19, 2022.

8-K

2.1

5/19/2022

2.2

Agreement and Plan of Merger, dated as of May 18, 2022, among CURO Group Holdings Corp,. Sugarcane Sub, LLC, First Heritage Credit, LLC and Ernest L. Coward, Jr., solely in his capacity as Member Representative. Previously filed as an exhibit to the Company's Form 8-K filed May 19, 2022.

8-K

2.2

5/19/2022

3.1

Amended and Restated Certificate of Incorporation

10-Q

10.1

8/5/2020

3.2

Amended and Restated Bylaws

8-K

3.2

12/11/17

4.1

Form of common stock certificate

S-1

4.1

11/28/17

4.2

Amended and Restated Investor Rights Agreement between the Company and the investors listed on the signature pages thereto

S-1

4.2

11/28/17

4.3

Amendment to Amended and Restated Investors Rights Agreement, dated May 14, 2018, between the Company and the investors listed on the signature page thereto

S-1

4.3

5/17/18

10.1

Fifth Amended and Restated Credit Agreement dated as of September 29, 2022 among Flexiti Financing SPE Corp., as Borrower; Flexiti Financial Inc., as Seller and Servicer; Various Lenders; Credit Suisse AG, New York Branch, as Facility Agent; TSX Trust Company, as Collateral Agent and Verification Agent; and Credit Suisse AG, New York Branch, as Syndication Agent, Documentation Agent and Lead Arranger

Filed herewith

31.1

Certifications of Chief Executive Officer of the Company under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31.2

Certifications of Chief Financial Officer of the Company under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.1

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification accompanies this report and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended

Filed herewith

101

The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2022, filed with the SEC on May 3, 2022, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, and (v) Notes to Condensed Consolidated Financial Statements*

Filed herewith

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 2, 2022 CURO Group Holdings Corp.


			By:			/s/ Roger Dean
						Roger Dean
						Executive Vice President and Chief Financial Officer