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CURO Group Holdings Corp. - Quarter Report: 2022 March (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 March 31, 2022
OR
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)
Delaware90-0934597
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareCURONew 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 filerAccelerated filer
Non-accelerated filer
Smaller reporting companyEmerging 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 April 29, 2022 there were 40,349,079 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.




CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
FIRST QUARTER ENDED March 31, 2022
INDEX
Page
Item 1.
Financial Statements (unaudited)
March 31, 2022 (unaudited) and December 31, 2021
Three months ended March 31, 2022 and 2021 (unaudited)
Three months ended March 31, 2022 and 2021 (unaudited)
Three months ended March 31, 2022 and 2021 (unaudited)
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2



PART I.     FINANCIAL INFORMATION

GLOSSARY

Terms and abbreviations used throughout this report are defined below.
Term or abbreviationDefinition
2021 Form 10-KAnnual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022
7.50% Senior Secured Notes7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028
8.25% Senior Secured Notes8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which we extinguished during the third quarter of 2021
Adjusted EBITDAEBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details
ALLAllowance for loan losses
Allowance coverageAllowance for loan losses as a percentage of gross loans receivable
AOCIAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
Average gross loans receivableUtilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
BNPLBuy-Now-Pay-Later
bpsBasis points
C$Canadian dollar
CABCredit Access Business
Canada SPVA four-year revolving credit facility with Waterfall Asset Management, LLC, with capacity up to C$400.0 million
CARES ActCoronavirus Aid, Relief, and Economic Security Act enacted by the U.S. Federal government on March 27, 2020 in response to the COVID-19 pandemic
Curo Canada Revolving Credit FacilityC$10.0 million revolving credit facility (formerly known as Cash Money Revolving Credit Facility) with Royal Bank of Canada, maintained by CURO Canada
CDORCanadian Dollar Offered Rate
CFPBConsumer Financial Protection Bureau
CFSACommunity Financial Services Association
CODMChief Operating Decision Maker
Condensed Consolidated Financial StatementsThe condensed consolidated financial statements presented in this Form 10-Q
CSOCredit services organization
CURO CanadaCURO Canada Corp, a wholly-owned Canadian subsidiary of the Company, formerly known as Cash Money Cheque Cashing Inc.
EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FinServFinServ Acquisition Corp., a publicly traded special purpose acquisition company (trading symbol FSRV)
FinTechFinancial Technology; the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or cryptocurrency
FlexitiFlexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021
Flexiti SPEA revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$500.0 million
Form 10-QThis report on Form 10-Q for the quarter March 31, 2022
Gross Combined Loans ReceivableGross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company
Guaranteed by the CompanyLoans originated by third-party lenders through the CSO program which we guarantee but are not included in the unaudited Condensed Consolidated Financial Statements
Heights FinanceSouthernCo, 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
3



Term or abbreviationDefinition
Heights Finance SPVA non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights Finance, with capacity up to $350.0 million
KatapultKatapult Holdings, Inc. a lease-to-own platform for online platform for online, brick and mortar and omni-channel retailers.
LFLLFL Group, Canada's largest home furnishings retailer.
LIBORLondon Inter-Bank Offered Rate
MDRMerchant discount revenue
NCONet charge-off; total charge-offs less total recoveries
NOLNet operating loss
POSPoint-of-sale
ROURight of use
RSURestricted Stock Unit
Runoff PortfoliosCollectively, certain loans impacted by (i) regulatory changes, including California, effective January 1, 2020, Virginia effective January 1, 2021 and Illinois, effective March 23, 2021, and (ii) the discontinuation of Verge Credit in April 2021.
SECSecurities and Exchange Commission
Senior RevolverSenior Secured Revolving Loan Facility with borrowing capacity of $50.0 million
SequentialThe change from one quarter to the next quarter
SOFRSecured Overnight Financing Rate
SPACSpecial Purpose Acquisition Company
SPESpecial Purpose Entity
SPVSpecial Purpose Vehicle
TDRTroubled Debt Restructuring. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties
UDAAPUnfair, deceptive, or abusive acts and practices
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the United States
U.S. SPVAn asset-backed revolving credit facility with Atalaya Capital Management with capacity up to $200.0 million if certain conditions are met
Verge Credit loansLoans originated and funded by a third-party bank
VIEVariable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries

4




ITEM 1.         FINANCIAL STATEMENTS

CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2022 (unaudited)
December 31,
2021
ASSETS
Cash and cash equivalents$60,209 $63,179 
Restricted cash (includes restricted cash of consolidated VIEs of $64,141 and $57,155 as of March 31, 2022 and December 31, 2021, respectively)
110,118 98,896 
Gross loans receivable (includes loans of consolidated VIEs of $1,394,957 and $1,294,706 as of March 31, 2022 and December 31, 2021, respectively)
1,628,568 1,548,318 
Less: Allowance for loan losses (includes allowance for loan losses of consolidated VIEs of $77,014 and $66,618 as of March 31, 2022 and December 31, 2021, respectively)
(98,168)(87,560)
Loans receivable, net
1,530,400 1,460,758 
Income taxes receivable28,664 31,774 
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $4,781 and $— as of March 31, 2022 and December 31, 2021, respectively)
40,112 42,038 
Property and equipment, net54,865 54,635 
Investments in Katapult29,484 27,900 
Right of use asset - operating leases114,305 116,300 
Deferred tax assets20,066 15,639 
Goodwill430,967 429,792 
Intangibles, net113,640 109,930 
Other assets9,535 9,755 
Total Assets$2,542,365 $2,460,596 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $10,243 and $9,886 as of March 31, 2022 and December 31, 2021, respectively)
$84,783 $121,434 
Deferred revenue24,265 21,649 
Lease liability - operating leases120,593 122,431 
Contingent consideration related to acquisition26,687 26,508 
Income taxes payable— 680 
Accrued interest (includes accrued interest of consolidated VIEs of $3,975 and $3,279 as of March 31, 2022 and December 31, 2021, respectively)
16,481 34,974 
Liability for losses on CSO lender-owned consumer loans7,166 6,908 
Debt (includes debt and issuance costs of consolidated VIEs of $1,101,912 and $12,983 as of March 31, 2022 and $979,500 and $14,428 as of December 31, 2021, respectively)
2,090,085 1,945,793 
Other long-term liabilities13,679 13,845 
Deferred tax liabilities5,839 6,044 
Total Liabilities2,389,578 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; 50,046,895 and 49,684,080 shares issued; and 40,348,782 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 capital115,329 113,520 
Retained earnings200,012 203,467 
Accumulated other comprehensive loss(25,745)(32,378)
Total Stockholders' Equity152,787 160,330 
Total Liabilities and Stockholders' Equity$2,542,365 $2,460,596 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
5



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
20222021
Revenue
Interest and fees revenue$264,956 $179,123 
Insurance premiums and commissions18,260 11,569 
Other revenue6,980 5,859 
Total revenue290,196 196,551 
Provision for losses97,531 36,145 
Net revenue192,665 160,406 
Operating Expenses
Salaries and benefits79,729 54,917 
Occupancy17,037 14,347 
Advertising10,500 8,084 
Direct operations20,274 11,969 
Depreciation and amortization9,814 4,965 
Other operating expense16,112 12,952 
Total operating expenses153,466 107,234 
Other expense (income)
Interest expense38,341 19,539 
Income from equity method investment(1,584)(546)
Total other expense36,757 18,993 
Income before income taxes2,442 34,179 
Provision for income taxes1,106 8,444 
Net income$1,336 $25,735 
Earnings per share:
Basic earnings per share$0.03 $0.62 
Diluted earnings per share$0.03 $0.59 
Weighted average common shares outstanding:
Basic40,368 41,505 
Diluted41,308 43,596 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended
March 31,
20222021
Net income$1,336 $25,735 
Other comprehensive income:
Foreign currency translation adjustment, net of tax6,633 3,855 
Other comprehensive income6,633 3,855 
Comprehensive income$7,969 $29,590 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.


7


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands, unaudited)
Three Months Ended
March 31,
20222021
Cash flows from operating activities
Net income$1,336 $25,735 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization9,814 4,965 
Provision for losses97,531 36,145 
Amortization of debt issuance costs and bond discount2,241 1,294 
Deferred income tax (benefit) expense(4,326)(1,534)
(Gain) loss on disposal of property and equipment38 (134)
Income from equity method investment(1,584)(546)
Change in fair value of contingent consideration(264)— 
Share-based compensation 4,093 2,683 
Changes in operating assets and liabilities:
Accrued interest on loans receivable28,491 38,908 
Prepaid expenses and other assets2,177 1,923 
Accounts payable and accrued liabilities(41,555)8,011 
Deferred revenue2,285 137 
Income taxes payable(684)276 
Income taxes receivable3,114 7,992 
Accrued interest(18,511)(14,231)
Other long-term liabilities(463)(1,132)
Net cash provided by operating activities83,733 110,492 
Cash flows from investing activities
Purchase of property, equipment and software(11,375)(2,789)
Loans receivable originated or acquired
(541,674)(251,364)
Loans receivable repaid
365,379 181,738 
Acquisition of Flexiti, net of acquiree's cash received— (91,203)
Net cash used in investing activities(187,670)(163,618)
Cash flows from financing activities
Proceeds from SPV and SPE facilities190,922 12,488 
Payments on SPV and SPE facilities(79,718)(8,565)
Debt issuance costs paid(276)— 
Proceeds from credit facilities87,560 — 
Payments on credit facilities(67,560)— 
Proceeds from exercise of stock options— 48 
Payments to net share settle equity awards(2,284)(1,668)
Repurchase of common stock(13,531)— 
Dividends paid to stockholders(4,791)(2,368)
Net cash provided by (used in) financing activities110,322 (65)
Effect of exchange rate changes on cash, cash equivalents and restricted cash1,867 881 
Net increase in cash, cash equivalents and restricted cash8,252 (52,310)
Cash, cash equivalents and restricted cash at beginning of period162,075 268,107 
Cash, cash equivalents and restricted cash at end of period$170,327 $215,797 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

8


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 March 31, 2022 and 2021 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):
March 31,
20222021
Cash and cash equivalents$60,209 $135,396 
Restricted cash (includes restricted cash of consolidated VIEs of $64,141 and $47,600 as of March 31, 2022 and March 31, 2021, respectively)
110,118 80,401 
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows$170,327 $215,797 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.


9



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.

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 as of March 31, 2022 and 2021. Prior period amounts have been reclassified to conform with current period presentation.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements reflect the accounts of CURO and its direct and indirect subsidiaries, including Heights Finance, which was acquired on December 27, 2021, and Flexiti, which was acquired on March 10, 2021. Refer to Note 14, "Acquisitions" 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 Heights Finance and Flexiti acquisitions. Actual results may differ from those estimates.

Acquisitions

Heights Finance

On December 27, 2021, CURO closed its acquisition of Heights Finance, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products, in a transaction accounted for as a business combination. Refer to Note 14, "Acquisitions" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as the result of the acquisition.

Flexiti

On March 10, 2021, CURO closed its acquisition of Flexiti, a POS and BNPL provider, in a transaction accounted for as a business combination. Refer to Note 14, "Acquisitions" for further information regarding the acquisition and Note 13, "Goodwill" for the impact to the Company's goodwill balance as a result of the acquisition.
10



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Continuing Impacts of COVID-19

The COVID-19 pandemic continues to cause significant uncertainty and impacts. Macroeconomic conditions, in general, and the Company's operations, specifically, have been significantly affected by COVID-19. Government responses to the pandemic, either through the form of mandated lockdowns or a variety of stimulus programs to mitigate the impact of the pandemic, suppressed loan demand in 2020 and into the first quarter of 2021. During the second quarter of 2021 through the first quarter of 2022, the runoff of additional federal stimulus programs in the U.S. resulted in the stabilization of the Company's U.S. loan portfolio and resulted in moderately higher NCO and past-due trends as customers return to pre-COVID-19 trends. 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 an 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. Early adoption is permitted. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016-13, including the fair value option. If the fair value option is not utilized, adoption of ASU 2016-13 will increase the allowance for credit losses, with a resulting negative adjustment to retained earnings on the date of adoption. The Company deferred the adoption of ASU 2016-13 as permitted under ASU 2019-10. The Company is currently assessing the impact that adoption of ASU 2016-13 will have on its financial statements.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, eliminated the accounting guidance on TDRs for creditors and amended the guidance on vintage disclosures for financing receivables to require disclosure of current-period gross write-offs by year of origination. Additionally, the amendments in ASU 2022-02 require enhanced disclosures for creditors with respect to loan refinancing and restructuring for borrowers experiencing financial difficulty. ASU 2022-02 and its amendments should be applied on a prospective basis and are effective upon adoption of ASU 2016-13. The Company is currently assessing the impact that adoption of ASU 2022-02 will have on its financial statements.

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 guidance is effective upon issuance and generally can be applied through December 31, 2022. 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. The Company anticipates transitioning applicable debt facilities from LIBOR to SOFR and currently does not expect the adoption of these ASUs to have a material impact on its financial statements.

11



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 to have a material effect, if any, on its financial statements.

NOTE 2 - VARIABLE INTEREST ENTITIES

As of March 31, 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):
March 31,
2022
December 31,
2021
Assets
Restricted cash$64,141 $57,155 
Loans receivable, net1,317,943 1,228,088 
Intercompany receivable(1)
245,389 48,333 
Prepaid expenses and other4,781 — 
Deferred tax assets107 — 
      Total Assets$1,632,361 $1,333,576 
Liabilities
Accounts payable and accrued liabilities$10,243 $9,886 
Deferred revenue114 106 
Deferred tax liability— 269 
Accrued interest 3,975 3,279 
Income taxes payable1,826 — 
Debt1,088,929 965,072 
      Total Liabilities$1,105,087 $978,612 
(1) Intercompany receivable VIE balances eliminate upon consolidation.

NOTE 3 – LOANS RECEIVABLE AND REVENUE

The following table summarizes revenue by product (in thousands):
Three Months Ended March 31,
20222021
Revolving LOC$91,023 $62,735 
Unsecured Installment121,329 76,394 
Secured Installment26,307 15,027 
Single-Pay26,297 24,967 
Total Installment173,933 116,388 
Insurance revenue18,260 11,601 
Other6,980 5,827 
   Total revenue(1)
$290,196 $196,551 
(1) Includes revenue from CSO programs of $49.0 million and $41.4 million for the three months ended March 31, 2022 and 2021, respectively.
12



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
March 31, 2022
Revolving LOCUnsecured InstallmentSecured Installment
Single-Pay(1)
Total Installment - Company OwnedTotal
Current loans receivable$943,761 $348,487 $111,483 $40,389 $500,359 $1,444,120 
Delinquent loans receivable71,577 91,778 21,093 — 112,871 184,448 
   Total loans receivable1,015,338 440,265 132,576 40,389 613,230 1,628,568 
   Less: allowance for losses(71,325)(20,704)(3,363)(2,776)(26,843)(98,168)
Loans receivable, net$944,013 $419,561 $129,213 $37,613 $586,387 $1,530,400 
(1) Of the $40.4 million of Single-Pay receivables, $11.1 million relate to mandated extended payment options for certain Canada Single-Pay loans.

March 31, 2022
Revolving LOCUnsecured InstallmentSecured InstallmentTotal Installment - Company OwnedTotal
Delinquent loans receivable
1-30 days past-due$31,959 $38,700 $11,689 $50,389 $82,348 
31-60 days past-due16,616 13,898 3,926 17,824 34,440 
61-90 days past-due14,684 13,763 2,910 16,673 31,357 
91 + days past-due8,318 25,417 2,568 27,985 36,303 
Total delinquent loans receivable$71,577 $91,778 $21,093 $112,871 $184,448 

December 31, 2021
Revolving LOCUnsecured InstallmentSecured Installment
Single-Pay(1)
Total Installment - Company OwnedTotal
Current loans receivable$843,379 $359,512 $110,232 $42,463 $512,207 $1,355,586 
Delinquent loans receivable70,734 98,174 23,824 — 121,998 192,732 
   Total loans receivable914,113 457,686 134,056 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 LOCUnsecured InstallmentSecured InstallmentTotal Installment - Company OwnedTotal
Delinquent loans receivable
1-30 days past-due$35,657 $45,160 $13,213 $58,373 $94,030 
31-60 days past-due15,452 16,646 4,539 21,185 36,637 
61-90 days past-due13,397 13,933 3,213 17,146 30,543 
91 + days past-due6,228 22,435 2,859 25,294 31,522 
Total delinquent loans receivable$70,734 $98,174 $23,824 $121,998 $192,732 

13



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following tables summarize loans Guaranteed by the Company under CSO programs and the related delinquent receivables (in thousands):
March 31, 2022
Unsecured InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Current loans receivable Guaranteed by the Company$35,180 $1,009 $36,189 
Delinquent loans receivable Guaranteed by the Company7,986 245 8,231 
Total loans receivable Guaranteed by the Company43,166 1,254 44,420 
Less: Liability for losses on CSO lender-owned consumer loans(7,118)(48)(7,166)
Loans receivable Guaranteed by the Company, net$36,048 $1,206 $37,254 

March 31, 2022
Unsecured InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Delinquent loans receivable
1-30 days past-due$6,043 $187 $6,230 
31-60 days past-due1,225 12 1,237 
61-90 days past-due557 36 593 
91 + days past-due161 10 171 
Total delinquent loans receivable$7,986 $245 $8,231 

December 31, 2021
Unsecured InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Current loans receivable Guaranteed by the Company$37,303 $799 $38,102 
Delinquent loans receivable Guaranteed by the Company8,011 204 8,215 
Total loans receivable Guaranteed by the Company45,314 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 InstallmentSecured InstallmentTotal Installment - Guaranteed by the Company
Delinquent loans receivable
1-30 days past-due$6,633 $162 $6,795 
31-60 days past-due1,003 28 1,031 
61-90 days past-due277 285 
91 + days past-due98 104 
Total delinquent loans receivable$8,011 $204 $8,215 

14



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
March 31, 2022
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$68,140 $13,387 $3,327 $2,706 $19,420 $— $87,560 
Charge-offs(42,387)(28,313)(6,783)(24,113)(59,209)(1,813)(103,409)
Recoveries8,015 8,023 3,146 19,744 30,913 553 39,481 
Net charge-offs(34,372)(20,290)(3,637)(4,369)(28,296)(1,260)(63,928)
Provision for losses37,447 27,603 3,673 4,409 35,685 2,650 75,782 
Effect of foreign currency translation110 — 30 34 — 144 
Balance, end of period$71,325 $20,704 $3,363 $2,776 $26,843 $1,390 $99,558 
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period$— $6,869 $39 $— $6,908 $— $6,908 
Increase in liability— 249 — 258 — 258 
Balance, end of period$— $7,118 $48 $— $7,166 $— $7,166 
Three Months Ended
March 31, 2021
Revolving LOCUnsecured InstallmentSecured InstallmentSingle-PayTotal InstallmentOtherTotal
Allowance for loan losses:
Balance, beginning of period$51,958 $24,073 $7,047 $3,084 $34,204 $— $86,162 
Charge-offs(28,714)(21,125)(6,343)(21,933)(49,401)(3,911)(82,026)
Recoveries7,507 6,617 2,544 21,254 30,415 1,810 39,732 
Net charge-offs(21,207)(14,508)(3,799)(679)(18,986)(2,101)(42,294)
Provision for losses13,802 10,825 1,775 (207)12,393 2,101 28,296 
Effect of foreign currency translation201 — 19 23 — 224 
Balance, end of period$44,754 $20,394 $5,023 $2,217 $27,634 $— $72,388 
Liability for losses on CSO lender-owned consumer loans:
Balance, beginning of period$— $7,160 $68 $— $7,228 $— $7,228 
Decrease in liability— (2,490)(11)— (2,501)— (2,501)
Balance, end of period$— $4,670 $57 $— $4,727 $— $4,727 

15



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2022, Revolving LOC and Installment loans classified as nonaccrual were $6.7 million and $42.1 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's loans receivable 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
March 31, 2022
As of
December 31, 2021
Current TDR gross receivables$12,711 $11,580 
Delinquent TDR gross receivables4,771 5,066 
Total TDR gross receivables 17,482 16,646 
Less: Impairment included in the allowance for loan losses(4,031)(3,632)
Less: Additional allowance(1,853)(2,212)
Outstanding TDR receivables, net of impairment$11,598 $10,802 

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

Three Months Ended March 31,
20222021
Pre-modification TDR loans receivable$5,271 $4,819 
Post-modification TDR loans receivable4,791 4,274 
Total concessions included in gross charge-offs$480 $545 

There were $3.6 million and $4.8 million of loans classified as TDRs that were charged off and included as a reduction in the ALL during the three months ended March 31, 2022 and 2021, respectively. The Company had commitments to lend additional funds of approximately $2.3 million to customers with available and unfunded Revolving LOC loans classified as TDRs as of March 31, 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 March 31,
20222021
Average outstanding TDR loans receivable$17,064 $18,688 
Interest income recognized4,035 5,518 
Number of TDR loans3,424 3,780 

NOTE 4 – CREDIT SERVICES ORGANIZATION
The CSO fee receivables were $5.1 million and $5.2 million at March 31, 2022 and December 31, 2021, respectively, 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 March 31, 2022 and December 31, 2021, the incremental maximum amount payable under all such guarantees was $36.3 million and $38.4 million, respectively. 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 with the guaranty provided to the CSO lenders, which was $7.2 million and $6.9 million at March 31, 2022 and December 31, 2021, respectively. This liability is reflected in "Liability for losses on CSO lender-owned consumer loans" in the unaudited Condensed Consolidated Balance Sheets.

16



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company placed $5.6 million and $5.5 million in collateral accounts for the benefit of lenders at March 31, 2022 and December 31, 2021, respectively, 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 March 31, 2022 and 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.

NOTE 5 – DEBT
LIBOR is expected to no longer be available after June 30, 2023. Certain of the Company's debt facilities, including the U.S. SPV, Senior Revolver and Heights Finance SPV, contain customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available. 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 March 31, 2022 and December 31, 2021, including maturity date, effective interest rate and borrowing capacity were as follows (dollars in thousands):
Effective interest rateOutstanding as of
Maturity DateBorrowing CapacityMarch 31, 2022December 31, 2021
Corporate Debt:
7.50% Senior Secured Notes
August 1, 20287.50 %1,000,000 1,000,000 
8.25% Senior Secured Notes
September 1, 20258.25 %— — 
Total corporate debt1,000,000 1,000,000 
Funding Debt:
U.S. SPVApril 8, 2024
1-Mo LIBOR + 6.25%
$200.0 million
$49,456 $49,456 
Canada SPV (1)
August 2, 2026
3-Mo CDOR + 6.00%
C$400.0 million
243,008 160,533 
Curo Canada Revolving Credit Facility (1)
On-demand
Canada Prime Rate + 1.95%
C$10.0 million
— — 
Flexiti SPE (1)
March 10, 2024
3-Mo CDOR + 4.40%
C$500.0 million
238,261 176,625 
Flexiti Securitization (1)
December 9, 2025
1-Mo CDOR + 3.59%
C$526.5 million
246,963 242,886 
Heights Finance SPVDecember 31, 2024
1-Mo LIBOR + 5.25%
$350.0 million
324,224 350,000 
Senior RevolverJune 30, 2022
1-Mo LIBOR + 5.00%
$50.0 million
20,000 — 
Total funding debt1,121,912 979,500 
Less: debt issuance costs(31,827)(33,707)
Total Debt2,090,085 1,945,793 
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of March 31, 2022 and December 31, 2021 are denominated in U.S. dollars.

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" 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.

17



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

As of March 31, 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) U.S. SPV, (ii) Canada SPV, (iii) Flexiti SPE, (iv) Flexiti Securitization and (v) Heights Finance SPV. For further information on these facilities, refer to Note 2, "Variable Interest Entities".

U.S. SPV

In April 2020, CURO Receivables Finance II, LLC, a wholly-owned subsidiary of the Company, entered into the U.S. SPV. As of March 31, 2022, the U.S. SPV Facility provided for $200.0 million of borrowing capacity.

As of March 31, 2022, the effective interest rate on the Company's borrowings was 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 matures on April 8, 2024.

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 March 31, 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.

Flexiti SPE

In March 2021, concurrently with the acquisition of Flexiti, Flexiti Financing SPE Corp., a wholly-owned Canadian subsidiary of the Company, refinanced and increased its Flexiti SPE to C$500.0 million, with a maturity on March 10, 2024. As of March 31, 2022, the effective interest rate was three-month CDOR plus 4.40%. The borrower also pays a 0.50% to 1.00% per annum commitment fee on the unused portion of the commitments.

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$526.5 million, with a maturity on December 9, 2025. As of March 31, 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.

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%.

Senior Revolver

The Company maintains the Senior Revolver that provides $50.0 million of borrowing capacity, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires June 30, 2022. The Senior Revolver accrues interest at one-month LIBOR plus 5.00%. The Senior Revolver is syndicated among four banks.

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 are senior to the lien securing the 7.50% Senior Secured Notes.
18



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 March 31, 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 45.3% and 24.7% for the three months ended March 31, 2022 and 2021, respectively.

The effective income tax rate for the three months ended March 31, 2022, was higher compared to the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lower income before tax combined with $0.3 million lost tax benefits of non-deductible officers’ compensation and $0.3 million tax expense related to share-based compensation.

The effective income tax rate for the three months ended March 31, 2021 is generally consistent with the Company’s federal, state and provincial statutory rates, other than the release of a valuation allowance of $0.1 million against the income from its investment in Katapult and excess tax benefits related to share-based compensation of $0.3 million and $0.2 million tax expense related to the non-deductible transaction costs.

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 $239.3 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $12.0 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.

19



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 March 31, 2022 (in thousands):

Estimated Fair Value
Carrying Value March 31,
2022
Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$7,940 $7,940 $— $— $7,940 
Financial liabilities:
Non-qualified deferred compensation plan$5,496 $5,496 $— $— $5,496 
Contingent consideration related to acquisition26,687 — — 26,687 26,687 

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 increased from the initial measurement of $20.6 million as of March 31, 2021 to $26.7 million as of March 31, 2022. For additional information on Flexiti and the related contingent consideration, refer to Note 14, "Acquisitions."

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 1Level 2Level 3Total
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 acquisition26,508 — — 26,508 26,508 
20



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 March 31, 2022 (in thousands):
Estimated Fair Value
Carrying Value March 31,
2022
Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents$60,209 $60,209 $— $— $60,209 
Restricted cash110,118 110,118 — — 110,118 
Loans receivable, net1,530,400 — — 1,530,400 1,530,400 
Financial liabilities:
Liability for losses on CSO lender-owned consumer loans
$7,166 $— $— $7,166 $7,166 
7.50% Senior Secured Notes
981,156 — 860,000 — 860,000 
U.S. SPV45,843 — — 49,456 49,456 
Canada SPV240,661 — — 243,008 243,008 
Flexiti SPE234,754 — — 238,261 238,261 
Flexiti Securitization243,447 — — 246,963 246,963 
Heights Finance SPV
324,224 — — 324,224 324,224 
Senior Revolver20,000 — — 20,000 20,000 

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 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents$63,179 $63,179 $— $— $63,179 
Restricted cash98,896 98,896 — — 98,896 
Loans receivable, net1,460,758 — — 1,460,758 1,460,758 
Financial liabilities:
Liability for losses on CSO lender-owned consumer loans$6,908 $— $— $6,908 $6,908 
7.50% Senior Secured Notes
980,721 — 1,005,700 — 1,005,700 
U.S. SPV45,392 — — 49,456 49,456 
Canada SPV157,813 — — 160,533 160,533 
Flexiti SPE172,739 — — 176,625 176,625 
Flexiti Securitization239,128 — — 242,886 242,886 
Heights Finance SPV
350,000 — — 350,000 350,000 

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.

21



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

CSO Program

In connection with CSO programs, the Company guarantees 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 is required to purchase from the lender charged-off loans that it has guaranteed. Refer to Note 3, "Loans Receivable and Revenue" and Note 4, Credit Services Organization" for additional information.

7.50% Senior Secured Notes, U.S. SPV, Canada SPV, Flexiti SPE, Flexiti Securitization, Heights Finance SPV and Senior Revolver

The fair value disclosure for the 7.50% Senior Secured Notes as of March 31, 2022 and December 31, 2021 were based on observable market trading data. The fair values of the U.S. SPV, Canada SPV, Flexiti SPE, Flexiti Securitization, Heights Finance SPV 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 2021546 — 546 
Balance at March 31, 20218,308 19,609 27,917 
Equity method income - Q2 20211,712 — 1,712 
Conversion of investment(2)
6,481 (19,609)(13,128)
Balance at June 30, 202116,501 — 16,501 
Equity method loss - Q3 2021(1,582)— (1,582)
Balance at September 30, 202114,919 — 14,919 
Equity method income - Q4 20212,982 — 2,982 
Purchases of common stock9,999 — 9,999 
Balance at December 31, 202127,900 — 27,900 
Equity method income - Q1 20221,584 1,584 
Balance at March 31, 2022$29,484 $— $29,484 
Classification as of December 31, 2021Level 3, not carried at fair valueN/A
Classification as of March 31, 2022Level 3, not carried at fair valueN/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.

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 income of $1.6 million for the three months ended March 31, 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), which are subject to a six-month trading restriction. 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.
22



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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

The Company's fully diluted ownership of Katapult, which assumes full pay-out of earn-out shares, was 25.2% as of March 31, 2022.



23



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 three months ended March 31, 2022 and 2021 (in thousands, except Common Stock data):

Common StockTreasury Stock, at costPaid-in capitalRetained Earnings (Deficit)
AOCI (1)
Total Stockholders' Equity
Shares OutstandingPar 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 
Proceeds from exercise of stock options— — — — — — — 
Repurchase of common stock(824,477)— (12,530)— — — (12,530)
Net settlement of share-based awards362,815 — — (2,284)— — (2,284)
Balance at March 31, 2022
40,348,782 $23 $(136,832)$115,329 $200,012 $(25,745)$152,787 
(1) Accumulated other comprehensive income (loss)

Common StockTreasury Stock, at costPaid-in capitalRetained Earnings (Deficit)
AOCI (1)
Total Stockholders' Equity
Shares OutstandingPar Value
Balance at December 31, 2020
41,370,504 $$(77,852)$79,812 $160,068 $(30,132)$131,905 
Net income— — — — 25,735 — 25,735 
Foreign currency translation adjustment— — — — — 3,855 3,855 
Dividends— — — — (2,368)— (2,368)
Share-based compensation expense— — — 2,683 — — 2,683 
Proceeds from exercise of stock options15,852 — — 48 — — 48 
Net settlement of share-based awards237,423 — — (1,668)— — (1,668)
Balance at March 31, 2021
41,623,779 $$(77,852)$80,875 $183,435 $(26,277)$160,190 
(1) Accumulated other comprehensive income (loss)

Dividends

The table below summarizes the Company's quarterly dividends for 2022.
Dividends Paid
Date of declarationStockholders of recordDate paidDividend per share(in thousands)
Q1 2022February 4, 2022February 18, 2022March 1, 2022$0.11 $4,517 

The table below summarizes the Company's quarterly dividends for 2021.
Dividends Paid
Date of declarationStockholders of recordDate paidDividend per share(in thousands)
Q1 2021January 29, 2021February 16, 2021March 2, 2021$0.055 $2,284 

In April 2022, the Company's Board of Directors declared a dividend under the program of $0.11 per share. See Note 16, "Subsequent Events" for additional information.

24



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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
March 31,
20222021
Net income$1,336 $25,735 
Weighted average common shares - basic40,368 41,505 
Dilutive effect of stock options and restricted stock units940 2,091 
Weighted average common shares - diluted41,308 43,596 
Earnings per share:
Basic earnings per share$0.03 $0.62 
Diluted earnings per share$0.03 $0.59 

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 months ended March 31, 2022 and March 31, 2021, there were 1.2 million and 0.5 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.

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 March 31, 2022, the Company operated a total of 550 U.S. retail locations and had an online presence in 27 states. The Company provides Revolving LOC loans and Installment loans, which include Single-Pay and vehicle title loans, customary opt-in insurance products, check cashing, money transfer services, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in the U.S.

Canada Direct Lending. As of March 31, 2022, the Company operated a total of 204 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 March 31, 2022, the Company served Canadian customers through POS financing available at nearly 7,700 retail locations and over 3,330 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 three months ended March 31, 2021 from Canada POS Lending represent results from the date of Flexiti's acquisition, March 10, 2021, through March 31, 2021.

25



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
March 31,
20222021
Revenues by segment: (1)
U.S.$198,399 $136,492 
Canada Direct Lending71,488 58,440 
Canada POS Lending20,309 1,619 
Consolidated revenue$290,196 $196,551 
Net revenues by segment:
U.S. $131,574 $110,436 
Canada Direct Lending49,496 49,206 
Canada POS Lending11,595 764 
Consolidated net revenue$192,665 $160,406 
Segment operating (loss) income:
U.S.$(5,468)$14,731 
Canada Direct Lending18,445 22,247 
Canada POS Lending(10,535)(2,799)
Consolidated operating income$2,442 $34,179 
Expenditures for long-lived assets by segment:
U.S.$4,082 $2,662 
Canada Direct Lending3,233 149 
Canada POS Lending4,224 419 
Consolidated expenditures for long-lived assets$11,539 $3,230 
(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):
March 31,
2022
December 31,
2021
U.S.$638,729 $661,945 
Canada Direct Lending448,063 427,197 
Canada POS Lending541,776 459,176 
Total gross loans receivable$1,628,568 $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):
March 31,
2022
December 31,
2021
U.S.$31,378 $32,753 
Canada Direct Lending22,480 21,072 
Canada POS Lending1,007 810 
Total net long-lived assets$54,865 $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.

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
26



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 three months ended March 31, 2022, there was no further expense related to the litigation.

In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally allege 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. The settlement, which will include no admission of liability or wrongdoing by the Company, will be subject to Court approval. All amounts payable by the Company under the settlement will be paid by the Company's insurers. The section of the Company's website entitled "Investors—Corporate Governance," will include up-to-date information following Court approval.

City of Austin

The Company was cited in July 2016 by the City of Austin, Texas for alleged violations of an Austin ordinance addressing products offered by CSOs, which regulates aspects of products offered under the Company's CAB program. The Company believes that: (i) the Austin ordinance (similar to its counterparts elsewhere in Texas) conflicts with Texas state law and (ii) in any event, the Company's product complies with this ordinance, when the ordinance is properly construed. In 2017, the Austin Municipal Court agreed with the Company's position that this ordinance conflicts with Texas law and, accordingly, did not address the second argument. In September 2017, the Travis County Court reversed the Municipal Court’s decision and remanded the case for further proceedings. To date, a hearing and trial on the merits have not been scheduled.

In May 2020, the City of Austin proposed a second ordinance that became effective June 1, 2020 and implemented restrictions on CSO transactions and revised certain definitions included in the original Austin ordinance. These revisions potentially affect the foundation upon which the Company's previous arguments in municipal court were based.

In June 2021, the Company launched a new product in the City of Austin to better adhere to the updated ordinance. The City commenced audits of the new product in January 2022. Based on a fully compliant audit conducted in Q1 of 2022, all suits against the Company, alleging violations of the city’s CSO ordinance, were dismissed on March 24, 2022.

Given the change the Company has made in its products in response to these ordinances, successful audits and the cases being dismissed, the Company does not anticipate that the CAB program’s past operations will result in material monetary liability in Austin or elsewhere in Texas at this time.

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 March 31, 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.

27


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes the operating lease costs and other information for the three months ended March 31, 2022 and March 31, 2021 (dollars in thousands):
Three Months Ended
March 31,
20222021
Operating lease costs:
Third-Party
$9,479 $8,003 
Related-Party
827 847 
Total operating lease costs$10,306 $8,850 
Cash paid for amounts included in the measurement of operating lease liabilities$10,925 $9,381 
ROU assets obtained$5,424 $2,803 
Weighted average remaining lease term - Operating leases4.9 years5.5 years
Weighted average discount rate - Operating leases7.9 %9.5 %

The following table summarizes the aggregate operating lease payments that the Company was contractually obligated to make under operating leases as of March 31, 2022 (in thousands):
Third-PartyRelated-PartyTotal
Remainder of 2022$29,240 $2,640 $31,880 
202333,138 1,333 34,471 
202425,303 973 26,276 
202517,668 870 18,538 
202611,889 883 12,772 
20278,462 798 9,260 
Thereafter15,381 995 16,376 
Total141,081 8,492 149,573 
Less: Imputed interest(27,145)(1,835)(28,980)
Operating lease liabilities$113,936 $6,657 $120,593 

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 three months ended March 31, 2022 was as follows (in thousands):
U.S.Canada Direct LendingCanada POS LendingTotal
Goodwill at December 31, 2021$359,779 $30,105 $39,908 $429,792 
Foreign currency translation — 505 670 1,175 
Goodwill at March 31, 2022$359,779 $30,610 $40,578 $430,967 

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 first 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 March 31, 2022.

28


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 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" 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. See Note 14, "Acquisitions" for more information related to the business combination.

NOTE 14 – ACQUISITIONS

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 solution 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.

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.

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 have been no repurchases under this program as of March 31, 2022. The repurchase will commence at the Company's discretion and continue until completed or terminated. The Company expects the purchases 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.

The table below summarizes share repurchase activity in the $50.0 million repurchase program during the three months ended March 31, 2022 (in thousands, except for per share amounts and number of share amounts):

Three Months Ended
March 31, 2022
Total number of shares repurchased824,477 
Average price paid per share$15.20 
Total value of shares repurchased$12,530 

There were no share repurchases during the three months ended March 31, 2021.

29


CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 16 – SUBSEQUENT EVENTS

Shareholder Derivative Lawsuits

See Note 11, "Commitments and Contingencies" regarding recent activity in the shareholder derivative lawsuits.

Dividend

The Company's Board of Directors declared a quarterly dividend of $0.11 per share, payable on May 23, 2022, to stockholders of record as of May 10, 2022.
30



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 "Speedy Cash," "Rapid Cash" and "Avio Credit," "Covington Credit," "Heights Finance," "Quick Credit" and "Southern Finance." 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 March 31, 2022, our store network consisted of 550 locations across 20 U.S. states and we offered our online services in 27 U.S. states.

In Canada, we operate under “Cash Money” and “LendDirect” direct lending brands and the "Flexiti" point-of-sale brand. As of March 31, 2022, we operated our direct lending and online services in eight Canadian provinces and offered our online services in one Canadian territory. Our point-of-sale operations are available at nearly 7,700 retail locations and over 3,330 merchant partners across 10 provinces and two territories.

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 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" 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 March 31, 2022 was 25.2%, which assumes full pay-out of earn-out shares.

31



Consolidated Results of Operations

Comparison of Consolidated Results of Operations for the Three Months Ended March 31, 2022 and 2021

Beginning January 1, 2022, we began reporting "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 March 31,
20222021Change $Change %
Revenue
Interest and fees revenue$264,956 $179,123 $85,833 47.9 %
Insurance premiums and commissions18,260 11,569 6,691 57.8 %
Other revenue6,980 5,859 1,121 19.1 %
Total revenue290,196 196,551 93,645 47.6 %
Provision for losses97,531 36,145 61,386 #
Net revenue192,665 160,406 32,259 20.1 %
Operating Expenses
Salaries and benefits79,729 54,917 24,812 45.2 %
Occupancy17,037 14,347 2,690 18.7 %
Advertising10,500 8,084 2,416 29.9 %
Direct operations20,274 11,969 8,305 69.4 %
Depreciation and amortization9,814 4,965 4,849 97.7 %
Other operating expense16,112 12,952 3,160 24.4 %
Total operating expense153,466 107,234 46,232 43.1 %
Other expense (income)
Interest expense38,341 19,539 18,802 96.2 %
Income from equity method investment(1,584)(546)(1,038)#
Total other expense36,757 18,993 17,764 93.5 %
Income before income taxes2,442 34,179 (31,737)(92.9)%
Provision for income taxes1,106 8,444 (7,338)(86.9)%
Net income1,336 25,735 (24,399)(94.8)%
# - Variance greater than 100% or not meaningful

The decline in Net Income was primarily driven by year-over-year comparisons for the provision for loan losses and, secondarily, higher interest expense. Government stimulus and other pandemic-related behavior reduced demand, increased payment rates and lowered loss rates in the first quarter of 2021, resulting in a provision for loan losses that was $16.5 million less than net charge-offs ("NCOs"). Credit normalization and strong sequential loan growth in the first quarter of 2022 resulted in a provision for loan losses that exceeded NCOs by $12.1 million, which included the impact of purchase accounting. This year-over-year shift resulted in a $28.7 million pretax swing year over year. Interest expense increased because of the additional 7.50% Senior Secured Notes issued to finance, in part, (i) the Heights Finance acquisition and (ii) the expansion of non-recourse asset-backed facilities to support loan growth.
Revenue
During the three months ended March 31, 2022, total revenue increased $93.6 million, or 47.6%, to $290.2 million, compared to the prior-year period driven by our acquisitions of Flexiti and Heights Finance, and secondarily by growth in Canada Direct Lending. Specifically, the main components were:
U.S. revenue increase of $61.9 million, or 45.4%, as a result of our Heights Finance acquisition, which accounted for $65.7 million of total revenue for the first quarter of 2022. Excluding Heights Finance, U.S. revenue decreased $3.8 million, primarily due to the Runoff Portfolios. Excluding Runoff Portfolios and Heights Finance, total U.S. revenue increased $13.6 million, or 11.9%, for the three months ended March 31, 2022 compared to the three months ended
32



March 31, 2021;
Canada Direct Lending revenue increase of $13.0 million, or 22.3%; and
Canada POS Lending revenue of $20.3 million, an increase of $18.7 million compared to the three months ended March 31, 2021, which Flexiti's results only after its acquisition on March 10, 2021.

The following table summarizes revenue by product, including CSO fees, for the period indicated:
Three Months Ended
March 31, 2022March 31, 2021
(in thousands, unaudited)U.S.Canada Direct LendingCanada POS LendingTotal% of TotalU.S.Canada Direct LendingCanada POS LendingTotal% of Total
Revolving LOC26,913 45,455 18,655 91,023 31.4 %26,923 34,368 1,444 62,735 31.9 %
Installment162,824 11,109 — 173,933 59.9 %105,941 10,447 — 116,388 59.2 %
Total interest and fees189,737 56,564 18,655 264,956 91.3 %132,864 44,815 1,444 179,123 91.1 %
Insurance premiums and commissions5,001 13,023 236 18,260 6.3 %— 11,569 32 11,601 5.9 %
Other revenue3,661 1,901 1,418 6,980 2.4 %3,628 2,056 143 5,827 3.0 %
   Total revenue198,399 71,488 20,309 290,196 100.0 %136,492 58,440 1,619 196,551 100.0 %

Product revenue for the three months ended March 31, 2022

Revolving LOC
Revolving LOC revenue for the three months ended March 31, 2022 increased $28.3 million, or 45.1%, compared to the prior-year period, driven by growth in Canada Direct Lending revenue of $11.1 million, or 32.3%, and Canada POS lending of $17.2 million.

Installment
Installment revenue for the three months ended March 31, 2022 increased $57.5 million, or 49.4%, compared to the prior-year period. The increase was a result of our acquisition of Heights Finance in the fourth quarter of 2021, which accounted for $60.4 million of Installment revenue in the first quarter of 2022. Excluding Heights Finance, Installment revenue decreased $2.8 million, 2.4% as a result of Runoff Portfolios. For the three months ended March 31, 2022, Installment revenues excluding Runoff Portfolios and Heights Finance increased $11.8 million, or 12.1%, compared to the prior-year period.

Insurance premiums and commissions
Insurance premiums and commissions for the three months ended March 31, 2022 increased $6.7 million, or 57.4%, compared to the prior-year period, primarily driven by our acquisition of Heights Finance, which offers customary opt-in insurance and accounted for $5.0 million of insurance premiums and commissions revenue in the first quarter of 2022. Canada Direct Lending grew $1.5 million, or 12.6%, year over year due to the sale of insurance products to Revolving LOC and Installment loan customers in Canada.

Other revenue
Other revenue for the three months ended March 31, 2022 increased $1.2 million, or 19.8%, versus the prior-year period as Canada POS Lending included a full quarter of revenue in 2022.

Provision for losses

Provision for losses increased by $61.4 million, or 169.8%, for the three months ended March 31, 2022 compared to the prior-year period, primarily driven by:
Continued 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. In the first quarter of 2021, the U.S. provision for loan losses was $13.3 million less than NCOs due to March 2021 government stimulus payments, which improved customer repayment rates and reduced NCOs and past-due rates to historic lows. In the first quarter of 2022, the U.S. provision for loan losses, excluding Heights Finance, was $0.8 million less than NCOs as the seasonal sequential decline was lower compared to prior year, and NCO rates continued to normalize;
Full quarter of provision for losses for our Heights Finance acquisition of $20.7 million;
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Full quarter of provision for loan losses for Canada POS Lending of $8.7 million, an increase of $7.9 million compared to the prior-year period;
Loan growth, driven by strong consumer demand, across all loan portfolios compared to the same period in the prior year; and
Higher NCO and past-due rates, as COVID-19 Impacts lessened compared to the same period in the prior year. Refer to "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 March 31,
20222021Change $Change %
Operating Expenses
Salaries and benefits$79,729 $54,917 $24,812 45.2 %
Occupancy17,037 14,347 2,690 18.7 %
Advertising10,500 8,084 2,416 29.9 %
Direct operations20,274 11,969 8,305 69.4 %
Depreciation and amortization9,814 4,965 4,849 97.7 %
Other operating expense16,112 12,952 3,160 24.4 %
Total operating expense$153,466 $107,234 $46,232 43.1 %

Operating expenses increased $46.2 million, or 43.1%, primarily driven by:
Salaries and benefits were $79.7 million for the three months ended March 31, 2022, an increase of $24.8 million, or 45.2%, compared to the prior-year period. Excluding costs associated with Heights Finance, salaries and benefits increased $4.6 million, or 8.4%, primarily due to a full quarter of Canada POS Lending salaries and benefits expense;

Occupancy costs were $17.0 million for the three months ended March 31, 2022, an increase of $2.7 million, or 18.7%, compared to the prior-year period. Excluding costs associated with Heights Finance, occupancy costs decreased $1.4 million, or 9.4%, primarily due to store closures in the U.S. during the second and third quarters of 2021;

Advertising costs increased $2.4 million, or 29.9%, year over year on more normalized spend compared to the first quarter of 2021, which continued to be affected by COVID-19 Impacts;

Direct operations were $20.3 million for the three months ended March 31, 2022, an increase of $8.3 million, or 69.4%, compared to the prior-year period. Excluding costs associated with Heights Finance, direct operations increased $5.2 million, or 43.2%, primarily due to higher volume, resulting in higher collection and variable processing costs, as well as a full quarter of Canada POS Lending direct operations of $3.7 million for the first quarter of 2022;

Depreciation and amortization expense for the three months ended March 31, 2022 increased $4.8 million, or 97.7%, compared to the prior-year period, primarily due a full quarter of Canada POS Lending expense associated with the amortization of capitalized software development costs, partially offset by store closures in the U.S. during the second and third quarters of 2021; and

Other operating expenses were $16.1 million for the three months ended March 31, 2022, an increase of $3.2 million, or 24.4%, compared to the prior-year period, primarily driven by our acquired Heights Finance business. Refer to "Segment Analysis" sections below for additional details.

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Other Expense (Income)

The following table summarizes other expenses (income) for the period indicated:
(in thousands, unaudited)Three Months Ended March 31,
20222021Change $Change %
Other expense (income)
Interest expense$38,341 $19,539 $18,802 96.2 %
Income from equity method investment(1,584)(546)(1,038)#
Total other expense$36,757 $18,993 $17,764 93.5 %
# - Variance greater than 100% or not meaningful

Other expenses increased $17.8 million, or 93.5% primarily driven by:

Interest expense for the three months ended March 31, 2022 increased $18.8 million, or 96.2%, primarily related to (i) interest on non-recourse debt assumed with the acquisition of Heights Finance, (ii) interest expense on the additional $250.0 million issuance of 7.50% Senior Secured Notes in the fourth quarter of 2021, (iii) interest on Flexiti's warehouse and securitization facilities, and (iv) higher utilization of the Canada SPV facility,

Partially offset by our share of Katapult's income of $1.6 million, which included a gain from revaluing Katapult's public and private warrant liability, compared to $0.5 million in the prior year.

Provision for Income Taxes

The effective income tax rate for the three months ended March 31, 2022 was 45.3%. The effective income tax rate was higher than the blended federal and state/provincial statutory rate of approximately 26%, primarily as a result of lower income before tax combined with $0.3 million lost tax benefits of non-deductible officers’ compensation and $0.3 million tax expense related to share-based compensation. The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the three months ended March 31, 2022 was 31.9%.

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 receivables 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 of
(in thousands, unaudited)March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
U.S.
Revolving LOC49,077 52,532 51,196 47,277 43,387 
Installment - Company Owned589,652 609,413 137,987 139,234 142,396 
Canada Direct Lending
Revolving LOC424,485 402,405 366,509 337,700 319,307 
Installment23,578 24,792 24,315 23,564 24,385 
Canada POS Lending
Revolving LOC541,776 459,176 302,349 221,453 201,539 
Company Owned gross loans receivable1,628,568 1,548,318 882,356 769,228 731,014 
Gross loans receivable Guaranteed by the Company44,420 46,317 43,422 37,093 32,439 
Gross combined loans receivable (1)
1,672,988 1,594,635 925,778 806,321 763,453 
(1) See a description of non-GAAP Financial Measures in "Supplemental Non-GAAP Financial Information."
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Gross combined loans receivable increased $909.5 million, or 119.1%, to $1,673.0 million as of March 31, 2022, from $763.5 million as of March 31, 2021. The increase was driven by:

$462.9 million of gross loans receivable from Heights Finance;
Canada POS Lending growth of $340.2 million, or 168.8%
Canada Direct Lending growth of $104.4 million, or 30.4%; and
U.S. gross combined loans receivable growth of $2.1 million, or 0.9%, excluding Heights Finance. U.S. year-over-year growth was affected by the Runoff Portfolios, and additional government stimulus in the first half of 2021. Excluding the Runoff Portfolios and Heights Finance, U.S. gross combined loans receivable grew $52.8 million, or 34.2%.

Sequentially, gross combined loans receivable increased $78.4 million, or 4.9%, primarily driven by Canada POS Lending growth of $82.6 million, or 18.0%, and Canada Direct Lending Revolving LOC growth of $22.1 million, or 5.5%. Gross combined loans receivable performance by product is described further in the following sections.

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)Q1 2022
Q4 2021(1)
Q3 2021Q2 2021Q1 2021
Gross combined loans receivable (2)
Revolving LOC49,07752,53251,19647,27743,387
Installment loans - Company Owned589,652137,782137,987139,234142,396
Total U.S. Company Owned gross loans receivable638,729190,314189,183186,511185,783
Installment loans - Guaranteed by the Company (3)
44,42046,31743,42237,09332,439
Total U.S. gross combined loans receivable (2)
683,149236,631232,605223,604218,222
Lending Revenue:
Revolving LOC26,91327,91127,37724,09126,923
Installment loans - Company Owned113,83356,82057,65955,91864,516
Installment loans - Guaranteed by the Company (3)
48,99147,34843,37734,90841,425
Total U.S. lending revenue189,737132,079128,413114,917132,864
Lending Provision:
Revolving LOC9,57711,5928,1406,6215,039
Installment loans - Company Owned32,96218,61816,79214,04811,159
Installment loans - Guaranteed by the Company (3)
21,74925,96723,14612,5839,648
Total U.S. lending provision64,28856,17748,07833,25225,846
NCO rate (4)
Revolving LOC19.8%22.1%16.9%16.0%20.0%
Installment loans - Company Owned6.0%14.3%14.1%13.2%11.2%
Total U.S. Company Owned NCO rate7.1%16.4%14.8%13.9%13.3%
Installment loans - Guaranteed by the Company (3)
47.4%58.1%53.2%34.6%31.7%
Total U.S. NCO rate14.7%24.4%21.6%17.2%16.2%
ALL and CSO Liability for Losses rate (4)
Revolving LOC26.7 %25.9%26.3%28.9%33.0%
Installment loans - Company Owned4.2 %12.7%13.4%15.3%18.1%
Total U.S. Company Owned ALL rate5.9 %16.3%16.9%18.7%21.6%
Installment loans - Guaranteed by the Company (3)
16.1 %14.9%16.1%14.2%14.6%
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(in thousands, except percentages)Q1 2022
Q4 2021(1)
Q3 2021Q2 2021Q1 2021
Total ALL and CSO Liability for Losses rate6.6 %16.0%16.8%18.0%20.6%
Past-due rate (5)
Revolving LOC29.7 %30.5%30.5%26.6%26.3%
Installment loans - Company Owned19.1 %19.4%20.1%18.7%18.0%
Total U.S. Company Owned past-due rate19.9 %22.5%22.9%20.7%19.9%
Installment loans - Guaranteed by the Company (3)
18.5 %17.7%19.8%17.4%12.8%
(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.
(4) We calculate NCO rate as total NCOs divided by Average gross loans receivables.
(5) We calculate (i) 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.

U.S. Net Revenue

U.S. revenues increased by $61.9 million, or 45.4%, to $198.4 million, for the three months ended March 31, 2022, compared to the prior-year period as a result of our acquisition of Heights Finance, with loan balances in our legacy U.S. business being affected by the Runoff Portfolios. See the loan performance discussions below for further details. Excluding Heights Finance and the impacted Runoff Portfolios, U.S. revenues increased $13.6 million, or 11.9%, year over year.

The provision for losses increased $40.8 million, or 156.5%, year over year, primarily driven by (i) normalized provisioning on loan growth as customer behavior returns to pre-COVID-19 levels, (ii) full quarter provision for our Heights Finance acquisition, and (iii) higher NCO and past-due rates as COVID-19 Impacts lessened compared to the same period in the prior year. Excluding Heights Finance, U.S. NCO and past-due rates, including loans Guaranteed by the Company, increased by 440 bps, or 27.2%, and 240 bps, or 12.7%, respectively, year over year.

U.S. Revolving LOC loan performance

U.S. Revolving LOC loan balances as of March 31, 2022 increased $5.7 million, or 13.1%, compared to the prior year. NCO rates improved 20 bps year over year and 230 bps sequentially. Past-due rates rose 340 bps year over year from COVID-19 Impacts in the prior year and improved 80 bps sequentially.

U.S. Installment loan performance - Company Owned

U.S. Installment loan balances as of March 31, 2022 increased $447.3 million, or 314.1%, and revenue increased $49.3 million, or 76.4%, compared to the prior year, primarily as a result of our acquisition of Heights Finance, partially offset by the Runoff Portfolios. NCO rates improved 500 bps year over year and 820 bps sequentially as a result of Heights Finance. Past-due rates rose 110 bps year over year from COVID-19 Impacts in the prior year and improved sequentially.

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

U.S. Installment loans Guaranteed by the Company increased $12.0 million, or 36.9%, year over year. For the three months ended March 31, 2022, NCO rates increased from 31.7% to 47.4% year over year primarily due to loan growth, and within this growth a shift to more new borrowers versus seasoned borrowers and more online originations versus store-based, both of which carry higher risk in their early stages. Past-due rates rose 575 bps year over year from COVID-19 Impacts in the prior year.

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

Three Months Ended March 31,
(dollars in thousands, unaudited)20222021Change $Change %
Revenue
Interest and fees revenue$189,737 $132,864 $56,873 42.8 %
Insurance premiums and commissions5,001 — 5,001 #
Other revenue3,661 3,628 33 0.9 %
Total revenue198,399 136,492 61,907 45.4 %
Provision for losses66,825 26,056 40,769 #
Net revenue131,574 110,436 21,138 19.1 %
Operating expenses
Salaries and benefits59,661 41,510 18,151 43.7 %
Occupancy10,934 8,535 2,399 28.1 %
Advertising9,262 7,141 2,121 29.7 %
Direct operations13,674 9,123 4,551 49.9 %
Depreciation and amortization4,559 3,126 1,433 45.8 %
Other operating expense12,851 10,458 2,393 22.9 %
Total operating expenses110,941 79,893 31,048 38.9 %
Other expense (income)
Interest expense27,685 16,358 11,327 69.2 %
Income from equity method investment(1,584)(546)(1,038)#
Total other expense26,101 15,812 10,289 65.1 %
Segment operating (loss) income(5,468)14,731 (20,199)#
Interest expense27,685 16,358 11,327 69.2 %
Depreciation and amortization4,559 3,126 1,433 45.8 %
EBITDA (1)
26,776 34,215 (7,439)(21.7)%
Restructuring costs1,069 — 1,069 
Legal and other costs87 — 87 
Income from equity method investment(1,584)(546)(1,038)
Transaction costs168 3,160 (2,992)
Acquisition-related adjustments— 
Share-based compensation3,503 2,683 820 
Other adjustments(245)(246)
Adjusted EBITDA (1)
29,777 39,266 (9,489)(24.2)%
# - Variance greater than 100% or not meaningful.
(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."

U.S. Segment Results - For the Three Months Ended March 31, 2022 and 2021

For a discussion of revenue, provision for losses and related gross combined loans receivables for the three months ended March 31, 2022 and 2021, see "U.S. Portfolio Performance," above.

Operating expenses for the three months ended March 31, 2022 were $110.9 million, an increase of $31.0 million, or 38.9%, compared to $79.9 million for the three months ended March 31, 2021, primarily driven by $33.8 million of operating expenses associated with Heights Finance.

U.S. interest expense for the three months ended March 31, 2022 increased $11.3 million, or 69.2%, primarily driven by interest on debt assumed in the acquisition of Heights Finance, (ii) interest expense on the additional $250.0 million issuance of 7.50% Senior Secured Notes, and (iii) higher interest expense on the U.S. SPV facility.

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As previously described, we recognize our share of Katapult’s income or loss on a one-quarter lag. We recorded income of $1.6 million for the three months ended March 31, 2022. We own 25.2% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares as of March 31, 2022.

Canada Direct Lending Portfolio Performance
(in thousands, except percentages)Q1 2022Q4 2021Q3 2021Q2 2021Q1 2021
Gross loans receivable
Revolving LOC424,485402,405366,509337,700319,307
Installment loans 23,57824,79224,31523,56424,385
Total gross loans receivable448,063427,197390,824361,264343,692
Lending Revenue:
Revolving LOC45,45543,94340,23937,45034,368
Installment loans 11,10911,41611,33110,54110,447
Total lending revenue56,56455,35951,57047,99144,815
Lending Provision:
Revolving LOC$19,15620,08011,3757,0667,909
Installment loans2,7232,9452,5121,4381,234
Total lending provision21,87923,02513,8878,5049,143
NCO rate (1)
Revolving LOC5.2%3.9%2.8%3.3%3.6%
Installment loans10.9%11.2%10.2%6.3%6.5%
Total NCO rate5.5%4.4%3.3%3.5%3.8%
ALL rate (2)
Revolving LOC7.2 %8.0 %7.5 %7.9 %9.4 %
Installment loans8.8 %8.0 %7.4 %7.5 %7.5 %
Total ALL rate7.3 %8.0 %7.5 %7.9 %9.2 %
Past-due rate (2)
Revolving LOC8.0 %8.9 %6.8 %5.8 %6.4 %
Installment loans2.0 %2.2 %2.0 %2.3 %2.1 %
Total past-due rate7.7 %8.5 %6.5 %5.5 %6.1 %
(1) We calculate NCO rate as total NCOs divided by Average gross loans receivables.
(2) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.

Canada Direct Lending Net Revenue

Canada Direct Lending revenue increased year over year by $13.0 million, or 22.3%, ($13.1 million, or 22.4%, on a constant currency basis), for the three months ended March 31, 2022, due to the growth of Revolving LOC loans in Canada.

The provision for losses increased $12.8 million, or 138.2%, ($12.8 million, or 138.3%, on a constant currency basis), to $22.0 million for the three months ended March 31, 2022, compared to $9.2 million in the prior-year period. The increase in provision for losses was primarily driven by (i) normalized provisioning on loan growth as customer behavior returns to pre-COVID-19 levels, and (ii) higher NCO and past-due rates as COVID-19 Impacts lessened compared to the same period in the prior year.

Canada Direct Lending Revolving LOC loan performance

Canada Direct Lending Revolving LOC gross loans receivable increased $105.2 million, or 32.9%, ($103.0 million, or 32.3%, on a constant currency basis) year over year and $22.1 million, or 5.5% ($15.1 million, or 3.7%, on a constant currency basis) sequentially. Revolving LOC revenue increased $11.1 million, or 32.3%, year over year and $1.5 million, or 3.4%, sequentially
39



($11.1 million, or 32.3%, and $1.7 million, or 4.0%, respectively, on a constant currency basis). The quarterly NCO rate increased year over year from 3.6% to 5.2% as of March 31, 2022 and from 3.9% to 5.2% as of March 31, 2022 as COVID-19 Impacts lessened compared to the same period in the prior year. Past-due rates rose 160 bps year over year but improved 80 bps sequentially.

Canada Direct Lending Installment loan performance

Canada Direct Lending Installment revenue increased $0.7 million, or 6.3%, ($0.7 million, or 6.4%, on a constant currency basis) year over year. Installment gross loans receivable decreased $0.8 million, or 3.3% ($0.9 million, or 3.8%, on a constant currency basis) year over year. The year-over-year decrease in Installment loans was due to a continued shift to Revolving LOC loans. The NCO rate increased year over year from 6.5% to 10.9% as of March 31, 2022 as COVID-19 Impacts lessened compared to the same period in the prior year. The year-over-year and sequential past-due rate for Installment loans remained consistent.

Canada Direct Lending Results of Operations

Three Months Ended March 31,
(dollars in thousands, unaudited)20222021Change $Change %
Revenue
Interest and fees revenue$56,564 $44,815 $11,749 26.2 %
Insurance premiums and commissions13,023 11,569 1,454 12.6 %
Other revenue1,901 2,056 (155)(7.5)%
Total revenue71,488 58,440 13,048 22.3 %
Provision for losses21,992 9,234 12,758 #
Net revenue49,496 49,206 290 0.6 %
Operating expenses
Salaries and benefits13,398 12,287 1,111 9.0 %
Occupancy5,877 5,802 75 1.3 %
Advertising938 904 34 3.8 %
Direct operations2,853 2,118 735 34.7 %
Depreciation and amortization1,123 1,126 (3)(0.3)%
Other operating expense2,832 2,367 465 19.6 %
Total operating expenses27,021 24,604 2,417 9.8 %
Other expense
Interest expense4,030 2,355 1,675 71.1 %
Total other expense4,030 2,355 1,675 71.1 %
Segment operating income18,445 22,247 (3,802)(17.1)%
Interest expense4,030 2,355 1,675 71.1 %
Depreciation and amortization1,123 1,126 (3)(0.3)%
EBITDA (1)
23,598 25,728 (2,130)(8.3)%
Share-based compensation115 — 115 #
Other adjustments87 41 46 
Adjusted EBITDA (1)
23,800 25,769 (1,969)(7.6)%
# - Variance greater than 100% or not meaningful.
(1) These are non-GAAP metrics. For a description of each non-GAAP addback, see the applicable reconciliations contained under "Results of Consolidated Operations." For a description of each non-GAAP metric, see "Non-GAAP Financial Measures."

40



Canada Direct Lending Segment Results - For the Three Months Ended March 31, 2022 and 2021
For a discussion of revenue, provision for losses and related gross combined loans receivables for the three months ended March 31, 2022 and 2021, see "Canada Direct Lending Portfolio Performance" above.

Canada Direct Lending operating expenses were $27.0 million for the three months ended March 31, 2022, an increase of $2.4 million, or 9.8%, ($2.4 million, or 9.9%, on a constant currency basis), compared to the prior year, primarily due to higher variable costs, primarily collection and financial service fees, on higher volume year over year.

Interest expense for the three months ended March 31, 2022 was $4.0 million compared to $2.4 million for the three months ended March 31, 2021 due to higher utilization of the Canada SPV facility.

Canada POS Lending Portfolio Performance

(in thousands, except percentages)Q1 2022Q4 2021Q3 2021Q2 2021Q1 2021
Revolving LOC
Total gross loans receivable541,776459,176302,349221,453201,539
Total lending revenue18,65513,70410,6466,4951,383
Total lending provision8,71412,5118,2852,986855
NCO rate (1)(2)
0.5 %0.5 %0.7 %0.7 %
NM (3)
ALL rate (4)
5.1 %4.8 %3.8 %2.1 %0.3 %
Past-due rate (4)(5)
4.2 %4.1 %4.8 %5.4 %5.7 %
(1) For the second, third and fourth quarters of 2021, NCOs presented above include $2.4 million, $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 receivables.
(3) Not material or not meaningful.
(4) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable (excluding the fair value discount on acquired loans) at each respective quarter end.
(5) The past-due rate for Canada POS Lending for loans 31+ days past-due were 2.2%, 1.9%, 2.1%, 2.6% and 3.0% for the three months ended March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively.

Canada POS Lending Revolving LOC loan performance

Canada POS Lending revenue increased year over year by $18.7 million driven by (i) a full quarter of revenue as of March 31, 2022 compared to a partial quarter in the prior year, and (ii) year-over-year loan growth of $340.2 million, or 168.8%. The increase in gross loans receivables were driven by new merchant partners throughout 2021, the most notable being LFL, Canada's largest home furnishings retailer. Revolving LOC gross loans receivable generally charge-off at 180 days past due. The NCO and past-due rates for the quarter were 0.5% and 4.2%, respectively, and remained consistent sequentially. Past-due rates improved year over year by 140 bps.

Originations for the three months ended March 31, 2022 were C$255.3 million, an increase of C$170.3 million, or 200.2%, from the prior-year period of C$85.0 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $82.6 million, or 18.0%.

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Canada POS Lending Results of Operations
Three Months Ended March 31,
(dollars in thousands, unaudited)2022
2021 (1)
Revenue
Interest and fees revenue$18,655 $1,444 
Insurance premiums and commissions236 — 
Other revenue1,418 175 
Total revenue20,309 1,619 
Provision for losses8,714 855 
Net revenue11,595 764 
Operating expenses
Salaries and benefits6,670 1,120 
Occupancy226 10 
Advertising300 39 
Direct operations3,747 728 
Depreciation and amortization4,132 713 
Other operating expense429 127 
Total operation expenses15,504 2,737 
Other expense
Interest expense6,626 826 
Total other expense6,626 826 
Segment operating loss(10,535)(2,799)
Interest expense6,626 826 
Depreciation and amortization4,132 713 
EBITDA (2)
223 (1,260)
Acquisition-related adjustments218 — 
Change in fair value of contingent consideration(264)— 
Share-based compensation475 — 
Other adjustments70 — 
Adjusted EBITDA (2)
722 (1,260)
# - Variance greater than 100% or not meaningful.
(1) The totals reported for the quarter ended March 31, 2021 include results from the date of acquisition, March 10, 2021, through March 31, 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 March 31, 2022 and 2021

A comparison of the year-over-year results for the three months ended March 31, 2022 compared to March 31, 2021 are not meaningful as we acquired Flexiti as of March 10, 2021. For a discussion of revenue, provision for losses and related gross loans receivables, see the "Canada POS Lending Portfolio Performance," above for the three months ended March 31, 2022.

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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 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, adjustments related to acquisition accounting, share-based compensation, intangible asset amortization 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);
Adjusted effective income tax rate (effective tax rate plus or minus certain non-cash and other adjusting items); and
Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in the Consolidated Financial Statements).

We believe that 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.

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.
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As noted above, Gross Combined Loans Receivable includes loans originated by third-party lenders through CSO programs which are not included in the consolidated financial statements but from which we earn revenue and for which we provide a guarantee to the lender. Management believes this analysis 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
March 31,
20222021Change $Change %
Net income1,336 25,735 (24,399)(95)%
Adjustments:
Restructuring costs (1)
1,069 — 
Legal and other costs (2)
87 — 
Income from equity method investment (3)
(1,584)(546)
Transaction costs (4)
168 3,160 
Acquisition-related adjustments (5)
221 — 
Change in fair value of contingent consideration (6)
(264)— 
Share-based compensation (7)
4,093 2,683 
Intangible asset amortization (8)
2,977 831 
Cumulative tax effect of adjustments (9)
(1,828)(1,735)
Adjusted Net Income6,275 30,128 (23,853)(79.2)%
Net income$ 1,336 $ 25,735 
Diluted Weighted Average Shares Outstanding41,308 43,596 
Adjusted Diluted Weighted Average Shares Outstanding41,308 43,596 
Diluted Earnings per Share0.03 0.59 (0.56)(94.9)%
Per Share impact of adjustments to Net income0.12 0.10 
Adjusted Diluted Earnings per Share0.15 0.69 (0.54)(78.3)%
Note: Footnotes follow Reconciliation of Net income table on the next page

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Reconciliation of Net Income to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands, except per share data, unaudited)
Three Months Ended
March 31,
20222021Change $Change %
Net income1,336 25,735 (24,399)(94.8)%
Provision for income taxes1,106 8,444 (7,338)(86.9)%
Interest expense38,341 19,539 18,802 96.2 %
Depreciation and amortization9,814 4,965 4,849 97.7 %
EBITDA50,597 58,683 (8,086)(13.8)%
Restructuring costs (1)
1,069 — 
Legal and other costs (2)
87 — 
Income from equity method investment (3)
(1,584)(546)
Transaction costs (4)
168 3,160 
Acquisition-related adjustments (5)
221 — 
Change in fair value of contingent consideration (6)
(264)— 
Share-based compensation (7)
4,093 2,683 
Other adjustments (10)
(88)(205)
Adjusted EBITDA54,299 63,775 (9,476)(14.9)%
Adjusted EBITDA Margin18.7 %32.4 %
# - Change greater than 100% or not meaningful

(1)Restructuring costs for the three months ended March 31, 2022 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 months ended March 31, 2022 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, recognized on a one quarter lag.
(4)
Transaction costs for the three months ended March 31, 2022 relate to our Heights Finance acquisition in December 2021.

Transaction costs for the three months ended March 31, 2021 relate to the acquisition of Flexiti in March 2021.
(5)During the three months ended March 31, 2022, $0.2 million of acquisition-related adjustments relate to the acquired Flexiti loan portfolio as of March 10, 2021.
(6)In connection with our acquisition of Flexiti, we recorded a $0.3 million adjustment related to the fair value of the contingent consideration for the three months ended March 31, 2022.
(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 the determining ANI for the three months ended March 31, 2022 primarily included amortization of identifiable intangible assets established in connection with the acquisitions of Flexiti and Heights Finance.
(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)Other adjustments primarily reflect the intercompany foreign-currency exchange impact.

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 March 31, 2022 and 2021, 31.6% and 30.6%, respectively, of our revenues were originated in Canada. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar.

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Income Statement
Three Months Ended March 31,
20222021$ Change% Change
Average Exchange Rates for the Canadian Dollar0.7893 0.7897 (0.0004)(0.1)%

Balance Sheet - Exchange Rate as of March 31, 2022 and December 31, 2021
March 31,December 31,Change
20222021$%
Exchange Rate for the Canadian Dollar0.7978 0.7846 0.0132 1.7 %

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 months ended March 31, 2022 using the actual average exchange rate during the three months ended March 31, 2021 (in thousands, unaudited).
Three Months Ended March 31,
20222021$ Change% Change
Canada Direct Lending – constant currency basis:
Revenues$71,515 $58,440 $13,075 22.4 %
Net revenue49,513 49,206 307 0.6 %
Segment operating income18,450 22,247 (3,797)(17.1)%
Canada POS Lending – constant currency basis(1):
Revenues$20,319 $1,619 $18,700 1,155.0 %
Net revenue11,600 764 10,836 1,418.3 %
Segment operating income(10,539)(2,799)(7,740)276.5 %
(1) The totals reported for the quarter ended March 31, 2021 include results from the date of acquisition, March 10, 2021, through March 31, 2021.

We calculated gross loans receivable for our Canada segments below as of March 31, 2022 using the actual exchange rate as of December 31, 2021 (in thousands, unaudited).
March 31,December 31,Change
20222021$%
Canada Direct Lending – constant currency basis:
Gross loans receivable$440,665 $427,197 $13,468 3.2 %
Canada POS Lending – constant currency basis:
Gross loans receivable$532,830 $459,176 $73,654 16.0 %

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations, (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, and (iii) funds from third-party lenders under our CSO programs.

As of March 31, 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. In the first quarter of 2021, our Board of Directors increased the quarterly dividend to $0.11 per share, an increase of 100%. Additionally, in
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May 2021 our Board of Directors authorized a $50.0 million share repurchase program which concluded in February 2022. A new $25.0 million share repurchase program was authorized in February 2022, which will commence at our discretion. 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 facility or line 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 $60.2 million and our total liquidity of $117.7 million as of March 31, 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 Flexiti and Heights Finance have increased our product offerings to include customers in the near-prime and prime space. The acquisition of Flexiti allows us to tailor our current product structure to its POS model, potentially expanding to sub-prime customers. The acquisition of 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 can 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" 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)

CapacityInterest RateMaturityCounterpartiesBalance as of March 31, 2022 (in USD)
7.50% Senior Secured Notes (due 2028) (2)
$1.0 billion7.50%August 1, 2028981,156 
Senior Secured Revolving Credit Facility$50.0 million
1-Mo LIBOR + 5.00%
June 30, 2022BayCoast Bank; Stride Bank; Hancock-Whitney Bank; Metropolitan Commercial Bank20,000 
U.S. SPV$200.0 million
1-Mo LIBOR + 6.25%
April 8, 2024Atalaya Capital Management, MetaBank45,843 
Heights Finance SPV
$350.0 million
1-Mo LIBOR + 5.25%
December 31, 2024Ares Capital324,224 
Canada SPV(1)
C$400.0 million
3-Mo CDOR + 6.00%
August 2, 2026Waterfall Asset Management240,661 
Flexiti SPE(1)
C$500.0 million
3-Mo CDOR + 4.40%
March 10, 2024Credit Suisse (Class A); SPF (Class B)234,754 
Flexiti Securitization(1)
C$526.5 million
1-Mo CDOR + 3.59%
December 9, 2025National Bank of Canada; Precision Trust, an affiliate of the Bank of Montreal; and WF Torca, Ltd., a fund managed by Waterfall Asset Management243,447 
CURO Canada Revolving Credit Facility (1)
C$10.0 million
Canada Prime Rate +1.95%
On-demandRoyal Bank of Canada— 
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of March 31, 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.

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

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Cash Flows

The following highlights our cash flow activity and the sources and uses of funding during the periods indicated (in thousands):
Three Months Ended March 31,
20222021
Net cash provided by operating activities$83,733 $110,492 
Net cash used in investing activities(187,670)(163,618)
Net cash provided by (used in) financing activities110,322 (65)

As previously described, year-over-year comparisons were impacted by COVID-19 Impacts and the Runoff Portfolios from regulatory changes.

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2022 was $83.7 million, attributable to net income of $1.3 million, the effect of non-cash reconciling items of $107.5 million, and changes in our operating assets and liabilities of $25.1 million. Our non-cash reconciling items of $107.5 million primarily included $97.5 million of provision for losses and $9.8 million of depreciation and amortization. Our changes in operating assets and liabilities of $25.1 million were primarily related to (i) $41.6 million of lower accounts payable and accrued liabilities as a result of timing on the settlement of certain accruals, and (ii) $18.5 million of lower accrued interest on the 7.50% Senior Secured Notes related to timing of interest payments, partially offset by $28.5 million of lower accrued interest on our gross loans receivable.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 was $187.7 million, primarily due to net origination of loans of $176.3 million. In addition, we used cash to purchase $11.4 million of property, equipment and software, an increase from last year due to the acquisitions of Flexiti and Heights Finance.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2022 was $110.3 million. Net cash provided by financing activities included (i) $111.2 million of net proceeds from our non-recourse debt facilities and (ii) $20.0 million draw on our Senior Revolver, partially offset by (i) $13.5 million of share repurchases in the first quarter of 2022 and (ii) $4.8 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 for the year ended December 31, 2021.

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 disposition 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 March 31, 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
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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 March 31, 2022:
(in thousands)March 31, 2022Percent of TotalDecember 31, 2021Percent of Total
U.S.$359,779 83.5 %$359,779 83.7 %
Canada Direct Lending (1)
30,610 7.1 %30,105 7.0 %
Canada POS Lending (1)
40,578 9.4 %39,908 9.3 %
Total Goodwill$430,967 $429,792 
(1) Changes in Goodwill between December 31, 2021 and March 31, 2022 are due to fluctuations in foreign exchange rates. Refer to Note 13, "Goodwill" for additional details.

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.

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.

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In conducting the evaluation of the effectiveness of its internal control over financial reporting as of March 31, 2022, the Company has excluded the operations of Heights Finance 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 March 31, 2022, Heights Finance's assets represented approximately 20.9% of the Company’s consolidated assets and for the three months ended March 31, 2022, its revenues represented approximately 22.6% of the Company’s consolidated revenues.

See Note 14, "Acquisitions" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details on our acquisition of Heights Finance 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 March 31, 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 into its overall internal control over financial reporting processes. Additionally, on March 10, 2021, the Company acquired Flexiti. See Note 14, "Acquisitions" 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 March 31, 2022. Except for changes made in connection with the integration of Heights Finance and Flexiti, 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 March 31, 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.

The following table provides information with respect to purchases we made of our common stock during the quarter ended March 31, 2022.

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Period
Total Number of Shares Purchased(1)(2)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Dollar Value of Shares that may yet be Purchased under the Plans or Programs(3)
(in millions)
January 2022765,602 $15.23 642,135 $2.6 
February 2022184,573 $14.08 182,342 $— 
March 202285,145 $11.82 — $— 
Total1,035,320 $14.75 824,477 
(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.
(2) All shares purchased as part of a publicly announced plan were purchased under the 2021 Repurchase Program, described in this Item 2.
(3) As of the end of the period.

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.
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Item 6.        Exhibits
Exhibit no.Exhibit DescriptionFiled/Incorporated by Reference from FormIncorporated by Reference from Exhibit NumberFiling Date
3.110-Q10.18/5/2020
3.28-K3.212/11/17
4.1S-14.111/28/17
4.2S-14.211/28/17
4.3S-14.35/17/18
4.410-K4.43/9/20
31.1 Filed herewith
31.2 Filed herewith
32.1 Filed herewith
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The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2022, filed with the SEC on May 3, 2022, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, and (v) Notes to Condensed Consolidated Financial Statements*
Filed herewith




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Signature

Pursuant to the requirements of Section 13 or 15(d) 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: May 2, 2022                CURO Group Holdings Corp.
By:/s/ Roger Dean
Roger Dean
Executive Vice President and Chief Financial Officer
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