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CURO Group Holdings Corp. - Quarter Report: 2023 June (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 June 30, 2023
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.)
200 W Hubbard Street, 8th Floor, Chicago, IL
60654
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (312) 470-2000
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 July 28, 2023 there were 41,249,956 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
1




CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES

FORM 10-Q
SECOND QUARTER ENDED JUNE 30, 2023
INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Exhibits, Financial Statement Schedules
2



GLOSSARY

Terms and abbreviations used throughout this report are defined below.
Term or abbreviationDefinition
2022 Form 10-KAnnual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023
1.0L 18.00% Senior Secured Term Loan
$150.0 million first lien credit facility, executed in May 2023, which matures in August 2027
1.5L 7.50% Senior Secured Notes
$682.3 million of the 7.50% Senior Secured Notes which participated in the May 2023 Exchange Agreement
2.0L 7.50% Senior Secured Notes
$317.7 million aggregate principal amount of the 7.50% Senior Secured Notes which did not participate in the May 2023 Exchange Agreement
7.50% Senior Secured Notes
7.50% Senior Secured Notes, issued in July 2021 for $750.0 million, which mature in August 2028
ABLAsset-Backed Lending
ACLAllowance for credit losses
AOCIAccumulated other comprehensive income (loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
Average gross loans receivableUtilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable
BNPLBuy-Now-Pay-Later
bpsBasis points
C$Canadian dollar
Canada SPV
A revolving credit facility with capacity up to C$400.0 million
Canada SPV II
A revolving credit facility with capacity up to C$110.0 million
CECLAccounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
CDORCanadian Dollar Offered Rate
CODMChief Operating Decision Maker
CSOCredit services organization
CURO CanadaCURO Canada Corp., a wholly-owned Canadian subsidiary of the Company
DTADeferred Tax Asset
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
First HeritageFirst Heritage Credit, LLC, a wholly-owned U.S. subsidiary of the Company, which we acquired in July 2022
First Heritage SPVA revolving credit facility with capacity up to $225.0 million
FlexitiFlexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021
Flexiti Securitization
A revolving credit facility with capacity up to C$526.5 million
Flexiti SPV
A revolving credit facility with capacity up to C$535.0 million
Form 10-Q
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2023
HeightsSouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of
the Company, which we acquired in December 2021
Heights SPV
A revolving credit facility with capacity up to $425.0 million
KatapultKatapult Holdings, Inc., a lease-to-own platform for online, brick and mortar and omni-channel retailers
Legacy U.S. Direct Lending BusinessU.S. Direct Lending operating under the Speedy Cash, Rapid Cash and Avio Credit brands, sold to Community Choice Financial in July 2022
May 2023 Exchange AgreementExchange Agreement, dated as of May 15, 2023, by and among the Company, the obligors and holders identified therein
NCONet charge-off; which equals total charge-offs less total recoveries
POSPoint-of-sale
ROURight of use
3



Term or abbreviationDefinition
RSURestricted Stock Unit
SECSecurities and Exchange Commission
Senior Revolver
Senior Secured Revolving Loan Facility with borrowing capacity of $40.0 million, which was paid off by proceeds from the 1.0L 18.0% Senior Secured Term Loan in May 2023
SOFRSecured Overnight Financing Rate
SPVSpecial Purpose Vehicle
SRCSmaller Reporting Company as defined by the SEC
TDRTroubled Debt Restructuring
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the U.S.
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)
June 30, 2023 (unaudited)
December 31,
2022
ASSETS
Cash and cash equivalents$112,531 $73,932 
Restricted cash (includes restricted cash of consolidated VIEs of $75,298 and $52,277 as of June 30, 2023 and December 31, 2022, respectively)
109,484 91,745 
Gross loans receivable (includes loans of consolidated VIEs of $2,049,735 and $1,964,275 as of June 30, 2023 and December 31, 2022, respectively)
2,139,865 2,087,833 
Less: Allowance for credit losses (includes allowance for credit losses of consolidated VIEs of $257,506 and $108,451 as of June 30, 2023 and December 31, 2022, respectively)
(272,615)(122,028)
Loans receivable, net
1,867,250 1,965,805 
Income taxes receivable20,854 21,918 
Prepaid expenses and other (includes prepaid expenses and other of consolidated VIEs of $15,702 and $12,908 as of June 30, 2023 and December 31, 2022, respectively)
44,518 53,057 
Property and equipment, net28,418 31,957 
Investment in Katapult18,368 23,915 
Right of use asset - operating leases56,021 61,197 
Deferred tax assets (includes deferred tax assets of consolidated VIEs of $22,082 and $17,027 as of June 30, 2023 and December 31, 2022, respectively)
54,102 49,893 
Goodwill277,069 276,269 
Intangibles, net133,947 123,677 
Other assets22,275 15,828 
Total Assets$2,744,837 $2,789,193 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Liabilities
Accounts payable and accrued liabilities (includes accounts payable and accrued liabilities of consolidated VIEs of $11,338 and $13,571 as of June 30, 2023 and December 31, 2022, respectively)
$78,343 $73,827 
Deferred revenue (includes deferred revenue of consolidated VIEs of $28 and $31 as of June 30, 2023 and December 31, 2022, respectively)
36,793 32,259 
Lease liability - operating leases56,585 62,847 
Contingent consideration related to acquisition18,499 16,884 
Income taxes payable 788 — 
Accrued interest (includes accrued interest of consolidated VIEs of $7,974 and $7,023 as of June 30, 2023 and December 31, 2022, respectively)
39,306 38,460 
Debt (includes debt and issuance costs of consolidated VIEs of $1,663,513 and $23,058 as of June 30, 2023 and $1,609,427 and $20,047 as of December 31, 2022, respectively)
2,772,872 2,607,314 
Other long-term liabilities10,016 11,736 
Deferred tax liabilities— 
Total Liabilities3,013,210 2,843,327 
Commitments and contingencies (Note 7)
Stockholders' (Deficit) 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; 50,840,136 and 50,216,165 shares issued; and 41,142,023 and 40,518,052 shares outstanding at the respective period ends
23 23 
Treasury stock, at cost - 9,698,113 shares
(136,832)(136,832)
Paid-in capital127,939 124,483 
(Accumulated deficit)/retained earnings(227,900)4,268 
Accumulated other comprehensive loss(31,603)(46,076)
Total Stockholders' Deficit(268,373)(54,134)
Total Liabilities and Stockholders' (Deficit) Equity$2,744,837 $2,789,193 
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
5




ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenue
Interest and fees revenue$178,986 $278,331 $358,423 $543,287 
Insurance and other income30,257 26,073 60,293 51,313 
Total revenue209,243 304,404 418,716 594,600 
Provision for losses79,598 129,546 142,530 227,077 
Net revenue129,645 174,858 276,186 367,523 
Operating Expenses
Salaries and benefits61,346 82,427 126,151 162,156 
Occupancy11,267 17,507 22,939 34,544 
Advertising2,131 12,707 4,306 23,207 
Direct operations15,466 20,293 28,558 40,567 
Depreciation and amortization9,141 8,672 18,162 18,486 
Other operating expense8,796 18,787 26,229 35,163 
Total operating expenses108,147 160,393 226,345 314,123 
Other expense (income)
Interest expense66,101 42,193 125,044 80,534 
Loss (gain) from equity method investment2,134 1,328 5,547 (256)
Extinguishment or modification of debt costs8,864 — 8,864 — 
Loss on change in fair value of contingent consideration— 4,014 2,728 3,750 
Gain on sale of business— — 2,027 — 
Miscellaneous expenses1,435 — 1,435 — 
Total other expense 78,534 47,535 145,645 84,028 
Loss before income taxes(57,036)(33,070)(95,804)(30,628)
Provision (benefit) for income taxes2,291 (6,990)22,994 (5,884)
Net loss $(59,327)$(26,080)$(118,798)$(24,744)
Basic loss per share:
Basic loss per share$(1.45)$(0.65)$(2.91)$(0.61)
Diluted loss per share$(1.45)$(0.65)$(2.91)$(0.61)
Weighted average common shares outstanding:
Basic41,002 40,376 40,893 40,372 
Diluted41,002 40,376 40,893 40,372 

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
6




ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net loss $(59,327)$(26,080)$(118,798)$(24,744)
Other comprehensive income (loss), net of tax:
Change in derivative instruments designated as cash flow hedges, net of tax8,836 — 6,086 — 
Foreign currency translation adjustment, net of tax8,357 (10,520)8,387 (3,887)
Other comprehensive income (loss), net of tax17,193 (10,520)14,473 (3,887)
Comprehensive loss$(42,134)$(36,600)$(104,325)$(28,631)

See accompanying Notes to unaudited Condensed Consolidated Financial Statements.

7




ITEM 1. FINANCIAL STATEMENTS
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY
(in thousands, except share data)
(unaudited)
Common StockTreasury Stock, at costPaid-in capitalRetained Earnings (Deficit)AOCITotal Stockholders' Deficit
Shares OutstandingPar Value
Balances at December 31, 2022
40,518,052 $23 (136,832)124,483 4,268 (46,076)(54,134)
Cumulative effect of Adoption of ASU 2016-13, net of tax
— — — — (113,019)— (113,019)
Net loss— — — — (59,471)— (59,471)
Other comprehensive loss, net of tax— — — — — (2,720)(2,720)
Dividends— — — — (326)— (326)
Share-based compensation expense— — — 1,636 — — 1,636 
Net settlement of share-based awards441,995 — — (782)— — (782)
Balances at March 31, 202340,960,047 $23 (136,832)125,337 (168,548)(48,796)(228,816)
Net loss— — — — (59,327)— (59,327)
Other comprehensive income, net of tax— — — — — 17,193 17,193 
Dividends— — — — (25)— (25)
Share-based compensation expense— — — 2,618 — — 2,618 
Net settlement of share-based awards181,976 — — (16)— — (16)
Balances at June 30, 2023
41,142,023 $23 (136,832)127,939 (227,900)(31,603)(268,373)

Common StockTreasury Stock, at costPaid-in capitalRetained Earnings AOCITotal 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 
Other comprehensive income, net of tax— — — — — 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, 202240,348,782 $23 $(136,832)$115,329 $200,012 $(25,745)$152,787 
Net loss— — — — (26,080)— (26,080)
Other comprehensive loss, net of tax— — — — — (10,520)(10,520)
Dividends— — — — (4,434)— (4,434)
Share-based compensation expense— — — 4,415 — — 4,415 
Common stock issued for RSUs vesting, net of shares withheld and withholding paid for employee taxes108,969 — — (588)— — (588)
Balance at June 30, 2022
40,457,751 $23 $(136,832)$119,156 $169,498 $(36,265)$115,580 

See the 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)
Six Months Ended
June 30,
20232022
Cash flows from operating activities:
Net loss$(118,798)$(24,744)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization18,162 18,487 
Provision for losses142,530 227,077 
Amortization of debt issuance costs and bond discount8,799 4,302 
Extinguishment or modification of debt costs8,864 — 
Deferred income tax benefit17,489 (679)
(Gain) loss on disposal of property and equipment(20)37 
Loss (gain) from equity method investment5,547 (256)
Change in fair value of contingent consideration2,728 3,750 
Share-based compensation 4,254 8,509 
Changes in operating assets and liabilities:
Accrued interest on loans receivable(35,060)10,677 
Prepaid expenses and other assets8,004 (16)
Accounts payable and accrued liabilities(5,835)(36,460)
Deferred revenue4,534 6,105 
Income taxes payable778 (979)
Income taxes receivable1,064 (14,739)
Accrued interest846 730 
Other long-term liabilities(2,081)(592)
Net cash provided by operating activities61,805 201,209 
Cash flows from investing activities:
Purchase of property, equipment and software(21,840)(22,249)
Loans receivable originated or acquired(810,037)(1,076,961)
Loans receivable repaid737,285 613,718 
Divestiture of Legacy U.S. Direct Lending Business, net of cash provided(2,027)— 
Net cash used in investing activities(96,619)(485,492)
Cash flows from financing activities
Proceeds from SPV facilities217,796 640,931 
Payments on SPV facilities(215,463)(340,903)
Debt issuance costs paid(27,722)(587)
Proceeds from credit facilities155,000 69,304 
Payments on credit facilities(40,000)(69,193)
Payments to net share settle equity awards(798)(2,872)
Repurchase of common stock— (13,531)
Dividends paid to stockholders(351)(9,226)
Net cash provided by financing activities88,462 273,923 
Effect of exchange rate changes on cash, cash equivalents and restricted cash2,690 1,299 
Net increase (decrease) in cash, cash equivalents and restricted cash56,338 (9,061)
Cash, cash equivalents and restricted cash at beginning of period165,677 162,075 
Cash, cash equivalents and restricted cash at end of period$222,015 $153,014 














See the accompanying Notes to unaudited Condensed Consolidated Financial Statements
9


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 June 30, 2023 and 2022 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows (in thousands):

June 30,
20232022
Cash and cash equivalents$112,531 $37,394 
Restricted cash (includes restricted cash of consolidated VIEs of $75,298 and $54,728 as of June 30, 2023 and June 30, 2022, respectively)
109,484 97,465 
Cash classified as held for sale ($10,240 cash and cash equivalents and $7,915 restricted cash)
— 18,155 
Total cash, cash equivalents and restricted cash used in the Statement of Cash Flows$222,015 $153,014 
See accompanying Notes to unaudited Condensed Consolidated Financial Statements.
10



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 customers in the U.S. and Canada for over 25 years. Our roots in the consumer finance market run deep. We have worked diligently to provide customers a variety of convenient, easily accessible financial services. Our decades of alternative data power a hard-to-replicate underwriting and scoring engine, mitigating risk across the full spectrum of credit products.

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 2022 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, 2023.

While certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. Additionally, the Company qualifies as an SRC, which allows registrants to report information under scaled disclosure requirements. SRC status is determined on an annual basis as of June 30th. The Company met the definition of an SRC as of June 30, 2023 and will evaluate its status as of June 30, 2024.

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.

Revised Presentation

Beginning January 1, 2023, the Company began reporting "Insurance and other income" in place of the previously reported "Insurance premiums and commissions" and "Other revenue" line items in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.

Beginning September 30, 2022, the Company began reporting "Loss (gain) on change in fair value of contingent consideration" separately on the unaudited Condensed Consolidated Statements of Operations compared to historical presentation within Other operating expense. Prior period amounts have been reclassified to conform with current period presentation.

Beginning January 1, 2023, the Company renamed the previously reported Allowance for loan losses to Allowance for credit losses on the unaudited Condensed Consolidated Statements of Operations. 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 First Heritage, which we acquired on July 13, 2022. Refer to Note 13, "Acquisitions and Divestiture" for further disclosures related to this 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 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 ACL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, estimated tax liabilities and the accounting for acquisitions. Actual results may differ from those estimates.

Allowance for Credit Losses

11



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The FASB has changed the impairment model for estimating credit losses on financial assets. The previous incurred loss impairment model required the recognition of credit losses when it was probable that a loss had been incurred. The incurred loss model was replaced by the CECL model, which requires entities to estimate the lifetime expected credit loss on financial instruments and to record an allowance to offset the amortized cost basis of the financial asset. The CECL model requires earlier recognition of credit losses as compared to the incurred loss approach. The Company adopted this standard effective January 1, 2023. The initial impact of adoption was a $100.0 million increase to accumulated deficit ($135.2 million increase to the ACL, net of $35.2 million in taxes). For the three months ended March 31, 2023, we recorded a valuation allowance against the U.S. DTAs. See Note 8 - Income Taxes for further information. As a result, the Company decreased the tax impact to Accumulated deficit by $13.0 million as a result of the valuation allowance for the three months ended March 31, 2023. As of adoption on January 1, 2023, the impact of CECL was recorded as a $113.0 million increase to Accumulated deficit ($135.2 million increase to the ACL, net of $22.2 million in taxes). The ACL on gross loans receivables reduces the outstanding gross loans receivables balance in the unaudited Condensed Consolidated Balance Sheets. After adoption, all changes in the ACL, net of charge-offs and recoveries, are recorded as “Provision for losses” in the unaudited Condensed Consolidated Statements of Operations.

The ACL is based on an analysis of historical loss, charge-off rates and recoveries. The Company also considers delinquency trends, impact of new loan products, changes to underwriting criteria or lending policies, changes in jurisdictional regulations or laws, recent credit trends and reasonable and supportable economic forecasts, which cover the life of the loan. The Company will also adjust for quantitative and qualitative factors that are not fully reflected in the historical data. If a loan is deemed to be uncollectible before it is fully reserved based on received information (e.g., receipt of customer bankruptcy notice or death), the Company charges off the loan at that time. The Company charges credit losses, including accrued interest, against the allowance when the account reaches 180 days contractually delinquent, subject to certain exceptions. Any recoveries on loans previously charged to the ACL are credited to the ACL when collected.

The Company selected a static pool Probability of Default (“PD”) / Loss Given Default (“LGD”) / Exposure at Default ("EAD") model to estimate its base allowance for credit losses, in which the estimated loss is equal to the product of PD, LGD and EAD. Historical static pools of net loans receivables are tracked over the term of the pools to identify the probability of loss (PD) and the average size of losses, net of recoveries (LGD and EAD).

As loans receivable are originated, provisions for credit losses are recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the contractual term of the loan receivables. Subsequent changes to the contractual terms resulting from re-underwriting are not included in the loan receivable’s expected life. The Company uses its historical loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the Company’s ACL model. The projected change in creditworthiness is modeled using Congressional Budget Office data such as unemployment rate and personal income. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations.

Canada Loss Recognition

Effective January 1, 2023, the Company modified the timeframe over which it charges-off loans within the Direct Lending brands in Canada and made related refinements to its loss provisioning methodology. Prior to January 1, 2023, the Company deemed the Direct Lending brands in Canada uncollectible and charged-off on day 91 past-due. As part of our policy alignment within the Direct Lending operating segment, the Company revised its estimates and now considers a loan issued by the Direct Lending brands in Canada loans uncollectible when they have been contractually past-due for more than 180 consecutive days. Consequently, such past-due loans and related accrued interest now remain in loans receivable for 180 days before being charged-off against the ACL. All recoveries on charged-off loans are credited to the ACL when received. The Company evaluates the adequacy of the ACL compared to the related gross loans receivable balances that include accrued interest.

The aforementioned change was treated as a change in accounting estimate and applied prospectively effective January 1, 2023.

The change affects comparability to prior periods as follows:
Gross loans receivable: balances as of June 30, 2023 include $20.9 million of the Direct Lending brands in Canada loans that are between 91 and 180 days past-due with related accrued interest, while such balances for prior periods do not include any loans that are between 91 and 180 days past-due.
Revenues: for the three and six month periods ended June 30, 2023, revenues include accrued interest on the Direct Lending brands in Canada loans between 91 and 180 days past-due of $0.3 million and $2.5 million respectively, while revenues in prior periods do not include any loans that are between 91 and 180 days past-due.
12



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Provision for Losses: effective January 1, 2023, past-due, unpaid balances plus related accrued interest on the Direct Lending brands in Canada loans charge off on day 181. Provision expense is affected by NCOs plus changes to the required ACL. Because NCOs now include unpaid principal and up to 180 days of related accrued interest, as compared to prior periods, NCO amounts and rates are higher and the required ACL as a percentage of gross loans receivable is higher. The Company recognized $26.9 million and $36.7 million in charge offs related to the Direct Lending brands in Canada loans for the three and six months ended June 30, 2023 and, absent the policy change, would have recognized $28.2 million and $57.5 million for the three and six months ended June 30, 2023 in gross charge offs on those loans.

Recently Issued Accounting Pronouncements Recently 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.

As a result of the adoption of CECL on January 1, 2023, through a modified-retrospective approach, the Company recorded an increase to the ACL of $135.2 million and a corresponding one-time, cumulative reduction to retained earnings of $113.0 million (net of $22.2 million in taxes) in the unaudited Condensed Consolidated Balance Sheet as of January 1, 2023. The Company’s ACL increased from 5.8% to 12.6% as a percentage of the amortized cost basis on January 1, 2023.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a customer results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a customer experiencing financial difficulties. Additionally, the amendments require disclosure of gross charge-off information by year of origination in the vintage disclosures. The Company adopted this guidance as of January 1, 2023 using the modified retrospective method. Adoption of this standard did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

As result of the adoption of ASU 2016-13, several of our significant accounting policies have changed to reflect the requirements of the new standard. See above for these updated significant accounting policies as of January 1, 2023.

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. The adoption of ASU 2021-08 at January 1, 2023 did not have a material effect on the Company's unaudited Condensed Consolidated Financial Statements.

NOTE 2 – LOANS RECEIVABLE AND REVENUE

Effective with the sale of the Legacy U.S. Direct Lending Business on July 8, 2022, the Company no longer guarantees loans originated by third-party lenders through CSO programs. The Company presents activity from these loans in the below tables, based on historical practice and for comparability purposes.

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

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revolving LOC$86,703 $96,583 $170,928 $187,606 
Installment92,283 181,748 187,495 355,681 
Total interest and fees revenue178,986 278,331 358,423 543,287 
Insurance and other income30,257 26,073 60,293 51,313 
   Total revenue$209,243 $304,404 $418,716 $594,600 

The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
13



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
Revolving LOCInstallmentTotal
Current loans receivable$1,256,338 $634,077 $1,890,415 
1-30 days past-due51,799 59,558 111,357 
Delinquent:
31-60 days past-due23,159 17,799 40,958 
61-90 days past-due15,969 12,464 28,433 
91 + days past-due37,887 30,815 68,702 
Total delinquent loans receivable77,015 61,078 138,093 
   Total loans receivable1,385,152 754,713 2,139,865 
   Less: allowance for credit losses(187,973)(84,642)(272,615)
Loans receivable, net$1,197,179 $670,071 $1,867,250 


December 31, 2022
Revolving LOCInstallmentTotal
Current loans receivable$1,194,554 $649,262 $1,843,816 
1-30 days past-due46,956 76,709 123,665 
Delinquent:
31-60 days past-due17,677 21,480 39,157 
61-90 days past-due12,190 14,143 26,333 
91 + days past-due13,138 41,724 54,862 
Delinquent loans receivable43,005 77,347 120,352 
   Total loans receivable1,284,515 803,318 2,087,833 
   Less: allowance for credit losses(78,815)(43,213)(122,028)
Loans receivable, net$1,205,700 $760,105 $1,965,805 

14



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize activity in the ACL (in thousands) for the three and six months ended June 30, 2023, including the impact of the adoption of ASU 2016-13 as discussed in Note 1, "Summary of Significant Accounting Policies and Nature of Operations":

Three Months Ended
June 30, 2023
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period$175,101 $84,858 $— $259,959 
Charge-offs(40,600)(45,400)(1,644)(87,644)
Recoveries7,814 9,929 149 17,892 
Net charge-offs(32,786)(35,471)(1,495)(69,752)
Provision for losses42,932 35,171 1,495 79,598 
Effect of foreign currency translation2,726 84 — 2,810 
Balance, end of period$187,973 $84,642 $— $272,615 


Six Months Ended
June 30, 2023
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period, prior to adoption of ASU 2016-13$78,815 $43,213 $— $122,028 
Impact of adoption of ASU 2016-1383,646 51,566 — 135,212 
Balance, January 1, 2023162,461 94,779 — 257,240 
Charge-offs(64,872)(96,920)(3,644)(165,436)
Recoveries14,133 20,371 464 34,968 
Net charge-offs(50,739)(76,549)(3,180)(130,468)
Provision for losses73,039 66,311 3,180 142,530 
Effect of foreign currency translation3,212 101 — 3,313 
Balance, end of period$187,973 $84,642 $— $272,615 

The following table presents an analysis of the activity in the ACL and the liability for losses on CSO lender-owned consumer loans (in thousands) for the three and six months ended June 30, 2022, prior to the adoption of ASU 2016-13, as defined by the accounting guidance in effect at that time:


15



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
June 30, 2022
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period$71,325 $26,843 $1,390 $99,558 
Charge-offs(42,706)(67,713)(4,498)(114,917)
Recoveries8,761 27,823 480 37,064 
Net charge-offs(33,945)(39,890)(4,018)(77,853)
Provision for losses40,435 58,172 2,628 101,235 
Effect of foreign currency translation(2,687)(68)— (2,755)
Balance, end of period$75,128 $45,057 $— $120,185 
Liability for losses on CSO lender-owned consumer loans (1):
Balance, beginning of period$— $7,166 $— $7,166 
Decrease in liability— 917 — 917 
Balance, end of period$— $8,083 $— $8,083 
(1) The CSO program guarantee liability was classified as Held for Sale.

Six Months Ended
June 30, 2022
Revolving LOCInstallmentOtherTotal
Allowance for credit losses:
Balance, beginning of period$68,140 $19,420 $— $87,560 
Charge-offs(85,093)(126,922)(6,311)(218,326)
Recoveries16,776 58,736 1,033 76,545 
Net charge-offs(68,317)(68,186)(5,278)(141,781)
Provision for losses77,882 93,858 5,278 177,018 
Effect of foreign currency translation(2,577)(35)— (2,612)
Balance, end of period$75,128 $45,057 $— $120,185 
Liability for losses on CSO lender-owned consumer loans (1):
Balance, beginning of period$— $6,908 $— $6,908 
Decrease in liability— 1,175 — 1,175 
Balance, end of period$— $8,083 $— $8,083 
(1) The CSO program guarantee liability was classified as Held for Sale.

Credit Quality Indicators for Revolving LOC and Installment Loans

The credit quality of the Company's gross loans receivable is dependent on the Company's ability to enforce sound underwriting standards, maintain diligent servicing of the portfolio and respond to changing economic conditions. The Company uses loan type and loan delinquency as key data points in determining the ACL. Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become more than 30 days past due. This indicator is important to understand the overall credit performance of the Company's customers and their ability to repay.

The tables below presents key credit quality indicators, by origination year for installment loans, as of and for the three and six months ended June 30, 2023 (in thousands):
16



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


Gross loans receivables by origination year, as of June 30, 2023
Delinquent
Current1-30 days past-due31-60 days past-due61-90 days past-due91+ days past dueTotal DelinquentTotal Loans Receivable
Revolving LOC$1,256,338 $51,799 $23,159 $15,969 $37,887 $77,015 $1,385,152 
Installment loans
2023$339,302 $23,445 $6,223 $3,754 $3,964 $13,941 $376,688 
2022237,504 26,211 8,683 6,761 21,533 36,977 300,692 
202151,770 8,724 2,587 1,807 4,684 9,078 69,572 
20204,692 1,087 270 121 380 771 6,550 
2019448 82 22 14 46 82 612 
Prior361 14 208 229 599 
Total installment loans$634,077 $59,558 $17,799 $12,464 $30,815 $61,078 $754,713 
Total loans receivables$1,890,415 $111,357 $40,958 $28,433 $68,702 $138,093 $2,139,865 

Activity by origination year
Three Months Ended
June 30, 2023
Six Months Ended
June 30, 2023
Gross charge offsGross recoveriesNet charge-offsGross charge offsGross recoveriesNet charge-offs
Revolving LOC$(40,600)$7,814 $(32,786)$(64,872)$14,133 $(50,739)
Installment loans
2023$(10,090)$5,607 $(4,483)$(17,108)$9,069 $(8,039)
2022(30,088)1,161 (28,927)(63,625)4,549 (59,076)
2021(4,508)1,055 (3,453)(14,320)2,210 (12,110)
2020(373)457 84 (1,180)1,052 (128)
2019(38)458 420 (116)1,019 903 
Prior(303)1,191 888 (571)2,472 1,901 
Total installment loans$(45,400)$9,929 $(35,471)$(96,920)$20,371 $(76,549)
Total loans receivables$(86,000)$17,743 $(68,257)$(161,792)$34,504 $(127,288)

17



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Delinquent and Non-accrual Loans

The accrual of interest revenue on loans receivable is generally suspended when it has been 90 days past due for Direct Lending, 180 days past due for Canada POS Lending or due to statutory requirements. If a loan is charged off, the accrued interest is charged against the allowance. The Company inherently considers non-accrual loans in its estimate of the ACL.

The following table provides information on our delinquent and non-accrual loans (in thousands):
June 30, 2023
31-60 days past-due61-90 days past-due91 + days past-dueTotal past due90 or more days delinquent and accruing
Total non-accruing (1)
Revolving LOC$23,159 $15,969 $37,887 $77,015 $22,551 $17,805 
Installment17,799 12,464 30,815 61,078 2,554 32,046 
Total delinquent loans$40,958 $28,433 $68,702 $138,093 $25,105 $49,851 
Percentage of total loan receivables1.9 %1.3 %3.2 %6.5 %1.2 %2.3 %
(1) The gross interest income that was recognized related to non-accruing loans was $0.9 million and $5.7 million for the three and six months ended June 30, 2023.


As of December 31, 2022, Revolving LOC and Installment loans classified as non-accrual were $5.3 million and $54.6 million, respectively.

Loan Modifications to Customers Experiencing Financial Difficulty

The Company adopted ASU 2022-02 as of January 1, 2023 on a modified retrospective basis through a cumulative adjustment to retained earnings. The new guidance is applicable for all loans modified to customers experiencing financial difficulties as of the beginning of 2023. Following the adoption of this guidance, we evaluate all loan receivables modifications according to the accounting guidance to determine whether such loan modification should be accounted for as a new loan or a continuation of the existing loan. The Company offers loan modifications to customers experiencing financial difficulty through forgiveness of unpaid principal and accrued interest balances, and reduction of interest rates.

The following table provides information on the financial effect of the loan modifications to customers experiencing financial difficulty in the period during the period presented (in thousands):

18



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
June 30, 2023
Six Months Ended
June 30, 2023
Amount% of Loan ReceivablesAmount% of Loan Receivables
Revolving LOC modifications
Principal / accrued interest forgiven$760 — %$1,307 0.1 %
Weighted average interest rate reduction23.23 %23.23 %
Installment modifications
Principal / accrued interest forgiven— %46 — %
Total principal/ accrued interest modifications$761 — %$1,353 0.1 %

Performance of Loans Modified to Customers Experiencing Financial Difficulty

The following table provides information on the performance of loans modified to customers experiencing financial difficulty which have been modified subsequent to January 1, 2023 and remain outstanding at June 30, 2023 (in thousands):

Amortized Cost Basis, as of June 30, 2023
Delinquent
Current1-30 days past-due31-60 days past-due61-90 days past-due91+ days past-dueTotal delinquent
Revolving LOC$22,853 $4,106 $2,124 $1,564 $3,283 $6,971 
Installment35 22 11 17 94 122 
Total delinquent modified loans$22,888 $4,128 $2,135 $1,581 $3,377 $7,093 
Percentage of total loan receivables1.1 %0.2 %0.1 %0.1 %0.2 %0.3 %

Payment Defaults

The following table presents the type, number and amount of loans to customers experiencing financial difficulty that modified their loans between January 1, 2023 and June 30, 2023, and experienced a payment default as evidenced by a charged-off loan during the period presented (dollars in thousands):
Three Months Ended
June 30, 2023
Six Months Ended
June 30, 2023
Number of Accounts defaulted (charged-off)Value of accounts defaulted (charged-off)Number of Accounts defaulted (charged-off)Value of accounts defaulted (charged-off)
Revolving LOC169 $266 1,949 $269 
Installment21 192 176 247 
Total defaults190 $458 2,125 $516 

Troubled Debt Restructurings (Prior to 2023)

Prior to the adoption of ASU 2022-02, the Company considered a modified loan in which a concession had been granted to the customer to be a TDR based generally on the size of the concession compared to the underlying loan balance and credit quality of the customer. Due to differences between the legacy TDR requirements and current loan modification disclosure requirements, information presented in the disclosures below is not directly comparable to the disclosures under the current guidance.

19



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The table below presents TDRs that are related to the Company's Customer Care Program implemented in response to COVID-19, included in both gross loans receivable and the impairment included in the ACL (in thousands) as of June 30, 2022:

As of
June 30, 2022
Current TDR gross receivables$13,686 
Delinquent TDR gross receivables5,214 
Total TDR gross receivables 18,900 
Less: Impairment included in the allowance for credit losses(4,777)
Less: Additional allowance(1,353)
Outstanding TDR receivables, net of impairment $12,770 

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

Three Months Ended June 30,Six Months Ended June 30,
20222022
Pre-modification TDR loans receivable$4,390 $7,254 
Post-modification TDR loans receivable4,046 6,404 
Total concessions included in gross charge-offs$344 $850 

There were $3.1 million and $6.7 million of loans classified as TDRs that were charged off and included as a reduction in the ACL during the three and six months ended June 30, 2022.

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

Three Months Ended June 30,Six Months Ended June 30,
20222022
Average outstanding TDR loans receivable$17,773 $17,397 
Interest income recognized$3,991 $8,026 
Number of TDR loans2,773 6,197 

20



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – VARIABLE INTEREST ENTITIES

As of June 30, 2023, the Company had six credit facilities, whereby certain loans receivable were sold to VIEs to collateralize debt incurred under each facility. See Note 6, "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 assets of a VIE can be used only to settle liabilities of that VIE. Creditors (or beneficial interest holders) of the VIEs do not have recourse to the Company's general credit.

The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):
June 30,
2023
December 31,
2022
Assets
Restricted cash$75,298 $52,277 
Loans receivable, net1,792,229 1,855,824 
Prepaid expenses and other15,702 12,908 
Deferred tax assets22,082 17,027 
Total Assets$1,905,311 $1,938,036 
Liabilities
Accounts payable and accrued liabilities$11,338 $13,571 
Deferred revenue 28 31 
Accrued interest7,974 7,023 
Income Taxes Payable9,828 7,850 
Debt1,640,455 1,589,380 
Total Liabilities$1,669,623 $1,617,855 

NOTE 4 – GOODWILL

Goodwill

The change in the carrying amount of goodwill by reporting unit for the six months ended June 30, 2023 was as follows (in thousands):

Direct LendingCanada POS LendingTotal
Goodwill at December 31, 2022$276,269 $— $276,269 
Foreign currency translation800 — 800 
Goodwill at June 30, 2023$277,069 $— $277,069 

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 potential indicators include, among various factors, declining sales, earnings 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 2022 Form 10-K for additional information on the Company's policy for assessing goodwill for possible impairment.

During the fourth quarter of 2022, the Company performed a quantitative assessment for each of its reporting units. Management utilized the income and the guideline public company approaches, in equal weightings, in determining a fair value for each of the three reporting units for purposes of testing goodwill. The income approach estimates fair value using the present value of future cash flows, whereas the guideline public company approach estimates fair value using the fair value of publicly traded businesses in a similar line of business. As a result, the Company recognized non-cash pre-tax impairment charges of $107.8 million on the Legacy U.S. Direct Lending reporting unit and $37.4 million on the Canada POS Lending reporting unit during the year ended December 31, 2022, to write down the carrying values of goodwill. Management concluded that the estimated fair value of the
21



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Canada Direct Lending reporting unit, now included in the Direct Lending reporting unit, was greater than its carrying value, as of the annual assessment date; as such, no impairment charge was required.

In the three months ended March 31, 2023, the Company combined the Legacy U.S. Direct Lending and Canada Direct Lending reporting units into a single Direct Lending reporting unit. Refer to Note 12, "Segment Reporting" for further information. In the second quarter of 2023, the Company performed an interim review of triggering events for the Direct Lending 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.

Heights Acquisition

The Company completed the acquisition of Heights on December 27, 2021. Provisional goodwill was estimated at $253.9 million, based on the preliminary valuation. The Company recorded $11.8 million of net adjustments during fiscal year 2022, resulting in a goodwill balance of $265.7 million as of December 31, 2022, excluding the impairment charge on the Legacy U.S. Direct Lending reporting unit, now included in the Direct Lending reporting unit, recorded in the fourth quarter of 2022. See Note 13,"Acquisitions and Divestiture" for more information related to the business combination.

Legacy U.S. Direct Lending Business Divestiture

On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending Business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35.0 million in cash payable in monthly installment payments over the subsequent 12 months. The divestiture resulted in a gain of $68.4 million during the year ended 2022 which was recorded in "Gain on sale of business" in the unaudited Consolidated Statement of Operations. The Company reduced the gain by $2.0 million for the six months ended June 30, 2023, based on expected uncollectible amounts. There was no change to the gain during the three months ended June 30, 2023. As part of the sale, $91.1 million of goodwill was written off. See Note 13,"Acquisitions and Divestiture" for more information related to the divestiture.

First Heritage Acquisition

On July 13, 2022, the Company completed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, for a total purchase price of $140.0 million in cash. Provisional goodwill was recorded at $75.4 million, excluding the impairment charge on the Legacy U.S. Direct Lending reporting unit, now included in the Direct Lending reporting unit, recorded in the fourth quarter 2022. No adjustments were recorded during the measurement period which resulted in a final goodwill balance of $75.4 million. See Note 13, "Acquisitions and Divestiture" for more information related to the business combination.

NOTE 5 – 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 inputs, meaning those that reflect the Company's 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 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.

22



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2023 (in thousands):

Estimated Fair Value
Carrying Value June 30,
2023
Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$5,931 $5,931 $— $— $5,931 
Derivative asset10,930 — 10,930 — 10,930 
Financial liabilities:
Non-qualified deferred compensation plan$4,372 $4,372 $— $— $4,372 
Contingent consideration related to acquisition18,499 — 18,499 — 18,499 

The table below presents the assets and liabilities that were carried at fair value on the unaudited Condensed Consolidated Balance Sheets at December 31, 2022 (in thousands):

Estimated Fair Value
Carrying Value December 31,
2022
Level 1Level 2Level 3Total
Financial assets:
Cash Surrender Value of Life Insurance$7,591 $7,591 $— $— $7,591 
Derivative asset7,458 — 7,458 — 7,458 
Financial liabilities:
Non-qualified deferred compensation plan$5,149 $5,149 $— $— $5,149 
Contingent consideration related to acquisition16,884 — — 16,884 16,884 

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 unaudited Condensed Consolidated Balance Sheets. The non-qualified deferred compensation plan offsetting liability is included in Accounts payable and accrued liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets.

Derivative Asset

The Company uses interest rate swaps to help manage interest rate risk exposure on variable-rate debt. The Company typically classifies these derivatives as Level 2, given that significant inputs can be observed in a liquid market and the model itself does not require significant judgment. During the year ended December 31, 2022, Flexiti entered into interest rate swaps with a counterparty to protect against the interest rate risk on the Flexiti Securitization variable-rate borrowing facility. Flexiti is required to hedge the variable interest rate aspect of the Flexiti SPV under the facility's credit agreement. The derivative asset is included in Other assets in the Company’s unaudited Condensed Consolidated Balance Sheet. For additional information on the interest rate swaps, refer to Note 6, "Debt."
23



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 was 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 through December 31, 2022. The contingent consideration measured at fair value using unobservable inputs was initially recorded as $20.6 million as of March 31, 2021. The Company paid $1.0 million of the liability based on results through March 31, 2022. At December 31, 2022, the liability recorded was the expected payment based on the actual risk adjusted-revenue and origination targets achieved during the measurement period (Level 3), which ended on March 31, 2023. This liability was changed to a Level 2 estimated fair value at March 31, 2023, because the liability was based on achieved results and no longer includes a forecast component. The liability recorded was $18.5 million as of June 30, 2023. On July 20, 2023, the Company settled the liability. The liability is included in Contingent consideration related to acquisition in the Company’s unaudited Condensed Consolidated Balance Sheet. For additional information on Flexiti and the related contingent consideration, refer to Note 13, "Acquisitions and Divestiture."

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 June 30, 2023 (in thousands):
Estimated Fair Value
Carrying Value June 30,
2023
Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents $112,531 $112,531 $— $— $112,531 
Restricted cash
109,484 109,484 — — 109,484 
Loans receivable, net 1,867,250 — — 1,867,250 1,867,250 
Investment in Katapult18,368 19,396 — — 19,396 
Financial liabilities:
1.0L 18.00% Senior Secured Term Loan
$148,249 $— $— $148,249 $148,249 
1.5L 7.50% Senior Secured Notes
671,496 — 257,568 — 257,568 
2.0L 7.50% Senior Secured Notes
312,672 — 70,688 — 70,688 
Heights SPV
380,439 — — 387,185 387,185 
First Heritage SPV 155,926 — — 159,473 159,473 
Flexiti SPV389,725 — — 394,018 394,018 
Flexiti Securitization394,975 — — 398,743 398,743 
Canada SPV249,377 — — 251,884 251,884 
Canada SPV II70,013 — — 72,210 72,210 
24



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

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, 2022 (in thousands):
Estimated Fair Value
Carrying Value December 31,
2022
Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents$73,932 $73,932 $— $— $73,932 
Restricted cash91,745 91,745 — — 91,745 
Loans receivable, net1,965,805 — — 1,965,805 1,965,805 
Investment in Katapult23,915 20,624 — — 20,624 
Financial liabilities:
7.50% Senior Secured Notes
$982,934 $— $466,500 $— $466,500 
Heights SPV
393,181 — — 393,181 393,181 
First Heritage SPV178,622 — — 182,751 182,751 
Flexiti SPV339,651 — — 343,565 343,565 
Flexiti Securitization385,054 — — 387,759 387,759 
Canada SPV292,872 — — 294,594 294,594 
Senior Revolver 35,000 — — 35,000 35,000 

Loans Receivable, Net

Loans receivable are carried on the unaudited Condensed Consolidated Balance Sheets net of the ACL. 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 macroeconomic conditions, including unemployment rate and customer income. The carrying value of loans receivable approximates their fair value. Refer to Note 2, "Loans Receivable and Revenue" for additional information.

1.0L 18.00% Senior Secured Term Loans, 1.5L 7.50% Senior Secured Notes, 2.0L 7.50% Senior Secured Notes, Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Canada SPV II and Senior Revolver

The fair value disclosures for the 1.5L 7.50% Senior Secured Notes and 2.0L 7.50% Senior Secured Notes as of June 30, 2023 and the 7.50% Senior Secured Notes as of December 31, 2022 were based on observable market trading data. The fair values of the 1.0L 18.00% Senior Secured Term Loans, Heights SPV, First Heritage SPV, Flexiti SPV, Flexiti Securitization, Canada SPV, Canada SPV II and Senior Revolver were based on the cash needed for their respective final settlements. Refer to Note 6, "Debt" for additional information.


25



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Investment in Katapult

The table below presents the Company's investment in Katapult (in thousands):
Investment in Katapult
Balance at December 31, 2021$27,900 
Equity method income - Q1 20221,584 
Balance at March 31, 202229,484 
Equity method loss - Q2 2022(1,328)
Balance at June 30, 202228,156 
Equity method loss - Q3 2022(2,309)
Balance at September 30, 202225,847 
Equity method loss - Q4 2022(1,932)
Balance at December 31, 202223,915 
Equity method loss - Q1 2023(3,413)
Balance at March 31, 202320,502 
Equity method loss - Q2 2023(2,134)
Balance at June 30, 2023$18,368 

The Company has an equity method investment in Katapult and records its share of earnings and losses on a one-quarter reporting lag. The Company recorded a loss of $2.1 million and $5.5 million for the three and six ended June 30, 2023 respectively, based on its share of Katapult’s earnings. The equity method investment is presented within "Investment in Katapult" on the unaudited Condensed Consolidated Balance Sheets.

The Company owns 23.4% of Katapult outstanding common stock as of June 30, 2023.

NOTE 6 – DEBT
The Company's debt instruments and balances outstanding as of June 30, 2023 and December 31, 2022, including maturity date, effective interest rate and borrowing capacity, subject to borrowing base limitations, were as follows (dollars in thousands):
26



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Effective interest rateOutstanding as of
Maturity DateBorrowing CapacityJune 30, 2023December 31, 2022
Corporate Debt:
1.0L 18.00% Senior Secured Term Loan
August 2, 202718.00 %$167,495 $— 
1.5L 7.50% Senior Secured Notes
August 1, 20287.50 %682,298 — 
2.0L 7.50% Senior Secured Notes
August 1, 20287.50 %317,702 — 
7.5% Senior Secured Notes
August 1, 20287.50 %— 1,000,000 
Total corporate debt1,167,495 1,000,000 
Funding Debt:
Heights SPVJuly 15, 2025
1-Mo SOFR + 4.71%
$425.0 million$387,185 $400,758 
First Heritage SPVJuly 13, 2025
1-Mo SOFR + 4.25%
$225.0 million159,473 182,751 
Flexiti SPV (1)
September 29, 2025
Weighted average interest rate (2)(3) 8.41%
C$535.0 million394,018 343,565 
Flexiti Securitization (1) (4)
December 9, 2025
1-Mo CDOR + 3.59% (3)
C$526.5 million398,743 387,759 
Canada SPV (1)
August 2, 2026
3-Mo CDOR + 6.00%
C$400.0 million251,884 294,594 
Canada SPV IINovember 12, 2025
3-Mo CDOR + 8.00%
C$110.0 million72,210 — 
Senior Revolver (5)
N/A
1-Mo SOFR + 5.00%
$40.0 million— 35,000 
Total funding debt1,663,513 1,644,427 
Less: debt issuance costs(58,136)(37,113)
Total Debt2,772,872 2,607,314 
(1) Capacity amounts are denominated in Canadian dollars, whereas outstanding balances as of June 30, 2023 and December 31, 2022 are denominated in U.S. dollars. The exchange rate applied at June 30, 2023 was 0.7573 and the exchange rate at December 31, 2022 was 0.7365.
(2) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(3) Swapped to fixed-rate via interest rate swap hedging arrangement entered into on July 7, 2022 for Flexiti Securitization and October 11, 2022 for Flexiti SPV.
(4) The effective rate is 7.09%.
(5) On May 15, 2023, the Company utilized the proceeds from the $150.0 million 1.0L 18.00% Senior Secured Term Loan to pay off the Senior Revolver.

Corporate Debt

1.0 Lien 18.00% Senior Secured Term Loan

On May 15, 2023, the Company entered into a new $150.0 million first lien term loan, which matures on August 2, 2027. Interest is payable quarterly, in arrears, on March 31, June 30, September 30, and December 31, The principal loan balance and any unpaid accrued interest are due to the lender on the maturity date. The 1.0L 18.00% Senior Secured Term Loan are senior secured obligations of the Company and rank senior in right of payment to all of its existing and future unsecured senior debt. The 1.0L 18.00% Senior Secured Term Loan accrues interest at a rate of 18.0% per annum. The Company may elect to pay up to 12.00% per annum in kind during the first year following the closing and up to 9.00% per annum in kind thereafter. The Company elected to pay 12.00% interest in kind for the three month ended June 30, 2023. The 1.0L 18.00% Senior Secured Term Loan contains financial and other covenant requirements, including, but not limited to, financial covenants that require the Company to maintain certain liquidity levels. In connection with the 1.0L 18.00% Senior Secured Term Loan, financing costs of $19.2 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 1.0L 18.00% Senior Secured Term Loan as a component of IInterest expense.

7.50% Senior Secured Notes, 1.5L 7.50% Senior Secured Notes and 2.0L 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, also maturing on August 1, 2028, to fund the acquisition of Heights. Refer to Note 13, "Acquisitions and Divestiture" for additional details. On May 15, 2023, the Company closed on an exchange agreement with approximately 68.2% of the 7.50% Senior Secured Notes holders, who agreed to exchange approximately $682.3 million aggregate principal amount of the 7.50% Senior Secured Notes for approximately $682.3 million of 1.5L 7.50% Senior Secured Notes due August 1, 2028. The 1.5L 7.50% Senior Secured Notes retain all the same terms and conditions of the 7.50% Senior Secured Notes except that they rank senior in lien priority to the remaining $317.7 million 2.0L 7.50% Senior Secured Notes.

27



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The 1.5L 7.50% Senior Secured Notes rank junior in right of payment to all existing and future secured debt of senior lien priority, the 1.0L 18.00% Senior Secured Term Loan, and are senior in right of payment to all other existing and future senior debt. No incremental Deferred Financing Costs were incurred in relation to the exchange of the 1.5L 7.50% Senior Secured Notes.

The 2.0L 7.50% Senior Secured Notes have a maturity of August 1, 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1. The principal amount of the 2.0L 7.50% Senior Secured Notes is $317.7 million. The 2.0L 7.50% Senior Secured Notes rank junior in right of payment to all existing and future secured debt of senior lien priority, the 1.0L 18.00% Senior Secured Term Loan and 1.5L 7.50% Senior Secured Notes, and are senior in right of payment to all other existing and future senior debt. The 2.0L 7.50% Senior Secured Notes retain all other terms and conditions of the 7.50% Senior Secured Notes.

In connection with the 7.50% Senior Secured Notes, financing costs of $15.8 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 IInterest expense.

Funding Debt

As of June 30, 2023, the Company had six credit facilities whereby loans receivable were sold to VIEs to collateralize debt incurred under each facility. The following debt arrangements are issued by the Company’s wholly owned, bankruptcy-remote SPVs, which are considered VIEs under U.S. GAAP and are consolidated into the financial statements of their respective primary beneficiary: (i) Heights SPV, (ii) First Heritage SPV, (iii) Flexiti SPV, (iv) Flexiti Securitization, (v) Canada SPV, and (vi) Canada SPV II. For further information on these facilities, refer to
Note 3, "Variable Interest Entities."

Assets transferred to each SPV are legally isolated from the Company and its affiliates, as well as the claims of the Company’s and its affiliates’ creditors. Further, the assets of each SPV are owned by such SPV and are not available to satisfy the debts or other obligations of the Company or any of its affiliates.

These debts are supported by the expected cash flows from the underlying collateralized finance receivables. Advances on the funding debt are determined based on the contractually agreed upon advance rates. Under the terms of each SPV credit facility, the effective advance rates vary from stated advanced rates based on certain performance metrics and eligibility requirements of pledged loan. Collections on these finance receivables are remitted to restricted cash collection accounts, which totaled $75.3 million and $52.3 million as of June 30, 2023 and December 31, 2022, respectively. The increase in restricted cash is based on the contractual requirements of the SPVs related to the total value and performance of the underlying collateralized finance receivables.

Heights SPV

On July 15, 2022, the Company entered into a $425.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by Heights. The effective interest rate was 1-month SOFR plus 4.25% until May 15, 2023 when it increased to 1-month SOFR plus 4.71% at June 30, 2023. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 15, 2025.
28



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

First Heritage SPV

On July 13, 2022, concurrently with the closing of the First Heritage acquisition, the Company entered into a $225.0 million non-recourse revolving warehouse facility to replace the incumbent lender's facility and finance future loans originated by First Heritage. The effective interest rate is 1-month SOFR plus 4.25%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period matures on July 13, 2025.

Flexiti SPV

On September 29, 2022, Flexiti refinanced and increased its Flexiti SPV to increase the borrowing capacity from C$500.0 million to C$535.0 million and extend its maturity to September 29, 2025. As of June 30, 2023, the weighted average interest rate was 8.41%. Flexiti also pays a 0.50% per annum commitment fee on the unused portion of the commitments. All other material terms of the revolving warehouse credit facility remain unchanged.

Flexiti Securitization

In December 2021, Flexiti Securitization Limited Partnership, a wholly-owned Canadian subsidiary of the Company, entered into the Flexiti Securitization. The facility provides for C$526.5 million with a maturity of December 9, 2025. As of June 30, 2023, the effective interest was one-month CDOR plus 3.59%.

Canada SPV

In August 2018, as amended in the fourth quarter of 2021 and first quarter of 2022, CURO Canada Receivables Limited Partnership, a wholly-owned subsidiary of the Company, entered into the Canada SPV. The effective interest rate was 3-month CDOR plus 6.00%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments.

Canada SPV II

On May 15, 2023, the Company closed on a new C$110.0 million non-recourse revolving warehouse facility to finance loans in Canada. The facility includes a C$40.0 million accordion that is triggered at the lenders' discretion. The effective interest is three-month CDOR plus 8.00%. The Company also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The warehouse revolving period will mature in November 2025.

Senior Revolver

The Company maintained the Senior Revolver that provided $40.0 million of borrowing capacity, including up to $4.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The most recent term expired August 31, 2023. The Senior Revolver accrued interest at one-month SOFR plus 5.00%.

On May 15, 2023, the Company fully paid off the outstanding borrowings of $40.3 million of principal and accrued interest Senior Revolver using proceeds from the 1.0L 18.0% Senior Secured Term Loan described above. The early extinguishment of the Senior Revolver resulted in a loss of $0.1 million.

Curo Canada Revolving Credit Facility

Curo Canada maintained the Curo Canada Revolving Credit Facility, which provided short-term liquidity for the Company's Canadian direct lending operations.

On December 21, 2022, the borrowing capacity under the Curo Canada Revolving Credit Facility was reduced from C$10.0 million to C$5.0 million, and the facility was cancelled on January 6, 2023.

On May 15, 2023, the Company executed the Third Supplemental Indenture, which amends the underlying indenture to, among other things, eliminate or amend substantially all of the restrictive covenants contained in the indenture other than those related to the payment of principal and interest. The Company incurred fees of $3.2 million, net of amortization, related to the debt covenant amendments. These fees were capitalized, and included in the unaudited Condensed Consolidated Balance Sheets as a component of Debt. These costs are amortized over the term of the SPV facilities as a component of Interest expense.

Derivative Instruments and Hedging Activities

29



During 2022, the Company entered into interest rate swaps to help manage interest rate risk on certain variable-rate debt facilities. The Company designated these risk management derivatives as qualifying cash flow hedges under hedge accounting. The derivative assets are included in Other assets on the unaudited Condensed Consolidated Balance Sheet and changes in the fair value of derivatives are recorded as a component of AOCI. The effectiveness of the hedges are assessed at least quarterly and were assessed as effective, as of and for the period ended June 30, 2023, and as such there was no impact to earnings. However, for cash flow hedges during periods in which the forecasted transactions impact earnings, those amounts are reclassified into earnings in the same period during which the forecasted transactions impact earnings. Additionally, they are presented in the same line item in the unaudited Condensed Consolidated Statements of Operations as the earnings effect of the hedged items and reflected in operating activities on the unaudited Condensed Statement of Cash Flows.

Interest Rate Swap on Flexiti SPV

In accordance with the terms of the Flexiti SPV, on October 11, 2022, Flexiti entered into an interest rate swap due September 29, 2025 on the C$425.0 million, variable-rate portion of the borrowing facility, with a notional amount of C$425.0 million. As of June 30, 2023, a $4.7 million interest rate swap is included in Other assets and, to reflect the change in fair value during the current period, a $3.8 million gain and a $2.9 million gain was recognized for the three and six months ended June 30, 2023, respectively, in the unaudited Condensed Statement of Comprehensive Income (Loss).

Interest Rate Swap on Flexiti Securitization

In accordance with the terms of the Flexiti Securitization, on July 7, 2022, Flexiti entered into an interest rate swap due December 9, 2025 on the C$526.5 million, variable-rate, borrowing facility, with a notional amount of C$526.5 million. As a result of the swap, the effective interest rate is 7.09%. As of June 30, 2023, a $10.9 million interest rate swap is included in Other assets and, to reflect the change in fair value during the current period, a $5.0 million gain and a $3.2 million gain was recognized for the three and six months ended June 30, 2023, respectively, on the unaudited Condensed Statement of Comprehensive Income (Loss).

NOTE 7 – 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 directors and officers and other related parties in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662 (the "Yellowdog Action"). The suit alleged the Company made misleading statements and omitted material information regarding the Company's efforts to transition the Canadian inventory of products from Installment loans to Revolving LOC loans. The case was resolved in 2020 for $9.0 million, of which the first $2.5 million was paid by the Company and the remainder paid by the Company's insurance carriers. For the year ended December 31, 2022, there was no further expense related to this litigation.

In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware ("Court") against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally alleged the same underlying facts of the Yellowdog Action. In July 2021, the derivative lawsuits were voluntarily dismissed and plaintiffs refiled two cases in the United States District Court for the District of Kansas. On October 27, 2022, the Court granted final approval of the parties' settlement and dismissed the case with prejudice. The terms of the settlement provided for the implementation of certain corporate governance reforms and a payment of $345.0 thousand in attorneys’ fees and expenses to plaintiffs’ counsel, which was paid by the Company's insurers, and included no admission of liability or wrongdoing by the Company.

Other Legal Matters. The Company is involved in litigation matters related to amounts due in connection with the sale of the Legacy U.S. Direct Lending Business. 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 that any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.

NOTE 8 – INCOME TAXES

The Company's effective income tax rate was (24.0)% and 19.2% for the six months ended June 30, 2023 and 2022, respectively.

The effective income tax rate for the six months ended June 30, 2023 was lower than the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of recording a valuation allowance against U.S. deferred tax assets ("DTAs") of $43.5 million and lost tax benefits related to share-based compensation of $1.6 million.

The effective income tax rate for the six months ended June 30, 2022, was lower than the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of proportionally more loss in lower rate jurisdictions combined with lost tax benefits related to share-based compensation of $0.8 million, officers’ compensation of $0.7 million, non-deductible transaction costs of $0.3 million and change in fair value of contingent consideration of $1.0 million.
30



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

For the six months ended June 30, 2023, we continued to evaluate evidence to estimate whether sufficient future sources of income will be generated to permit the use of the existing DTAs in the U.S. During the first quarter of 2023, we determined that negative evidence outweighs the positive evidence of our ability to realize the U.S. DTAs. On this basis, we recorded a valuation allowance of $56.5 million against the U.S. DTAs, including $43.5 million recorded as Provision for income taxes and $13.0 million in Accumulated deficit related to the adoption of CECL.

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 $223.5 million were distributed to the U.S. legal entities, the Company would be subject to Canadian withholding taxes of an estimated $11.2 million. The determination of the U.S. state income taxes upon a potential foreign earnings distribution is impractical. In the event the earnings are distributed to the U.S. legal entities, the Company will adjust the income tax provision for the applicable period and determine the amount of foreign tax credit that would be available.

NOTE 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
June 30,
Six Months Ended
June 30,
2023202220232022
Net loss $(59,327)$(26,080)$(118,798)$(24,744)
Weighted average common shares - basic41,002 40,376 40,893 40,372 
Weighted average common shares - diluted41,002 40,376 40,893 40,372 
Loss per share:
Basic loss per share$(1.45)$(0.65)$(2.91)$(0.61)
Diluted loss per share$(1.45)$(0.65)$(2.91)$(0.61)

Potential shares of common stock that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive; therefore, these shares are not included in calculating diluted earnings per share. For the three and six months ended June 30, 2023, there were 4.8 million and 4.4 million, respectively, and for the three and six months ended June 30, 2022, there were 3.1 million and 2.2 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 – 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 June 30, 2023. 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 under similar terms.

During the first quarter of 2023, the Company recorded a $7.5 million expense for lease abandonment costs related to restructuring actions, with no further restructuring costs incurred during the three months ended June 30, 2023. For further information, refer to Note 14, "Restructuring."

The following table summarizes the operating lease costs and other information for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):
31



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Operating lease costs:
Third-Party
$5,749 $9,574 $12,358 $19,053 
Related-Party
157 827 314 1,654 
Total operating lease costs$5,906 $10,401 $12,672 $20,707 
Cash paid for amounts included in the measurement of operating lease liabilities$13,072 $21,581 
ROU assets obtained$5,274 $6,398 
Weighted average remaining lease term - Operating leases4.3 years4.7 years
Weighted average discount rate - Operating leases8.3 %7.8 %

The following table summarizes the aggregate operating lease payments that the Company was contractually obligated to make under operating leases as of June 30, 2023 (in thousands):
Third-PartyRelated-PartyTotal
Remainder of 2023$11,644 $313 $11,957 
202418,614 634 19,248 
202513,050 651 13,701 
20267,199 669 7,868 
20274,554 687 5,241 
20282,661 668 3,329 
Thereafter6,120 326 6,446 
Total63,842 3,948 67,790 
Less: Imputed interest(10,182)(1,023)(11,205)
Operating lease liabilities$53,660 $2,925 $56,585 

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

NOTE 11 – DIVIDENDS
Dividend Program

In October 2022, the Company's Board of Directors suspended its previously authorized quarterly dividend of $0.11 per share ($0.44 per share annualized). There were no dividends paid in the six months ended June 30, 2023, except those related to previously declared dividends on RSUs vested during the six months ended June 30, 2023 related to the unvested period.

32



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's CODM reviews financial information for operational decision making purposes, including gross revenues, net revenue, gross margin, segment operating income and other items.
During the first quarter of 2023, the Company's Chief Executive Officer, who is also the CODM, changed the manner in which he reviews financial information for purposes of assessing business performance, managing the business and allocating resources. In conjunction with this change, the Company realigned its segment structure resulting in the Company having two operating segments: Direct Lending and Canada POS Lending.
Direct Lending. The Direct Lending operating segment represents the majority of net revenue and gross profit. This operating segment represents the Revolving LOC, secured and unsecured installment and single-pay loan products, together with the credit protection and other insurance products and other ancillary sales in the U.S. and Canada, which historically was comprised of the U.S. Direct Lending and Canada Direct Lending operating segments. The U.S. and Canada have similar economic and operating characteristics, including the nature of products and services offered, operating procedures and risks, customer bases and shared corporate resources, which led the CODM to conclude that these separate segments combine to form one operating segment. As of June 30, 2023, the Company operated over 490 U.S. retail locations in 13 states. As of June 30, 2023, the Company operated nearly 150 stores across eight Canadian provinces and had an online presence in eight provinces and one territory.
Canada POS Lending. As of June 30, 2023, the Company served Canadian customers through POS financing available at over 8,800 retail locations and over 3,700 merchant partners across 10 provinces and two territories. The Company provides Revolving LOC loans and a number of other ancillary financial products.

All prior period amounts related to the segment realignment have been retrospectively reclassified throughout to conform to the new presentation.

The following table illustrates summarized financial information concerning reportable segments (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenues by segment: (1)
Direct Lending$167,016 $281,251 $336,384 $551,138 
Canada POS Lending42,227 23,153 82,332 43,462 
Consolidated revenue$209,243 $304,404 $418,716 $594,600 
Net revenues by segment:
Direct Lending$103,261 $157,667 $224,265 $338,737 
Canada POS Lending26,384 17,191 51,921 28,786 
Consolidated net revenue$129,645 $174,858 $276,186 $367,523 
Segment (loss) before income taxes:
Direct Lending$(50,917)$(21,596)$(82,549)$(8,619)
Canada POS Lending(6,119)(11,474)(13,255)(22,009)
Consolidated (loss) before income taxes$(57,036)$(33,070)$(95,804)$(30,628)
Expenditures for long-lived assets by segment:
Direct Lending$5,257 $4,670 $9,114 $11,985 
Canada POS Lending6,556 6,040 12,726 10,264 
Consolidated expenditures for long-lived assets$11,813 $10,710 $21,840 $22,249 
(1) For revenue by product, see Note 2, "Loans Receivable and Revenue."
The following table presents the proportion of gross loans receivable by segment (in thousands):
June 30,
2023
December 31,
2022
Direct Lending$1,227,615 $1,254,395 
Canada POS Lending912,250 833,438 
Total gross loans receivable$2,139,865 $2,087,833 
33



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Geographic Data

The following table presents total revenues by geographic region:

Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
U.S.$89,400 $205,711 $181,825 $404,110 
Canada119,843 98,693 236,891 190,490 
Total revenue$209,243 $304,404 $418,716 $594,600 

The following table presents the proportion of gross loans receivable by geographic region:
June 30,
2023
December 31,
2022
U.S.$718,586 $773,380 
Canada1,421,279 1,314,453 
Total gross loans receivable$2,139,865 $2,087,833 

The following table presents the Company's net long-lived assets, comprised of property and equipment, by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):
June 30,
2023
December 31,
2022
U.S.$11,430 $29,232 
Canada16,988 2,725 
Total net long-lived assets$28,418 $31,957 

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

NOTE 13 – ACQUISITIONS AND DIVESTITURE

ACQUISITIONS

First Heritage

On July 13, 2022, the Company closed the acquisition of First Heritage, a consumer lender that provides near-prime installment loans along with customary opt-in insurance and other financial products, for a purchase price of $140.0 million in cash, subject to certain customary working capital and other adjustments. The Company began consolidating the financial results of First Heritage in the unaudited Condensed Consolidated Financial Statements on July 13, 2022 within the Direct Lending operating segment.

This transaction was accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the acquired assets and liabilities assumed are provisional based on the preliminary fair value estimates as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Form 10-Q and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of June 30, 2023, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.

The following table presents the preliminary purchase price allocation recorded in the Company’s unaudited Condensed Consolidated Balance Sheet as of the date of acquisition (in thousands):
34



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

Amounts acquired on July 13, 2022
Assets
Cash and cash equivalents
$31,396 
Restricted cash1,933 
Gross loans receivable(1)
218,011 
Prepaid expenses and other1,285 
Property and equipment345 
Right-of-use assets
4,241 
Intangibles, net10,670 
Total assets$267,880 
Liabilities
Accounts payable and accrued liabilities $4,270 
Lease liabilities 4,241 
Debt170,392 
Total liabilities$178,904 
Net assets acquired$88,976 
Total consideration paid164,341 
Goodwill $75,365 
(1) The gross contractual loans receivables as of July 13, 2022 were $236.1 million, of which the Company estimates $18.1 million will not be collected.

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

Fair ValueUseful Life
Trade name$3,790 10.0 years
Customer relationships6,880 3.5 years
Total identified intangible assets $10,670 

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

Heights

On December 27, 2021, the Company acquired 100% of the outstanding stock of Heights for $360.0 million, consisting of $335.0 million in cash and $25.0 million of the Company's common stock. Heights 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 in the unaudited Condensed Consolidated Financial Statements on December 27, 2021 within the Direct Lending operating segment.

35



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities. During the year ended December 31, 2022, the Company recorded measurement period adjustments that increased goodwill by $11.8 million. The measurement period adjustment related to the fair value of the loan portfolio and would have resulted in $7.7 million of incremental interest and fee revenue during the three months ended March 31, 2022 and no impact on the year ended December 31, 2022. The Company recorded a measurement period adjustment in the fourth quarter of 2022 that decreased goodwill by $3.5 million related to the final true-up of deferred tax balances after the pre-acquisition income tax returns were filed in October 2022. The Company made these measurement period adjustments to reflect the correct deferred tax balances that existed as of the acquisition date and not from events subsequent to such date. Additionally, in the fourth quarter of 2022, a measurement period adjustment was recorded related to tax filings for pre-acquisition activity which resulted in $4.2 million of income tax receivables and an increase to accounts payable for the same amount. As of December 31, 2022, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.

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

Amounts acquired on December 27, 2021Measurement period adjustmentsAmounts acquired on December 27, 2021 (as adjusted)
Assets
Cash and cash equivalents
$13,564 $— $13,564 
Restricted cash33,630 — 33,630 
Gross loans receivable(1)
471,630 (15,379)456,251 
Income tax receivable3,526 4,209 7,735 
Prepaid expenses and other7,410 — 7,410 
Property and equipment4,748 — 4,748 
Right-of-use assets
16,111 — 16,111 
Intangibles, net11,900 — 11,900 
Deferred tax asset— 2,477 2,477 
Other assets98 — 98 
Total assets$562,617 $(8,693)$553,924 
Liabilities
Accounts payable and accrued liabilities $19,186 $4,209 $23,395 
Lease liabilities 16,315 — 16,315 
Deferred tax liability 1,077 (1,077)— 
Accrued interest on debt1,781 — 1,781 
Debt350,000 — 350,000 
Total liabilities$388,359 $3,132 $391,491 
Net assets acquired$174,258 $(11,825)$162,433 
Total consideration paid428,115 428,115 
Goodwill $253,857 $265,682 
(1) The gross contractual loans receivables as of December 27, 2021 were $485.4 million, of which the Company estimates $29.1 million will not be collected.

DIVESTITURE

Legacy U.S. Direct Lending Business

On July 8, 2022, the Company completed the divestiture of its Legacy U.S. Direct Lending Business to Community Choice Financial, for total sale proceeds of $349.2 million, net of working capital adjustments, comprised of $314.2 million of cash received at close and $35.0 million in cash payable in monthly installment payments over the subsequent 12 months.

36



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The divestiture resulted in a gain of $68.4 million for the year ended December 31, 2022, which was recorded in "Gain on sale of business" on the unaudited Condensed Consolidated Statement of Operations. Per ASC 205: Presentation of Financial Statements, the sale of the business is not classified as discontinued operations in the Company’s operations or financial results.

The Company reduced the gain by $2.0 million in the six months ended June 30, 2023 based on expected uncollectible amounts. There was no change to this calculation in the three months ended June 30, 2023.

The following table presents the amounts attributable to each category recorded in the Company’s unaudited Condensed Consolidated Balance Sheet as of the date of divestiture of the Legacy U.S. Direct Lending Business, as adjusted (in thousands):


Amounts divested of on July 8, 2022Subsequent adjustmentsAmounts divested of on July 8, 2022 (as adjusted)
Assets
Cash, cash equivalents and restricted cash$21,292 $— $21,292 
Loans receivable162,147 — 162,147 
Right of use asset39,326 — 39,326 
Goodwill91,131 — 91,131 
Other assets (1)
30,690 (2,027)28,663 
Total assets$344,586 $(2,027)$342,559 
Liabilities
Accounts payable and accrued liabilities $(8,947)$— $(8,947)
Right of use liability(43,433)— (43,433)
Liability for losses on CSO lender-owned consumer loans (5,628)— (5,628)
Other long term liabilities (2)
(5,815)— (5,815)
Total liabilities$(63,823)$— $(63,823)
Net assets sold$280,763 $280,763 
Total proceeds349,207 (2,027)347,180 
Total pretax gain on sale of business$68,444 $66,417 
(1) Includes income tax receivable, property and equipment, intangibles, deferred tax assets and other assets.
(2) Includes deferred revenue, income taxes payable, deferred tax liability and other long-term liabilities

The Legacy U.S. Direct Lending Business had pre-tax net income of$21.3 million and $57.1 million for the three and six months ended June 30, 2022, respectively. Pre-tax net income is comprised of net revenue and expenses directly related to the Legacy U.S. Direct Lending Business, which does not include certain costs recorded in the Legacy U.S. Direct Lending operating segment that are not classified as disposed of, such as interest expense on the 7.50% Senior Secured Notes and certain corporate expenses.

NOTE 14 – RESTRUCTURING

On October 5, 2022, the Company's Board of Directors approved restructuring actions to reduce operating expenses through store closures and headcount reductions in both the U.S. and Canada, and the elimination of duplicative corporate office functions in the U.S. Both the workforce reduction and store closures were aimed at reducing duplicative corporate functions and stores with overlapping customer populations as a result of the acquisitions of Heights in December of 2021 and First Heritage in July of 2022. For the year ended December 31, 2022, the Company incurred $16.0 million of expense related to our restructuring actions, of which $7.9 million related to employee termination benefits resulting from the workforce reduction of approximately 150 employees, and $8.2 million related to lease abandonment costs resulting from the closure of 89 stores in the U.S. and Canada.
For the six months ended June 30, 2023, the Company incurred an additional $10.0 million of expense related to our restructuring actions, of which $2.5 million related to employee termination benefits, and $7.5 million related to lease abandonment costs
37



CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
resulting from the closure of stores in the U.S. and Canada. There were no restructuring costs incurred during the three months ended June 30, 2023.
The following table shows the total restructuring costs incurred during the six months ended June 30, 2023, (in thousands):

Six months ended June 30, 2023
Employee Termination BenefitsLease Exit CostsTotal Restructuring Costs
Salaries and Benefits$1,517 $— $1,517 
Other Operating Expense958 7,481 8,439 
Total$2,475 $7,481 $9,956 

The following table shows the total amount incurred and liability, which is recorded in accounts payables and other accrued liabilities in the unaudited Condensed Consolidated Balance Sheets, for restructuring-related costs as of June 30, 2023:

Accrued restructuring costs as of December 31, 2022$4,746 
Restructuring costs incurred during the three months ended March 31, 20239,956 
Amount paid during the three months ended March 31, 2023(4,641)
Accrued restructuring costs as of March 31, 2023$10,061 
Restructuring costs incurred during the three months ended June 30, 2023
— 
Amount paid during the three months ended June 30, 2023(2,904)
Accrued restructuring costs as of June 30, 2023
$7,157 


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 its common stock. In March 2023, the Board of Directors terminated the program. There were no repurchases under this program.

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 Company repurchased 824,477 shares of common stock under the plan at an average price of $15.20 for a total cost of $12.5 million during the six months ended June 30, 2022.

NOTE 16 – SUBSEQUENT EVENTS

On August 2, 2023, the Company entered into a Share Purchase Agreement (the “SPA”) with Questrade Financial Group Inc. (“Buyer”) pursuant to which the Buyer agreed to purchase all of the issued and outstanding equity interests of FLX Holding Corp. ("Flexiti Holding") for a purchase price of approximately C$55.0 million, subject to an adjustment based on Flexiti Holding's certain tangible book value and certain other adjustments, as provided in the SPA. Flexiti Holding constitutes the entirety of the Company’s Canada POS Lending Segment. The Company expects to close the transaction during the third quarter of 2023, subject to agreed customary closing conditions, including receipt of required regulatory approvals.



38






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

FORWARD LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. These forward-looking statements include projections, estimates and assumptions about various matters, including future financial and operational performance, and may be identified by words such as "guidance," "estimate," "anticipate," "believe," "forecast," "step," "plan," "predict," "focused," "project," "is likely," "is possible," "expect," "anticipate," "intend," "should," "will," 'may," "confident," "trend" and variations of such words and similar expressions. The matters discussed in these forward-looking statements are based on management's beliefs, assumptions, current expectations and estimates and projections, and 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 the section titled “Risk Factors” in our 2022 Form 10-K and the section titled "Risk Factors" in Item 1A of this Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with our business.

Company Overview

We are a tech-enabled, omni-channel consumer finance company serving consumers in portions of the U.S. and Canada. CURO was founded over 25 years ago to meet the growing needs of consumers looking for additional ways to access credit. We continuously update our products and technology platform to offer a variety of convenient and accessible financial and loan services. We design our customer experience to allow consumers to apply for, update and manage their loans in the channels they prefer—in branch, via mobile device or over the phone. Our high customer satisfaction scores speak to our ability to anticipate and exceed customers’ needs.
In the U.S., we operate under several principal brands, including "Covington Credit," "Heights Finance," "Quick Credit," "Southern Finance" and "First Heritage." In Canada, we operate under “Cash Money” and “LendDirect” direct lending brands and the "Flexiti" POS/BNPL brand. As of June 30, 2023, we operated over 490 store locations across 13 U.S. states and nearly 150 stores in eight Canadian provinces and had an online presence in eight provinces and one territory. Our POS operations are available at over 8,800 retail locations and over 3,700 merchant partners across 10 Canadian provinces and two territories. Until the sale of our Legacy U.S. Direct Lending Business in July 2022, we also operated under brands that included "Speedy Cash," "Rapid Cash" and "Avio Credit." We also offered demand deposit accounts in the U.S. under the "Revolve Finance" brand and credit card programs under the "First Phase" brand, until the fourth quarter of 2022.

Recent Business Developments

In October 2022, we began restructuring actions to increase our operating efficiency by reducing our global workforce and closing 89 stores across the U.S. and Canada. These actions were aimed at reducing duplicative corporate functions and stores with overlapping customer populations as a result of our recent acquisitions. Additional costs were incurred in 2023. Refer to Note 14, "Restructuring" for additional details regarding these initiatives.
Regulatory Developments

See "Regulatory Environment and Compliance" for a description of the regulatory environment in which we operate in the U.S. and Canada and related developments in the second quarter of 2023.

Consolidated Revenue by Product and Segment
Beginning January 1, 2023, the Company started reporting "Insurance and other income" in place of the previously reported "Insurance premiums and commissions" and "Other revenue" line items in the unaudited Condensed Consolidated Statements of Operations. Prior period amounts have been reclassified to conform with current period presentation.
As a result of the sale of the Legacy U.S. Direct Lending Business in July 2022, we no longer guarantee loans originated by third-party lenders through CSO programs. As such, our results of operations discussed below only include the results from the CSO program for the three months and six months ended June 30, 2022. Refer to Note 13, "Acquisitions and Divestiture" for additional information.
The following table summarizes revenue by product for the period indicated:
39






For the Three Months Ended
June 30, 2023June 30, 2022
(in thousands)Direct LendingCanada POS LendingTotal% of TotalDirect LendingCanada POS LendingTotal% of Total
Revolving LOC49,483 37,220 86,703 41.4 %75,736 20,847 96,583 31.7 %
Installment92,283 — 92,283 44.1 %181,748 — 181,748 59.7 %
Total interest and fees revenue141,766 37,220 178,986 85.5 %257,484 20,847 278,331 91.4 %
Insurance and other income25,250 5,007 30,257 14.5 %23,767 2,306 26,073 8.6 %
   Total revenue167,016 42,227 209,243 100.0 %281,251 23,153 304,404 100.0 %

During the three months ended June 30, 2023, total revenue decreased $95.2 million, or 31.3%, to $209.2 million, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by the acquisition of First Heritage in July 2022 and revenue growth in Canada POS Lending. These transactions caused a shift to longer term, higher credit quality and lower yielding loans.

Product Revenue for the Three Months Ended June 30, 2023
Revolving LOC
Revolving LOC revenue for the three months ended June 30, 2023 decreased $9.9 million, or 10.2%, compared to the prior-year period, primarily due to a decrease of $26.3 million, or 34.7%, in the Direct Lending segment driven by the impact of the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by growth in Canada POS Lending of $16.4 million, or 78.5%.

Installment
Installment revenue for the three months ended June 30, 2023 decreased $89.5 million, or 49.2%, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by revenue following the acquisition of First Heritage in July 2022.

Insurance and other income
Insurance and other income for the three months ended June 30, 2023 increased $4.2 million, or 16.0%, compared to the prior-year period, primarily related to revenue stemming from the acquisition of First Heritage in July 2022.


For the Six Months Ended
June 30, 2023
June 30, 2022
(in thousands)Direct LendingCanada POS LendingTotal% of TotalDirect LendingCanada POS LendingTotal% of Total
Revolving LOC98,575 72,353 170,928 40.8 %148,104 39,502 187,606 31.6 %
Installment187,495 — 187,495 44.8 %355,681 — 355,681 59.8 %
Total interest and fees revenue286,070 72,353 358,423 85.6 %503,785 39,502 543,287 91.4 %
Insurance and other income50,314 9,979 60,293 14.4 %47,353 3,960 51,313 8.6 %
   Total revenue336,384 82,332 418,716 100.0 %551,138 43,462 594,600 100.0 %

During the six months ended June 30, 2023, total revenue decreased $175.9 million, or 29.6%, to $418.7 million, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by the acquisition of First Heritage in July 2022 and revenue growth in Canada POS Lending. These transactions caused a shift to longer term, higher credit quality and lower yielding loans.

Product Revenue for the Six Months Ended June 30, 2023
Revolving LOC
Revolving LOC revenue for the six months ended June 30, 2023 decreased $16.7 million, or 8.9%, compared to the prior-year period, primarily due to a decrease of $49.5 million, or 33.4%, in the Direct Lending segment driven by the impact of the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by growth in Canada POS
40






Lending of $32.9 million, or 83.2%.

Installment
Installment revenue for the six months ended June 30, 2023 decreased $168.2 million, or 47.3%, compared to the prior-year period, primarily due to the sale of the Legacy U.S. Direct Lending Business in July 2022, partially offset by revenue following the acquisition of First Heritage in July 2022.

Insurance and other income
Insurance and other income for the six months ended June 30, 2023 increased $9.0 million, or 17.5%, compared to the prior-year period, primarily related to revenue following the acquisition of First Heritage in July 2022.
41






Consolidated Results of Operations
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 June 30,Six Months Ended June 30,
20232022Change $Change %20232022Change $Change %
Revenue
Interest and fees revenue$178,986 $278,331 $(99,345)(35.7)%$358,423 $543,287 $(184,864)(34.0)%
Insurance and other income30,257 26,073 4,184 16.0 %60,293 51,313 8,980 17.5 %
Total revenue209,243 304,404 (95,161)(31.3)%418,716 594,600 ($ 175,884)(29.6)%
Provision for losses79,598 129,546 (49,948)(38.6)%142,530 227,077 (84,547)(37.2)%
Net revenue129,645 174,858 (45,213)(25.9)%276,186 367,523 (91,337)(24.9)%
Operating Expenses
Salaries and benefits61,346 82,427 (21,081)(25.6)%126,151 162,156 (36,005)(22.2)%
Occupancy11,267 17,507 (6,240)(35.6)%22,939 34,544 (11,605)(33.6)%
Advertising2,131 12,707 (10,576)(83.2)%4,306 23,207 (18,901)(81.4)%
Direct operations15,466 20,293 (4,827)(23.8)%28,558 40,567 (12,009)(29.6)%
Depreciation and amortization9,141 8,672 469 5.4 %18,162 18,486 (324)(1.8)%
Other operating expense8,796 18,787 (9,991)(53.2)%26,229 35,163 (8,934)(25.4)%
Total operating expenses108,147 160,393 (52,246)(32.6)%226,345 314,123 (87,778)(27.9)%
Other expense (income)
Interest expense66,101 42,193 23,908 56.7 %125,044 80,534 44,510 55.3 %
Loss (gain) from equity method investment2,134 1,328 806 60.7 %5,547 (256)5,803 #
Extinguishment or modification of debt costs8,864 — 8,864 #8,864 — 8,864 #
Loss on change in fair value of contingent consideration— 4,014 (4,014)#2,728 3,750 (1,022)(27.3)%
Gain on sale of business— — — #2,027 — 2,027 #
Miscellaneous expenses1,435 — 1,435 #1,435 — 1,435 #
Total other expense 78,534 47,535 30,999 65.2 %145,645 84,028 61,617 73.3 %
Loss before income taxes(57,036)(33,070)(23,966)72.5 %(95,804)(30,628)(65,176)#
Provision (benefit) for income taxes2,291 (6,990)9,281 #22,994 (5,884)28,878 #
Net loss $(59,327)$(26,080)$(33,247)#$(118,798)$(24,744)$(94,054)#
#- Change greater than 100% or not meaningful
Comparison of Consolidated Results of Operations for the Three Months Ended June 30, 2023 and 2022

Revenue

For a discussion of revenue, see "Consolidated Revenue by Product and Segment" above.

Provision for Losses

We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". Provision for losses decreased by $49.9 million, or 38.6%, for the three months ended June 30, 2023 compared to the prior-year period, primarily driven by our Legacy U.S. Direct Lending Business divestiture of $58.7 million, which is a higher loss rate product, partially offset by the impact of adopting CECL and growth in our Direct Lending and Canada POS Lending operating segments.
42






Operating Expenses

Operating expenses for the three months ended June 30, 2023 decreased $52.2 million, or 32.6%, compared to the prior-year period, primarily driven by:

Salaries and benefits. Salaries and benefits expense was $61.3 million for the three months ended June 30, 2023, a decrease of $21.1 million, or 25.6%, compared to the prior-year period. The decrease is largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business and lower headcount as a result of restructuring initiatives implemented in the fourth quarter of 2022.

Occupancy. Occupancy expense was $11.3 million for the three months ended June 30, 2023, a decrease of $6.2 million, or 35.6%, compared to the prior-year period. The decrease was largely due to the 160 stores sold as part of the July 2022 divestiture of our Legacy U.S. Direct Lending Business, partially offset by the acquisition of First Heritage and its 106 stores.

Advertising. Advertising expense was $2.1 million for the three months ended June 30, 2023, a decrease of $10.6 million, or 83.2%, compared to the prior-year period primarily due to the sale of our Legacy U.S. Direct Lending Business in July 2022 and the current approach to marketing our brands.

Direct operations. Direct operations expense was $15.5 million for the three months ended June 30, 2023, a decrease of $4.8 million, or 23.8%, compared to the prior-year period. The decrease is primarily driven by the divestiture of the Legacy U.S. Direct Lending Business, partially offset by the lower cost First Heritage business acquired in July 2022.

Depreciation and amortization. Depreciation and amortization expense for the three months ended June 30, 2023 remained flat at $9.1 million, an increase of $0.5 million, or 5.4%, compared to the prior-year period, with offsetting amounts due to the sale of our Legacy U.S. Direct Lending Business in July 2022 and the acquisition of First Heritage in July 2022.

Other operating expenses. Other operating expenses were $8.8 million for the three months ended June 30, 2023, a decrease of $10.0 million, or 53.2%, compared to the prior-year period, primarily driven by a decrease in professional fees associated with the First Heritage acquisition and the divestiture of the Legacy U.S. Direct Lending Business incurred in the same period last year.

Other Expense (Income)

Other expenses for the three months ended June 30, 2023 were $78.5 million, an increase of 65.2% compared to the prior-year period, primarily driven by:

Interest expense. Interest expense for the three months ended June 30, 2023 increased $23.9 million, or 56.7%, compared to the prior-year period, primarily driven by (i) the new $150 million 1.0L 18.00% Senior Secured Term Loan and Canada SPV II entered into on May 15, 2023, (ii) increased non-recourse ABL borrowing to support organic loan growth and acquired loans, including in July 2022 the new $225 million non-recourse revolving warehouse facility to finance future loans originated by First Heritage and the new $425 million non-recourse revolving warehouse facility to replace our incumbent lender and finance future loans originated by Heights, and (iii) an increase in benchmark rates on variable-rate debt.

Equity method investment. Our share of Katapult's losses was $2.1 million and $1.3 million of loss for the three months ended June 30, 2023 and 2022, respectively.

Extinguishment or modification of debt costs. We incurred $8.9 million of expenses during the three months ended June 30, 2023 of which approximately $8.8 million of the expenses were related to costs incurred to third parties as part of the new 1.0L 18.00% Senior Secured Term Loan and uptiering of 1.5L 7.50% Senior Secured Notes that were expensed, and the remaining $0.1 million expenses were related to the extinguishment of the Senior Revolver.
Gain or loss on change in fair value of contingent consideration. The period for which contingent consideration could be earned in connection with our acquisition of Flexiti ended on March 31, 2023. There were no changes during the three months ended June 30, 2023 and on July 20, 2023, we settled the liability. We recorded a $4.0 million loss related to the increase in the fair value of contingent consideration liability during the three months ended June 30, 2022.

Miscellaneous expenses. We had $1.4 million of miscellaneous expenses in the three months ended June 30, 2023 related to costs incurred related to termination of contracts utilized by the Legacy U.S. Direct Lending Business.

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Provision for Income Taxes

The effective income tax rate for the three months ended June 30, 2023 was (4.0)%. The effective income tax rate for the three months ended June 30, 2023 was lower than to the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of recording a valuation allowance against U.S. deferred tax assets of $14.5 million and lost tax benefits related to share-based compensation of $0.4 million.


Comparison of Consolidated Results of Operations for the Six Months Ended June 30, 2023 and 2022

Revenue

For a discussion of revenue, see "Consolidated Revenue by Product and Segment" above.

Provision for Losses

We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". Provision for losses decreased by $84.5 million, or 37.2%, for the six months ended June 30, 2023 compared to the prior-year period, primarily driven by our Legacy U.S. Direct Lending Business divestiture of $103.3 million, which is a higher loss rate product, partially offset by the impact of adopting CECL and growth in our Direct Lending and Canada POS Lending operating segments.

Operating Expenses

Operating expenses for the six months ended June 30, 2023 decreased $87.8 million, or 27.9%, compared to the prior-year period, primarily driven by:

Salaries and benefits. Salaries and benefits expense was $126.2 million for the six months ended June 30, 2023, a decrease of $36.0 million, or 22.2%, compared to the prior-year period. The decrease was largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business and lower headcount as a result of restructuring initiatives implemented in the fourth quarter of 2022, offset by the increase of store employees of the acquired First Heritage business.

Occupancy. Occupancy expense was $22.9 million for the six months ended June 30, 2023, a decrease of $11.6 million, or 33.6%, compared to the prior-year period. The decrease was largely due to the 160 stores sold as part of the July 2022 divestiture of our Legacy U.S. Direct Lending Business, partially offset by the acquisition of First Heritage and its 106 stores.

Advertising. Advertising expense was $4.3 million for the six months ended June 30, 2023, a decrease of $18.9 million, or 81.4%, compared to the prior-year period primarily due to the sale of our Legacy U.S. Direct Lending Business in July 2022 and the current approach to marketing our brands.

Direct operations. Direct operations expense was $28.6 million for the six months ended June 30, 2023, a decrease of $12.0 million, or 29.6%, compared to the prior-year period. The decrease is primarily driven by the divestiture of the Legacy U.S. Direct Lending Business, partially offset by the lower cost First Heritage business acquired in July 2022.

Depreciation and amortization. Depreciation and amortization expense for the six months ended June 30, 2023 was $18.2 million, a decrease of $0.3 million, or 1.8%, compared to the prior-year period.

Other operating expenses. Other operating expenses were $26.2 million for the six months ended June 30, 2023, a decrease of $8.9 million, or 25.4%, compared to the prior-year period, primarily driven by a decrease in professional fees associated with the First Heritage acquisition and the divestiture of the Legacy U.S. Direct Lending Business incurred in the same period last year.

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Other Expense (Income)

Other expenses for the six months ended June 30, 2023 were $145.6 million, an increase of $61.6 million, or 73.3%, compared to the prior-year period, primarily driven by:

Interest expense. Interest expense for the six months ended June 30, 2023, increased $44.5 million, or 55.3%, compared to the prior-year period, primarily driven by the new 1.0L 18.00% Senior Secured Term Loan entered into on May 15, 2023, increased non-recourse ABL borrowing to support organic loan growth and acquired portfolios and an increase in benchmark rates on variable-rate debt.

Equity method investment. Our share of Katapult's losses was $5.5 million of loss for the six months ended June 30, 2023 and $0.3 million of income for the six months ended June 30, 2022.

Extinguishment or modification of debt costs. We incurred $8.9 million of expenses during the six months ended June 30, 2023 of which approximately $8.8 million of the expenses were related to costs incurred to third parties as part of the new 1.0L 18.00% Senior Secured Term Loan and uptiering 1.5L 7.50% Senior Secured Notes that were expensed, and the remaining $0.1 million related to the extinguishment of the Senior Revolver.
Gain or loss on change in fair value of contingent consideration. The period for which contingent consideration could be earned in connection with our acquisition of Flexiti ended on March 31, 2023. On July 20, 2023, we settled the liability. We recorded a $2.7 million loss related to the increase in fair value of the contingent consideration liability related to the Flexiti acquisition during the six months ended June 30, 2023 and a $3.8 million loss related to the increase in the fair value of contingent consideration liability during the six months ended June 30, 2022.

Gain on sale of business. During the six months ended June 30, 2023, we recorded a $2.0 million reduction to the gain on the July 2022 sale of our Legacy U.S. Direct Lending Business, based on expected uncollectible amounts.

Miscellaneous expenses. We incurred $1.4 million of miscellaneous expenses during the six months ended June 30, 2023 related to the termination of contracts utilized by the Legacy U.S. Direct Lending Business.

Provision for Income Taxes

The effective income tax rate for the six months ended June 30, 2023 was (24.0)%. The effective income tax rate for the six months ended June 30, 2023 was lower than the blended federal and state/provincial statutory rate of approximately 26.0%, primarily as a result of recording a valuation allowance against U.S. DTAs of $43.5 million and lost tax benefits related to share-based compensation of $1.6 million.

Segment Analysis

The following is a summary of portfolio performance and results of operations for the segment and period indicated. We now report financial results for two reportable segments: Direct Lending and Canada POS Lending. See Note 12, "Segment Reporting" for further information.


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Direct Lending Portfolio Performance

(in thousands, except percentages, unaudited)Q2 2023Q1 2023Q4 2022Q3 2022
Q2 2022(1)
Gross loans receivable
Revolving LOC472,902461,443451,077439,117501,209
Installment loans 754,713748,133803,318765,041652,467
Total gross loans receivable1,227,6151,209,5761,254,3951,204,1581,153,676
Lending Revenue
Revolving LOC49,48349,09249,91552,46175,736
Installment loans92,28395,212100,435103,478181,748
Total lending revenue141,766144,304150,350155,939257,484
Lending Provision
Revolving LOC$27,089$15,539$29,62028,40834,472
Installment loans35,17131,13946,44233,51186,485
Total lending provision62,26046,67876,06261,919120,957
NCOs (2)
Revolving LOC$21,780$6,234$26,71524,79330,408
Installment loans 35,48341,07838,16829,78343,661
Total NCOs57,26347,31264,88354,57674,069
NCO rate (annualized) (2) (3)
Revolving LOC18.7 %5.5%23.8%20.9%25.0 %
Installment loans 18.9 %21.5%19.3%16.7%27.7 %
Total NCO rate18.8 %15.6%20.9%18.4%26.5 %
ACL rate (4) (5)
Revolving LOC26.6 %25.6 %8.4 %7.9 %9.3 %
Installment loans 11.2 %11.3 %5.4 %4.6 %6.9 %
Total ACL rate17.1 %16.8 %6.5 %5.8 %7.9 %
31+ days past-due rate (4)
Revolving LOC8.5 %8.4 %4.1 %5.1 %5.8 %
Installment loans 8.1 %8.2 %9.6 %10.2 %9.7 %
Total past-due rate8.3 %8.3 %7.6 %8.3 %8.0 %
(1) Includes loan balances and activity classified as Held for Sale.
(2) NCOs include $0.5 million and $10.3 million, for the three months ended September 30, 2022 and June 30, 2022, respectively, related to the purchase accounting fair value discount, which are excluded from provision.
(3) We calculate NCO rate as total quarterly NCOs divided by Average gross loans receivable, then we annualize the rate. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(4) We calculate (i) ACL rate and (ii) 31+ days past-due rate as the respective totals divided by gross loans receivable at each quarter end.
(5) We adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" on January 1, 2023, which requires us to estimate the lifetime expected credit loss on financial instruments. Our previous model required the recognition of credit losses when it was probable that a loss had been incurred.
46









Direct Lending Results of Operations

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, unaudited)20232022Change $Change %20232022Change $Change %
Revenue
Interest and Fees Revenue$141,766 $257,484 $(115,718)(44.9)%$286,070 $503,785 $(217,715)(43.2)%
Insurance and other income25,250 23,767 1,483 6.2 %50,314 47,353 2,961 6.3 %
Total Revenue167,016 281,251 (114,235)(40.6)%336,384 551,138 ($ 214,754)(39.0)%
Provision for Losses63,755 123,584 (59,829)(48.4)%112,119 212,401 (100,282)(47.2)%
Net Revenue103,261 157,667 (54,406)(34.5)%224,265 338,737 (114,472)(33.8)%
Operating expenses
Salaries and Benefits53,144 73,884 (20,740)(28.1)%109,763 146,943 (37,180)(25.3)%
Occupancy10,885 17,212 (6,327)(36.8)%22,229 34,023 (11,794)(34.7)%
Advertising Expense1,967 12,465 (10,498)(84.2)%3,966 22,665 (18,699)(82.5)%
Direct Operations12,032 16,624 (4,592)(27.6)%21,777 33,151 (11,374)(34.3)%
Amortization and Depreciation5,339 5,705 (366)(6.4)%10,729 11,387 (658)(5.8)%
Other operating expenses7,918 18,075 (10,157)(56.2)%25,972 33,758 (7,786)(23.1)%
Total operating expenses91,285 143,965 (52,680)(36.6)%194,436 281,927 (87,491)(31.0)%
Other expense (income)
Interest Expense50,460 33,970 16,490 48.5 %94,505 65,685 28,820 43.9 %
Extinguishment or modification of debt costs8,864 — 8,864 #8,864 — 8,864 #
Loss (income) from equity method investment2,134 1,328 806 60.7 %5,547 (256)5,803 #
Gain on sale of business— — — #2,027 — 2,027 #
Miscellaneous expenses1,435 — 1,435 #1,435 — 1,435 #
Total other expense 62,893 35,298 27,595 78.2 %112,378 65,429 46,949 71.8 %
Segment loss before income taxes$(50,917)$(21,596)$(29,321)#$(82,549)$(8,619)$(73,930)#
#- Change greater than 100% or not meaningful

Direct Lending Segment Results - For the Three Months Ended June 30, 2023 and 2022

Total Revenue. Direct Lending total revenue for the three months ended June 30, 2023 decreased $114.2 million, or 40.6%, compared to the prior-year period, primarily as a result of the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by the acquisition of First Heritage in July 2022. These transactions caused a shift to longer term, higher credit quality, lower yielding loans. Gross loans receivable increased $73.9 million, or 6.4%, year over year, primarily driven by the acquisition of First Heritage.

Provision for Losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". The provision for losses decreased $59.8 million, or 48.4%, for the three months ended June 30, 2023, compared to the prior-year period, primarily driven by the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by the adoption of CECL and the acquisition of First Heritage in July 2022.

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Operating Expenses. Operating expenses were $91.3 million for the three months ended June 30, 2023, a decrease of $52.7 million, or 36.6%, compared to the prior-year period. The decrease was primarily due to (i) a $20.7 million decrease in salaries and benefits largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business, offset by the acquisition of First Heritage in July 2022, (ii) a $10.5 million decrease in advertising expense, primarily due to higher advertising costs related to the divested Legacy U.S. Direct Lending business, and (iii) a $4.6 million decrease in direct operations expense, also primarily attributable to the Legacy U.S. Direct Lending Business divestiture in July 2022.

Interest expense. Interest expense for the three months ended June 30, 2023 was $50.5 million, compared to $34.0 million for the three months ended June 30, 2022, primarily driven by (i) the new $150 million 1.0L 18.00% Senior Secured Term Loan and Canada SPV II entered into on May 15, 2023, (ii) increased non-recourse ABL borrowing to support organic loan growth and acquired loans, including in July 2022 the new First Heritage SPV to finance future loans originated by First Heritage and the new Heights SPV to replace our incumbent lender and finance future loans originated by Heights, and (iii) an increase in benchmark rates on variable-rate debt.

Extinguishment or modification of debt costs. We incurred $8.9 million of expenses during the three months ended June 30, 2023 of which approximately $8.8 million of the expenses were related to costs incurred to third parties as part of the new 1.0L 18.00% Senior Secured Term Loan and uptiering of 1.5L 7.50% Senior Secured Notes that were expensed, and the remaining $0.1 million expenses were related to the extinguishment of the Senior Revolver.

Equity method investment. Our share of Katapult losses was $2.1 million of loss for the three months ended June 30, 2023 and $1.3 million of loss for the three months ended June 30, 2022.

Miscellaneous expenses. We had $1.4 million of miscellaneous expenses in the three months ended June 30, 2023 related to costs of terminating contracts utilized by the Legacy U.S. Direct Lending Business.

Direct Lending Segment Results - For the Six Months Ended June 30, 2023 and 2022

Total Revenue. Direct Lending total revenue for the six months ended June 30, 2023 decreased $214.8 million, or 39.0%, compared to the prior-year period, primarily as a result of the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by the acquisition of First Heritage in July 2022. These transactions caused a shift to longer term, higher credit quality and lower yielding loans. Gross loans receivable increased $73.9 million, or 6.4%, year over year, primarily driven by the acquisition of First Heritage.

Provision for Losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". The provision for losses decreased $100.3 million, or 47.2%, for the six months ended June 30, 2023, compared to the prior-year period, primarily driven by the divestiture of our Legacy U.S. Direct Lending business in July 2022, partially offset by CECL adoption and the acquisition of First Heritage in July 2022.

Operating Expenses. Operating expenses were $194.4 million for the six months ended June 30, 2023, a decrease of $87.5 million, or 31.0%, compared to the prior-year period. The decrease was primarily due to (i) a $37.2 million decrease in salaries and benefits largely due to the July 2022 divestiture of our Legacy U.S. Direct Lending Business, partially offset by the acquisition of First Heritage (ii) an $18.7 million decrease in advertising expense, primarily due to higher advertising costs related to the divested Legacy U.S. Direct Lending business, and (iii) a $11.4 million decrease in direct operations expense, primarily attributable to the aforementioned Legacy U.S. Direct Lending Business divestiture in July 2022 having higher costs of operations compared to the current business.

Interest expense. Interest expense for the six months ended June 30, 2023 was $94.5 million, compared to $65.7 million for the six months ended June 30, 2022, primarily driven by (i) the new $150 million 1.0L 18.00% Senior Secured Term Loan and Canada SPV II entered into on May 15, 2023, (ii) increased non-recourse ABL borrowing to support organic loan growth and acquired loans, including including in July 2022 the new First Heritage SPV to finance future loans originated by First Heritage and the new Heights SPV to replace our incumbent lender and finance future loans originated by Heights, and (iii) an increase in benchmark rates on variable-rate debt.

Extinguishment or modification of debt costs. We incurred $8.9 million of expenses during the six months ended June 30, 2023 of which approximately $8.8 million of the expenses were related to costs incurred to third parties as part of the new 1.0L 18.00% Senior Secured Term Loan and uptiering 1.5L 7.50% Senior Secured Notes that were expensed, and the remaining $0.1 million related to the extinguishment of the Senior Revolver.

48






Equity method investment. Our share of Katapult's losses was $5.5 million of loss for the six months ended June 30, 2023 and $0.3 million of income for the six months ended June 30, 2022.

Gain on sale of business. We recorded a $2.0 million reduction to the gain on the sale of our Legacy U.S. Direct Lending Business that occurred in July 2022, based on expected uncollectible amounts, for the six months ended June 30, 2023.

Miscellaneous expenses. We had $1.4 million of miscellaneous expense during the six months ended June 30, 2023 related to costs of terminating contracts utilized by the Legacy U.S. Direct Lending Business.


Canada POS Lending Portfolio Performance
(in thousands, except percentages, unaudited)Q2 2023Q1 2023Q4 2022Q3 2022Q2 2022
Revolving LOC
Gross loans receivable912,250853,253833,438690,270627,163
Lending revenue37,22035,13331,25524,57520,847
Lending provision15,84314,56817,12513,3795,963
NCOs 11,00611,7198,6726,1143,537
NCO rate (annualized) (1)
5.0 %5.6 %4.4 %3.6 %2.4 %
ACL rate (2) (3)
6.8 %6.7 %4.9 %4.8 %4.5 %
31+ days past-due rate (2)
4.0 %3.9 %2.9 %3.6 %2.8 %
(1) We calculate NCO rate as total quarterly NCOs divided by Average gross loans receivable and then annualize the rate. The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications and the periodic sale of charged off loans.
(2) We calculate (i) ACL rate and (ii) 31+ days past-due rate as the respective totals divided by gross loans receivable at each respective quarter end.
(3) We adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" on January 1, 2023, which requires us to estimate the lifetime expected credit loss on financial instruments. Our previous model required the recognition of credit losses when it was probable that a loss had been incurred.

49






Canada POS Lending Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, unaudited)20232022Change $Change %20232022Change $Change %
Revenue
Interest and fees revenue$37,220 $20,847 $16,373 78.5 %$72,353 $39,502 $32,851 83.2 %
Insurance and other income5,007 2,306 2,701 #9,979 3,960 6,019 #
Total revenue42,227 23,153 19,074 82.4 %82,332 43,462 38,870 89.4 %
Provision for losses15,843 5,962 9,881 #30,411 14,676 15,735 #
Net revenue26,384 17,191 9,193 53.5 %51,921 28,786 23,135 80.4 %
Operating expenses
Salaries and benefits8,202 8,543 (341)(4.0)%16,388 15,213 1,175 7.7 %
Occupancy382 295 87 29.5 %710 521 189 36.3 %
Advertising164 242 (78)(32.2)%340 542 (202)(37.3)%
Direct operations3,434 3,669 (235)(6.4)%6,781 7,416 (635)(8.6)%
Depreciation and amortization3,802 2,967 835 28.1 %7,433 7,099 334 4.7 %
Other operating expense878 712 166 23.3 %257 1,405 (1,148)(81.7)%
Total operating expenses16,862 16,428 434 2.6 %31,909 32,196 (287)(0.9)%
Other expense (income)
Interest expense15,641 8,223 7,418 90.2 %30,539 14,849 15,690 #
Loss on change in fair value of contingent consideration— 4,014 (4,014)#2,728 3,750 (1,022)(27.3)%
Total other expense 15,641 12,237 3,404 27.8 %33,267 18,599 14,668 78.9 %
Segment loss before income taxes$(6,119)$(11,474)$5,355 (46.7)%$(13,255)$(22,009)$8,754 (39.8)%
#- Change greater than 100% or not meaningful

Canada POS Lending Segment Results - For the Three Months Ended June 30, 2023 and 2022

Total Revenue. Total revenue increased by $19.1 million, or 82.4%, driven by increased originations which resulted in our gross loan portfolio growing by $285.1 million, or 45.5% year over year, due to both existing and new merchant partners.

Provision for losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". The provision for losses increased $9.9 million, or 165.7%, for the three months ended June 30, 2023, compared to the prior-year period primarily driven by the adoption of CECL, organic loan growth and portfolio seasoning. Total NCO rates for the first quarter of 2023 (annualized) increased to 5.0% from 2.4% year over year. Total past-due rates increased 122 bps year over year and increased 12 bps sequentially.

Operating expenses. Operating expenses remained flat for the three months ended June 30, 2023 at $16.9 million, an increase of $0.4 million, or 2.6%, compared to the three months ended June 30, 2022.

Interest expense. Interest expense for the three months ended June 30, 2023 increased $7.4 million, or 90.2%, compared to the prior-year period, primarily driven by increased non-recourse asset-backed lending borrowing to support significant loan growth and increased benchmark rates on variable-rate debt prior to giving effect to interest rate swap agreements.

Gain or loss on change in fair value of contingent consideration. We recorded a $4.0 million loss following a increase in the fair value of Flexiti contingent consideration liability during the three months ended June 30, 2022. We did not record an expense during the three months ended June 30, 2023.

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Canada POS Lending Segment Results - For the Six Months Ended June 30, 2023 and 2022

Total Revenue. Total revenue increased by $38.9 million, or 89.4%, driven by increased originations which resulted in our gross loan portfolio growing by $285.1 million, or 45.5%, year over year due to both existing and new merchant partners.

Provision for losses. We adopted CECL on January 1, 2023, as further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations". The provision for losses increased $15.7 million, or 107.2%, for the six months ended June 30, 2023, compared to the prior-year period primarily driven by the adoption of CECL, organic loan growth and portfolio seasoning. Total past-due rates increased 122 bps year over year and increased 12 bps sequentially.

Operating expenses. Operating expenses remained flat for the six months ended June 30, 2023 at $31.9 million, a decrease of $0.3 million, or 0.9%, compared to $32.2 million for the six months ended June 30, 2022.

Interest expense. Interest expense for the six months ended June 30, 2023 increased $15.7 million, or 105.7%, compared to the prior-year period, primarily driven by increased non-recourse asset-backed lending borrowing to support significant loan growth and increased benchmark rates on variable-rate debt prior to giving effect to interest rate swap agreements.

Gain or loss on change in fair value of contingent consideration. We recorded a $2.7 million loss during the six months ended June 30, 2023, compared to a $3.8 million loss each following an increase in the fair value of Flexiti contingent consideration liability during the six months ended June 30, 2022.

Currency Information

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

Changes in our reported revenues and net (loss) income include the effect of changes in currency exchange rates. We translate the unaudited Condensed Consolidated Balance Sheet into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the unaudited Condensed Consolidated Statement of Operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated other comprehensive loss in Stockholders’ Equity.

Constant Currency Analysis

We have operations in the U.S. and Canada. For the three months ended June 30, 2023 and 2022, 57.3% and 32.4%, respectively, of our revenues were originated in Canadian Dollars. six months ended June 30, 2023 and 2022, 56.6% and 32.0%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates of the Canadian Dollar.

Statement of Operations - Exchange Rate for the three and six month periods ended June 30, 2023 and 2022
Three Months Ended June 30,Six Months Ended June 30,
20232022$ Change% Change20232022$ Change% Change
Average Exchange Rates for the Canadian Dollar0.7432 0.7835 (0.0403)(5.1)%0.7414 0.7864 (0.0450)(5.7)%

Balance Sheet - Exchange Rate as of June 30, 2023 and December 31, 2022
June 30,December 31,Change
20232022$%
Exchange Rate for the Canadian Dollar0.7573 0.7365 0.0208 2.8 %
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 Canadian operations. 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 reportable segments during the three and six months ended June 30, 2023 using the actual average exchange rate during the three and six months ended June 30, 2022 (in thousands).
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Three Months Ended June 30,Six Months Ended June 30,
20232022$ Change% Change20232022$ Change% Change
Direct Lending – constant currency basis:
Revenues$171,527 $281,251 $(109,724)(39.0)%$345,773 $551,138 $(205,365)(37.3)%
Net revenue105,936 157,667 (51,731)(32.8)%230,452 338,737 (108,285)(32.0)%
Segment loss before income taxes(50,114)(21,596)(28,518)132.1 %(80,478)(8,619)(71,859)833.7 %
Canada POS Lending – constant currency basis:
Revenues$44,678 $23,153 $21,525 93.0 %$87,318 $43,462 $43,856 100.9 %
Net revenue27,930 17,191 10,739 62.5 %55,077 28,786 26,291 91.3 %
Segment loss before income taxes(6,440)(11,474)5,034 (43.9)%(14,068)(22,009)7,941 (36.1)%

We calculated gross loans receivable for our reportable segments below as of June 30, 2023 using the actual exchange rate as of December 31, 2022 (in thousands).
June 30,December 31,Change
20232022$%
Direct Lending – constant currency basis:
Gross loans receivable$1,213,594 $1,254,395 $(40,801)(3.3)%
Canada POS Lending – constant currency basis:
Gross loans receivable$887,122 $833,438 $53,684 6.4 %

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations and (ii) our revolving credit facilities and our non-recourse funding facilities, as further described in Note 6, "Debt" of the Notes to the unaudited Condensed Consolidated Financial Statements. Historically, we also used funds from third-party lenders under our CSO programs. As a result of the sale of the Legacy U.S. Direct Lending Business on July 8, 2022, we no longer guarantee loans originated by third-party lenders through CSO programs.

We anticipate that our primary uses of cash will be to fund growth in our working capital, finance capital expenditures to further our business strategy in both the U.S. and Canada and meet our debt obligations. Refer to Note 15, "Share Repurchase Program" of the Notes to the unaudited Condensed Consolidated Financial Statements for details of our share repurchases. The Board of Directors suspended the quarterly dividend payment in October 2022.

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 maintaining cash inflows through loan repayments.

We may also sell or securitize our assets, 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 unrestricted cash on hand of $112.5 million as of June 30, 2023. We believe cash on hand, available borrowings and cash provided by other sources should provide us with sufficient liquidity for at least the next 12 months.

On May 15, 2023, we amended certain SPV credit facilities. These amendments made various changes to the SPV credit facilities,
including, in certain cases, with respect to advance rates and maturity dates. With these amendments, we no longer need to extend previous waivers to certain financial ratios, covenants and other requirements in our debt agreements. Under the terms of each SPV credit facility, the effective advance rates vary from stated advanced rates based on certain performance metrics and eligibility requirements of pledged loans.

As of June 30, 2023, we were in compliance with all financial ratios, covenants and other requirements in our debt agreements or had received any necessary waivers.

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Debt Capitalization Summary
(in thousands, except capacity, net of deferred financing costs)

CapacityInterest RateMaturity
Balance as of June 30, 2023 (in USD)
Corporate Debt:
1.0L 18.00% Senior Secured Term Loan18.00%August 2, 2027148,249 
1.5L 7.50% Senior Secured Notes (due 2028) 7.50%August 1, 2028671,496 
2.0L 7.50% Senior Secured Notes (due 2028) 7.50%August 1, 2028312,672 
Funding Debt:
Heights SPV$425.0 million1-Mo SOFR + 4.71%July 15, 2025380,439 
First Heritage SPV$225.0 million1-Mo SOFR + 4.25%July 13, 2025155,926 
Flexiti SPV(1)
C$535.0 million
Weighted average interest rate (2)(3) 8.41%
September 29, 2025389,725 
Flexiti Securitization(1)
C$526.5 million
1-Mo CDOR + 3.59% (3)
December 9, 2025394,975 
Canada SPV(1)
C$400.0 million3-Mo CDOR + 6.00%August 2, 2026249,377 
Canada SPV II(1)
C$110.0 million3-Mo CDOR + 8.00%November 12, 202570,013 
(1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of June 30, 2023 are denominated in U.S. dollars.
(2) The weighted average interest rate does not include the impact of the amortization of deferred loan origination costs or debt discounts.
(3) Swapped to fixed-rate via interest rate swap hedging arrangement that terminates on September 29, 2025 for Flexiti SPV and December 9, 2025 for Flexiti Securitization.
Refer to Note 6, "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):
Six Months Ended June 30,
20232022
Net cash provided by operating activities$61,805 $201,209 
Net cash used in investing activities(96,619)(485,492)
Net cash provided by financing activities88,462 273,923 

Six Months Ended June 30, 2023 and 2022

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2023 was $61.8 million, which is primarily attributable to the effect of non-cash reconciling items of $208.4 million, which primarily included $142.5 million of provision for credit losses, $18.2 million of depreciation and amortization and $17.5 million of deferred income taxes, offset by a net loss of $118.8 million and changes in our operating assets and liabilities of $27.8 million. Our changes in operating assets and liabilities of $27.8 million were primarily related to $35.1 million of lower accrued interest on our gross loans receivable and $5.8 million of lower accounts payable and accrued liabilities, offset by $8.0 million of higher prepaid expenses and other assets.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 was $96.6 million, primarily due to net origination of loans of $72.8 million, in addition to cash to purchase $21.8 million of property, equipment and software and a $2.0 million reduction to the gain on sale from the divestiture of Legacy U.S. Direct Lending business in July 2022 based on expected uncollectible amounts.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2023 was $88.5 million primarily due to $115.0 million in net proceeds from credit facilities due to the 1.0L 18.00% Senior Secured Term Loan offset by the payoff of the Senior Revolver in May of 2023, and $2.3 million of net proceeds from our non-recourse debt facilities, partially offset by $27.7 million in debt issuance costs paid.
Critical Accounting Policies and Estimates

We describe our critical accounting estimates used in the preparation of our consolidated financial statements in Part II - Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates, in our 2022 Form 10-K. We consider the following policies to be our most critical accounting policies because they involve critical accounting estimates and a significant degree of management judgment:
ACL,
business combinations and considerations and
goodwill.

There has been one change in our critical accounting policies from those disclosed in our 2022 Form 10-K related to adoption of 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.

Allowance for Credit Losses

We adopted ASC 326 for measurement of current expected credit losses on January 1, 2023. CECL is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's remaining expected life, adjusted for prepayments, utilizing quantitative and qualitative factors. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions - both current conditions and reasonable and supportable forecasts. When we are not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, we
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have estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit loss information.

We begin consideration of credit losses by determining loan groups of similar qualitative criteria. We identified seven loan groups based on qualitative factors including, financial asset type, loan term, size, geographic location and risk ratings. The loan groups are further disaggregated and analyzed by number of days past due. We selected a static pool Probability of Default (“PD”) / Loss Given Default (“LGD”) / Exposure at Default ("EAD") model to estimate base allowance for credit losses, in which the estimated loss is equal to the product of PD, LGD and EAD. Each of these methods use historical loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. We also consider the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the ACL model. We review macroeconomic forecasts to use in ACL. The projected change in creditworthiness is modeled using Congressional Budget Office data, such as unemployment rate, labor participation rate and personal income. We adjust the historical loss experience by relevant qualitative factors for these expectations.

As loans receivable are originated, provisions for credit losses are recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the remaining expected life of the finance receivables. Subsequent changes to the contractual terms that are a result of re-underwriting are not included in the loans receivable’s expected life. We use our historical loss experience and macroeconomic factors to forecast expected credit losses.

While we utilize a systematic methodology in determining our allowance, the allowance is based on estimates, and ultimate losses may vary from current estimates. The estimates are reviewed periodically and, as adjustments become necessary, are reported in earnings in the periods in which they become known.

Regulatory Environment and Compliance

There have been no significant developments with respect to our regulatory environment and compliance since December 31, 2022, as described in our 2022 Form 10-K except for the following, which we disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023:

Canada Regulations

Unsecured Installment Loans, Revolving LOC Loans and POS/BNPL Products

Unsecured Installment loans, Revolving LOC loans and POS/BNPL products are regulated at both the federal and provincial level in Canada. At the federal level, such lending products are subject to the criminal rate of interest provisions of the Criminal Code, which prohibits receiving (or entering into an agreement to receive) interest at an Effective Annual Rate that exceeds 60% on the credit advanced under the loan agreement. These provisions have been in place since 1980. In March 2023, the federal government of Canada announced, in connection with its proposed federal budget, its intent to introduce legislation to reduce the maximum allowable rate of interest under its criminal code from an Effective Annual Rate of 60%, or annual percentage rate of 47%, to 35%. While the 2023 Budget includes language effectuating this change, we are waiting for the final regulations to be proposed, a comment period to pass and final regulations presented before any final rule or law will be effective. In addition, there may be an implementation period before the industry will need to adhere to the new law. However, we expect this legislation, if adopted in its current form, would adversely affect the pricing for newly originated loans and may require us to reevaluate our underwriting criteria. We expect that our results of operations would be adversely impacted as a result. See the Risk Factors in our 2022 Form 10-K for more information on how changes in regulations such as this change can adversely impact our business.

We are also subject to provincial legislation that requires lenders to provide cost of credit disclosures and extend consumer protection rights to customers, such as prepayment rights, and prohibits the charging of certain default fees.

In addition, some provinces have enacted legislation that regulates high-cost lenders. These laws define a high-cost credit product and require licensing and additional consumer protection oversight.

Single-Pay

Canadian federal legislation exempts from the criminal rate of interest provisions of the Criminal Code cash advance loans of $1,500 or less if the term of the loan is 62 days or less (“payday loans”) and the lender is licensed under provincial legislation as a short-term cash advance lender and the province has been designated under the Criminal Code. In March 2023, the federal government of Canada announced in connection with its proposed Federal budget its intent to creations regulations to set the
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maximum charge on payday loans in any province where payday loans are regulated. Similar to the above, we await final language and effective date decisions by the Canadian government.

Check Cashing

In Canada, the federal government generally does not regulate check cashing businesses, other than federally regulated financial institutions (and other than the prohibition noted above regarding charging or receiving in excess of 60% annual interest rate on the credit advanced for the fee of a check cashing transaction), nor do most provincial governments impose regulations specific to the check cashing industry. There are some minor exceptions in various provinces.

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 2022 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.

See Note 13,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details on our acquisition of Heights and First Heritage and its impact on our unaudited Condensed Consolidated Financial Statements.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of June 30, 2023.

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.

Changes in Internal Control over Financial Reporting

On July 13, 2022, we acquired First Heritage. See Note 13,"Acquisitions and Divestiture" of the Notes to the unaudited Condensed Consolidated Financial Statements for additional details. We continued the process of refining financial reporting controls on the operations associated with First Heritage as of June 30, 2023.

During the second quarter of 2023, we migrated all First Heritage loans and certain Heights loans to a loan management system already in use by certain other Heights loans. The migration was performed in the ordinary course of business to standardize technology used for purposes of loan management. In connection with the migration, where applicable, modifications were made to the design of the control environment associated with the new loan management system and related technology.

There were no other 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 quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.     OTHER INFORMATION

Item 1.         Legal Proceedings
The information required by this item is included in Note 7, "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 2022 Form 10-K for the year ended December 31, 2022 and in our Form 10-Q for the quarter ended March 31, 2023.
Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds

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

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
4.48-K4.15/12/23
4.58-K4.25/12/23
4.68-K4.35/12/23
10.18-K10.15/12/23
10.28-K10.25/12/23
10.38-K10.35/12/23
10.48-K10.45/12/23
10.58-K10.55/12/23
10.68-K10.65/12/23
10.78-K10.75/12/23
10.88-K10.85/12/23
10.98-K10.95/12/23
10.108-K10.105/12/23
10.118-K10.115/12/23
10.128-K10.125/12/23
31.1 Filed herewith
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31.2 Filed herewith
32.1 Filed herewith
101
The following unaudited financial information from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2023, filed with the SEC on August 3, 2023, formatted in Extensible Business Reporting Language (“XBRL”) includes: (i) Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 and (v) Notes to Condensed Consolidated Financial Statements*
Filed herewith




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Signature

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

Dated: August 3, 2023                CURO Group Holdings Corp.
By:/s/ Ismail Dawood
Ismail Dawood
Chief Financial Officer
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