Q3 2020 CURO Group Holdings Corp Earnings Call
Good morning, and welcome to Cure Group Holdings third quarter 2020 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question. Please press Star then one on your touch on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Matt Keating Investor Relations for Keiro. Please go ahead.
Thank you and good morning, everyone. After the market close yesterday, we released results for the third quarter 2020, which are available on the investor sections of our website at IR Doctrow Dot Com with me on today's call <unk>, President and Chief Executive Officer, Don Gayheart, Chief Operating Officer, Bill Baker, Chief Financial Officer, Roger Dean and she.
Counting on <unk>. This call is being webcast and will be archived on the investors section of our website.
Before I turn the call over to Don I'd like to note that today's discussion will contain forward looking statements based on the business environment as we currently see it as such it does include certain risks and uncertainties. Please refer to our press release issued last night and our forms 10-K and 10-Q for more information.
On the specific risk factors that could cause our actual results to differ materially from the projections described in today's discussion any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligations to update these statements as a result of new information or future events.
In addition to U.S. GAAP reporting we report certain financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance reconciliations between these GAAP and non-GAAP measures are included in the tables found in yesterday's press release.
That I would like to turn the call over to dawn.
Thanks, Matt Good morning, and thank you all for joining our call today.
Find you and your families colleagues, all safe and healthy.
Before we begin our third quarter update I want to point out that we began to fill in the supplemental investor presentation to highlight key trends through last week well.
Well be referencing his presentation, our remarks and you can find it on the events <unk> presentations section of our IR website.
Our results for the third quarter were positively impacted by gradual increase in loan demand our decisions to selectively adjust our credit scoring to where your pool it would.
Reduce corn chain and stay at home waters, and historically low delinquencies and net charge off rates.
Canada remained a bright spot posting another quarter of sequential loan balances Robin do and bottom line growth.
We continue to experience solid demand and its proven credit trends from opening volumes in Canada, which wrote in the third quarter's impressive results.
We believe that our strong results in Canada, reflecting two things.
Our strong market position our market leading omni.
Omni channel product offerings.
Second the more pronounced economic rebound in Canada, approximately 80% of the jobs, while student cobot had been Republic compared to just under 60% here in the U.S.
In our us business and finally, starting to see some growth between August and September.
Credit has held steady at very strong levels so far.
Also continues to gain traction with the Burj credit products are now offering product in 14 states although.
Although there are signs of progress in the U.S. business the impact of COVID-19 in terms of reducing loan demand.
Increasing loan payments remains a challenge and we still have work to do to get the bottom line in the U.S. back to more normalized levels.
Getting into the detailed bit more we experienced steady weekly increases loan applications and new loan volume overall as we moved through the third quarter.
Well these trends were still well below these same periods a year ago they have for now.
Yeah.
Our total managed loan balances increased by 9.5% from the second quarter of 2020.
Growth was 4.8% in the U.S. and 13.8% in Canada.
Well manage loan balances were still down 26.5% year over year due to the impacts from Cowen.
The 9.5% sequential increase in this year's third quarter, it was better than the 7.9% sequential growth in last years third quarter.
I should note that the year over year decline was 18.2% without the impact of the run off from a California installment portfolios.
In addition, an unprecedented improvement in credit quality, partially offset the impact of lower loan volume and in Lebanon.
Total delinquencies were down more than 30% year over year for most of the third quarter.
The week ended October 24th total delinquencies were down 28% compared to the same period a year ago.
Putting the pieces together for piano perspective for the third quarter, we posted a revenue declined 38.8%.
Mentally to cope with 19 impact loan demand as.
As well as the year over year impact of the California regulatory change that went into effect at the start of this year.
Excluding the impact on California installment loans.
Revenue declined 35.8% compared to the year ago quarter. So probably 19 is by far the main driver.
Adjusted EBITDA <unk> declined $3.9 million of 46.1%, while net revenue declined $46.1 million year over year.
That revenue decline was offset by about $20 million from year over year cost reductions, which Roger will cover in more detail.
As a result, adjusted diluted earnings per share declined 62% year over year to 27 cents per share for the third quarter.
We said before the Nonprime consumers consistently show greater ability to manage credit as measured by the relative change in their delinquency and charge off data during an economic downturn like prime and near Prime customers Eric.
Our experience in this crisis certainly provides additional support for this year.
Our delinquencies and net charge offs on the U.S. and Ken that stayed low despite much of the government stimulus burning off.
The behavior of our customers through this period also demonstrates the value of our omni channel platform and the investments that we have made to allow for seamless transition from our store to digital channels.
In the U.S., 67% of transactions occurred online during the third quarter of 2020 compared to 57% in the first quarter 2020.
In Canada were online adoption has lagged the U.S., we saw similar shift toward online it's 34% in transactions conducted online during the third quarter of 2020 compared to 23% in the first quarter of the year.
We remain focused on expanding our product set and strategic relationship and as mentioned earlier, we're encouraged by the early results from our relationship with strike Bank as.
As a reminder, stride bank licenses, our underwriting origination and servicing platforms generally arm on the stand alones using the burj credit friendly.
Burgess now offered in 14 states, we expect another five stage to go live by the end of the fourth quarter.
We remain optimistic about these products with potential future contributions.
Another area, where we are focusing a good deal of our effort is on our card platforms.
We currently have approximately 415000 open accounts from a positive balance and our off plus a little ball programs.
We offer our up plus prepaid card in both the U.S. and Canada for our newest product our ball Bank account.
Is offered in the U.S.
In all cases, we act as a program manager and while we partner with banks for core functionality, we control pricing marketing and feature development for all of our current products, allowing us to capture greater economics in that work as an agent for another program manager.
Revolve is particularly interesting as it offers the full functionality of a bank account to our customers, including direct deposit early access to payroll direct deposits and overdraft protection and in many cases battery cheaper alternative to traditional bank accounts.
These card base, where like bank accounts, which were also offered by companies like China.
Have proven very popular with non prime consumers and we believe that our branch network provides us with a great platform to market and fulfill new account relationships.
To that end of the fourth quarter advertising spend.
It was a significant increase in advertising investment for the revolve card, which if successful will continue on into 2021.
I'd now like to turn to our investment in catapult leader in the rapidly growing virtual point of sale financing space.
<unk> origination volume credit performance continues to be strong.
Through the end of September catapults originations increased by over 160% compared to the same period in 2019.
We pick up our share on catapults income on a two month lag. So we expect that its strong earnings trends will contribute considerably to our earnings in the fourth quarter of 2020.
Important to note that our equity share catapult fundings is not included in our adjusted EBITDA or other non-GAAP metrics.
Specifically, our equity income from catapult was $3.5 million in the third quarter of 2020, a $4.9 million improvement over last year's third quarter loss.
We also increased our ownership catapult in the third quarter spending $11.2 million and we now own 46.6% of the primary shares and 41.2% catapults fully diluted shares.
In what has been a very challenging environment. We also generated $185 million in free cash flow from operations after loan funding and capital expenditures.
Roger will highlight our continued strong liquidity position, while we have a fair amount of caution around the economic environment. We are carefully evaluating M&A and investment opportunities focused around the key strategic growth areas in Canada and cards.
As we start the fourth quarter higher loan balances the continued low delinquencies we.
We think this third quarter could be the trough for risk adjusted revenue.
With that said, we expect increased new customer accounts online mix shift and upfront loss provisioning on higher volumes to modestly impact risk adjusted revenue margins in the near term.
Even the recent economic data and our own indicating a customer health had been more constructive of late there remains a significant amount of uncertainty.
As we have over the last couple of quarters, well be aren't going to provide guidance. We plan to continue to provide business updates as we move through the quarter.
On page 12 of our supplemental investor presentation, we've highlighted the trends and uncertainties that we think will affect the balance of 2020 and into 2021.
We are prepared for a range of outcomes and are continuing to focus on supporting our customers and communities through this unprecedented time.
More broadly, though and as we discussed last quarter. We believe we're still tracking to end 2020, the upward trend in earning asset growth.
Given our current business and product line mix, we think this growth trajectory points to 2021 revenue picture that looks broadly in line with our results for 2019.
Although with a higher percentage of the total coming from our Canadian operations.
However, there remains uncertainty around the extent to which higher advertising spend an upfront loan loss provisioning that come with higher new account volumes will impact our bottom line results.
In summary.
<unk> business continues to show the effects of the pandemic, we feel great about the work that we've done to continue to move the company forward.
Namely.
Managing through the pandemic, including extended work from home time for over 1300 employees.
Continuing to invest in our technology and risk analytics platform.
The strength of which has helped us to quickly migrate customers to our online channel and to continue with the final credit Decisioning.
Supporting the growth of our Canadian operations, which accounted for more than 45% of our consolidated quarterly adjusted EBITDA.
57% of our gross earning assets at the end of the third quarter.
Growing and enhancing our card offerings.
Testing and the continued growth of catapult in its market, leading E Commerce LTL solutions.
And continuing to evaluate a number of M&A and corporate development opportunities that can offer further growth and diversification of our business lines.
I'd like to close by thanking our 3900 team members, who despite the challenges created by the pandemic continue to meet our customers everyday needs for financial services and execute on our strategic priorities, all while helping customers navigate financial hardship and other challenges.
Like a lot of companies on Tuesday, we are giving our U.S. employees extended time off the boat I'm very pleased with the response of this plan to generate internally.
We firmly believe that the strength of our company lies in our people and our culture.
I'm confident that together, we will manage through these unprecedented times and emerge even stronger and more nimble than before.
With that I will turn it over to Roger.
Thanks, Don and good morning, everyone.
As Don mentioned earlier consolidated revenue for the quarter was $182 million.
Down 38.8% compared to last years third quarter.
U.S. loan balances and revenue decreased 44.8% and 44% respectively year over year, primarily due to the impact of co. Good.
Some additional pressure.
From the run off of the California installment portfolios.
Excluding California installment loan balances U.S. loan balances finished the quarter down $115.4 million or 36.5%.
But grew 25.6 million from the end of second quarter.
EBITDA loan balances increased 1.9% year over year.
Reflecting a 28.2 million dollar increase in open end balances offset by an $18.4 million decline in single pay balances from COVID-19 related impacts onshore volumes.
The sequential growth.
From the cobot trough whats wrong.
Our team 0.8%.
Consolidated adjusted EBITDA came in at $36.1 million.
Down $30.9 million or 46.1%.
As revenue declines from lower loan balances.
Offset by lower provision for loan loss.
And cost reductions.
Consolidated adjusted net income declined 65.4% and adjusted earnings per share declined 62% year over year.
Again note that our year over year improvement of $4.9 million from kind of pulled is not reflected in the numbers that I just cited.
Geographically I'll start with Canada, where the year over year performance continues to stand out despite cobot headwinds.
Canada revenue declined 18.3% compared to the prior year quarter entirely due to loan demand for the single pay products.
Declining from COVID-19 impacts.
Our open end book in Canada increased 11.9%.
Year over year.
Revenue up 6.7%.
Net revenue declined only 3.6% largely due to a 380 basis point improvement in the net charge off rate year over year.
Positive credit performance, coupled with disciplined expense management.
Europe was 6.7% year over year increase in Canadian adjusted EBITDA to $16.3 million for this quarter.
In the U.S., the continuing impact of Koby 19 was more pronounced with revenue down 44% from the prior year.
And adjusted EBITDA down $32 million or 61.7%.
In addition to cobot impacts.
U.S. comps were affected by the run off of our California installment portfolios.
Excluding California installment loans.
The U.S. revenue declined 41.1% year over year.
[noise] loss rates in the U.S. improved 540 basis points year over year.
And we have made and we remain very controlled our cost structure, which partially mitigated the effect.
On revenue.
Lower loan balances.
Don mentioned, the key macro drivers of our PML and balance sheet performance earlier, and I'll expand on that a bit now.
First demand in loan volume.
Page four of our supplemental earnings presentation recaps, the weekly trends through last week.
Indexed to the weekend at March seven.
Weekly application volume has returned steadily to nearly 120% of what we experienced pre coated.
And loan balances have grown modestly week to week more.
More so in Canada.
However, we would normally expect application volume at this time of year to be double what we see in the early part of the year in March.
As we moved through the third quarter, we selectively adjusted credit criteria.
Particularly for existing customers.
Well the percentage of loans originated two new customers also increased to an average of 11.5% that's.
That's down slightly from 12.8% new customers in the third quarter 2019.
But nearly double the new customer percentage from the second quarter of 2020.
But approval rates are still lower than a year ago due.
Due to the relative quality of the application Boyd.
Loan balances have continued to grow.
Tobar with 10 million of sequential growth through October 28.
Second.
Delinquency credit trends.
Page five of our earnings supplement highlights weekly delinquency trends by bucket.
As we move through October delinquency levels have moved slightly off historic lows, we saw for most of the third quarter.
This is due predominantly to the aforementioned higher percentage from new customer originations.
Higher person is online originations and California, while.
There's a week ended October 24th total.
Total delinquency levels remained over 28% lower.
Than the same period a year ago.
Our consolidated net charge off rate declined 675 basis points year over year with.
With a 380 basis point improvement in Canada, and a 540 basis point improvement in the U.S.
Because of growth mix shifts towards Canada.
The consolidated decline in our in Seo rate.
Is greater than the sum of each of the countries.
Third provision for loan losses.
Our allowance coverage rates declined modestly from second quarter.
But we built allowance levels overall.
Has the provision for loan losses exceeded net charge offs.
This quarter by $4.6 million.
Consolidated allowance coverage was 16.1% at the end of third quarter compared to 16.7% at the end of second quarter.
The impact of changes in delinquencies and lower net charge off rates.
Allowance coverage.
It was offset qualitatively and our allowance evaluation by continued high levels of uncertainty for unemployment trends and expiring unemployment supplements.
As well as the impact of modified loans.
Fourth operating expense reductions.
As discussed on our last two quarterly conference calls we took actions in mid March to reduce operating expenses across several major categories, including advertising.
Variable compensation.
A freeze on hiring.
Suspension of merit increases and savings from work from the home initiatives.
On a combined basis, we previously guided that these actions will drive a $11 million to $13 billion of quarterly cost reductions.
The actual year over year reduction this quarter was $15.6 million.
So we again came in better than expected.
We ended the third quarter with $207.1 billion in cash.
And $302.1 billion of liquidity, including Undrawn capacity on revolving credit facilities.
Of course, Exos could revolving lines depends on continued collateral performance.
The old facilities and covenant compliance both of which had been very good so far.
In addition on July 31st we closed participation for an additional $100 million of commitments.
Our U.S. SPV facility.
Which lowered the blended borrowing cost to 8.15%.
Until $145.5 million is drawn on that facility.
We continue to believe we are well positioned to take advantage of opportunities because our customers end markets recover.
But we also remain cautious and capital deployment.
Our share repurchase program remains suspended.
And we continue to limit capital expenditures.
Central maintenance and selective investments.
Based on third quarter net income and the strong cash flows our board of directors declared a quarterly dividend of five and a half cents per share.
To be paid on November 19th.
For shareholders of record as of November nine.
This concludes our prepared remarks, we'll now ask the operator to begin <unk>.
Thank you.
I will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you use any speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble roster.
Our first question comes from Bob Napoli from William Blair <unk> Company. Please go ahead.
Good morning, everybody and thanks for the question.
Yes, good morning.
Don.
So just on I guess.
That's helpful and strategic items on catapult the.
The earnings improvement there, obviously pretty dramatic what was the price that you paid for what's the valuation what was the valuation of that.
So what's kind of the hidden value engineering.
From the current private market valuation that kind of thing.
And what did you pay I guess that would be how do how do you decide that.
Yep, So Bob you answered this I, so we paid more.
More than we paid.
Last world.
It was attractive to us they're buying from some some smaller holders.
It was attractive to us given it up.
Pretty substantial sales.
Liquidity discount.
I think it's pretty pretty good.
Brittle disconnected from that.
The true market value of the company some all hasn't become a drawl sort of white shirt.
The steel pole total overall value, but it's I think there's the company is doing.
Very well they don't we're super proud of.
Orlando and his team and what they've been able to do that that business and everybody. It's difficult for everybody mentoring and then they get done extraordinarily well.
To continue to grow that business. So I think there is not a.
You know it's it is it's certainly something that should be really valuable for us down. The road. This since I can comment I Couldnt say mortgage stuff kind of one off opportunistic. So that's kind of disconnected from the real value of the company. So I think it will become a minute, we where we report their earnings on a lag, but I think.
It'll be it'll be more clear down the road, how how well they're really doing.
Great. Thank you then just on the ball and it sounds like you're trying to build take kind of essentially at Neal.
Neal banker Challenger Bank and when you break it bring to China, I think they're a little bit up market from you, but I mean, it would be in the same area. Maybe is a square cash and that is that the space that you're going after with that and whats the needed the size of that business and what do you think it could be over time.
Yes, so our overall all of our card products or in other revenue, which is just for competitive reasons I'm going to break it all of that all of our core products are included in other revenue Thats about you know that's about 5% of our total revenue did more now what's with the the the press.
On volumes and one of them so.
I think the.
But but it's it's very high margin revenue.
And I think other than sort of on some of the overdraft fees. For example, since the world just a credit risk on that.
I think we're looking at it I think I guess, we have sort of an evolving view of this I think we we are trying to sort of look at and work with our customers and you'll get a deeper understanding what the needs are beyond simply credit.
I think that Ah I think thats really I guess until it's in large measure because a lot of sort of cross sell opportunity.
Two out of the people that are occurring loan customers that we have oh, yeah, I forgot the lost track how many 75 million loan applications that are tailored database. So we I think trying to trying to really make sure. We've got a product offering and you can go look at.
You can go there is over Bob website, there's an app you can download and sort of see how it works and see the features and functionality. So I think we're trying to figure out exactly what fell on the right way to sort of sell that product to our customers and and and put up.
Put the value later brought value proposition help for them.
Yes, I think that but a lot of what we're doing now obviously, we have we have no problem. Thanks, Chicago is our partner.
Product to work with them and then we have a card processors, except for the work. So it's a very it's a it's a.
Well there is that there is there there is a kind of a whole ecosystem, we had to build some sort of.
I offer my current products. So it's not it's not making changes.
It's a little bit bigger picture take a bit more time, because we're working with all of its kind of do that so I think that.
We really want over time to have a customer see it's more than just the place so to get a loan and I think you had good success with all pluses on the debit card and I take this this week, but you're going to deviate a bank account PVA product, it's kind of a natural extension of that is just a bit more functionality than that.
They are building out plus debit card and for US. It's good it's about three times, but the monthly return in dollars per car older Frac inquiries about three times, what though what we get from off at L. Plus card. So I suspect, you'll <unk> sports books more marketing money behind that.
You want to call insulin promotions and.
Incentives for our our team.
And I think that's what we see that could be coming on.
A much much bigger part of the business going forward.
Great and just last question just on.
Credit.
I mean, you loosened up a little bit the cobot cases are coming back and people are starting to shut down again [noise].
The city's asset in Chicago, they need our restaurants and bars or.
Closed I guess.
And what is that Japan retail you're paying down debt [laughter] had said that's it said she said that in some way.
[laughter], but that is affecting how your I mean would you be Titan are you going to be tightened I guess.
The city by city I mean, what is what are your thoughts and concerns about.
The credits typically see acceleration in cases.
Yeah.
So yes.
Yes, it's it's a it's a big question then I had a good one I think I think there are areas where we.
We have well as we have.
Increased new customer accounts and marketing spend and.
And and approvals.
Some of that I think by and large that's going very well.
We've seen a few spots, where where we didnt like the quality of the new volume.
We quickly put in some some changes to the model so.
But we do watch it.
I think I've said, when we watch it on such a granular level.
By by product by State, we look at each channel stores or online and then our our site. The stores are again when people start on Monday and close in the store.
So it's it's all picks up.
Very easy for us to say to putting change for me to get deciding what to do is not necessarily easy, but what they make a decision.
Getting those those those those changes into the models and the other change the other part of this obviously we have.
An ability to.
To take certain volume.
And and how that will be called pending process will we'll have somebody that's that's online who will be approved pending a discussion with one of our customers.
Customer service reps to get to verify additional information employment information I think the et cetera et cetera, so to dissolve there's a whole range of I guess is a lot of ludwin from can Paul I'd like to say we are we are you know they didn't do you look at the important data yesterday was pretty positive.
But you know obviously the markets are sort of digesting.
More potential shutdown plus.
Concern about stimulus policy and post the election. So there's I think certainly the first two of those things will.
Trying to balance out the twice.
It's.
There's a lot of moving parts in big moving parts into giving out you know sort of forecast and stuff and still feel like we're.
We're going to have a quarter.
Sequential growth that it's in the range of what we had from a percentage standpoint.
This quarter saw will be more in dollars just as the same percentage on a bigger base.
But we don't we're not I guess the other thing is that in job.
Oh, My God holiday demand and there was a lot of it will bring a lot of discussion about what what what is what are the holiday shopping on look like relative to the last year and has cultivated stimulus into lots of kind of pulled forward shop from home come pulled forward some of that demand. So I think our forecast for the fourth quarter probably.
He has a good deal of conservatism built anywhere else a less safe in saying is.
Smaller a bump from from holiday holiday shopping demand.
Okay. Thank you appreciate it.
Yeah.
[laughter].
The next question comes from John Hecht from Jefferies. Please go ahead.
Yes, good morning, Thanks, and congrats on a good quarter.
I guess the first question is you guys. Your omni channel so you've got stores and digital and then you've got you you have a lot of <unk> products and you're developing obviously with your catapult and some of the Burj credit concepts and stuff.
So I'm just wondering kind of from a behavioral perspective <unk> you know as we migrate through this this weird time are you seeing customers use different products in different ways and you maybe saw a year ago and with that you know how do you kind of envision the knicks migrating.
Next year.
Hey, John It's Bill I think.
I think we'd be rehabilitated and yeah. The comments I mean, we certainly have seen a marked a mix too.
Online during the pandemic, but.
And that's been an aren't buying you know kind of phenomenon for a while.
I think it looks better costs for sure because grip your omni channel you highlighted that yeah.
Yeah, the only thing or <unk>, but.
I think yes, I think going forward like <unk>.
It sounds like your baby pulls back a little bit.
I still think that Canada in New York for good.
Going to be more.
Geared toward mobile.
Which work.
Obviously equipped could do in <unk>.
Kind of keeping kind of four to five.
It's kind of a good thing.
Category, but I forgot certainly on the core business I mean, you would think that.
We're certainly a quick.
Handle bore side of things I mean.
Okay. Thank you know still giving customers the opportunity to do call quick or come in it's still something that's pretty powerful cross out.
Oh I can you highlighted.
Quarter that we still have good.
Non-GAAP by cone store, because it's pretty powerful for us so.
I think it's I think it's kind of a multi channel opportunity, it's still a burmese pretty pretty wide open profit.
Charlie I don't know if this is what I would say the certainly the shift if you look at that were in across our business lines single pay product continues to sort of I guess, that's the goal in terms of the customer demand.
Continues to be the most challenged it should have been the most challenged some cold and we look at Canada will you know we have a.
Everybody has it you know there's there's there's not everybody qualifies for a lot of credit product, but if you could give any good been good big payment behaviors on the single payer you will once you qualify for a lot of credit I think that continues and that product will flexibility that product continues to.
Show is our customer sort of favorite product one that the for the payment behaviors are really good and that seems to me like marketing isaacson stickiness of it. So I think you're going to see you know less single pay less store.
More more more line of credit more you know installment and then more of the UBS.
The card based Oh products, and obviously make sure catapult I think as a sales.
It wasn't as an investment for us is going to continue to grow and and you know and then what it contributes to Watson earnings obviously its value.
Okay. That's very helpful. And then usually I should go wondering well, there's usually seasonality every quarter I think seasonality certainly been a little bit up he skated given what's what's become of Corona buyers I mean, what do you. What are you guys anticipating from a seasonality perspective this quarter.
Yeah, and part of that's tied to the fact that you did loosen up a little bit recently, and you know and that you know in the research well the recovery loan volume application on the road application volume.
Yeah, Yeah, So Josh I think Jim go ahead go on record.
Yes, I'll start you ask about usage of the products you know I think Q3 was pretty interesting because as we moved through the quarter on a weekly basis, we saw the same seasonality.
Seasonality that we normally see what we normally see with back to school school, we just saw less.
[laughter] less usage or less demand.
But you know when you look at how we moved through August and then you know backed up a little bit of late September and early October.
B this beat the quarter seasonality of the business seem to be pretty pretty similar.
Despite the covenant despite all the other factors stimulus all that kind of stuff I think I mentioned on the call that it was.
As we move through the fourth quarter, we see an uptick in demand, obviously and she sees out now.
November will be stronger in October.
But we we are winning.
Im thinking internally, we care credit some of that just because no an expectation uncertainty or expectation around what could be a slower.
Slower holiday season, Dawn I don't know if you want.
Yeah Yeah.
Yeah, I mean, I think if you look at last year, John where we grew.
We did we did.
You know three or two in revenue in the fourth quarter than we did three to 97 in the third quarter, that's 19 actuals. So.
With that said back we had a little and then we'd be getting this wasn't slowdown southern California, a little bit, but but not a big Oh, yeah third third quarter, we get sort of back to school.
Typically that's a big bump from the second quarter.
And the fourth quarter shows.
Typically what you'll see is is the end of the year.
The very end of the December this at the build some balances.
For for holiday shopping so, we'll then get paid down in the first quarter. So I think this year just given what we've talked about from first of all you know we had good well, we'd better loan demand and asset growth in the third quarter, but were not all that shows up in the third quarter. So it's kind of a I could is continuing as we see some we've seen see new customer accounts in EPS.
Secret continuing kind of on the same pace that its been on.
[music].
Our internal forecast and that will bring.
Sequential well pretty good Oh sequential improvement in revenue, which you Didnt really see obviously third quarter. This year is about the same sales second quarter, you will start to see to what we've seen increases in demand and volumes show up in the top line and the PL.
In the fourth quarter it should it should grow in excess of the lease.
10% sequentially fourth quarter over all over third quarter. The other piece of that obviously when we talk about this in the releases and it's not just different a different trend overall seasonality, but then you have the U.S. versus you know versus Canada, where yeah. We did we.
We've seen just didnt see as big of a trough in Canada I mean, we had no revenue in the U.S. was down 44% in the third quarter versus the prior year Kennedy, we're rolling up 18% versus the prior year.
The only thing we're also growing about 15% carried a pretty cold, but at a much smaller normally U.S. So all that I think I think.
It's hard to look at it you just look at sort of what you guys are just if the U.S. trends and U.S. issues around you know shut down and and and stimulus et cetera. You know that's that's only in about 70% of the business and the other just like the different different trends for the Cook for Canada, and I'd also say, Canada, while there certainly.
Not to go into public health ramp.
Ramps here, but there is deferring.
You know trait called the trends there and while there certainly increases in cases of Canada. If you look at it on a you know Canada has about the same number of cases has.
On a daily basis or on the state of Wisconsin, and it's obviously a much much better I mean, it's the ads on per capita has about.
Yes about one third of the cases, Oh that you see and the U.S. So are they kind of done a better job handling I mentioned about 80% on jobs at a loss to encode recovered in Canada and that numbers and though you know depending on which source you look at 55% to 60% of the jobs lost in Cogan have been recovered in the U.S. something big gap and don't think it goes.
In Canada versus the U.S.
Hi, guys. Thanks, very much for the details.
Yes, correct.
The next question comes from Moshe Orenbuch from Credit Suisse. Please go ahead.
Thanks, Rob.
Roger you talked about the strong cash flow, but you're kind of staying path right now what what is it that you're waiting to see as you know is it a question of.
The economic environment. It's a question of that kind of loan demand you might see like what how do you how do you think about that.
The the factors that would that would you know.
No you use that a little more aggressively.
Yes, I think it's.
Predominantly just continued uncertainty.
No I don't I don't.
As we think about loan growth, even if you know what when children, but real robust levels of loan growth return.
The U.S. and Canadian you'd be open small to use.
Excellent.
80% of that.
So as we think about Lincoln community, some cash when <unk> robust when growth returns, but not you know we do have the facilities to fund a lot of that so I think it's more mature I think correctly right now it's more around the uncertainty around the environment and the desire to keep some dry powder because it's done it's not mentioned in the prepared remarks.
We are we are evaluating some M&A opportunities and things like that we're seeing we're seeing M&A and investment opportunities.
But we're also.
Mindful of maintaining some dry powder in that regard as well.
Got you and I think I.
I think Don had mentioned in the comments about potential M&A opportunities in Canada, which makes a lot of sense. I think you also mentioned card.
Are there.
M&A opportunities there or is it other investments with.
What is it that you're looking at there.
Yes.
Well I think.
Oh I got it I.
I got it certainly are.
Got it.
Yeah.
No I got it.
So so one on the.
Card side well she is weve looked at everything from.
Other sort.
Sort of debit things products, and then also secured and unsecured caught.
Current opportunities so, but we've all that's also we're also sales.
Well into sort of looking at internally developing additional card products and investing in the development that's up internally.
And then more generally yeah, we're looking at Canadian opportunities, we're like everybody else. It fits it's certainly M&A activities picking up you're seeing some obviously some some monster deals get done here and there, but we're like everybody else were picked that you're trying to do something in Canada will be of great people on the ground and kind of the inability to travel to Canada.
And yeah, we need people kind of face to face to as part of a a due diligence process just kinda cut up it just by definition kinda kinda slows things down.
Thanks very much.
The next question comes from John Rowan from Janney. Please go ahead.
Good morning, guys.
[noise] Roger I think you said I think you said in your.
Prepared remarks that the charge offs were 4 million below the provisions I am I correct that charge off the total dollar value just 'cause there's several different figures in the press release.
It's about $50 million.
Yes, so on the second.
Yes, yes, and then the provision exceeded that by $4.6 million. So okay.
And then maybe just after just to remind if you could just shoot me. The Sia. So revenue figure that helps me with my model Yeah.
Are you guys still comfortable with the 75 million dollar adjusted EBITDA figure for Canada for next year.
Yeah, I mean, I I think this quarter, you know probably you know a dog or two but I think this quarter, probably you know help let's get even more confident.
Yeah, the whole I think under the way, we broke that down and again, we haven't done our operating plan yet.
You know, we like you can probably tell every dimension.
But there's still we we think there's a lot of uncertainty, but you know the way we broke down next year for Canada was you know contracts that you know well.
Exit this year, where we expect to exit this year with earning asset levels in Canada above what we had in 2019.
So if you if you go back to 2019 that wouldn't you know that would imply that the average earning assets are above what they were in 2019, the revenue will be above what it was but it but we've also seen a dramatic.
Dramatic.
Yeah.
Net charge off improvement net charge off rate improvement they are compared to what we were seeing in 2019 because.
19 in California was pretty on season, because we ramped it up so much in the second half of 22.
So.
You know our thinking on Canada next year as the revenue.
Well, Paul the assets of course, and we think that we the charge off we don't at our and our you know our own modeling, we don't model, but the net charge off rates in Canada will stay as long as they will in the third quarter, but we believe there will be we believe it will be below.
Below 2019, and if you just do mutual them NFL.
You know it makes you know that's that's kind of what's driving that thought around 20.
2021.
Okay, and then just to be clear on that and when you said revenue for 2021 will look a lot more like 2019 are we talking about revenue from Canada are we talking about consolidated revenue back to you.
And when you have always level I was.
No I was only answering the context of Canada.
Okay, [laughter], John John it's not <unk>, but in <unk> instant ticket it but I think the comment we made and that in the script was around was around consolidated where our consolidated numbers now the composition of that is going to look more like they'll be there's going to be more if if if.
Yeah on the earning asset trends continue when we kind of roll everything for you.
Could have a revenue picture consolidated revenue picture 2021 of the books looks in you know broadly consistent with 2019, but you'll have obviously, Canada will be a bigger chunk.
Chuck of that.
Okay, Yeah, I mean, well just you know given that there has been a little bit of compression in the yield in Canada getting too you know I see a lot of growth in that product in Canada 2021 at least by my model in order to get back to that consolidated revenue figure.
So that's why I want to make sure. It was clear because obviously you said in the script that it was mostly weighted toward Canadian growth. So.
I just want to make sure that was clear on that.
As far as catapult goes do you think you know 200 million is still urgent.
Procreate assumption for run rate originations on that business or or even maybe trending better than that.
I want to be care. It's you know, it's it's a private company, but I would I would you know I think that that you know that that's a that's a very conservative number.
Okay, and then lastly, 20.
[laughter] you know lastly, I know you're not giving guidance.
But I'm going to ask for something anyway [laughter] in that you know prior to the third quarter. Your comment was that third quarter earnings were going to be a trough do we still see third quarter is a trough with an upward sequential shift into the fourth quarter or is that because you came out better this quarter than your guidance is that not inappropriate.
Assumption anymore.
So Roger can do because I think the thing about I think we made the comment about risk adjusted revenue right.
And I think the the big thing.
Below that you've got.
But that obviously picks up a provision so we think that that asset growth, even with higher provisioning associated with with asset growth.
Risk adjusted revenue Oh, well, we think the third quarter will be a trough.
The other piece is from there you've got to be the biggest pieces, it's going to be AD spend we mentioned Oh, we're going to be spending a good deal more on the.
Card side.
The fourth quarter.
And yeah, we spent and if you look at sort of sequentially we spend.
What.
$7 million in the second quarter, and a little more than $10 million in this quarter.
Advertising. So we would expect that number to go up in the.
The 10 that number to go up in the fourth quarter. So getting all you know trying to sort of fill through it all the way down until.
Till till to earnings as it is a little is a little trickier.
All right all right. Thank you guys.
The next question comes from Vincent Caintic from Stephens. Please go ahead.
Hey, Thanks, Good morning, guys. Thanks for taking my questions actually just first a follow up on the that comment about consolidated revenues in 2021 booking lightweight 19, maybe.
Maybe if you could go through sort of what factors, you're assuming to get there. So is it sort of similar third quarter trends.
No stimulus.
It seems like the product mix is shifting a little bit more to line of credit. So that's been having some more strength. So maybe continuing that and then of course your comment about Canada. So just kind of wondering if there's any additional detail you can give on Ah.
What you need for try to anyone who looked like 2019.
Hey, this is Tom so on the stimulus side.
The I guess, it's we are not assuming any stimulus and.
In 2020.
And I think broadly speaking I guess, our 2021 view is that if you're likely to get Ah you know, we we expect there to be some stimulus.
The stimulus, but and I think when we got the discussion.
If you get a we get.
UBS.
Blue wave and you know.
The 2.5 trillion dollar stimulus you know I think that's good yeah in the states. So that's I think you're going to see you know some of the same behavior that you saw in or or how.
How that children are pinochet since some of the same way as you saw this year right, which is it's it it will it will tick down loan demand and we'll see you know Oh, a sales historically outsized. So you know downturn and charge offs I know that its hard goal.
You know if you could you know what's going to happen.
No [laughter] it's.
It's it's it's it's hard it's hard to handicap, so I think our assumptions will be still be some.
Mark.
Internal organs bake inside of some modest stimulus.
But but not a lot of you know a blue wave two and a half trillion dollar number in Canada.
Have any kind of puzzled with John I think we do consider we see really good growth and good performance on the on on that line of credit product and you just don't have just as a baseline we haven't seen as many people you know that.
It's kind of permanently lost their job up there or work will continue to be out of work. So we just didnt seem to be as big a dip and the need to kind of build that back so and that was a business that was growing as I said that was a that we had 15% revenue growth quarter over quarter year over year in the first quarter. So I would expect.
Like that some of the.
Recovery of demand plus the just the organic trends in that business on that and the appeal that product is going out is going to lead to a really good Oh, you know an excellent 2021 for the Canadian business.
Okay, great. Thank you and then on the M&A and it sounds like you've got something on Canada and to the extent you can give a description that'd be appreciated and I'm thinking it's probably not a.
Portfolio it would be more of a capability add it sounds like and it kind of broadly speaking if we think five years out what would you like to add whether it's M&A or additional building it in house capabilities.
What do you thinking there thank you.
Yeah. So I guess the way to think how the opportunities were and we couldn't say they range from from some sort of selected site to store additions to you notice to to you know looking at businesses that have I'd say sort of complementary or adjacent products, but but our personnel that are probably.
The more I'm more focused on falling on like a dead branch based Bob that as as a as a channel.
So there's a lot there's a kind of a range of things you're looking at there I think.
Looking out five years and it's it's a great question I think certainly, though the you know the card capabilities and both and this is both a as as an account.
As the basic product like you know like we have a revolver with the product and then being able to expand the way you lend money on too.
Card based applications I think is is really important and then obviously, we're sort of doing it on the on the merchant side and the Pos side doing it through the investment and catapults. It's if you think about that as you sort of have stores and mobile self channels now and always seem to be able to do you know.
As well as well.
And expanding that to.
I think cards is really you know, but the one part of sort of getting credit to consumers that will not.
I'm really really invested and how to build yet and then obviously the the b to b to C application that fit that catapult provides.
And then you look at Canada, we have mobile in stores, we don't have anything in on on on the card side or the Pls find candidates just sort of looking at the whole range of both account services plus health credits provided I think as a whole.
There's a bunch of other parts of those verticals that were just not a lot in like some of that nature of it but some.
Some of that may be M&A.
Some of that may be that we think we have the capabilities to build.
Well those those that invest in those businesses and build those internally.
Okay, great. Thank you.
This concludes our question and answer session I'd like to turn the conference back over to Mr., Don Gayheart for closing remarks.
Great. Thanks, everybody for taking the time to join US today as I said lets us all stay healthy and stay safe and we'll look forward to talking to you again in.
In in January thanks, very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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