Q4 2020 CURO Group Holdings Corp Earnings Call
Good morning, and welcome to share a group holdings fourth quarter and full year 2020 conference call.
All participants will be on listen only mode.
If you need assistance. Please signal conference specialist by passing on the starchy followed by zero.
After todays presentation, there will be an opportunity to ask questions you.
To ask a question. Please press Star then one on your telephone keypad.
Withdraw your question. Please press Star then two.
Please note this event is being reported.
I would now like to turn the conference over to Bad <unk> Investor Relations for true. Please go ahead. Thank you and good morning, everyone. After the market close yesterday <unk> released results for the fourth quarter and full year 2020, which are available on the investors section on our website at IR Dot curious on Dot com.
With me on today's call are curious Chief Executive Officer, John Gay Hart, President and Chief Operating Officer, Bill Baker, Chief Financial Officer, Roger Dean and Chief Accounting Officer, Dave Strano. 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 Tonight to note that.
Today's discussions 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 obligation 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 did 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 Yesterdays press release with that I would like to turn the call overdone.
Thanks, Matt Good morning, and thank you for joining us today I Hope this finds you all healthy and safe.
Before we begin our fourth quarter update I'd like to point out we've again from kind of a supplemental investor presentation to highlight key trends through last week, we will be referencing this presentation in our remarks and you can find it on the events and presentations section of our IR website.
After a year unlike any in our history, we exited 2020 encouraged by the resiliency, we demonstrated it cautiously optimistic about our opportunities for 2021 and beyond.
In the fourth quarter of 2020, we delivered quarterly sequential loan growth.
Of 11, 3% compared to 1.6 per cent quarterly sequential growth in the fourth quarter of 2019, while overall loan balances finished the year $19, 5% below prior year levels.
Seven 7%, excluding California installment loans loan balances in Canada increased nine 2% year over year and 13% sequentially you on.
Loan balances, while still well below 2019 levels grew nine 2% sequentially in the fourth quarter driven by our online lending platform.
Despite COVID-19 impacts lowered loan demand and loan balances. After the first quarter of 2020, historically, good credit performance and strict expense management allowed us to post solid quarterly earnings while significantly increasing cash and liquidity levels.
In addition to being pleased with our business resiliency during a difficult year. We're excited about the tremendous value realization of our investment in catapult and by our addition of point of sale buy now pay later and credit card capabilities in Canada with the acquisition of flexing.
Starting with the council.
We announced in December catapult reached an agreement to merge with sensor and December 10 serve as a special purpose acquisition company or a spec.
And the merger was the first step in a process that result in catapult, becoming a publicly traded company in the first half of 2021.
Closing subject to spec related redemptions, we expect to receive about $130 million from cash and approximately 21% or 24 million shares of the public entity.
In addition, based upon the trading price of the public shares we could receive up to 3 million additional common shares a.
Sensors recent trading price all of these are not sure of the best and increase the total value of our investments were approximately $520 million.
We're obviously proud of catapult accomplishments.
Greenlee happy with return on $27 5 million dollar cash investment in this business.
We're also pleased to have the opportunity to retain a meaningful ownership stake in catapult and representation on the company's board of directors. We believe that this investment allows kearl and interest.
Stakeholders to participate in the rapidly growing E commerce point of sales finance space.
Back in Cairo, and as we've noted previously the impacts of COVID-19 reduced demand, but provided us with ample liquidity for future growth and investments.
Along these lines, we were very excited to announce earlier this week they reached an agreement to acquire a flexi.
As we've publicly discussed on Monday, flexi as an emerging growth point of sale point of sale buy now pay later provider in Canada.
Integrated with over 2000 merchant partners available at nearly 6000 merchant locations on ecommerce sites.
But these originations have grown from $49 million in 2017 to an estimated $292 million in 2020.
Moreover, simply annualize the fourth quarter of 2020 origination suggestion annual origination run rate close to $475 million.
The flexi acquisition affords us access to the full spectrum of Canadian consumers across credit tiers.
Flexi has been recognized for its product innovation and rapid growth I'm happy to add the company's creative and talented management team to the Kearl family.
As we said in the context of our own business in Canada.
The Canadian market is a large and growing addressable market.
The competition at scale on Canada, and we now have omni channel capabilities to reach customers in all of the ways in which they access credit.
This acquisition increases <unk> long term growth profile and provides further product and geographical diversification, while reducing regulatory challenges.
It also clearly aligns with our expressed interest in growing in Canada and cards areas.
Areas, where we expect to remain active moving forward.
Moving to the final quarter of 2020, our results were impacted by three things first the previously mentioned increase in loan demand compared to the prior quarter.
Secondly, reduce quarantine and stay at home orders and finally continued historically low delinquencies and net charge off rates.
Canada remains a bright spot posting another quarter of sequential loan revenue on bottom line growth.
Canada is $22 $2 million of adjusted EBITDA for the quarter is the single highest quarterly earnings we have reported from that business segment.
We believe that our strong results in Canada reflect two principal factors first our strong market position and market, leading omni channel product offerings and second the more pronounced economic rebound in Canada through the year at.
However, like many places there has been a COVID-19 resurgence in Canada, and more specifically, Ontario, since yearend, which has led to restrictions on business and personal activity with the impact on the first half of 'twenty 'twenty, one yet to be determined.
Getting into the details a bit more on a consolidated basis, we experienced steady weekly increases in loan applications on new loan volume volume overall, as we move through the fourth quarter.
While these trends were still well below the same periods a year ago. They have for now I'll turn positive.
Our total managed loan balances increased 11, 3% from the third quarter of 2020.
With growth of nine 2% in the U S and 13% in Canada.
Well manage loan balances were still down 19, 5% year over year due to the impacts from Covid.
11, 3% sequential increase in this year's fourth quarter was better than the one 6% sequential growth from last year's fourth quarter.
Further the year over year decline was 11, 7% without the impact on the run off from our California installment portfolios due to regulatory changes there.
An unprecedented improvement in credit quality, partially offset the impact of lower loan volume and loan demand on revenue.
Total delinquencies were down 125 per cent year over year.
For most of the fourth quarter and through the week ended January 29th total delinquencies were still down 27 per cent compared to the same period a year ago.
Putting together the pieces from a P&L perspective from the fourth quarter, we posted a revenue decline of 33, 2% year over year, primarily due to COVID-19 impact on loan demand as well as the impact of California regulatory change that went into effect at the start of 2020.
Adjusted EBITDA declined $33 $2 million or 49, 2%, while net revenue declined $39 $8 million year over year.
The net revenue decline was partially reduced by lower advertising costs as demand has returned slowly.
Well, we did keep some of the cost reduction efforts in place in the fourth quarter as previously described.
We incurred some additional variable compensation and strategic consulting expenses with an eye towards 2021 and forward.
As a result, adjusted EPS declined <unk> 20 per share from the fourth quarter.
We've said before the non prime consumers consistently show a greater ability to manage credit as measured by the relative change in delinquency and charge off data.
Economic downturn than prime and near Prime customers.
Our experience in this crisis certainly provides additional support for this view, our delinquencies and net charge offs in the U S and Canada stay low despite much of the government stimulus burning off.
The behavior of our customers through the streets also demonstrates the value of our omni channel platform and the investments we have made to allow for a seamless transition from our store to digital channels.
In the U S 68 per cent of transactions occurred on line during the fourth quarter of 2020 compared to 57 per cent and the first quarter of 2020, and Canada were online adoption has lagged the U S. We saw similar mixed shift towards online with 35 per cent of transactions conducted online during the fourth quarter of 12.
<unk> 20, compared to 23 per cent and the first quarter of the year.
As we look ahead to the rest of 2021, while Covid vaccine distribution progress seems very promising the timing of the reopening of the U S and Canadian economies remains uncertain.
In some respects it feels like the end of the pandemic has been a couple of months away from the past six months.
In addition in the U S. There is significant uncertainty surrounding the timing and magnitude of additional stimulus and the impact of this year's delayed tax season.
Therefore for now we plan to continue on our recent practice in providing business updates as we move from the quarter.
We remain prepared for a wide range of outcomes are continuing to focus on supporting our customers and communities through this unprecedented time.
While we exited 2020 with an upward trajectory for earning asset group to the extent that the U S. Congress passes additional stimulus measures as is widely anticipated.
Our U S loan balances could again contract in the first half of 2021, putting continued pressure on our revenue and earnings levels for our U S business.
However, this will also support our continued strong credit performance as well as our cash balances and liquidity.
Okay.
To close.
Well there are certainly some ongoing headwinds from COVID-19 and potential changes on the regulatory front that may impact portions of our business.
I'm optimistic about the work that we've done to continue to move the company forward.
We continue to invest in our internal technology and risk and analytics platforms. The strength of these platforms has helped us to quickly migrate customers to our online channel.
And to continually refine our credit decisioning, creating new product opportunities on all of our geographies.
We've grown our Canadian operations, which accounted for approximately 65% of our consolidated quarterly adjusted EBITDA and 55, 2% of our gross combined loan balances at the end of the fourth quarter.
And pro forma for the Flexi acquisition this percentage increases to approximately <unk> 66 per cent of our loan balances.
We've also grown and enhanced our card offerings.
We are also starting to realize significant value from our investment in catapult and its market leading E. Commerce, we used to own solution and finally, we continue to evaluate a number of opportunities from both new organic initiatives and strategic acquisitions that could offer further growth and diversification of our business lines.
I'd like to close by thanking on 3900 team members, who despite the challenges created by the pandemic.
To meet our customers' everyday needs for financial services and execute on on our strategic priorities all.
All while helping customers navigate financial hardship and other challenges.
We believe that the strength of our company lives on our people and our culture.
I'm confident that together, we will continue to manage through these unprecedented times and emerge even stronger and more nimble than before.
And finally this week, we announced a number of promotions and one that I'm, particularly happy about is that my partner Bill Baker has been promoted to president and Chief operating officer.
Any of you on this call Ive gotten to know Bill and I think this promotion is incredibly well deserved.
Billings enormously talented and tech savvy and is spearheading some of our most important new product and process initiatives, while continuing to oversee our branch in contact center operations.
He's been a cure all from her 15 years.
And really most importantly, he really embodies the kind of servant leader that we want to attract retain and promote as we continue to grow Carol.
With that I will turn it over to Roger.
Thanks, Don and good morning.
Consolidated revenue for the fourth quarter of 2020 was $202 $1 million down 33, 2% compared to last year's fourth quarter.
U S loan balances and revenue decreased 39, 2% from.
39%, respectively year over year, primarily due to the impact of Covid and some additional pressure from the run off of the California installment portfolios Cal.
California installment balances finished 2020.
At 37 $3 million and.
And we expect the remaining balances to run off from the first half of 2021.
Excluding California installment loan balances.
Cash flow imbalances finished down $102 million or 37% year over year.
But green $29 4 million from the end of third quarter.
Canada loan balances increased nine 2% year over year.
Putting a 51 2 million dollar increase in open imbalances.
Offset by a $17 $7 million decline in single pay balances primarily from COVID-19 impacts.
Sequential growth and Canada continued to be strong at 13%.
Consolidated adjusted EBITDA came in at $34 3 million down.
Down $33 2 million or 49, 2%.
As revenue declines from lower loan balances were offset by lower provision for loan loss and cost reductions.
As a result Q4 adjusted earnings per share was <unk> 20.
Taking this by country I'll start with Canada, where again the year over year performance continue to stand out despite COVID-19 headwinds.
In Canada revenue declined $10 five per cent compared to the prior year quarter.
Entirely due to lower demand from a single pay product from COVID-19 impacts.
Our open end loan book in Canada increased 23% year over year with revenue up $14 one per cent for the same period.
Net revenue increased three 4% largely due to a 326 basis point improvement in our net charge off rate year over year.
Despite COVID-19 impacts Canada.
Canada posted annual adjusted EBITDA of $62 $8 million.
Six 7% versus 2019.
And exited 2020 with Q4 year over year loan growth of nine 2%.
In the U S. The impact of COVID-19, and the fourth quarter remained more pronounced than in Canada with.
With revenue down 39% from the prior year.
And adjusted EBITDA down $35 $1 million.
74, 2%.
In addition to Covid impacts U S comps were affected by the aforementioned runoff of our California installment loan portfolios.
Loss rates in the U S improved 420 basis points year over year.
So even with the sequential loan growth.
The loan loss provision was down 47% like for like.
The resulting $41 $2 million decline in risk adjusted revenue.
Translated to a $35 $1 million decline in U S. Adjusted EBITDA with risk adjusted revenue declines mitigated, partially by lower advertising cost and expense management.
I'll expand a bit on trends and key drivers for the quarter.
First demand and loan volume.
Page five of our supplemental earnings presentation recaps the weekly trends through last week index to the week ended March Southern book last year.
Weekly application volume has returned steadily and loan balances have grown modestly week to week more so on Canada.
We finished January 2021, with loan balances and Canada flat.
GAAP.
To the end of the year and the U S down modestly from the end of the year.
But this was consistent with the same monthly sequential trend for January a year ago.
As we moved through the fourth quarter the percentage of.
Of loans originated to new customers increased to an average of 13, 6%.
Up from the $12 five per cent and the fourth quarter of 2019.
And up from 11, 5% in the third quarter of 2020.
Second delinquency and credit trends.
Page six of our earnings supplement highlights weekly delinquency trends by bucket.
As we move through January 2021, delinquency levels have been stable to this simple.
And through the week ended January 29, total delinquency levels still remain over 27% better than the comparable period a year ago.
Our fourth quarter consolidated company on net charge off rate declined 730 basis points year over year.
With a 326 basis point improvement in Canada, and our 420 basis point improvement in the U S.
Third turning to the provision for loan losses, our allowance coverage rates declined modestly from third quarter of 2020.
But we built allowance overall as the provision for loan losses exceeded net charge offs from by four 8 million for the fourth quarter.
Consolidated allowance coverage was 15, 6% at the end of fourth quarter 2020, compared to 16, 2% at the end of the third quarter of 2020.
The impact of changes in delinquencies and lower net charge off rates was.
It was offset qualitatively.
And our allowance evaluation by continued high levels of uncertainty for employment trends and expiring unemployment supplement stimulus and the impact of modified loans.
Loans modified under our customer care program made up three six per some of our loan balances at the end of the fourth quarter, which is down from four 1% at the end of the third quarter of 2020.
Fourth the 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.
Freeze on hiring suspension of merit increases and savings from work from home initiatives.
Most of those actions remain in effect for all of the fourth quarter.
During the fourth quarter, we incurred some discretionary variable compensation costs.
And some non recurring spend for long term strategic planning.
While otherwise maintaining the COVID-19 cost saving initiatives.
On slide 18 of our industrial presentation, we provided outlook for 2021 run rate operating expenses on a quarterly basis.
As we return to normalized levels per items like performance based compensation.
We ended the fourth quarter with $213 $3 million in cash.
Mm $310 $5 million of liquidity, including Undrawn capacity on our revolving credit facilities.
We will use $85 million of cash when flexibly closes later this quarter.
Then when the catapult transaction closes in early second quarter, we estimate we'll receive about $90 million or so of cash net of cash taxes. So about a wash in terms of the resulting cash balances.
As we move through the first half of 2021.
We will continue to evaluate the use from the resulting excess cash for corporate purposes, ranging from funding regrowth of our loan book too.
Two investing in new and existing organic growth initiatives to strategic M&A.
As Dawn mentioned due to continued uncertainties related to COVID-19, including the timeline for a full reopening of the markets, we serve and impacts from governmental stimulus. We are not in a position to offer 2021 guidance at this point.
However, we expect our operating trends in 2021 to continue to be influenced by the timing and magnitude of government stimulus and the duration of the pandemic.
U S volume demand moderated in early January of a bounce back slightly over the last couple of weeks, which we attribute to additional U S. Federal stimulus payments in late December and.
Early January in other words about $600 from most eligible people.
Canada demand last month was affected by a return to lockdown measures in several major markets, including Ontario.
Because of these factors and expected additional U S stimulus measures.
Loan demand will likely remain constrained in the first half of 2021.
Other variables, which could which can affect the pace of recovery include the timing and magnitude of U S income tax refunds.
Based on fourth quarter net income and strong cash flows.
Our board of directors declared a quarterly dividend of.
Five and a half cents per share to be paid on March 2nd to shareholders of record as of February 16th.
This concludes our prepared remarks, and we'll now ask the operator to begin Q&A.
Thank you we will now begin the question and answer session.
Ask a question. Please press Star then one on your telephone keypad.
If youre using a speakerphone, we ask that you. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Today's first question comes from Moshe Orenbuch with.
Credit Suisse. Please go ahead.
Yeah, great. Thanks, very much index and congrats guys on a strong results and especially to you bill on the well deserved promotion.
I guess Don on Roger you you guys talked about the cash position it sounds like it's likely to increase bad.
During the first half at least of 2021.
Hum.
And Roger you, specifically mentioned a couple of potential uses but kind of didn't mention kind of debt and equity.
I mean, maybe can you guys talk about what you're seeing that makes you.
You know think about debt that they use as you know in the standpoint of opportunities are there other things out there I mean, you've done a tremendous amount. So far so maybe just talk about that a little bit more please.
Yeah.
Hey, Moshe thought I'll start on that Roger can throw on some details.
So.
Where I think we said.
For awhile on terms of.
Strategy.
And on cards, Canada.
Obviously catapults gonna turned into them.
Realization opportunities as opposed to investment on an investment opportunity, but on boats I can't organically.
In terms of on that.
Hey, we continue the cards in.
In Canada.
It continues to be interesting to watch them on.
We'll evaluate opportunities.
Again, it's kind of M&A opportunities as they come about so no there's.
There's nothing I don't think there's anything that's sort of sort of imminent from us I think it's just we're just going to keep looking at.
The market and then obviously we've got a.
Catapult won't close until probably into the early in the second quarter and flexibly.
Got kind of a good bit of work to do with them in terms of integration and it might not be a part of integration, but just helping support them.
To grow that business so.
I'll. Just this is just not a lot not a lot of specifics to offer right now other than what we are.
We'll continue to evaluate something as it comes up and hope that we can find some things that fit.
Into our book organic growth opportunities on an M&A opportunity that fit in with our longer term strategy.
Okay.
And is there anything from the standpoint of looking at your debt that makes sense to do with some of that cash or is that not something youre doing near term.
I think it's probably isn't probably something well well well well, it's just one once.
Hum.
Catapult closes I'm thinking on will continue to evaluate that but that's probably not something that.
We will do much on until into the second quarter day, even just sort of evaluating it in a serious way.
Gotcha.
Just as kind of a and from a big picture standpoint, and you know theres a lot of uncertainty between.
The debt to the risk of near term shut downs and debt payments of additional stimulus.
You know what.
I keep thinking that Hey, you know when you looked at the stimulus payments that were received in almost a year ago and.
Clearly the outlook for consumers was was incredibly uncertain and while at the moment, it's not certain.
Is this something on like how do you think about your your customers are you know kind of mindset in terms of their willingness to.
You know to think about borrowing money from a win that you know when that are you know that outlook starts to stabilize like are we I mean is that something that we could expect in 2021 and how do you think about that.
Yeah. So the thing about the I guess the stimulus from from.
Just call it the April may stimulus.
Wasn't it came with an appalling win win I think customers generally work.
Our customers are.
We're in good shape.
Like for like income has come maybe had.
Income tax refunds.
So that's just sort of look out through the year on cut on the seasonality. It hit at a time when consumers were Arkansas was more typically would typically have a bit more a bit more liquidity. So it kind of added to that and on a time when everybody is sort of.
Just kind of stopped and there was no.
Discretionary spending.
Hum.
Kind of fell off dramatically you know eating out and travel on that kind of stuff. So.
You know expense if you roll that forward to the year and stimulus which was much smaller that obviously came in at a time when when there was more uncertainty and obviously they are customers or I'm just trying to go because there was a general we're just in a different spot from in terms of of liquidity and sort of there.
Our outlook, so we felt like that stimulus.
Second stimulus kind of burned off I guess seems a bit more quickly.
And you know it wasn't it wasn't sort of saved and then spent I think it was more kind of random but expect to catch up on.
Maybe some some some some past due balances so I think looking into 'twenty one.
I think depending on the timing on it and it's what the payment is what what the eligibility levels on in terms of income.
I think youre going on you know we're on.
Where the economy is in terms of reopening I think it's gonna probably tend to look more like the latter stimulus the in terms on them.
Hum.
Personal balance sheets, the shape of personal balance sheets when people put together from a customer who again I guess I'd call. It on the third stimulus payments.
I think you know I don't think anything is.
Fundamentally.
From there we see the jobs recovery and I just had a chance of going from the jobs report then.
I think the economy is making.
Kind of taking baby steps forward, but in fact, who hold in and you start to get the jobs back on retail and restaurants and all the hospitality jobs.
Think that points to a pretty good second half and I think that the consumers will will will be back spending and borrowing against.
The timing of that and so I think that's on my remarks on.
It feels like we've been you know.
Kind of getting to the end of the pandemic on a couple of months for the last six months.
It just keeps it feels like it gets kind of pushed back pushed out a little bit more so well now it does it does feel like with the vaccines can really go get distributed right that we should see a pretty strong second half on I think the borrowing and that will include consumer spending and consumer borrowing across the credit spectrum.
Thank you.
And our next question today comes from Kyle Joseph of Jefferies. Please go ahead.
Hey, good morning, congratulations on navigating a turbine on ear and let me add my congratulations to bill on the promotion.
Often in the U S I think on both.
On Roger talked about tax refunds, but can you give us a sense for the outlook I know you mentioned they'd be.
<unk> delayed, but they'll give us a sense for timing and potentially the magnitude and if there's going to be any impact on tax refund as a result of all the stimulus from 2020.
Good morning, Colin It's bill Thank you for the kind words there.
I think that's one of those is as Don mentioned, that's one of the uncertainties. We're trying to plot I mean, there is obviously a delay in when people can file for their tax refunds, but I think the bigger question is how it impacts when the earned income credit refunds are released.
That's been the case in previous years, although you could file at the end of January typically those refunds were not released until late February due to the IRS reviewing on it there historically has been on hiring.
Higher amount of fraud with us so a number of years ago. The IRS E on holding those on essentially releasing them all at once so the question is as you can file now mid February and so at the end of January how long were they hold those and we continue to you know to.
Ask the questions and stay close to tax preparation companies in and look for guidance from the IRS, but I don't think we've seen anything to date, but if you just sort of on the calendar out.
You know it seems like having earned income credit refunds released in mid March could be it could be a likely outcome as far as the impact I think I don't know how much stimulus really impact bad it's really more of a question of employment and if people weren't working you know how does that factor into their refund.
I don't think that there's a.
On impact to the earned income credit.
And I think just the point further complicates. It is if that is the timing of tax free funds for our customer mid March does that coincide with another stimulus payment and on what that does to demand over a number of months because if a customer gets a four to $5000 tax refund and then gets a you know 2200.
All our direct payment, obviously, that's going to depress alone demand for some time, even if the economy is recovering and people are getting back to work. So just wanted the things that where we're staying really close to them.
I appreciate that a lot of moving parts there.
And then shifting to Canada and excuse my ignorance here, but is there any talk of incremental stimulus and in Canada. I know you mentioned that their economies recover faster than ours, but anything potentially on the horizon there.
Hey.
On so I think there's day.
I've been by the exact timing, but they did on kind of a follow up around as well and for Q.
It was just the.
In general in Canada has a more just to kind of call. It the standing social safety net is a bit more.
This is a bit more there for.
For consumers there was a lot of supplements kind of by province for.
Child care.
So.
I think debt that was kind of in place and that's part of what helped the I think Additionally, just kind of doing a better job managing the COVID-19.
Cases.
That debt kind of a standing social safety net help supplemental by this it's called the <unk>. So.
There was I think a little bit of talk about of further stimulus. There I think part of it is that if you look on a relative basis on again, I think going on on a rabbit hole here, but the on it.
Canada is done on a.
Much better job sort of from a from a cases per cap on occasions standpoint, hospitalization et cetera, but if you look at vaccinations.
There I think about kind of 2% versus eight or 9% in U S. A a good bit behind us in terms of vaccination and there's no expense a lot of sort of it started the political so on a finger pointing is starting and that may not that may give rise to some additional some additional stimulus, but the but the additional stimulus.
There as a as an increase over kind of what the standing net say social safety net provided it's much less than what you what you than the than what we've seen on a relative basis from the U S relative to what what what the standard safety net gives consumers.
Got it very helpful and one last one from me just on the on the flex any business I guess I'd ask what is the most comparable business our debt.
We've looked at in the U S is it kind of a synchrony and after pay on a firm or a flexi really a combination of all three of those.
And then.
Follow up there would be would it be possible to integrate kind of at catapult AR products.
On that platform or is there one already there.
Hey, so I guess.
The short answer would be probably has a bit of a.
I think as the business is currently structured and if you look at the product mix now, it's probably closest to a to a synchrony.
But but the the gross on the which is kind of be on six months no payments on interest free for six months and then it kicks into what they've got paid off in interest bearing obligations.
As a percentage of the total pie.
Pi there, but if you look at the where the mix shift that's happening. It's two more all day pay over time, a buy now pay later on.
On a painful equal installments.
Product so in terms of.
Of our catapult that type of opportunity.
The the RTL product there.
Their versions of it.
In Canada.
On that that's something that some at the retail level, we think that is simple.
On the line of credit product.
On a line of credit product structure to from from a credit standpoint too.
To be offered to non prime consumers.
Probably the the the better option there.
Because of the change is built on an existing platform that flex and he has a line of credit platform now, we obviously off a lot on credit in Canada. So probably will look more like a like a line of credit product.
Offered to non prime consumers as opposed to an L. T O product.
Got it very helpful. Thanks for answering my questions.
Okay. Thanks.
And our next question today comes from John Rowan with Janney. Please go ahead.
Good morning, guys.
Hi, Good morning, John and Bill Congratulations on the promotion I wanted to follow up with you because Kyle stole my question on the tax season, but one other aspect I just wanted to get your input on obviously you talked about possibly delaying an earned income tax credits and.
You know how that would put up with you know someone potentially getting their refund, but what about if refunds are different.
Are you tracking anything related to people not withholding enough money for the federal unemployment benefits that they received and whether or not your customer can see a shift in their average refund.
Putting aside for a second the potential for stimulus payments.
Yeah, John it's not really something that we track are suddenly not quantitatively or qualitatively, we can review W twos or pay stubs.
But at the end of the day, you know because the majority of their refund comes through the earned income credit you know, we're not not tax advisors are tax specialist. So we don't we don't go too far into that I don't expect a major shift.
Not in that arena I think the bigger question is timing the one thing I Should've mentioned.
But the previous question is you know what can happen between now and tax refund season, because typically you would see counters payoff and pay down because of refunds, but if its truly mid March it does potentially create an opportunity to grow loan balances between now and then it seems on unlikely we would see actually see a direct payment to customers in February.
So what happens over the next few weeks as Don mentioned.
The last stimulus, we believe burn off pretty quickly and theres been a number of articles about pretty high percentage of renters in the U S being behind on rent, we've worked with Transunion a bet on some macro data and everything that we look at it looks like a bad stimulus went away pretty quickly and so there could be an opportunity to.
To grow the book between now and when tax refund season happens and work on another round of stimulus.
And just to follow up on the timing to it hasn't always been kind of a I won't say a long standing understanding but some some notion that the later of the refunds com.
The less seasonal paydown consumer lenders see from the refunds I'm trying to refresh my memory, but that would always on.
I'm not mistaken that was kind of the working assumption that a lot of people would use.
You know I think it's difficult to tell because the biggest change that we noticed is when they started to whole all of the earned income credit refunds, So you're really tax season, which for us used to be.
Four to six weeks.
Now, it's typically you know eight.
Eight days or something like that I mean, it's very very much compressed because you have all of those refunds going on at one time, whereas you know a number of years ago. The refunds would start flowing in late January and go through early to mid March and that has just been compressed. So I don't know that we've seen as big of an impact.
On what you mentioned the other than what we sided interest, but just a real compression.
And it and it happens very quickly and then it also.
On the pay downs happen quickly as well, but you do start to.
It does start to normalize.
Okay, and then from your answer and then Roger just wanted to a couple of questions on the slide in your Investor presentation on the catapult deal.
You know obviously right now with.
Since our stock at $17 a share I assume that that is more than enough for you to earn those additional $3 billion earn out shares is that correct.
And then as if it was.
Yeah, and then you know if given how strong you know Finch our stock has performed.
Do you have basically true spec colder redemption assumptions I'm I'm going to go ahead and assume that you know if the stock stays where it is you know the working assumption would be that the redemptions will be on the low end of that is that you. You. Obviously you can't tell me what redemptions are gonna be no no no but.
I assume that the impetus here is for those shareholders to not redeem.
Yeah, I mean based on them.
Oh, yeah yeah.
Based on our understanding of.
Everything.
It is a predictor of redemption everything that's gone on so far would predict very low return would predictable low redemption.
Okay alright, thank you.
And ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one our next question comes from Bob Napoli with William Blair.
Alright, Thank you and good morning.
Good morning, Congratulations President Baker really I'd hate to see the promotion.
Thank you.
No.
Just I guess on.
There's a lot of difficulty predicting the next several quarters I mean, I guess, if you look at the first quarter, you're probably going to have revenue down a little bit.
But credit are you I mean credit probably is going to remain really strong I guess, if you have.
I don't want to get too much into it have some longer term questions, but just trying to be like in the ballpark on the first quarter and think.
But you would expect with the redemption and the additional cash, but you're not seeing anything on the credit side that would cause.
Something unusual in there.
Moving to credit.
Losses.
Yeah.
Yeah, I mean, yeah, it's Roger good morning, Bob.
If you look at page six of our Investor presentation. You know, we've updated delinquency trends true through the end of January group last week.
And we actually have actually improved actually improved over the yeah.
So you know.
Again for Q1.
I don't want them from.
I always kind of kind of smile, when I say, it but we havent 90 day charge off policy generally so oh.
For Q1, where we're a third of the way through Q1 at this point, but I think that but you know what.
But I think that points in that direction for all of the first half.
On the revenue that will be down some right. The revenues will be down somewhere in the first quarter. Then you know I mean, I think the world and assuming the world goes the way it looks.
A lot of people were thinking you know vaccines are getting out cases are coming down the world starts to get you know kind of back to normal by the third quarter or close to normal and well probably not fully normal until 'twenty. Two I mean, what really matters. Here is that you know the earnings power of the company long term 2022 earnings power.
That flex hitting deal the cash that you have you have a strong balance sheet, so theres no questions but.
Well the only.
Issues I guess are you know the growth rate in the margins of the company as we think about 'twenty 'twenty two 'twenty 'twenty three.
Yeah.
Regulatory with their change in administration are you seeing anything.
Inserting I mean, obviously the CFPB went through a lot went on to the Obama administration, but I'm sure they'll look for things and there's always pressure, but what are you concerned about most on the regulatory side that could change the long term view of your business.
Hey, Hey, Bob It's Don I will there were a couple of questions in there.
One of them.
So that's what going on.
But I guess the sort of the the last maybe part of the question first on.
On Saturday to your point, we did manage the book quite successfully true.
And Obama on CFPB, we've invested a ton in.
And really in terms of our compliance and risk management.
Areas on the business.
There's a lot of much more sophisticated call it kind of Reg cap.
Hum.
But on the technologies that we can use to help better a better identify and manage risk. So.
So I think I feel good about our ability to true.
Manage the business on and have you know decent working relationships with with with federal regulators to kind of we have a lot of state level as well so how that all plays out.
Timing on it all remains to be seen but it's certainly not something that.
But honestly, we didn't we don't run the business hoping that.
The debt.
Certain politicians when certain elections on it and we've got on look we got a longer term kind of view on mandate on that sorry in terms on the rest of it.
You know I think the gist of it.
It seems like we've been the most this.
Rolling all it'll be better by you know.
In the end of the year in 'twenty, one 'twenty 'twenty than it was maybe again on the first quarter sales.
Second quarter will have a normal summer.
Like it keeps getting it keeps getting stretched out but I think from a competitive standpoint, we feel great about where we are from.
From a resources standpoint people processes.
Technology and capital we feel great about about where we are we know that the you know the longer this thing drags on the more strain that puts on companies that just don't have the liquidity on the balance sheet strength that we have on there we're not alone in that there are other companies in the sectors on a well capitalized on it.
Kind of poised to be a.
On a two to grow their business and we also know that went on so this is from me up since before I'm, Scott I've been running our businesses and there's a consumer financing on from this will be downturn number four.
And we know that you know that.
I don't we don't see anything changing on the way consumers spend on borrow coming out of this downturn.
Obviously, the timing on that and the scale on the scope et cetera. This is a different one on summer stacks, but it does have some.
As it's been been dragging on a little bit we sort of thought maybe on it would be shorter and sharper, but it has kind of dragged on and starting to look more like the.
The the last downturn, Oh, seven Oh wait on nine.
And I think our business a lot of businesses than on such a day did quite well in 10, 11, and 12 as consumers return to spending on regular spending and borrowing patterns and credit remained.
We remain very good and competition was much more muted because a lot of companies simply couldn't didn't didn't survive the the financial crisis, and it's either at all or and certainly in the same shape that they were in going into it.
Any thoughts on the long term return severe business and the growth rate as you know as the world gets back to normal whenever that is.
Yeah.
It's hard to say right now given I think and I think that the.
I think part of it is just sort of projecting what what the what the world's going to look like and then secondly, obviously, we've added we've added flexibility to the to the mix.
And we've I think we've mentioned we've got a lot of boats sort of organic growth opportunities on potentially.
Further use of our cash and liquidity to do more M&A. So looking at exactly what the business mix looks like.
You know coming out of Covid is a hard one to predict right now.
Right.
Okay. Thank you and yes, I mean catapult congratulations on net investments in knock on wood to day I know you added I know what the carrier I was very involved in bringing that organization together and.
On positioning it for the success it seems to be having units.
And it will return.
Great. Thank.
Thank you Bob.
And our next question today comes from Vincent <unk> with Stephens. Please go ahead.
Hey, Thanks, Good morning, guys and thanks for taking my questions has been.
Already asked and answered.
But maybe just a few follow ups so.
We talked a little bit about.
Mentioned M&A in a couple of times already and you've shown a great success with catapult.
Monetizing that and then it is Felicity acquisition I mean.
It's nice to see impressive acquisition on.
That's under anywhere under 10 times, our revenues considering where the other guys are trading at but.
But when you think about you know you're generating a lot of excess cash you now have this history of incubating businesses there.
How's the rest of our potential M&A pipeline on anything else that you might see out there that might be interesting to incubate.
Yeah, Hey, guys just on.
I think that's the tornado we.
We strategically cards, and Canada continue to be interesting and more broadly.
We shouldn't go we.
Tumors are accessing credit true direct to consumer both retail and online true point of sale and true cards, we want to have.
Our revenue and earnings and growth drivers and investments in all three of those verticals in both the U S and Canada. So if you look at kind of a like a six box matrix. There that's strategically where we're sort of positioning the business.
Over the over the long haul so opportunities that fit in those boxes and it was a pretty broad and you catch them pretty much every every way in which consumers use credit.
But within that there's a whole bunch of different you know you can look at the you can also from the segment down in terms of of near Prime and.
Non prime and call it under bank and so.
Whenever there's a range.
Range of opportunities from a from a credit standpoint as well. So you can you can blow on that box up that matrix up and I havent looked pretty big so, but generally speaking with in that you know near prime and non prime crosses from those three verticals as well, where we'll look at opportunities. So it's hard to sort of say exactly whats.
What what's going to come about.
On what things will look like in terms of values and innovation opportunities et cetera. So.
You know, we're we're just have to I think we have to sort of remain opportunistic and willing to kind of move quickly to to evaluate.
Right opportunities, but there's also a lot of organic opportunities that we're beginning to invest more heavily as well so.
Okay, great and actually that's a good segue into my next question, which is I was just.
Wanted to get some more detail about the technology dollars you plan to two two.
Two investing in for 2021.
Here is Ed.
Good experience developing new products organically.
And bill can really help them with that.
So is there organic.
Organic products.
Our development that you were thinking of growing any new products that you think might be interesting and then now that you have flex. It in Canada is there something where can that experience be brought over to the U S. As well, where you might get into buy now pay later in the U S.
Hey, Vincent it's bill Thank you.
I think a lot complexity, where we're really focused on supporting them today in Canada with their current business from their current merchant partners.
On a lot of work on the addressable market up there and we think that there's a tremendous opportunity right in front on them. So I think the focus will remain with them.
The business that they have and I'd say that we feel they can go win.
In the near term I think as far as other organs.
Organic products, absolutely interested and working currently on some opportunities on our own platform.
With the notion that.
If we would do M&A.
It would just make us that much more educated and a better buyer interest.
Sit on the sidelines and depend on M&A was not something we wanted to do so we're really working those two opportunities in tandem and like I said to the extent that we evaluate other businesses. We feel like we can ask better questions and do more diligence and.
Ultimately make a better decision all the wild card doesn't pan out we've got a really nice jump start on some of these new opportunities.
Okay very helpful. Thanks, so much.
And ladies and gentlemen. This concludes the question and answer session I'd like to turn the conference back over to go on getting hard for any final remarks.
Hey, great. Thanks, everybody for joining us again.
From two calls this week's a person all the all of your time and attention and we'll look forward to talking to you. After we complete our first quarter. Thanks very much.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.