Q1 2021 CURO Group Holdings Corp Earnings Call
Hello, and welcome to the care of Holdings first quarter 2021 earnings call.
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Now, let's turn the conference over to Matthew Keating Investor Relations. Mr. Keating. Please go ahead.
Thank you and good morning, everyone. After the market closed yesterday <unk> released results for the first quarter of 2021, which are available on the investors section of our website at IR Docs, you're O Dot Com with me on today's call are curious Chief Executive Officer, Don Gayheart, President and Chief Operating Officer Bill Baker.
Chief Financial Officer, Roger Dean, Chief accounts, 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 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.
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 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 Yesterdays press release before we begin our first quarter update I'd like to remind you that we.
Again provided a supplemental investor presentation, which highlights key trends through last week, Don and Roger will reference this presentation in their remarks, and you can find it on the events and presentations section of our IR website.
We also filed a form 8-K on April 16th realigning, our product and segment reporting to how we view our business going forward and to improve your ability to understand and analyze our financial results.
We now report financial results for three segments. Our U S segment is unchanged our former Canada segment that includes our cash money and lender at brands is now reported as Canada direct lending finally flex. These results are reported under our new candidate at point of sale lending segment, we also changed our loan product.
Reporting to distinguish segment level portfolio performance for revolving lines of credit and installment loans with the addition of flexibly on March 10th 2021 revolving lines of credit loans now comprise 74% of true total loan balances with that I would like to turn the call over to Don.
Thanks, Matt Good morning, and thank you for joining us today.
I'll start with the good news that our board doubled our quarterly dividend to an annual rate of 44 per share and authorized a $50 million share repurchase program based on our strong first quarter earnings and continued robust cash and liquidity position.
Like the second half of 2020, our Q1 2021 results in Canada demonstrated meaningfully lower impacts from COVID-19 done that our U S operations, we delivered quarterly sequential loan balanced growth for Canada direct lending of $13 4 million or four 1% despite.
Seasonal customer behavior that typically reduces loan balances in the first quarter.
Canada direct lending balances increased 24, 4% year over year.
We should note that Canada has seen a recent resurgence in COVID-19 cases, which has necessitated the re imposition of lockdowns our branches remain open, but these lockdowns and impacted traffic to our locations overall.
Overall caseload has started to turn down again and vaccines are ramping up. So we're hopeful that this latest surge is the last one will see in Canada.
These COVID-19 related restrictions most of which were put in place in the second week of April have had a modest impact on flexi. These merchant base, where brick and mortar sales make up about 75 per cent of total volume will have more influx city in a minute.
In contrast, our continued growth in Canada U S loan balances declined 36, 6% compared to the prior year and 18, 4% sequentially.
The decline in U S loan balances in the quarter was anticipated because of U S. Federal government stimulus payments our customers received during the last two weeks of March along with delayed tax refunds and impacted the same period.
The stimulus meaningfully increased prepayments and reduced demand for new loans with that said, we fully expect to see originations improve as the impact of fiscal stimulus wanes and the reopening of the economy progresses.
But the current trends, we see in the U S lower job jobless claims along with more hiring and open positions, we expect to see better demand in the U S. In the second half of 2021.
Second quarter, New account origination trends are still showing steady improvement, particularly with our revolving line of credit products.
It will take some sustained progress in these trend lines, where there's better second half of 2021 to come to fruition, but we're cautiously optimistic.
Overall loan balances finished the quarter 23, 1% above the prior year level, including $201 5 billion laws of loan balances into Canada.
S lending segment from.
From our Flex city acquisition.
Despite continued COVID-19 impacts that have reduced U S loan demand in balances since March of last year, historically strong credit performance and expense management continued to allow us to post solid quarterly earnings while significantly increasing cash and liquidity levels.
Revenue for the first quarter was $196 6 million a decline of 30% from the same quarter last year loan balance declines in the U S. Due to COVID-19 impacts and run off of the California installment portfolio drove the consolidated revenue decline.
We reported adjusted EBITDA of $64 million and adjusted EPS of <unk> 69 per share.
Both slightly below last year's adjusted EBITDA of $66 million and adjusted EPS of <unk> 77 sets.
In both instances extremely strong credit performance resulted in much lower Ncos and provision for loan losses, providing a partial offset to the revenue decline.
Canada direct lending remained very strong posting another quarter of sequential loan and bottom line growth.
Canada direct lending is $225 $8 million of adjusted EBITDA for the quarter is the single highest quarterly earnings we have reported from that business and has more than tripled to $8 $3 million results from the first quarter of 2020.
That comparative result was a bit of a one off given the higher level of provisioning that we reported last March during the onset of COVID-19.
But we're looking forward to a very strong year in Canada direct lending.
In general we believe that our strong results in Canada are reflective of two things.
First our strong market position and market, leading omni channel product offerings and second the more pronounced economic rebound in Canada.
Indirect lending balances increased $67 4 million or 24, 4% from the same period last year.
With the mix shift to revolving line of credit loans revenue declined about 1% year over year. However, net charge offs for Canada, direct lending declined $8 $9 million or 41% year over year.
Improvements in net charge off rates and delinquencies resulted in provision for loan losses.
$9 $2 million compared to $27 $5 million in Q1 of last year.
Resulting net revenue was $17 $7 million or 56% higher than the first quarter a year ago.
We expect Canada direct lending credit quality to remain stable for the near term.
You'll see on slide five of our Investor supplement a delinquent loan balances as a percentage of total loan balances are still down 38% year over year.
You'll also notice that in Canada. The percentage of transactions conducted online continues to be well above historical averages, while we can't predict the long term behaviors of the Canadian consumer. This continues to demonstrate the value of our omni channel platform and the investments that we've made to allow for seamless transition from our store.
Sure to digital channels.
Turning to Canada point of sale segment are flexing.
As we previously announced we successfully closed our acquisition of flexing on March 10th Flexing.
<unk> is one of Canada's fastest growing buy now pay later providers for the market, leading omni channel Fintech platform.
The acquisition of flexing enhances our long term growth and financial risk profiles and allows us to access the full spectrum of Kt and consumers by adding an established private label credit card platform and point of sale financing capabilities.
We now reach consumers in Canada to all the ways they access credit.
Correct Lee both in store and online by credit cards or at the point of sale.
Just a reminder that since we closed the acquisition on March 10th Flexing P&L results are immaterial to our overall results from the first quarter.
Let's see continues its outstanding performance in early early in 2021 with year over year originations, increasing 69% or $34 7 million Canadian dollars to 85 million Canadian dollars in the first quarter of 2021.
Reflecting good growth with long standing merchants as well as the addition of new merchants like Staples, Canada, and sleep country, which is Canada's largest mattress retailer.
We're working with the flexi team as they continue to actively pursue new merchant partnerships and hope to have some relationships to announce in the near future.
Another quick reminder, that new merchant relationships are generally dilutive to earnings in the near term, primarily because of upfront loan loss provisioning.
The company's rapid loan growth.
All in all we're very happy with flexi as Peter Keelan, and his very capable team have proven to be great partners as we work to expand the merchant base and the product functionality and expand the pools to include non prime customers.
Let's turn to the U S and the information presented on slide six of our industrial supplement.
Our results and the drivers are very consistent with other consumer lenders that have reported so far this quarter.
Significant U S government stimulus that started hitting consumers checking accounts in March resulted in.
One higher prepayment rates for current loans to strong recoveries on past due loans and three low demand for new loans.
Gross combined loan receivables, including CSO loans declined 36, 6% or $125 $8 million year over year. This resulted in an $85 3 million or 36% decline in revenue in the first quarter of 2021 compared to the first quarter of last year.
Net charge offs in the quarter were only $39 4 million a decline of $57 4 million.
Dollars or 59% from the last year at the same time the percentage of past due receivable was down 580 basis points at the end of March 2021, compared to March of 2020 through April past due receivables remain down.
Over 29% year over year.
We've said before that non prime consumers consistently show a greater ability to manage credit as measured by the relative change in their delinquency and charge off data during an economic downturn than prime and near Prime customers.
Our experience in this crisis certainly provides additional support for this view just as our customers have demonstrated our resiliency. During this pandemic our U S business has shown its ability to adapt to a dramatic reduction in loan demand historically strong credit trends limited the U S. Net revenue declined to $25 $3 million from.
19% year over year in the first quarter.
It's difficult to forecast exactly when the ongoing economic recovery is likely to lead to a normalization of loan demand, but we remain very confident in our ability to grow the U S business as we emerge from this pandemic.
As noted in our earnings release, we stopped lending under the verge credit brands.
We launched verge installment loans originated a bit hotter stride bank in the fourth quarter of 2019 and executed pilot programs in several states.
After testing various offers rates terms on approval criteria stride informed us that it plans to focus on near Prime loans and this provides us with a much larger addressable market and greater opportunity to scale.
As a result stride has decided to discontinue issuing new verge credit loans.
First loan balances totaled $29 $7 million as of March 31 of 2021, and we expect an orderly run off all these balances over the next 24 months.
We continue to be excited by the approaching value realization for our investment in catapult.
We announced back in December Caterpillar reached an agreement to merge with sensor since.
And serve as a special purpose acquisition company or stack and the merger will result in catapult, becoming a publicly traded company most likely late in the second quarter.
At closing and subject to stock related redemptions, we expect to receive about $130 million in cash and to retain an ownership level of at least 21 per cent of the public entity.
Both of these numbers may move around a bit based on spec investor redemptions and achievement of certain earn out metrics, but a thin serves current trading price. The total pretax value of our investment in catapult will be approximately $445 million.
We're obviously proud of catapult accomplishment.
Very happy with the return of $27 $5 million cash investment in this business were also pleased to have the opportunity to retain a meaningful ownership stake in catapult and Christmas So chose lead independent director.
I will serve on the company's board of directors.
We believe that this investment allows Cairo and its shareholders to participate in the rapidly growing e-commerce point of sale for NAV space.
To close.
Certainly some ongoing headwinds from COVID-19 may impact portions of our business, but I'm optimistic about the work that we've done to continue to move the company forward.
True both organic growth and with the flex the acquisition, we have grown our Canadian operations, which accounted for 72% of our gross combined loan balances at the end of the first quarter.
We've continued to invest in our internal technology and risk and analytics platform.
<unk> 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 in all geographies.
We've made good strides in piloting and near Prime product in the U S with.
We've grown and enhanced our our card product offerings.
We are starting to realize significant value from our investment in catapult in its market leading e-commerce.
<unk> solution and we continue to evaluate a number of investment opportunities that could offer further growth and diversification of our business lines.
As always I'd like to close by thanking our 3900 team members, who despite the challenges created by the pandemic continues to meet our customers' everyday needs for financial services and to execute on all our strategic priorities, all while helping customers navigate financial hardship at all the challenges we.
We believe the strength of our company lies in our people and our culture I'm confident that together, we will continue to manage through these unprecedented times and position the company for sustained growth over the next several years as demand recovers along with a full reopening of the economy.
With that I'll turn it over to Roger.
Thanks, Don and good morning.
Well Don covered some of the consolidated and segment highlights I'll provide more color on the details.
Canada direct lending loan balances increased 24, 4% year over year, including $79 million increase in revolving line of credit balances.
Offset by an $11.6 million decline in installment balances primarily due to COVID-19 impacts.
Our revolving line of credit book in Canada, direct lending increased 32, 9% year over year.
With related revenue up 18, 5%.
Sequential growth continued to be strong at $4 one per cent versus the fourth quarter of 2020.
As Don mentioned earlier.
Our loan book mix shift resulted in revenue that was basically flat year over year in Canada.
But net revenue per the Kansas direct lending segment increased 56%.
Largely due to a 370 basis point improvement in the net charge off rate year over year.
Despite COVID-19 impacts cash.
The direct lending posted quarterly adjusted EBITDA of $25 $8 billion.
That's more than a three times increase year over year.
In the U S. The impact of COVID-19 remain more pronounced in the first quarter with revenue down 38, 5% from the prior year and adjusted EBITDA down $18 2 million or 31, 7%.
U S loan balances and revenue decreased 36, 6%.
38, 5% respectively.
Year over year, primarily due to the impact of COVID-19 and some additional effects from the run off of the California, and Virginia portfolios.
Just a reminder, that we ceased originating installment loans in California on January 1st 2020.
Revolving line of credit loans, and Virginia on January 1st 2021, because statutory changes.
Excluding California and Virginia.
Loan balances finished down <unk>.
$67 8 million or 27.9% year over year.
Loss rates in the U S improved 850 basis points year over year, which along with the aforementioned sequential decline in loan balances drove a 69, 7% reduction in the provision for loan losses.
The resulting $25 $3 million decline in net revenue translated to an $18 2 million dollar decline in U S. Adjusted EBITDA with.
With net revenue declines mitigated by lower advertising costs and expense management.
Consolidated adjusted EBITDA came in at $63 8 million down just 2 million or $3 one per cent.
As revenue declines from lower loan balances were offset by lower provision for loan loss and cost reductions.
As a result Q1 adjusted earnings per share was <unk> 69 cents for the quarter.
I'll expand a little bit on keep on the trends and key drivers.
First demand and low volume.
Pages, five and six of our supplemental earnings presentation, we kept the weekly trends through last week index.
Next to the week ended March 7th 2020.
For the Canadian.
Direct lending and U S segments.
And Canada application volumes approval rates and originations had been stable this year.
And you'll see that we didn't have the seasonal decline in application volume that we saw in March of last year.
In the U S true.
From March and April application volumes approval rates and originations true.
Similarly to the same weeks a year ago. If you keep in mind that this year's stimulus hit in mid March in last year's stimulus hit in mid April.
We finished April 2021, with loan balances and Canada flat.
In the U S down just modestly from quarter end.
As we move through the first quarter the percentage of loans originated two new customers decreased to an average of 10, 5%.
That's down from 13, 6% in the fourth quarter of 2020 and flat to the first quarter of 2020.
Second I'll talk about delinquency and credit trends.
Staying on pages, five and six of our earnings supplement.
And looking at weekly delinquency trends by bucket.
Through April 2021.
Both countries continue to see stable and historically low delinquencies.
Our first quarter net charge off rates improved 370 basis points and cash.
The direct lending and 850 basis points in the U S compared to the prior year.
Third just a moment on the provision for loan losses moving.
Moving to page eight of our earnings supplement deck allowance coverage rates declined from the fourth quarter.
More so in Canada.
Sustained improvement and net charge off rates and low delinquency levels.
The adjustments to allowance coverage and the sequential decline in loan balances in the U S.
Resulted in provisions from loan losses for the U S and Canada.
That were less than net charge offs by $13 6 million and $3 7 million respectively.
Loans modified under our customer care program made up five 9% of our company owned installment balances in the U S. At the end of the first quarter, which was down from six 6% at the end of fourth quarter of 2020.
We ended the first quarter with $135 $4 million from cash when.
From $233 $2 million of liquidity, including Undrawn capacity on revolving credit facilities.
When the catapult transaction closes we estimate we'll receive another $130 million or so of cash before taxes.
While we continue to see areas to invest in the growth of our business we.
We're also pleased to expand the ways in which we directly return capitals to shareholders.
Don highlighted earlier.
This concludes our prepared remarks, and we'll now ask the operator to begin Q&A.
Yes. Thank you we will now begin the question and answer session to ask a.
A question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble the roster.
And the first question comes from John Hecht with Jefferies.
Hmm.
First question is just related to I'm, just trying to think about the mix of the business as we kind of move through the next couple of quarters.
You mentioned kind of the expected slowdown in Canada.
Given.
The implementation of Lockdowns for the time being but flex that he's got a lot of momentum I mean can I assume flexi can still grow through this next year.
Temporary period of time or should we think that the entire platform of Canada will be temporarily impacted by these lockdowns.
Oh, Hey, Hey, Jonathan start all all day.
Morning, Kevin.
Take the first swing at that one.
Yeah.
It's it's it's really sort of fluid.
Canada had done a.
A terrific job.
Sort of managing through the pandemic give me just a relative it's an interesting relative point if you look at total employment.
And Canada drove so candidate and the total employment base in cabinet of pre COVID-19 was $19 3 million.
That fell.
To about $16 3 million.
Is there any sort of the depth of the pandemic and last spring how bad it is but at March 31, It was back to $18 8 million so almost a full recovery.
Total employment in the U S. We were at 152 and.
In February of 'twenty.
That fell to 100.
No that's sorry, that's down by $30 million.
And then we're all but we're back to where we're back to a 144, so when $1 52 to 132, we're back to 144, so only about 60%.
We're couple years totaling 8 million again this is Adam because at the end of March so the hiring pace in the U S looks very strong, but on a relative basis or just the Canada's basically recovered everything had recovered everything as of March 31 in the U S. Still had had maybe 40 per cent of the kind of COVID-19 job losses to recover so.
We still but there is a.
A spike and I was looking at.
And particularly in Alberta in D. C. The numbers are as high as the or anywhere in kind of North America.
Hum.
Sort of feels like given where the vaccination rates are that it ought to be something that.
Uh huh.
Is is managed in the law.
Locked up as it became it can be removed fairly quickly and.
In which case, we feel like are the both the overall business.
And again, we're gonna be comping for if you'll get sort of <unk>, we'll be comping off of weak numbers from last year. So we shouldn't get really strong growth in Canada in the direct lending piece of the business, we feel like flex city.
Given the way they've been growing and.
And as I mentioned, we had said in our earnings release from way.
Although released when we when we bought flex indeed, theyre expecting kind of roughly 50%.
Origination growth in 'twenty, one over 'twenty they grew about 6%.
We only owned it for the last couple of weeks of the first quarter, but you look at their whole first quarter. They grew about 69%. So now they're off to a really good start.
It's we've seen a little bit of impact in kind of the weekly numbers there but.
But assuming that this is a fairly short lived phenomenon and given where the vaccination rates are in order and just public health in general in Canada Oddities pretty short lived we.
We feel like our direct lending business has been a really good second quarter.
Really strong full year and I think flex is very much on.
Our path to hit their targets that we talked about and then the big gating element for flex he is going to be to the extent they have additional merchant adds additional bigger merchants and they're in.
From a bunch of you know.
Possibilities there so hopefully we'll be able to come back in and the non to distribute youre talking about some some merchant wins, there, which are which will kick up the flexing the originations and revenue ramp and probably you know we've said before those are a little dilutive to earnings in the near term just because the provision build and simple onboarding cost et cetera. So.
I would say all in all I know, it's a long answer to a short question, but I think all in all we expect our second quarter with the strength in Canada direct lending comping off of COVID-19 periods last year. The addition of a flexi they hit their targets in the U S. Starting to comp off of COVID-19 numbers again that we should be in a position to rip.
Port at least kind of revenue that's kind of flattish maybe up a little bit.
But it starts the trajectory where with all those things continue to improve that you get a real good revenue growth in the <unk>.
Solid data business in the back half of the year.
Okay. That's super helpful color I appreciate that.
Second is credit is really strong I mean, if you look at delinquency strength across the board there strong, suggesting the pipeline's strong.
Your approval rates still suggest though that you are being somewhat cautious as well.
What point in time do you get comfort to start call. It opening up the funnel a little bit to to help drive some of that growth.
Yeah, I'll start and let bill.
Well I'll start with just.
Don't recall that those approvals.
Approval rates are also a function of the fact that all of our customers got so much cash.
Between.
Some of that at this time of year in March from February because the tax refunds approval rates would be low anyway.
Okay.
Stimulus, even exacerbated that but but but bill you can fill it in.
I think it just means that were just the quality of the applications strip part arent as good and bill can expand on that.
Yes, I certainly think that that's part of it the other part of it you have to look at is is the change in mix as it is.
<unk> talked about before there certainly has been.
Stronger demand through our online properties and just inherently in the business you have slightly lower approval rates online and in branch. So just that mix shift over the last 12 months. The other thing that has impacted it but but we continued to make progress.
By state by product and getting back to the year over year approval rate can we expect that to.
Continue.
Okay.
And then.
My final question is you use I mean, you guys have done obviously, you've increased your cap return quite a bit with the dividend hike and the buyback.
But you're going to get more cash.
Soon with the transaction of catapult your.
Fairly high revenue excuse me, our cash generating business, but then you also have these growth channels and growth platforms as things normalize.
Just kind of at a higher level, how do you how do we think about your call. It good.
Capital return program policies over the next several quarters with that backdrop.
Yeah, John It's Scott I think as a serious if we felt we feel really good about.
In terms of the dividend, obviously, doubling and we still feel like you can look at that.
The dividend range sort of just the cash the rate relative to sort of net income plus.
All of the available cash we have on liquidity, we have we feel you know that.
A number we can easily.
<unk>.
Sustained.
And then and we're trying to sort of balance capital return both on the dividend from in the buyback from.
I think we I think we said.
I was looking at the somebody asked this last quarter. So what do you think about.
Debt versus capital return versus debt pay down et cetera in the context of accountable and I think I answered the question well, let's we're going to wait until it catapults actually done.
Uh huh.
Sort of move on any of that stuff and given the timing of that my interest kind of the same I think.
There is some variability in terms of.
And potentially how much cash we get out of the.
The day the Destocking there.
We'd like to sort of see where that all plays out before we sort of go further in terms of capital and it turns out but where we also made the point in terms of investment stuff both in organic opportunities.
And.
We continue to look at a number of from M&A.
Strategic investment opportunities.
And I think trying to balance having enough.
Dry powder to move quickly on on some of those opportunities versus.
Both equity and equity returns and managing the right side of the balance sheet with debt perspective.
That's going to be a couple of quarter to quarter program for us, but I think we'll wait to see kind of poke at close hopefully here by the end of this quarter.
And start to think more about some of those plants.
Okay, great. Thanks, very much guys.
Uh huh.
Thank you and the next question comes from John Rowan with Janney.
Good morning, guys.
Hey, John Hey, John So the.
It looks like flex cities loan portfolio from just go.
Back to the initial.
Investor presentation was down from $208 million to 266 million from from December 31 is that correct and if so is that.
Seasonality or just the COVID-19 impacts that you guys cited earlier in the presentation.
So.
I'm, sorry, John what were those numbers.
So if I go back to like the Flex city deal presentation. It looked like as of 12, 31 day, we're showing them with $266 million loan portfolio.
But in today's deck, you're showing it at $208 million.
Oh, the 266 was Canadian.
Canadian.
Oh, Okay, all right I got it so it was converted them.
Yeah.
With us today.
Okay Alright.
And John the other thing is is that those gross loans those are gross loan balances at 12 31 the acquired portfolio.
The market to market basis, we fair value.
The loan loss.
Basically the loan loss allowance.
Became discount so youre looking at a discount or a net loan balance.
On the on an acquired basis versus a gross loan balance and the investor presentation. So okay.
Yeah, I just want make sure. It wasn't you know tied to the you know any type of seasonality or.
Or the weakness I don't know Theres still hoping that you guys saw earlier.
No they actually saw higher first quarter loan growth both sequentially and year over here then their internal internal budgets.
Flexibly.
Okay, and then you gave the Canadian adjusted EBITDA figure what was that again from one kill.
So we gave them directionally rec lending right now.
No.
Okay are you going to keep wrestling with is it didn't didn't.
Didn't include and there were there in the release it didn't include the true.
So there'll be a separate we'll get we'll get direct lending, which is our like our cash flow into one direct business and then we'll get flexing separately.
I mean.
Or didn't give guidance here I mean, one of the items that you don't always update.
The items you don't always update guidance on is the Canadian adjusted EBITDA.
The last look that we had on that was about $85 million is that still a target is that I mean, you haven't updated that in a while so I'm just trying to look at how realistic that targets there was for Canada in 2021.
Yes, so John that would be if you look at sort of direct lending well called kind of direct lending. That's the the comp is where is that business trending versus that 85 comp. So.
And I think we feel.
No really good about that about that number.
I think but to your point.
Given where we are on on sort of the Lockdowns and and just you know.
They're just just a more sort of a it's just a more fluid situation in terms of kind of coming out of COVID-19.
Then I think we have in the states, we just probably don't have as much visibility.
And on.
The economy's sort of completely opening up there.
Given what's happened over the last so I think we're prepared to sort of standby the $85 million adjusted EBITDA number for the from the direct lending business.
And we'll look forward to sort of updating that and hopefully we'll talk next next quarter.
All of this this this more recent locked down.
COVID-19 surge in Canada is in the rearview mirror and we had the same kind of visibility on the economic progress there that we Havent states.
And then in the $10 million, if I'm not mistaken was $10 million of flexi dilution for 2021 is that still.
Mhm Dolbow right, yes, that's I think it's still that that number is as yet theres no no.
But remember what I just said the if to the extent there are additional merchant wins.
In 2021, which we hope to have those are those that that that number may actually get diluted.
But it'll be because we're where the business is going to see.
The addition of merchants, which will kick off the origination growth in the revenue growth in the long obviously the long term value. So there may be some short term dilution to that number if they get more more merchant wins.
Okay and can you remind me how much was the earn out portion of the equity that you're going to get in.
Infant surf.
So it was.
3 million shares.
That are equally split between the.
The stock trades above 12, and then the other half of the bucket of stock trades about 12.
For but I think it's.
A month after closing versus and then the other bucket is about 14 post closing that's all from $1 million.
It's about 12, and another million and a half about <unk>.
Mhm.
Okay.
And then just lastly, Roger I didn't get this down I was trying to add it up quickly you mentioned that the differential in net charge offs versus provision was at $17 million is that correct I thought I heard two different numbers.
Make sure I got it.
Yeah, Yeah, I gave the numbers in both for both the U S and Canada, but that was the total yes that was a total of 17 million net yep.
Yep.
Okay.
Yeah.
Alright, that's all I need.
Thanks.
If you look at our tables now Jon it's a lot easier to figure out than it used to be.
Alright, I'll I'll take it a lot, but I just want make sure because it was adding the two numbers alright. Thank you.
Right.
Thank you and the next question comes from Bob Napoli with William Blair.
Hi can you guys hear me.
Yes, good morning.
Yep commodity this is spencer on for Bob.
I just wanted to follow up briefly on the weekly loan approval rate question. You mentioned part of it was due to the mix shifts to digital applications. How was the mix shift of digital versus in store trended compared to Q3 and Q4.
And how much of the weekly applications is due to that digital mix.
Yes. Good morning. This is bill.
So it's a good question and there are some differences between the U S and Canada.
Start with candidate if you just look.
What's happening there I think both are being impacted by quite a lockdown.
But even before we went to the Lockdowns and the mix in Canada is still very heavy heavy on the branch side of things.
So it's a bit muted up there as far as what the mix is in the U S. We've certainly seen an uptick in weekly applications both across the U S stores in the U S net lending businesses, but I would say that the the online business is outpacing on customers and applications by about two fold at this point. So we certainly are seeing some.
Some better demand there.
But we would expect the stores to continue to improve as well to dawn's point as people people get back to work and some of them.
Some of the health impacts of the pandemic fade away.
Okay. Thank you that's helpful. And then you guys touched briefly on the longer term ownership.
Catapult, but could you just expand a little bit more on the longer term plans for that ownership.
Maybe as flex it evolves over time do you see catapult naturally you're owning more of it or less of it overtime just anything along those lines.
Yeah, Hey, it's Don I'm going to you know.
Say, what I've said before I mean normal I would say it hasn't closed yet so.
Kind of get that a key first step put that in the rearview mirror.
Well, we'll see I mean, it's obviously the business.
It's a strategic investment we have we have a oh, we like the point of sale business in the U S. We like the E Com L T O focused that.
Catapult housing obviously, you thought the best way to maximize value for for procure holders was to do the transaction that we are that we announced in December and that will close here hopefully very soon.
And I think we'll just have to sort of see see how it goes see how their business continues to perform we like the team there a lot.
Well, we like because we like their prospects, we like the sort of the the sector they're in.
And what that means for us as a as a holder overtime.
It's too hard to sort of say.
Say right now.
Okay makes sense. Thank you guys appreciate the time.
Okay. Thanks.
Thank you and then next question comes from Vincent <unk> Stephens.
Hey, Thank you and good morning first question I appreciate it.
Hey, good morning, Don.
Details on.
The Flexitarian Canadian point of sale metrics, but our understanding was only acquired in March.
Is there any help you can give us in terms of maybe a full quarter outlook or how you think we should be modeling that in terms of different.
So the revenue piece.
The provisions and so on that you can help out with.
Yeah.
So.
I mean, I guess I'm from so from a from a.
Top line perspective.
I think that when we guided.
When we announced the transaction.
We said that we expected.
Revenue off of I think from full.
Full year revenue in the $45 million to $55 million range for that business.
And I think the businesses is scaling in a way that we.
So we feel very good about those numbers and I'm not sure.
I agree.
On the first 69% origination rates in the first quarter. The April numbers are actually.
Again, you're comping over kind of a lot in the COVID-19 lockdown, but they they grew originations over 200 per cent.
In April so we feel really good about that.
Kind of a business that's called the business that we bought.
And in the merchant base that we bought they don't they've announced some some good signings.
Just announce a big tire retailer on April 13th So they've announced some good signings, but I think in terms of the overall program kind of where it sits now we feel like those those those revenue numbers, we ought to be building into those revenue numbers on a quarterly basis. So some roger can chime in so I would expect for.
For the second in U S dollars from the second quarter.
I think we should be somewhere Roger I think in the economic million dollar range and ended on a quarterly basis and on a build from there maybe Roger can kind of help you are filling out here or maybe maybe offline on sort of the the credit stats.
Yeah, No I think that's right.
Yeah, I think the.
We're kind of still get our I think we're all getting our heads.
That's around the impacts of lock those brief, albeit temporary lockdowns if it goes.
Obviously flexing of merchants, who are affected by that as well, but but also.
There's some timing of the merchants.
As you know and I can't emphasize enough with the timing of when these big merchants they get on boarded let's just like Canada, It's very similar to catapult, there's a lot of similarities.
And the growth curves and things like that but.
And that's the biggest thing right now Vincent as we've moved through the quarter certainly as we move through Q2, I expect it will be coming back with some updates that would help you with that question, but it's just a little too soon right now.
Okay. That's very helpful. Thank you.
And then on the Canadian Lockdowns and how they've been handling it better than your performance has been better in Canada.
Versus relative to the U S.
Kind of from your.
Experienced last time in Canada, when the Lockdown and the recovery was fairly quickly clearly quake now that youre locking down. This time, if we kind of use a similar thing.
I guess, how quickly do you expect.
A resumption to normal area are you already seeing some sort of though we turned them all.
Yeah, So it's not.
Go ahead, Don Yep Yep.
Still I'm still very much from they actually extended the lockdown was it was originally a 28 day period.
Based on case load that they saw they actually extended it.
But just anecdotally from our folks that live and work there again were central business, but just what we're hearing is that it's it is they're taking it very seriously and encouraging people to stay home and not good again for restaurants, and so I think that there is certainly going to be a lot of demand once the lockdown ceased.
So you know.
Again difficult to predict but I think we would expect a pretty a pretty rapid increase similar to what we saw last time, particularly on new customer demand and our credit line increases have held quite steady for us through this because they are existing customers and it's much easier for them to go online and just.
Crease their credit line, except that I think what we would expect a good start good recovery would be on new loan.
Nation, both in store and online and so we're looking forward to that just as much as the folks in Canada are in exiting the lockdown.
Mhm.
Vincent this is much like it has in the states, it's very it's very different province by province.
<unk>.
The part about it that's that's that's worrisome as you've looked at like Alberta and Manitoba.
In Alberta is kind of a 10 or 12% of the population down until the smaller than that.
The case of they were kind of almost increasing at an increasing rate.
But if you look at Ontario.
There.
They've come down from.
Seven day average of like 4500 cases down to <unk>.
3500, so they're seeing in some way, it's almost like what we're seeing in the U S in terms of the.
The the overall declines, but it's very it's very spotty.
Very good.
Different province by Province, So that's what makes us a little bit cautious about trying to sort of.
Predict even 30 days out.
And by the way just as something I hope. This I hope this whole conversation I can't wait for this conversation to be in the rearview mirror on these calls.
But we understand it's important but I think we're all for it and I'm talking about this anymore. So.
Right right and then last one from me so in the switching to the U S.
You know I don't I know you know, we still have stimulus and unemployment benefits but.
Any update that you're seeing in April in terms of demand.
Just any any trends youre seeing about the.
Where maybe demand Mike.
Perk up again.
Signs there.
Yeah. This is bill so I think we're seeing since the beginning of April we've seen.
Good sequential.
Growth each week and kind of continuing application demand, but both in store and online, but as I said earlier, we have seen a bit stronger demand on online and it is a little different state by state, but we.
And we would hope that that that continues.
Credit continues to be to be very good. So we're really focused on the approval rates as I said looking at overall approval rate.
Can be a bit difficult because of the mix shift that we've seen but when you break it down state by state and product by product channel by channel and in many cases, we're back to the approval rates a year ago, if not a bit better. So I think we're well positioned from a scoring and underwriting perspective could be ready for the demand as it continues to increase and I think we are.
Staging the marketing dollars appropriately as we see more demand out there when market a bit more but I think we're I think we've got it.
Good strategy on how to capture that demand as it continues to come back and increase but as with all of its very dependent on you know on the health crisis and ensuring that we continue to see the numbers.
And the country continues to see the numbers go the right way I think that there's obviously a correlation in demand there, but thus far I mean, it is a it was encouraging.
Okay.
Thanks very much.
Thank you and the next question comes from Moshe Orenbuch with credit Suisse.
Great. Thanks, maybe just following up on that day.
The issue of demand is.
The suppression of demand.
The injection with the big dollars are stimulus.
Someone suggested that there's these ongoing kind of programs like how do we think about like when that burns through exactly what that means exactly but to.
Is it likely to be largely done in the near term or is it going to drag through the next several months.
Yeah, we do our best to monitor that and I think largely we feel like the direct impacts of stimulus.
It really started to burn off and have over the last three or four weeks. We don't know what that means from a what the customers are saving from a savings perspective, and how much was spent to pay down debt or catch up on on late bills and things like that but if you look at tax refund season.
<unk> direct stimulus payment, we think a lot of that is actually burn through the second part of your question is what were you know I think what we're all interested to see as the child tax credit starts to.
Be issued to customers on a monthly basis.
What that will do but that's all that's obviously going to be a smaller amount than these large direct to consumer payments from the government. So.
I think largely.
Big numbers on stimulus and tax refunds.
I have largely made their way through them.
Get through the system.
Maybe you know kind of given what has happened in the U S are under significant expansion you pass it Canada by comparison.
Do you think about.
Where you are targeting.
Are there potential new bank partners like could you just talk a little bit about whether it's kind of a state by state approach or additional partnerships and how you're.
Think about that.
Yeah, I mean, I guess it was to look at the I'll take the state by state approach first I think that's very much how we look at it now and happy Halloween.
<unk> always looked at it and we do see we do see different approval rates and demands state.
State by state product by product and I think that's where we can not to refocus the marketing dollars as barbecue see increased demand and that is by channel as well.
Like I said, we have seen.
Better application rates online.
Resulting in more loans on the store side, it's very much state by state driven single pay is certainly much more susceptible to what's happened in the pandemic than some of the longer term lower rate products. So that's again, that's really how we think about it.
On the partnership side of things I mean, we're always looking for.
Different kinds of partners in different kinds of products and we've talked a lot about our interest in Ah.
And near Prime as well, we've got a small portfolio in California.
Encouraged with the early results. There are cards continues to be a big focus for us on that side of things as well and we continue to make investments there and hook out more to talk about soon.
Great. Thank you.
Yeah.
Thank you and this concludes our question and answer session I would like to turn the conference back over to John Gay Howard for any closing comments.
Yeah, great. Thanks for everybody for joining us today, we look forward to talking to you after our second quarter really have a good day bye.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.