Q3 2023 CURO Group Holdings Corp Earnings Call

[music].

Good morning, and welcome.

2023.

All participants will be.

Should you need assistance, please signal a conscientious specialist.

Starkey.

<unk>.

Today's presentation.

To ask questions.

To ask a question.

Star.

On your telephone keypad to withdraw your question. Please press Star then too.

Please note.

Carded.

<unk>.

Head of Investor Relations. Please go ahead.

Thank you on good morning.

Released its third quarter 2023 results before the market open today.

Next presentation are available on our Investor website at <unk> Dot <unk> Dot com.

With me at today's call, our <unk>, Chief Executive Officer Clark.

Financial Officer.

Today's discussion will contain forward looking statements based on the business environment as we currently see it as such it includes certain important risks and uncertainties.

Please refer to our press release issued this morning, and our farms 10-Q on Form 10-K for more information on the specific risk factors that could cause our actual results to differ.

Materially from the matters described in today's discussion.

Looking statements made on this call are based on assumptions as of today and we undertake no obligation to update a revised statement as a result of new information or future events.

U S gap recording we present in the earnings presentation certain financial measures that do not conform to generally accepted accounting principles.

We believe these non-GAAP measures enhance the understanding of our performance.

Conciliation between these.

Measures are included in the appendix to our earnings presentation.

Current and prior period financial information is presented on a continuing operations basis, which excludes the results in positions of the Canada P. O S lending segment.

The sale of Dyslexic business and August 31st 2023.

With that I would like to turn the call over to Doug.

Good morning, everyone and thank you for joining us today the.

The third quarter was a successful quarter for Carol as we close the sale of our flex city point of sale business depleted our business transformation, enabling us to exclusively focus on our core business up direct lifting in the U S and Canada.

We also make great financial operational stripes during the quarter, which collectively contribute to executing on our strategic vision. We continued to responsibly grow our loan portfolio across the U S and Canada as we prudently extend credit to a resilient customer base.

As you can see on slide three and four of her earnings presentation. We grew our overall loan portfolio by 2% sequentially and 8% on an annualized rate.

The sequential balance increase was driven by a 5% increase in our U S alone, but in a two.

Two per cent increase in Canada on a constant currency basis.

We continue to focus on our proven customer base I believe there is ample room to grow balances.

To improve overall credit profile in both Geography's, which is an important step in our path to profitability.

Within our U S operations, we completed a major milestone by converting our entire U S branch network to a single one management system.

This conversion greatly simplifies management of our branches and allows us to increase efficiency and improved servicing.

This will also enable us to offer both small and large loads in the same branch providing opportunities for load balanced growth as well as network optimization.

Our continued expense management led to lower operating expenses for a third consecutive quarter, excluding non reoccurring charges.

<unk> management remains a top priority and we feel we can continue to grow our little books and improve our operating expense ratios.

Turning to credit on slides five and six we were very pleased with the stabilization of our delinquency rates and the approval of our Ncos.

R. M C o's decreased 110 basis points sequentially.

We saw 170 basis points of sequential improvement in the U S and would like to highlight both a year over year and year to date improvement.

Canada, driven by our Canadian opening their product.

As a reminder, we made a series of changes to our underwriting servicing programs at the beginning of this year and we're starting to see the results materialize.

We also continue to closely monitor credit and consumer health thus.

Thus far the consumer continues to perform consistent with previous quarters, and our expectations, but we are ready to make further adjustments to underwriting if conditions change.

To summarize we continue to deliver on our strategic priorities.

The business growing responsibly.

Key operational milestones all while closely managing our expenses.

I will now turn it over to easy to give you more detail on a Q3 results and then I'll close with some final thoughts.

Thanks, Doc and good morning, everyone.

Highlighted Q3, with an exciting quarter, where we close on several meaningful milestone.

And continue to deliberate expectations.

Seven up the earnings.

Show some results for the quarter.

Revenue of 168 million increased slightly from the prior quarter.

Chris Martin post charge offs declined slightly versus prior quarter.

Driven by hired nonrecourse interest rate overall portfolio growth.

At a higher level of average cat.

That revenue post probation expense with 119 million versus 103 million in the prior quarter, primarily driven by credit change of $6 million.

Proving late stage role right.

<unk> macro economic outlook, partially offset by portfolio growth during the quarter.

Our pretax loss post probation was $33 million in Q3 twenty-three versus a loss of $54 million and Q2 twenty-three.

Interest expressed increased $56 million.

The prior quarter.

And increasing that level and higher rates.

Operating expenses for the quarter was $94 million, including our operating expenses was $6.5 million of non recurring charges.

Preprovision income increased by 3 million from the prior quarter to $16 million.

Net charge offs of $55 million, an improvement of 2 million sequentially.

Reported net charge off rate improve to 17.7% versus 18.8% in the prior quarter.

We continue to believe our focus on responsible asset growth and the actions we have taken the underwriting of servicing Shepherd drive further credit quality improvement.

Net lots of them continuing operations for the quarter was $34 million or 81 cents per diluted share.

Ah slight eight you can see more detail on our allowance the lower allowance versus the prior quarter was driven by late stage role right improvement.

As well as improved macroeconomic conditions.

Minder or allowance would likely increase.

Grow our portfolio in future periods.

Trying to slide nine net interest income post charge offs and exploding recourse interest decreased slightly versus the prior quarter.

Higher average got levels.

And increased nonrecourse interest rates as well as lower yields due to the continuing product mix shift to larger balance lager duration and lower credit risks loans.

Partially offset by a decrease net charge offs.

Our operating expenses.

Q3 are operated expect this unreported basis increased slightly sequentially.

And includes $6.5 million of non recurring charges.

Our opex ratio also had a slight uptick versus the prior quarter again, primarily due to the non recurring charges.

The non recurring charges opex receivables ratio would be lower back 210 basis points to 28.3%.

Ah slight 11, you can see our leverage in liquidity summary on the left hand side.

Net leverage improve versus the prior quarter due to an improvement in our adjusted earnings before credit changes.

And taxes.

The right cut a slight liquidity and capacity decrease primarily due to the August Gimme annual bond payment.

Receivables growth.

We expect our unrestricted cash levels to be $90 million to $140 million at year end.

I would like to further expand on our liquidity position currently.

Strong dispositions at the beginning of the year, having great capital in May and closest fail flex it.

We expect it to get stronger over the coming months, giving that the runway to becoming profitable.

Over the next two quarters, we expect further info of liquidity driven by the escrow release true relate to the flex the detail a tax refund related to prior periods, which has been approved by the I R. S.

At a higher rate on our Canadian lending facility is credit performance improves.

Access equal $45 million to $50 million in additional liquidity.

We also anticipate we will modify several of our youth lending facilities in Q4 2023.

Additional 65 million capacity to grow receivables.

Additionally, Q1 tends to be a seasonal quarter, where we see our portfolios shrink and collections outpace loan growth.

Q2, 2024, we anticipate refinancing our lending facilities and increasing capacity and liquidity support growth.

Finally, with the sale of flex it we saw a gap loss, but we will be able to you'd like this loss for tax purposes, and expect to receive a refund of approximately $38 million.

<unk> 2023 cats retards, we anticipate receiving the refund in the second half of 2024.

As a reminder, regarding our corporate taxes, even though we're in a loss position for U S tax purposes.

In Canada, we are profitable. So we expect there will be a cash outflow, but Canadian taxes.

In February.

We are in a stronger liquidity position that we have been the past three quarters and we expect liquidity three approved by year end it throughout 2024.

Next we'll discuss our outlook for Q4 twenty-three us like 12.

Four Q4, 2000 twenty-three, we expect receivables to be in the range of 1.26128 billion.

For revenue to be in the range of approximately 165 $275 million.

Net charge offs are expected to be between 65% to 85%.

Our operating expenses in the range of $85 million to $95 million on a reported basis.

And our cost of funds will be approximately $60 million.

We're also providing an early view into our 2024 expectations.

We expect to grow receivables, 8% to 12%.

Net interest margin post charge offs, excluding recourse interest to be in the range of 26% to 28%.

We expect our 2024 expects run right to be in line with our queue for 2000 twenty-three annualized expected can we expect to maintain unrestricted cash balances of $90 million to $140 million at the end of every quarter. Finally, we've also updated our longterm outlook.

Metrics for us our receivables growth.

That exists margin post charge offs that flew recourse interest.

And Opex ratio.

Our car necklace margin as close to an inflection point in long term targets.

Or inflection point is our estimate of curious necklace margin is able to cover 100 per cent of our operating in excess expenses.

The improvement will be driven by continued focus on our product mix and improving our loss rates.

Opex ratio improvement will be driven by managing.

Managing expenses, while growing receivables approximately 8% to 12% a year.

With a move to a single Lone management platform in the U S. We can start focusing on optimizing our branch network, which will further improve our opex ratio in the future.

Or 2024, and longterm outlook are dependent on a stable macro environment and we will update the outlook in future quarters, if we see any meaningful changes.

With that I will turn it back over to Doc for some final comments.

This is the third quarter with our new management team and I'm very proud of all we've accomplished during these nine months.

During a challenging economic backdrop, we improved credit performance raised additional capital completed our leadership transformation sold flexi strengthen liquidity position consistently reduced our operating expenses and recommenced responsible thrilled.

These accomplishments along with the conversion to a single more robust loan managers system in the U S provides a strong foundation for the future.

We look forward to finishing the year strong of capitalizing on many of the investments we have made.

With that I would like to open a call up for Q&A operator.

[noise].

Morning.

[noise] for taking my question.

And congratulations then.

So over the course of the last couple of quarters.

First one is kind of just general maybe a little bit more detail on overall credit you are talking about improving roll rates. You've also migrated to a single Lone management system in the U S I mean and and so.

The general question is yes.

Is how are you managing approving credit is it a function of of execution in the new system or is it a function of just more stable macro backdrop and then maybe you could talk about any differences you're identifying between the U S and Canada in that regard.

Yes, John this is Doug.

I tried to bifurcated into <unk> use to answer than a Canadian answer starting with the U S.

I think we've talked about in the past actions.

We took to address credit including.

Q for tightening, but also standing up our centralized collections of servicing team.

And putting in new payment solutions for consumers. So I would say when we look at our for example, R Q1 vintage curves versus Q3 of last year, there is noticeable improvement.

Posted tightening and post some of those changes so I think a lot of what we're seeing now and the credit is.

As our front book continues to increase some of that flowing through into the numbers. So I think it's a combination of underwriting and servicing.

In Canada.

We we talked about again at previous quarters, we extended the charge up period from 90 to 180.

An established traditional role rates and customer solutions and and if you look at the table and the 10.

You'll see that kind of our charge offs for are open ended.

Credit I really doubt about 400 basis points now from last year's levels and that's really a result of both some credit tightening, but primarily the servicing platform changes we've made there so as far as.

What we're seeing from the consumer again, consistent with lats last quarter, nothing I would say.

<unk> different from previous quarters, I would say that we've seen an increase in.

Some consumer proposals in Canada, which are comparable.

Chapter 13.

But they are still below pre COVID-19 levels. So overall.

Also kind of finished with.

10 of the 13 states, we operate in the U S carry unemployment levels lower than the national average. So we're monitoring that obviously, but overall, we think we're pretty good shape on the credit side.

Great. That's very helpful. Thanks for that those details and that is that you mentioned.

The modifications to some ABS structures actually it looks like you're sounds like you're addressing a few of your call tenets of of of that over the next few quarters you some modifications.

Is there any way you can describe what those modifications or or is it just sort of a renewal of a term or something.

Yeah, I think they're too I'll talk about what's currently and then what were looking to do in the future.

But really just tiny.

Quake capacity for the growth of our secured loan program, which tends to have higher average balances longer durations.

So we have to make sure that our facilities are configured to to make those laws eligible right and that's working with our lenders group because it is a better credit better access spread up so so thats been going well, especially since we have been assured up a lot of operations in liquidity.

Second Big milestone really is next year, when we move away from I'd say, a legacy name certificate of Heights related facility or first heritage facility could really use direct lending facility thats bifurcated between.

No more secured loans and unsecured loans and potentially loan sizes.

And that will happen next year, but again a lot of that's being driven by the fact that.

We're able to kind of switch our focus to growth since we have a lot of our liquidity challenges behind us and the lenders are working with us.

Yes, that's great. Thank you guys very much.

John.

[noise] [music].