CURO (US:CURO)2021-03-05 22:31Financial Performance - Revenue from California Installment loans was 8.0% of total revenue for the year ended December 31, 2020, down from 12.2% in 2019, leading to the cessation of new Installment product originations in California[46]. - Unsecured Installment loans comprised 40.0% of consolidated revenue for the year ended December 31, 2020, down from 46.5% in 2019[51]. - Open-End loans accounted for 29.4% of consolidated revenue for the year ended December 31, 2020, compared to 21.5% in 2019[50]. - Insurance revenues from credit protection insurance in Canada were $35.6 million for the year ended December 31, 2020, up from $34.6 million in 2019[58]. - Revenue generated through the online channel represented 49% of consolidated revenue for the year ended December 31, 2020, up from 46% in 2019[68]. - For the year ended December 31, 2020, consolidated total revenue generated through online channels represented 48.5% of total revenues, up from 45.6% in 2019[77]. - Open-End and Installment loans accounted for 78.8% of consolidated revenue for the year ended December 31, 2020, up from 19% in 2010, reflecting a significant shift in customer preferences[105]. - Revenue, Adjusted EBITDA, and Adjusted Net Income grew at compound annual growth rates of 15.3%, 14.4%, and 12.8% respectively from 2010 to 2020[92]. Operational Highlights - The company operated 412 stores across 14 U.S. states and seven provinces in Canada as of December 31, 2020[67]. - Approximately 75.4% of consolidated revenues were generated from services provided within the U.S. for the year ended December 31, 2020[66]. - The company had over 49,000 active Opt+ cards as of December 31, 2020, with customers loading over $2.8 billion to their cards since 2011[59]. - The company employed approximately 3,900 individuals, with a focus on maintaining good employee relations and competitive pay rates[131]. - The company maintained full employment in the U.S. and Canada during 2020 despite COVID-19 challenges, implementing pay supplements for full-time employees working reduced hours[133]. Regulatory Environment - The regulatory environment for the alternative financial services industry is subject to significant federal, state, and local regulations, impacting loan products and operational costs[134]. - The 2017 Final CFPB Rule is expected to increase costs and reduce the effectiveness of loan servicing and collections, with mandatory underwriting provisions potentially limiting consumer borrowings[138]. - The CFPB's Debt Collection Rule, effective November 30, 2021, will require significant changes in collection practices, impacting operational costs and compliance systems[152]. - The company is currently undergoing an examination by the CFPB to assess compliance management systems and debt collection practices, which may lead to enhancements in compliance procedures[158]. - Future changes in laws and regulations could materially affect the company's financial condition and operational results, with potential adverse impacts from ongoing litigation related to regulatory rules[139]. - The company is actively working to align its practices with evolving regulatory requirements, which may increase costs and reduce revenues[160]. - The CFPB has the authority to impose significant monetary penalties for violations, ranging from approximately $6,000 to $1.2 million per day depending on the severity of the violation[153]. - The company is engaged with regulatory authorities to promote equitable laws and regulations that facilitate competition and lower costs for consumers[134]. Market Opportunities - The acquisition of Flexiti, a Canadian POS/BNPL provider, is expected to enhance the company's long-term growth trajectory and diversify revenue mix[97]. - The consumer credit opportunity for installment balances in Canada is estimated at approximately C$175 billion, representing a highly fragmented market with low penetration[98]. - The company anticipates continued growth in online channels, which have become significant revenue drivers during the COVID-19 pandemic[109]. Acquisitions and Investments - Cumulative cash investments in Katapult amount to $27.5 million, with an expected cash and stock consideration of $425 million to $435 million upon merger completion[102]. - The acquisition of Ad Astra in January 2020 is expected to provide operational, financial, and compliance synergies, improving collection strategies[111]. Loan Products and Trends - Installment and Open-End loans increased from 58.8% of total Company-Owned loans at the beginning of 2015 to 92.1% by December 31, 2020, with Canadian Installment and Open-End loans growing from $50.0 million as of September 30, 2017, to $312.2 million as of December 31, 2020[79]. - The average loan amount for Unsecured and Secured Installment loans was $676 and $1,224, respectively, while the average loan balance for Open-End loans was $551 in the U.S. and $1,315 in Canada for the year ended December 31, 2020[115]. - The proprietary credit decisioning model, Curo, integrates over 92 million loan records to formulate robust underwriting algorithms[85]. - The company’s "Site-to-Store" program resulted in approximately 133,000 loans in the year ended December 31, 2020[81]. - Verge Credit loan balances grew to $27.0 million in 2020 despite COVID-19 challenges, indicating strong demand for the product[103]. Geographic Revenue Breakdown - As of December 31, 2020, revenues in British Columbia accounted for approximately 9.7% of Canadian revenues and 2.4% of total consolidated revenues[199]. - Revenues in Ontario represented approximately 67.2% of Canadian revenues and 16.6% of total consolidated revenues for the year ended December 31, 2020[202]. - Revenues in Alberta were approximately 16.9% of Canadian revenues and 4.2% of total consolidated revenues for the year ended December 31, 2020[207]. - As of December 31, 2020, the company operated 135 of its 202 Canadian stores in Ontario[202]. Interest Rate and Currency Risks - A hypothetical 1% increase in the average market interest rate would result in an increase in annual interest expense of $1.4 million[470]. - If average foreign exchange rates had declined by 10% against the U.S. dollar in 2020, revenue and net income from continuing operations before income taxes would decrease by approximately $21.0 million and $4.9 million, respectively[474]. Compliance and Reporting Obligations - The company is registered as a money services business with FinCEN and must re-register every two years[172]. - The Bank Secrecy Act requires reporting of currency transactions over $10,000 and maintaining records for five years for certain cash purchases[171]. - The company is subject to the California Consumer Privacy Act, which imposes expanded obligations regarding consumer personal information[186]. - The company must comply with the Truth in Lending Act, which requires disclosures for both closed-end and open-end loans[164]. - The company faces potential regulatory and private sanctions for violations of state laws, which could materially affect operations and financial condition[179]. Legal Environment - The legal environment is dynamic, with ongoing lawsuits that could impact the company's operations and compliance requirements[148]. - Nearly 50 Texas cities have passed local ordinances that restrict loan amounts and repayment terms, impacting operations in those areas[183]. - The California Assembly Bill 539 imposes an annual interest rate cap of 36% plus the Federal Funds Rate on consumer loans between $2,500 and $10,000, effective January 1, 2020[180]. - The company operates in approximately 34 states in the U.S. under enabling legislation that allows direct loans of the type made[177].