CURO (US:CURO)2022-03-07 21:57Revenue Composition - As of December 31, 2021, Revolving LOC loans comprised 36.0% of consolidated revenue, up from 21.5% in 2019, while Canada Direct Lending Revolving LOC loans represented 94.2% of total Canada Direct Lending loans[44] - Installment loans accounted for 54.9% of consolidated revenue in 2021, down from 72.9% in 2019[47] - Insurance revenues grew to $48.9 million in 2021, up from $35.6 million in 2020, with expectations for further growth due to the Heights acquisition[49] - Approximately 64.3% of consolidated revenues were generated from U.S. services in 2021, down from 80.0% in 2019[57] - As of December 31, 2021, Canada Direct Lending revenues in Ontario accounted for approximately 64.2% of total Canada Direct Lending revenues and 20.2% of total consolidated revenues[194] - Revenues in British Columbia represented approximately 11.3% of Canada Direct Lending revenues and 3.5% of total consolidated revenues for the year ended December 31, 2021[188] Online and Mobile Channels - Revenue generated through online channels represented 50.3% of total U.S. and Canada Direct Lending revenues in 2021, compared to 48.5% in 2020[67] - The smartphone penetration rate among U.S. adults reached 85% in 2021, indicating a shift in consumer behavior towards mobile devices for loan origination and servicing[70] - The company reported a significant increase in online customer transactions during the COVID-19 pandemic, leading to a corresponding rise in revenue from online transactions relative to total revenue[72] - The company has shifted focus to online channels, which have become a significant revenue driver, especially during the COVID-19 pandemic, with expectations for continued growth in online usage over time[99] Acquisitions and Market Expansion - Following the acquisition of Flexiti, Canada POS Lending gross loans receivables increased by $263.0 million, or 134.1% in 2021[44] - The acquisition of Flexiti in March 2021 and Heights in December 2021 expanded the company's product offerings and market presence, with Heights enabling entry into new near-prime credit markets[75][95] - The acquisition of Ad Astra in January 2020 has provided significant operational, financial, and compliance synergies, improving the company's collections and customer service strategies[101] - The Canada POS Lending segment has partnered with merchants representing 77% of the retail market previously served by Desjardins, positioning the company to become Canada's largest POS financing provider[124] Financial Performance and Growth - From 2010 to 2021, the company achieved a compound annual growth rate of 13.5% in revenue, 11.9% in Adjusted EBITDA, and 5.8% in Adjusted Net Income, reflecting a history of growth and profitability[83] - The company has raised over $3.9 billion in debt financing since 2010, demonstrating strong access to capital markets and diversified funding sources[83] - The company initiated share repurchase programs resulting in over $50 million of shares bought back from 2019 to 2021, and increased its annual dividend from $0.22 to $0.44 per share in 2021[84] - The company has extended over $21.1 billion in total credit across approximately 52.5 million loans from 2010 to 2021, demonstrating its strong market presence[112] Regulatory Environment - The company is subject to various federal and state regulations that govern loan products, including interest rates, maximum loan amounts, and repayment plans[131] - Regulatory changes, such as the 2017 Final CFPB Rule, could increase costs and complicate loan servicing, potentially impacting the company's financial condition[133] - The 2020 Final CFPB Rule rescinded mandatory underwriting provisions but retained payment provisions, which may require significant modifications to payment and compliance systems[140] - The CFPB's Debt Collection Rule, effective November 30, 2021, necessitated changes in collection practices for the company's Ad Astra subsidiary, although it is not expected to materially impact operations[147] - The company has faced legal challenges regarding the CFPB rules, which could materially affect product offerings and business operations[144] - The company actively collaborates with regulatory authorities to promote equitable laws and regulations that facilitate competition in the financial services industry[132] Operational Strategies - The proprietary Curo platform integrates customer acquisition, underwriting, and risk management, utilizing over 100 million loan records to enhance credit decisioning[78] - The company’s omni-channel platform allows customers to engage through various channels, contributing to a resilient business model adaptable to economic cycles[73] - The company’s focus on customer experience includes continuous upgrades to web and mobile interfaces, enhancing the "Call, Click or Come In" strategy[97] - The company employs around 5,200 individuals, with a focus on attracting IT development and data science professionals through its offices in key locations[128] - The company believes that staff continuity is critical, employing a full-time Store Manager supported by 2-3 Senior Assistant Managers and 3-8 full-time Customer Advocates in legacy U.S. stores[129] Market Trends and Consumer Behavior - Seasonal demand for direct lending in the U.S. peaks in the third and fourth quarters, with a notable decline in the first quarter due to federal income tax refunds[125] - Approximately 45% of Canada POS Lending sales historically occur in the last quarter of the year, with significant spikes during events like Black Friday[126] - The investment in Katapult, which targets a total addressable market of $40-$50 billion, positions the company to capitalize on the growing non-prime financing market[96] Risk Management - A hypothetical 1% increase in the average market interest rate would result in an increase in annual interest expense of $5.3 million[497] - If average foreign exchange rates had declined by 10% against the U.S. dollar in 2021, revenue and net income from continuing operations before income taxes would decrease by approximately $30.5 million and $3.5 million, respectively[501] - The transition from LIBOR to an alternative benchmark rate is anticipated to have no material impact on the company's consolidated financial statements[499] - The company does not believe there is any material interest rate sensitivity associated with its customer loan portfolio due to their short duration[498] - The company may elect to purchase derivatives as hedges against foreign exchange rate risks to mitigate the impact of fluctuations on its results of operations[502] Compliance and Legal Matters - California Installment loans impacted by Assembly Bill 539 produced 2.9% of total consolidated revenue from continuing operations for the year ended December 31, 2021[174] - Gross loans receivable on California Installment loans impacted by AB 539 amounted to $11.3 million as of December 31, 2021[174] - The Military Lending Act imposes a 36% cap on the "all-in" annual percentage rates charged on loans to active-duty members of the U.S. military[157] - The company operates in approximately 27 states in the U.S. under enabling legislation that allows direct loans[170] - The company is registered as a money services business with FinCEN and must report currency transactions over $10,000[166] - Federal regulations require the company to report suspicious transactions involving at least $2,000 to FinCEN[167] - The California Consumer Privacy Act became effective January 1, 2020, broadening consumer rights regarding personal information[179] - Nearly 50 Texas cities have passed local ordinances that restrict loan amounts and repayment terms[177] - The company has launched a new product in the City of Austin to adhere to updated local ordinances[178] - The company anticipates that future state and federal laws similar to the California Privacy Rights Act may increase operational costs[179] - The ongoing examination of Ad Astra by the CFPB aims to assess compliance management systems and debt collection practices, with no material impact expected[153] - The company has received a Prioritized Assessment Information Request from the CFPB regarding short-term loans and debt collection practices in response to COVID-19[150]