CURO (CURO) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $209 million, flat sequentially but at the higher end of expectations, driven by a strategy to migrate towards longer-term and lower-risk products [14] - Net charge-offs increased to$68 million from $59 million sequentially, with a reported net charge-off rate of 13$108 million from $118 million sequentially, with an operating expense ratio improving to 21$2.1 billion, indicating solid demand despite a seasonally slower quarter [6][8] - The direct lending business in Canada saw strong demand for open-ended products, while the U.S. loan management system conversion is expected to enhance operational efficiency [9][10] - The company is introducing new secured lending products, such as an auto secured product, to reduce credit risk and increase average balances with secured customers [10] Market Data and Key Metrics Changes - The company reported that consumer demand and credit performance remain stable despite ongoing macroeconomic uncertainties in the U.S. and Canada [11] - The net charge-off ratio improved by 270 basis points when excluding the change in charge-off policy, indicating improved credit quality [12] Company Strategy and Development Direction - The company is focused on responsible growth, maintaining credit quality, and tightening operating expenses while gradually increasing marketing efforts [5][22] - The sale of the Flexiti business for approximately CAD 55 million is seen as a strategic move to enhance liquidity and support growth initiatives [24] - The company aims to increase the mix of larger balance and longer duration products to simplify predictability and reduce risk [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the stability of consumer credit performance and the potential for responsible growth moving forward [37] - For Q3 2023, the company expects receivables to be in the range of $2.15 billion to$2.25 billion and revenue between $210 million and$220 million, with net charge-offs anticipated between 12.5% and 15.5% [19] Other Important Information - The company has made significant progress in modernizing its technology infrastructure, including transitioning to the cloud and converting U.S. branches to a single loan management system [23] - The allowance for loan losses increased by $13 million, primarily due to growth in Canada point-of-sale loans and updated unemployment forecasts [17] Q&A Session Summary Question: Customer Acquisition and Growth - Management noted modest growth in the U.S. direct lending business, with most growth being organic from existing customers tapping into credit capabilities [38] Question: Balance Sheet Leverage Goals - Management indicated that the sale of Flexiti would provide liquidity to support profitability and balance sheet growth, with a focus on achieving the right leverage [39][40] Question: Strategic Transition Items - Management stated that the focus is on executing the current plan efficiently without major strategic changes anticipated in the near term [45] Question: Consumer Credit Environment - Management confirmed that there is no unusual stress on consumers, with demand remaining solid despite macroeconomic challenges [42] Question: Auto Secured Product Details - Management clarified that the new auto secured product aims for lower APR, lower charge-off, and higher balance programs [49] Question: Q3 Guidance and Flexiti Inclusion - Management confirmed that Q3 guidance includes Flexiti for part of September, with adjustments possible based on the timing of the sale [78]