CURO Group Holdings Corp.

Good morning and welcome to Hero Group Holdings' fourth quarter and full year 2020 conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Matt Keating, Investor Relations for Curo. Please go ahead.

Thank you, and good morning, everyone. After the market closed yesterday, Curo released results for the fourth quarter and full year 2020, which are available on the investor section of our website at ir.curo.com. With me on today's call are Curo's Chief Executive Officer, Don Gayhart, President and Chief Operating Officer, Bill Baker, Chief Financial Officer, Roger Dean, and Chief Accounting Officer Dave Strano. This call is being webcast and will be archived on the investor section of our website. Before I turn the call over to Don, I'd like to note that today's discussions 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 in 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 are 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 did not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliation between these GAAP and non-GAAP measures are included in the tables found in yesterday's press release. With that, I would like to turn the call over to Don.

Thanks, Matt. Good morning, and thank you for joining us today. I hope this finds you all healthy and safe. Before we begin our fourth quarter update, I'd like to point out we've again prepared a supplemental investor presentation to highlight key trends through last week. We'll be referencing this presentation in our remarks, and you can find it on the events and presentation section of our IR website. After a year unlike any in our history, we exited 2020 encouraged by the resiliency we demonstrated and cautiously optimistic about our opportunities for 2021 and beyond. In the fourth quarter of 2020, we delivered quarterly sequential loan growth of 11.3% compared to 1.6% quarterly sequential growth in the fourth quarter of 2019. Our overall loan balance has finished the year 19.5% below prior year levels, 11.7% excluding California installment loans, loan balances in Canada increased 9.2% year-over-year and 13% sequentially. U.S. loan balances, while still well below 2019 levels, grew 9.2% sequentially in the fourth quarter, driven by our online lending platform. Despite COVID-19 impacts, the lowered loan demand and loan balances after the first quarter of 2020 Historically good credit performance and strict expense management allowed us to post solid quarterly earnings while significantly increasing cash and liquidity levels. In addition to being pleased with our business resiliency during a difficult year, we're excited by the tremendous value realization of our investment in Catapult and by our addition of point of sale, buy now, pay later, and credit card capabilities in Canada with the acquisition of Flexity. Starting with Catapult, As we announced in December, Catapult reached an agreement to merge with FinServ in December. FinServ is a special purpose acquisition company, or SPAC, and the merger was the first step in a process that resulted in Catapult becoming a publicly traded company in the first half of 2021. At closing, subject to SPAC-related redemptions, we expect to receive about $130 million in cash and approximately 21% or 20.4 million shares of the public entity. In addition, based upon the trading price of the public shares, we could receive up to 3 million additional common shares. At FinServ's recent trading price, all of these earned out shares would vest and increase the total value of our investment to approximately $520 million. We're obviously proud of Catapult's accomplishments and we're extremely happy with return on our $27.5 million cash investment in this business. We're also pleased to have the opportunity to retain a meaningful ownership stake in Catapult and representation on the company's board of directors. We believe that this investment allows Curo and its stakeholders to participate in the rapidly growing e-commerce point of sale finance space. Back at Curo, and as we've noted previously, the impacts of COVID-19 reduced demand, but provided us with ample liquidity for future growth and investments. Along these lines, we were very excited to announce earlier this week that we reached an agreement to acquire Flexity. As we publicly discussed on Monday, Flexity is an emerging growth point of sale, buy now, pay later provider in Canada, integrated with over 2,000 merchant partners and available at nearly 6,000 merchant locations and e-commerce sites. Flexity's originations have grown from $49 million in 2017 to an estimated $292 million in in 2020. Moreover, simply annualizing fourth quarter 2020 origination suggests an annual origination run rate close to $475 million. The Flexi acquisition affords us access to the full spectrum of Canadian consumers across credit tiers. Flexi has been recognized for its product innovation and rapid growth, and we're happy to add the company's creative and talented management team to the Curo family. As we said in the context of our own business in Canada, the Canadian market is a large, growing, addressable market. There's limited competition at scale in Canada, and we now have omnichannel capabilities to reach customers in all of the ways in which they access credit. This acquisition increases Curo's long-term growth profile and provides further product and geographical diversification while reducing regulatory challenges. It also clearly aligns with our expressed interest in growing in Canada and cards, areas where we expect to remain active moving forward. Moving to the final quarter of 2020, our results were impacted by three things. First, the previously mentioned increase in loan demand compared to the prior quarter. Secondly, reduced quarantine and stay-at-home orders. And finally, continued historically low delinquencies and net charge-off rates. Canada remained a bright spot, posting another quarter of sequential loan revenue and bottom-line growth. Canada's $22.2 million of adjusted EBITDA for the quarter is the single highest quarterly earnings we have reported from that business segment. We believe that our strong results in Canada reflect two principal factors. First, our strong market position and market-leading omni-channel product offerings. And second, the more pronounced economic rebound in Canada through the year end. However, like many places, there has been a COVID resurgence in Canada and more specifically Ontario since year end, which has led to restrictions on business and personal activity, with the impact on the first half of 2021 yet to be determined. Getting into the details a bit more, on a consolidated basis, we experienced steady weekly increases in loan applications and new loan volume overall as we moved through the fourth quarter. While these trends were still well below the same periods a year ago, they have, for now, turned positive. Our total managed loan balances increased 11.3% from the third quarter of 2020, with growth of 9.2% in the U.S. and 13% in Canada. While managed loan balances were still down 19.5% year-over-year due to the impacts of COVID, the 11.3% sequential increase in this year's fourth quarter was better than the 1.6% sequential growth in last year's fourth quarter. Further, the year-over-year decline was 11.7% without the impact of the runoff of our California installment portfolios due to regulatory changes there. An unprecedented improvement in credit quality partially offset the impact of lower loan volume and loan demand on revenue. Total delinquencies were down more than 25% year-over-year for most of the fourth quarter, and through the week ended January 29th, total delinquencies were still down 27% compared to the same period a year ago. Putting together the pieces from a P&L perspective for the fourth quarter, we posted a revenue decline of 33.2% year-over-year, primarily due to COVID-19's impact on loan demand, as well as the impact of California regulatory change that went into effect at the start of 2020. Adjusted EBITDA declined $33.2 million, or 49.2%, while net revenue declined $39.8 million year over year. The net revenue decline was partially reduced by lower advertising costs as demand has returned slowly. While we did keep some of the cost reduction efforts in place in the fourth quarter as previously described, we incurred some additional variable compensation and strategic consulting expenses with an eye toward 2021 and forward. As a result, adjusted EPS declined 20 cents per share for the fourth quarter. 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. Our delinquencies and net charges in the U.S. and Canada stayed low despite much of the government stimulus burning off. The behavior of our customers through this period also demonstrates the value of our omnichannel platform and the investments we have made to allow for a seamless transition from our store to digital channels. In the U.S., 68% of transactions occurred online during the fourth quarter of 2020, compared to 57% in the first quarter of 2020. In Canada, where online adoption has lagged the U.S., We saw a similar mixed shift towards online with 35% of transactions conducted online during the fourth quarter of 2020 compared to 23% in the first quarter of the year. As we look ahead to the rest of 2021, while COVID vaccine distribution progress seems very promising, the timing of the reopening of the US and Canadian economies remains uncertain. In some respects, it feels like the end of the pandemic has been a couple of months away from the past six months. In addition, in the U.S., there is significant uncertainty surrounding the timing and magnitude of additional stimulus and the impact of this year's delayed tax season. Therefore, for now, we plan to continue our recent practice of providing business updates as we move through the quarter. We remain prepared for a wide range of outcomes and are continuing to focus on supporting our customers and communities through this unprecedented time. While we exited 2020 with an upward trajectory for earning asset growth, To the extent that the US Congress passes additional stimulus measures, as is widely anticipated, our US loan balances could again contract in the first half of 2021, putting continued pressure on revenue and earnings levels for our US business. However, this will also support our continued strong credit performance, as well as our cash balances and liquidity. To close, While there are certainly some ongoing headwinds from COVID and potential changes on the regulatory front that may impact portions of our business, I'm optimistic about the work that we've done to continue to move the company forward. We continue to invest in our internal technology and risk and analytics platforms. The strength 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 of our geographies. We've grown our Canadian operations, which accounted for approximately 65% of our consolidated quarterly adjusted EBITDA and 55.2% of our gross combined loan balances at the end of the fourth quarter. And pro forma for the Flexity acquisition, this percentage increases to approximately 66% of our loan balances. We've also grown and enhanced our card offerings. We've also started to realize significant value from our investment in Catapult, and its market-leading e-commerce lease-to-own solution. And finally, we continue to evaluate the number of opportunities for both new organic initiatives and strategic acquisitions that could offer further growth and diversification of our business lines. I'd like to close by thanking our 3,900 team members who, despite the challenges created by the pandemic, continue to meet our customers' everyday needs for financial services and execute on our strategic priorities all while helping customers navigate financial hardship and other challenges. We believe that 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 emerge even stronger and more nimble than before. And finally, this week we announced a number of promotions, and one that I'm particularly happy about is that my partner, Bill Baker, has been promoted to president and chief operating officer. Many of you on this call have gotten to know Bill, and I think this promotion is incredibly well deserved. Bill is enormously talented and tech savvy, and he's spearheading some of our most important new product and process initiatives while continuing to oversee our branch and contact center operations. He's been at Curo for over 15 years, and really, most importantly, he really embodies the kind of servant leader that we want to attract, retain, and promote as we continue to grow Curo. With that, I will turn it over to Roger.