CURO Group Holdings Corp.

Good day, ladies and gentlemen, and welcome to the KERO Q2 2021 conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Matt Keating, Investor Relations for KERO. Sir, the floor is yours.

Thank you. And good morning, everyone. After the market closed yesterday, Curo released results for the second quarter 2021, 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, and Chief Financial Officer, Roger Dean. 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 discussion 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 do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations between these GAAP and non-GAAP measures are included in the tables found in yesterday's press release. Before we begin our second quarter update, I'd like to remind you that we have again provided a supplemental investor presentation, which highlights key trends through last week. Don and Roger will reference this presentation in their remarks, and you can find it on the events and presentation section of our IR website. With that, I would like to turn the call over to Don.

Thanks, Matt. Good morning, and thank you for joining us today. The second quarter was a busy one for us, and we made significant progress in several key areas of our business, all with the aim of continuing to grow and evolve our company to drive earnings growth and value creation. We solidified significant growth visibility for our Canadian point-of-sale business with Flexity Signing of LFL Group, Canada's largest home furnishings retailer, to a 10-year exclusive contract that in the future will add over $800 million Canadian in annualized origination volume and earning assets. This accelerates Flexity's timeline for achieving profitability at scale. Secondly, we took action to improve profit margins in our U.S. business by consolidating stores in a number of markets. Third, we began monetizing our tremendously successful investment in Catapult, receiving $146.9 million in cash and 20.7% ownership in the new publicly traded company when the D-SPAC merger closed on June 9th. And finally, we improved our capital structure with the senior notes refinancing that extends maturity to 2028, lowers the coupon by 75 basis points, and provides important flexibility for supporting the significant earning asset growth that I mentioned in Canada. Similar to the last several quarters, our Canadian operations were the growth engine. Our Canada direct lending and Canada point of sale segments posted strong sequential loan growth of 5.1%, and 9.9% respectively. Canada direct lending adjusted EBTA was up 81.4% year over year on 48% net revenue growth. Flexity's loan originations were up over 117% compared to the same quarter a year ago. In the US, we returned to posting sequential loan growth and are bullish on our second half loan volumes. We also made a difficult decision to close 49 U.S. stores during the second and third quarters to manage local store market density and to respond to our customers' evolving usage patterns. The closed stores represent 25% of our U.S. store footprint, but they generated only 8% of our U.S. store revenue in 2020 and were the stores most impacted by COVID-19. So this was mainly a consolidation of underperforming stores, not a departure from our belief in the advantages of an omnichannel model. Our customers can transition seamlessly online to an adjacent store or to contact centers, so this consolidation reduces our annual operating costs by approximately $20 million, while maximizing our likelihood of retaining a large percentage of customers from the impacted stores. Our consolidated revenue for the second quarter was $187.7 million, an increase of 2.8% from the same quarter last year. we reported adjusted EBITDA of $50.3 million and adjusted EPS of 40 cents per share, compared to last year's adjusted EBITDA of $51.1 million and adjusted EPS of 53 cents. In both instances, extremely strong credit performance resulted in much lower net charge-off rates and lower provision for loan losses. Canada direct lending loan balances grew 40.7% year-over-year. The sequential loan growth of $17.6 million, or 5.1%, was particularly impressive since Canada reimposed lockdown measures for much of the second quarter due to a resurgence in COVID cases. Most of these COVID restrictions were put in place in the second week of April and also had a modest impact on Flexity's merchant base, where brick-and-mortar sales make up about 75% of total value. We'll have more on Flexity in a minute. Fortunately, with fewer COVID cases and more widespread vaccinations, Canada is reopening. Canada Direct Lending's $29.1 million of adjusted EBITDA for the second quarter represented the single highest quarterly earnings we have reported for that business and was up more than 80% over the $16 million recorded for the second quarter of 2020. With the growth in loan balances, revenue grew 36.9% year over year. Net charge-offs for Canada Direct Lending declined by $0.6 million or 4.9% year-over-year. Improvements in net charge-off rates and delinquencies resulted in provision for loan losses of $8.6 million compared to $9.2 million in the second quarter of last year and resulting net revenue was $17.3 million or 48% higher than the second quarter a year ago. Turning to our Canada POS segment, Since our acquisition of Flexity closed on March the 10th, the second quarter was our first full quarter of results. Flexity contributed $7 million in revenue and adjusted EBDA of $2.5 million during the second quarter. Flexity's originations increased 117.8% compared to the prior year quarter, driven primarily by the continued addition of new merchant partners. We're obviously excited about Flexity's expanded relationship with LFL, which operates more and 300 retail stores under multiple banners, including the Leon's and the Brick. Flexi has begun originating new accounts with the Brick, and we expect the Leon's locations to come online in September. With the addition of the LFL volume, we forecast Flexi's origination volume increasing from $292 million Canadian in 2020 to a projected $1.9 billion Canadian in 2023. including $221.5 million of loan balances in our Canadian POS lending segment from our Flexity acquisition. Overall loan balances in Canada finished the quarter 64.4% above the prior year level. You'll also notice from the investor supplement that the percentage of transactions conducted online in Canada continues to be well above historical averages, likely partially influenced by the re-imposition of COVID restrictions. While we can't predict the long-term behaviors of the Canadian consumer, this demonstrates the value of our full-spectrum omnichannel platforms. Our U.S. loan balance has declined 4.4% compared to the prior year, but increased 2.5% sequentially. Excluding the Verge credit portfolio, where we are no longer originating loans, U.S. loan balance has increased by a very healthy 7.2% sequentially. The year-over-year decline in U.S. loan balances was anticipated due to the U.S. federal government stimulus payments our customers received during the last two weeks of March of this year, along with the delayed tax refund that impacted the same period. The stimulus meaningfully increased prepayments and reduced demand for new loans. With that said, we are seeing originations improve as the impact of fiscal stimulus wanes and the economic recovery progresses. We received a number of questions on the potential future impact of the new U.S. tax credit for families with children. It's early to tell, but because half is received in cash and half is a credit against 2021 taxes, given the relative amounts, we don't believe it will have a similar impact in terms of depressing demand as the previous larger direct stimulus payments. Look at the information presented on page six of our investor supplement. On the second round of significant U.S. government stimulus, that started hitting consumers' checking accounts in March of this year resulted in higher prepayment rates for current loans, strong recoveries on past due loans, and low demand for new loans. Gross combined loans receivable, including CSO loans, declined 4.4% or $10.2 million year over year. This resulted in an $18.5 million or 13.5% decline in revenue in the second quarter of 2021 compared to the second quarter of last year. U.S. net charge-offs in the quarter were only $37.9 million, a decline of $27.8 million or 42.3% from the second quarter of last year. The starkly strong credit trends limited the U.S. net revenue decline to $10.6 million or 11.1% year-over-year in the second quarter. It's difficult to forecast when the ongoing economic recovery is likely to lead to a normalization in loan demand from our customers, but we remain confident in our ability to grow our U.S. business as we emerge from this pandemic in the second half of 2021. I'm very happy with the work that we've done to continue moving the company forward. Through both organic growth and the Flexity acquisition, we've grown our Canadian operations, which accounted for 76% of our company-owned gross loans receivable at the end of the second quarter. We've done the work and made the tough decisions to rationalize our U.S. store basics. We continue to invest in new products such as credit cards and near-prime loans. We continue to invest in our internal technology and risk and analytics platform. The strength of these platforms has helped us to quickly migrate customers to our online channel and continually refine our credit decisioning, creating new product opportunities in all geographies. We've also continued to strengthen our management team, and I'm pleased to announce that Dan Kirsch joined us this week as our new EVP and Chief Technology Officer. Dan has a great background leading software engineering, digital marketing, and consumer lending organizations, and we're excited to have him on board to help us push forward, particularly on the new product front. And finally, as always, I'd like to close by thanking our 3,700 team members who continue to meet our customers' financial services needs and to help us execute on all of our strategic priorities. I'll now turn it over to Roger.