CURO Group Holdings Corp.

Good day and welcome to the Curo Holdings first quarter 2022 conference call. All participants will be in a listen-only mode. Should 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, you may press star then one on a touch-tone phone. 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 Tamara Schultz, Curo's Chief Accounting Officer. Please go ahead.

Thank you, and good afternoon, everyone. After the market closed today, Curo released its results for the first quarter 2022, which are available on the Investors section of our website at ir.curo.com. With me on today's call are Curo's Chief Executive Officer, Don Gayhart, and Chief Financial Officer, Roger Deen. 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 this afternoon and 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 or revise 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 today's press release. Before we begin, I'd like to remind you that we have provided a supplemental investor presentation that we will reference in our remarks, and that you can find it in the events and presentation section of our IR website. With that, I would like to turn the call over to Don.

Thanks, Tamara. Good afternoon, everyone, and thank you for joining us today. I'll start with something we haven't been able to say since the fourth quarter of 2019. This quarter seemed more normal and points to the tremendous long-term growth and value creation opportunities from our strategic repositioning of Curo. Our loan book more than doubled versus the same quarter a year ago, partly because of the acquired heights in the fourth quarter of last year, which added approximately $470 million of loans. But unpacking the year-over-year loan growth at the business level, Flexity was up 169%. Canada direct lending was up 30%. Legacy direct lending, excluding the runoff portfolios, was up 34%. And consolidated loan balances were up a very healthy 5.2% sequentially, with Canada growing and the U.S. impacted by the Q1 tax refund season. Tax season came in mostly in line with our internal forecast, as we expected slightly smaller refunds than in years past due to the taxability of certain pandemic-related benefits. Smaller refunds reduced our collection rates modestly, but of course led to a smaller reduction in loan balances than in years past. I should also note that Heights customers who have higher income and credit scores are much less likely to receive tax refunds, in particular, larger earned income tax credits. As a reminder, tax refund season is not a phenomenon that we or our customers see in Canada. Of course, with this growth comes upfront and normal loan loss provisioning. We point out in our release and at the top chart of page four of our investor presentation that normal loss provisioning this quarter compared to government stimulus impacted provisioning in the first quarter of 2021 produced a $28.7 million pre-tax earnings squaring year over year. And we have included additional charge-offs and provision detail for each of our business units. Roger will cover the numbers in more detail later. You'll see on slide eight of our investor presentation that we revised our 2022 and 23 outlook for our Canadian businesses. It's important to note that the revised outlook reflects updated high-level thinking on the macro environment and recent trends, mostly a more cautious view of revenue growth and net charge-off levels. Expanding on this a bit, both the U.S. and Canadian economies are performing fairly well right now with job and income growth. However, both central banks are increasing base rates at meaningful close in an effort to tamp down inflation and engineer a soft landing. We expect rising inflation and interest rates will impact our consumer spending and borrowing habits, but to what degree remains unknown as we are facing a set of converging factors. Typically, when we see rising inflation coupled with positive employment trends, this is a sweet spot for our business where we see good demand along with good credit performance. The unknown factor facing this scenario is that the U.S. and Canadian economies dip into recessions, and we start to see job growth slow. Many forecasters have increased the probability of recession in late 22 or 23, so this has caused us to tamper with some of our top-line and credit performance expectations. Also, rates are rising, and it's far too early to tell where the Fed and the Bank of Canada end up on their benchmark rates. Using the current forward rate curves, which has steepened meaningfully in the past month, we would see an impact of approximately $8 million in 2022 and $15 million in 2023. Put another way, each 25 basis point increase in the benchmark rates result in about $2.5 million of additional annual interest expense using current debt balances. A reminder here of our current debt balance, approximately 50% consists of fixed rate senior notes and the rest in variable rate asset-backed facilities in the U.S. and Canada. With respect to our Flexity business, we're very pleased with the work being done by our whole team in Toronto to scale and support a business that is tripling its year-over-year rate of originations. But overall retail sales in Canada have seen some softening as well as a shift from larger ticket hard and white goods, which are Flexity's primary channels, to apparel and cosmetics, as well as a further shift to travel, dining, and other service-based expenditures. Finally, I should note that we share some of the optimism that's being expressed in some of the earnings reports about the overall help of consumer balance sheets and wage gains that is driving more loan demand. However, in our view, a bit more of a balanced approach is called for, and we tried to reflect that in a revised outlook. And I continue to remain confident in our outlook, given the strength of our businesses and consistent focus on discipline, long-term execution, and prudent credit management. I'll now turn the call over to Roger to review the details for our first quarter 2022 results.