CURO Group Holdings Corp.

Good day and welcome to the Kuro Holdings fourth 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, Chief Accounting Officer. Please go ahead.

Thank you, and good morning, everyone. Before the market opened today, Curo released its results for the fourth 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, Doug Clark, and Chief Financial Officer, Izzy Doblin. Before I turn the call over to Doug, 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 morning 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 asked 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. Reconciliation 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 Doug.

Thanks, Tamara. Good morning, everyone, and thank you for joining Izzy and I today for our first earnings call here at Curo. December wrapped up a transformational year for Curo. While the first three quarters of the year were largely focused on the logistical aspects of the acquisitions and divestiture, in the fourth quarter, we were able to focus on the operational execution of our new businesses and begin to put into motion our playbook to generate long-term, sustainable returns for our investors. While I'll leave it to Izzy to run through the Q4 results, let me start by laying out the framework for how we will be managing the business in 2023 and beyond. In December, we streamlined our organizational structure and created clear alignment and accountability. We will responsibly grow our loan portfolio, but we are taking a disciplined approach focused on resilient credit and will not chase volume for volume's sake. Turning to slide four of the deck, we ended the year with gross loan receivable balances of close to $2.1 billion. This represents a 10% increase and 35% increase of where we ended the third quarter 2022 and December 2021, respectively. The fourth quarter growth was largely driven by our Flexity business coming out of a strong holiday shopping season in Canada. We saw more modest growth in our direct lending businesses as the steps we have taken to tighten underwriting continue to take hold. Beginning in the first half of 2022, we began tightening credit particularly in our lower credit tiers and increased pricing on certain products. We did this in reaction both to the growing uncertainty in the macroeconomic environment and rising interest rates. And remember, with our U.S. consumer base, especially in the lower credit segments, they acutely feel the impacts of inflation. Unemployment rates for our customers remain at historically low levels. And while they have notionally benefited from the rise in minimum wages, the macroeconomic impact of inflation on this borrowing base lowers net monthly incomes, therefore creating smaller net disposable income margins. In addition, the excess savings our borrowers were able to build during the pandemic due to the various government stimulus programs has evaporated, and they have since returned to the levels we had seen prior to the pandemic. On the loan collection and servicing front, we have moved later stage servicing out of the branches and created a centralized team with expertise to help these borrowers. We have also rolled out additional loss mitigation tools to help get our customers back on track and minimize our losses. Turning to slide five, we expect NCOs to peak by the end of Q1 as the tightening we did across the portfolios, coupled with the improvement in servicing that I just mentioned, takes hold. While it's still early, we are encouraged by the early-stage delinquency improvements we are seeing across all of our businesses. And if you look at the top of slide six, you can see the improvements in delinquencies across our portfolio segments. In fact, our high-large loan portfolios, our current 31-plus delinquencies, are showing a 15% to 20% improvement over Q3. On the small loan side, our 31-plus delinquencies are relatively flat. Of our large loan balances as of the end of December, over 50% were originated in the second half of 2022 post credit tightening. On the first heritage portfolio, recent credit performance is encouraging as early stage delinquencies are starting to come down from where they were in the middle of the fourth quarter. And we expect to see further improvement in 2023 as the loan collection and servicing capabilities are centralized with Heights. In the direct lending business in Canada, We also experienced a decline in Q4 delinquencies. Similar to our U.S. direct lending business, we identified a variety of opportunities to help mitigate delinquencies and charge-offs. In Q4, we rolled out additional tools for our consumers, including partial payment options and making it easier for them to make payments using debit cards. Beginning in January, we changed our charge-off policy to 180 days to align with the rest of our charge-off policies across the company. The charge-off policy change in Q1 2023 will result in a one-time lower charge-off for the first quarter, as only loans will be charged off for legal reasons such as bankruptcy or fraud. However, charge-offs will revert to a more normalized rate beginning in the second quarter. We are excited about these changes that are being made to the way we service our Canadian direct lending customers and believe that this will have a meaningful benefit to delinquency and net charge-off rates in later 2023 and into 2024. I'll now turn it over to Izzy to run through our Q4 results, and then I'll close with some thoughts about our business and where we will be focusing our efforts in 2023.