CURO Group Holdings Corp.

Good day and welcome to the Curo Group Holdings first quarter 2023 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 your telephone keypad. And 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 Mr. Ron Aries, Curo's Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Curo released its first quarter 2023 results before the market opened today, which along with supplemental information 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, Doug Clark, and Chief Financial Officer, AZ Dawood. Today's discussion will contain forward-looking statements based on the business environment as we currently see it. As such, it includes certain important risks and uncertainties. Please refer to our press release issued this morning in our Form 10-Q and Form 10-K for more information on the specific risk factors that could cause our actual results to differ materially from the matters described in today's discussion. Any forward-looking statements made 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 present in the supplemental materials 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 appendix to the supplemental materials. With that, I would like to turn the call over to Doug.

Thanks, Juan. Good morning, everyone, and thank you for joining us today on our first quarter earnings call. During the first quarter, we remained laser focused on executing our business plan consistent with our stated roadmap. We successfully executed on key capital priorities that we laid out on our prior earnings call. Consistent with our previous discussions, we continue to progress in our efforts to find a strategic option for Flexity, and hope to have an update in the not too distant future. We also navigated current macro headwinds and delivered favorable results relative to our guidance expectations. Lastly, during Q1, we completed our leadership transformation and have an extremely talented and energized team to execute our strategy. On slide four, you can see details of how we strengthen our liquidity position and funding capacity. We are very pleased that amidst a challenging liquidity environment, We entered into new debt arrangements for over $230 million of gross capital following quarter end. Of this amount, $150 million was in the form of commitments for our first lien senior secured term loan and Canadian $110 million or approximately USD $83 million in commitments for a Canadian SBV facility. The transaction is expected to close shortly. We are confident in our business model and believe this funding provides growth capital which is a key step to executing our plan to profitability over the long term. It also demonstrates continued access to capital markets and strong support from all our lending partners, all of whom identified the strong underlying opportunity in our business. We now have the runway to drive responsible balance sheet growth and capitalize on the opportunity to further strengthen our position as a leading consumer lender in both the US and Canada. As noted with the Canadian SPV facility, We expanded borrowing capacity, which provides opportunity for us to drive growth and further expand our Canadian business. We continue to see a significant opportunity in Canada, even with anticipated regulatory changes, and believe our Canadian direct lending business is an attractive point of differentiation for Curo relative to our U.S. peers. Turning to slide five of the deck, we entered the first quarter with nearly $2.1 billion in total gross loan receivable balances, relatively flat on a sequential quarter basis. Consistent with our responsible growth approach, we had already tightened our underwriting standards and were significantly more cautious on lending given the increasingly uncertain macro environment. We also pulled back on marketing in Q1 as we were engaged in assistance conversion in our U.S. branches while moving to a single robust technology platform. During this transition, we suspended certain marketing activities to allow branches appropriate time to focus on the conversion. We anticipate completing the system's conversion by mid-2023. The conversion of the branches to a single loan management system should benefit our longer-term growth while enhancing our cost efficiency as it allows us to optimize loan origination, servicing, and performance monitoring. Our efforts in 2023 will be focused on maturing Curo's direct lending capabilities including scalable omnichannel acquisition, credit and automated underwriting, and centralized servicing and collections. We will also remain focused on driving growth through selected branch expansion, new secured product offerings, and the application of improved credit and fraud tools to expand product availability for new, current, and even former customers. We will continue our gradual mix shift to more secured versus unsecured lending by leveraging our current product suite while also introducing new auto-secured products later this year for our US and Canadian direct lending branches. Importantly, we will always prioritize resilient credit quality over balance sheet growth, particularly through an uncertain macro environment. While our portfolio is almost evenly split between Canada and the US, specific macroeconomic factors that impact our US customers do not necessarily impact our canadian customers to the same degree and vice versa currently we are not seeing unexpected trends relative to our our typical customer base particularly as the employment picture remains generally supportive in both the us and canada however we acknowledge that macro headwinds including inflation and a general decline in personal savings rates impacts consumers which could ultimately lead to industry-wide lower demand for lending products and an uptick in credit quality stress. Turning to slide six, we are pleased that credit quality continues to show signs of stability. Total direct lending net charge-offs declined sequentially to 47 million, primarily driven by the changes to the charge-off policy in our direct lending business in Canada, which we discussed on our last earnings call. On the right side of the page, you can see our direct lending charge-offs by geography, U.S. charge-offs increased at a slower pace in Q123 on a sequential basis than they did the prior quarter. In Canada, charge-offs declined sequentially due to a change in charge-off policy from 91 to 180 days. Even if the change in net charge-off policy had not been implemented, credit trends would still be encouraging, as total direct lending charge-offs would have been flat sequentially, and charge-offs in Canada would have been slightly down sequentially. Moving to slide seven, you can see that delinquency trends, a leading indicator of future net charge-offs, are also encouraging. Total direct lending 31-plus delinquency stabilized during Q1, remaining relatively flat at 100 million versus 96 million in Q4-22 and 100 million in Q3-22. In Canada, delinquencies increased primarily due to the change in our charge-off policy. which rolls charge-offs back to the delinquency status and gives us an opportunity to work with the customer. Excluding this policy change, total direct lending delinquencies would have declined sequentially to $81 million in Q1 23, and delinquencies in Canada would have been up modestly versus the prior quarter. In the U.S., 31-plus delinquencies declined sequentially for the second quarter in a row. Turning to slide 8, you can see that Canadian point-of-sale charge-offs and delinquencies increased due to overall growth and maturity of the portfolio. While we are not immune to continued industry-wide credit normalization, we believe the changes we made to our servicing and collection process in direct lending across our U.S. and Canada regions should drive improved recoveries and lower charge-offs over time. Specifically, in the U.S., we began tightening credit underwriting in 2022, deployed new debt mitigations tools in Q4 22, and established a centralized collections team in Q1 23. Moreover, as noted earlier, we anticipate continuing to remix the portfolio gradually towards more secured lending later in 2023, which should result in lower NCOs going forward. In Canada, we also tightened credit underwriting in 2022, changed our servicing platform to replicate traditional consumer lending platforms, deployed new debt mitigation tools replicating capabilities in the U.S., and updated our charge-off policy as discussed earlier. In Canada, we also anticipate deployment of new credit and fraud capabilities later in 2023. On slide 16, we are providing you with a growth strategy framework, including ranges for KPIs that align with the three pillars that we laid out for you last quarter. Izzy will provide you with more detail in his section, but I want to highlight a few takeaways from this framework that we believe puts us on a path to profitability. First, we believe the framework provides a good sense of the strong underlying opportunity embedded in our business as well as an understanding of our strategic vision for driving profitable long-term growth. Second, we remain very confident with our business model and the opportunity to grow receivables and revenue. Third, we continue to see an opportunity for operating efficiency improvement through strong cost management. And fourth, we are encouraged by the early signs of credit stability at Curo given the actions we took. Let me end by providing a little bit more context regarding the recently proposed Canadian rate cap, which includes proposed legislation to reduce the maximum allowable rate of interest. We continue to closely monitor developments and remain focused on managing our business to serve our customers while maintaining an appropriate level of risk-adjusted returns. However, it is important to note that the proposal could ultimately exclude a substantial portion of hardworking Canadian borrowers from access to credit. Our current understanding, based on how the 2023 draft budget is currently written, is that the rate cap would impact new originations consistent with our experiences in the U.S. with similar legislative change. Currently, over 90% of our line of credit portfolio falls above the new rate. Correspondingly, post implementation, we will tighten our credit box sufficiently to manage overall risk-adjusted returns. We would also anticipate increasing utilization of our single pay product following the credit tightening. Lastly, we will also be introducing a secure product later this year and will main focus on our loan servicing and cost efficiency efforts. I will now turn it over to Izzy to give you more details on our Q1 results, and then I'll close with some final thoughts.